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PROSPECTUS DATED FEBRUARY 2, 2000
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VARIABLE ESTATE PROTECTION II
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a flexible premium variable life survivorship insurance policy
issued by
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
("JHVLICO")
JHVLICO LIFE SERVICING OFFICE
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EXPRESS DELIVERY U.S. MAIL
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529 Main Street (X-4) P.O. Box 111
Charlestown, MA 02129 Boston, MA 02117
PHONE: 1-800-732-5543 / FAX: 1-617-886-3048
The policy provides an investment option with fixed rates of return declared
by JHVLICO and the following 23 variable investment options:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
VARIABLE INVESTMENT OPTION MANAGED BY
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<S> <C>
Managed.............................. Independence Investment Associates, Inc.
Growth & Income...................... Independence Investment Associates, Inc.
Equity Index......................... State Street Global Advisors
Large Cap Value...................... T. Rowe Price Associates, Inc.
Large Cap Growth..................... Independence Investment Associates, Inc.
Mid Cap Value........................ Neuberger Berman, LLC
Mid Cap Growth....................... Janus Capital Corporation
Real Estate Equity................... Independence Investment Associates, Inc.
Small/Mid Cap Growth................. Wellington Management Company, LLP
Small/Mid Cap CORE................... Goldman Sachs Asset Management
Small Cap Value...................... INVESCO Management & Research, Inc.
Small Cap Growth..................... John Hancock Advisers, Inc.
Global Equity........................ Scudder Kemper Investments, Inc.
International Balanced............... Brinson Partners, Inc.
International Equity Index........... Independence International Associates, Inc.
International Opportunities.......... Rowe Price-Fleming International, Inc.
Emerging Markets Equity.............. Morgan Stanley Dean Witter Investment Management Inc.
Short-Term Bond...................... Independence Investment Associates, Inc.
Bond Index........................... Mellon Bond Associates, LLP
Sovereign Bond....................... John Hancock Advisers, Inc.
Global Bond.......................... J.P. Morgan Investment Management, Inc.
High Yield Bond...................... Wellington Management Company, LLP
Money Market......................... John Hancock Life Insurance Company
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</TABLE>
We may add or delete variable investment options in the future.
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When you select one or more of these variable investment options, we invest
your money in the corresponding investment option(s) of the John Hancock
Variable Series Trust I (the "Trust"). The Trust is a mutual fund that offers a
number of different investment options (which are called "funds"). The
investment results of each variable investment option you select will depend on
those of the corresponding fund of the Trust. Attached to this prospectus is a
prospectus for the Trust that contains detailed information about each fund
offered under the policy. Be sure to read the prospectus for the Trust before
selecting any of the variable investment options shown on page 1.
GUIDE TO THIS PROSPECTUS
This prospectus contains information that you should know before you buy a
policy or exercise any of your rights under the policy. However, please keep in
mind that this is a prospectus -- it is not the policy. The prospectus
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simplifies many policy provisions to better communicate the policy's essential
features. Your rights and obligations under the policy will be determined by the
language of the policy itself. When you receive your policy, read it carefully.
This prospectus is arranged in the following way:
. The section which follows is called "Basic Information". It is in a
question and answer format. We suggest you read the Basic Information
section before reading any other section of the prospectus.
. Behind the Basic Information section are illustrations of
hypothetical policy benefits that help clarify how the policy works.
These start on page 21.
. Behind the illustrations is a section called "Additional Information"
that gives more details about the policy. It generally does not
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repeat information that is in the Basic Information section. A table
of contents for the Additional Information section appears on page
30.
. Behind the Additional Information section are the financial
statements for JHVLICO and Separate Account S. These start on page
44.
. Finally, there is an Alphabetical Index of Key Words and Phrases at
the back of the prospectus on page 111.
After the Alphabetical Index of Key Words and Phrases, this prospectus ends and
the Trust prospectus begins.
**********
Please note that the Securities and Exchange Commission ("SEC") has not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
2
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BASIC INFORMATION
This part of the prospectus provides answers to commonly asked questions about
the policy.
Here are the page numbers where the questions and answers appear:
Question Pages to See
- -------- ------------
.What is the policy? ................................................ 4
.Who owns the policy? ............................................... 4
.How can I invest money in the policy? .............................. 4-5
.Is there a minimum amount I must invest? ........................... 6-7
.How will the value of my investment in the policy change over time?.. 7-8
.What charges will JHVLICO deduct from my investment in the policy?... 8-10
.What charges will the Trust deduct from my investment in the policy?. 10-11
.What other charges could JHVLICO impose in the future? .............. 11
.How can I change my policy's investment allocations? ................ 11-12
.How can I access my investment in the policy? ...................... 12-13
.How much will JHVLICO pay when the last insured person dies? ........ 14-16
.What optional rider benefits can I choose? ......................... 16
.How can I change my policy's insurance coverage? .................... 16-17
.Can I cancel my policy after it's issued? .......................... 17
.Can I choose the form in which JHVLICO pays out policy proceeds?..... 17-18
.To what extent can JHVLICO vary the terms and conditions of
its policies in particular cases? ................................. 18
.How will my policy be treated for income tax purposes? .............. 19
.How do I communicate with JHVLICO? ................................. 19-20
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WHAT IS THE POLICY?
This is a so-called "survivorship" policy that provides coverage on two
insured persons. The policy's primary purpose is to provide lifetime protection
against economic loss due to the death of the last surviving insured person. The
value of the amount you have invested under the policy may increase or decrease
daily based upon the investment results of the variable investment options that
you choose. The amount we pay to the policy's beneficiary upon the death of the
last surviving insured person (we call this the "death benefit") may be
similarly affected.
While either of the insured persons is alive, you will have a number of
options under the policy. Here are some major ones:
. Determine when and how much you invest in the various investment
options
. Borrow or withdraw amounts you have in the investment options
. Change the beneficiary who will receive the death benefit
. Change the amount of insurance
. Turn in (i.e., "surrender") the policy for the full amount of its
surrender value
. Choose the form in which we will pay out the death benefit or other
proceeds
Most of these options are subject to limits that are explained later in this
prospectus.
WHO OWNS THE POLICY?
That's up to the person who applies for the policy. The owner of the policy is
the person who can exercise most of the rights under the policy, such as the
right to choose the investment options or the right to surrender the policy. In
many cases, the person buying the policy is also the person who will be the
owner. However, the application for a policy can name another person or entity
(such as a trust) as owner. Whenever we've used the term "you" in this
prospectus, we've assumed that the reader is the person who has whatever right
or privilege is being discussed. There may be tax consequences if the owner and
the insured person are different, so you should discuss this issue with your tax
adviser.
HOW CAN I INVEST MONEY IN THE POLICY?
Premium Payments
We call the investments you make in the policy "premiums" or "premium
payments". The amount we require as your first premium depends upon the
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specifics of your policy and the insured person. Except as noted below, you can
make any other premium payments you wish at any time. That's why the policy is
called a "flexible premium" policy.
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Minimum premium payment
Each premium payment must be at least $100.
Maximum premium payments
Federal tax law limits the amount of premium payments you can make relative to
the amount of your policy's insurance coverage. We will not knowingly accept any
amount by which a premium payment exceeds the maximum. If you exceed certain
other limits, the law may impose a penalty on amounts you take out of your
policy. We'll monitor your premium payments and let you know if you're about to
exceed this limit. More discussion of these tax law requirements begins on page
38. Also, we may refuse to accept any amount of an additional premium if:
. that amount of premium would increase our insurance risk exposure,
and
. the insured persons don't provide us with adequate evidence that they
continue to meet our requirements for issuing insurance.
In no event, however, will we refuse to accept any premium necessary to prevent
the policy or the guaranteed minimum death benefit feature from terminating. We
reserve the right to limit premium payments above the amount of cumulative
Guaranteed Minimum Death Benefit Premiums (whether or not the guaranteed minimum
death benefit feature described on page 6 is in effect).
Ways to pay premiums
If you pay premiums by check or money order, they must be drawn on a U.S. bank
in U.S. dollars and made payable to "John Hancock Variable Life Insurance
Company." Premiums after the first must be sent to the JHVLICO Life Servicing
Office at the appropriate address shown on page 1 of this prospectus.
We will also accept premiums:
. by wire or by exchange from another insurance company,
. via an electronic funds transfer program (any owner interested in
making monthly premium payments must use this method), or
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. if we agree to it, through a salary deduction plan with your
employer.
You can obtain information on these other methods of premium payment by
contacting your JHVLICO representative or by contacting the JHVLICO Life
Servicing Office.
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Is there a minimum amount I must invest?
Planned Premiums
The Policy Specifications page of your policy will show the "Planned Premium"
for the policy. You choose this amount in the policy application. The premium
reminder notice we send you is based on this amount. You will also choose how
often to pay premiums-- annually, semi-annually, quarterly or monthly. The date
on which such a payment is "due" is referred to in the policy as a "modal
processing date." However, payment of Planned Premiums is not necessarily
required. You need only invest enough to keep the policy in force (see "Lapse
and reinstatement" and "Guaranteed minimum death benefit feature" below).
Lapse and reinstatement
Either your entire policy or the Additional Sum Insured portion of your Total
Sum Insured can terminate (i.e., "lapse") for failure to pay charges due under
the policy. If the guaranteed minimum death benefit feature is in effect, only
the Additional Sum Insured, if any, can lapse. If the guaranteed minimum death
benefit feature is not in effect, the entire policy can lapse. In either case,
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if the policy's surrender value is not sufficient to pay the charges on a
monthly deduction date (as defined on page 33), we will notify you of how much
you will need to pay to keep any Additional Sum Insured or the policy in force.
You will have a 61 day "grace period" to make that payment. If you don't pay at
least the required amount by the end of the grace period, the Additional Sum
Insured or your policy will lapse. If your policy lapses, all coverage under the
policy will cease. Even if the policy or the Additional Sum Insured terminates
in this way, you can still reactivate (i.e., "reinstate") it within 2 years from
the beginning of the grace period. You will have to provide evidence that the
surviving insured persons still meet our requirements for issuing coverage. You
will also have to pay a minimum amount of premium and be subject to the other
terms and conditions applicable to reinstatements, as specified in the policy.
If the guaranteed minimum death benefit is not in effect and the last surviving
insured person dies during the grace period, we will deduct any unpaid monthly
charges from the death benefit. During such a grace period, you cannot make a
partial withdrawal or policy loan.
Guaranteed minimum death benefit feature
This feature is available only if the insured persons meet certain
underwriting requirements. The feature guarantees that your Basic Sum Insured
will not lapse, regardless of adverse investment performance, if both of the
following are true:
. any Additional Sum Insured under the policy is not scheduled to
exceed the Basic Sum Insured at any time (see "How much will JHVLICO
pay when the last insured person dies?" on page 14), and
. on each monthly deduction date the amount of cumulative premiums you
have paid accumulated at 4% (less all withdrawals from the policy
accumulated at 4%) equals or exceeds the sum of all Guaranteed
Minimum Death Benefit Premiums due to date accumulated at 4%.
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The Guaranteed Minimum Death Benefit Premium (or "GMDB Premium) is defined in
the policy and is "due" on each annual processing date. (An "annual processing
date" is the first business day of a policy year.) On the application for the
policy, you may elect for this feature to extend beyond the tenth policy year.
If you so elect, we will impose a special charge for this feature after the
tenth policy year. You may revoke the election at any time.
No GMDB Premium will ever be greater than the so-called "guideline premium"
for the policy as defined in Section 7702 of the Internal Revenue Code. Also,
the GMDB Premiums may change in the event of any change in the Additional Sum
Insured of the policy or any change in the death benefit option (see "How much
will JHVLICO pay when the last insured person dies?" on page 14).
If the guaranteed minimum death benefit test is not satisfied on any annual
processing date, we will notify you immediately and tell you how much you will
need to pay to keep the feature in effect. You will have 61 days after default
to make that payment. If you don't pay at least the required amount by the end
of that period, the feature will lapse. The feature may be reinstated in
accordance with the terms of the policy within 5 years after the annual
processing date on which default occurred. If it is reinstated more than 1 year
after such annual processing date, we will require evidence that the surviving
insured persons still meet our requirements for issuing coverage. We may refuse
to reinstate the feature more than once during the life of the policy.
The guaranteed minimum death benefit feature applies only to the Basic Sum
Insured. It does not apply to any amount of Additional Sum Insured (see "How
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much will JHVLICO pay when the last insured person dies?" on page 14).
The guaranteed minimum death benefit feature will cease to apply on the policy
anniversary nearest the 100th birthday of the younger insured person (whether or
not such insured person is then alive). Also, the feature cannot be reinstated
after that policy anniversary. However, the optional "Age 100 waiver of charges
rider", if elected at the time of application for the policy, will continue the
guaranteed minimum death benefit feature beyond that policy anniversary.
If there are monthly charges that remain unpaid because of this feature, we
will deduct such charges when there is sufficient surrender value to pay them.
HOW WILL THE VALUE OF MY INVESTMENT IN THE POLICY CHANGE OVER TIME?
From each premium payment you make, we deduct the charges described under
"Deductions from premium payments" below. We invest the rest in the investment
options you've elected. Special investment rules apply to premiums processed
prior to the 20th day after your policy becomes effective. (See "Commencement of
investment performance" on page 34.)
Over time, the amount you've invested in any variable investment option will
increase or decrease the same as if you had invested the same amount directly in
the corresponding fund of the Trust and had reinvested all fund dividends and
distributions in additional fund shares; except that we will deduct certain
additional charges which will reduce your account value. We describe these
charges under "What charges will JHVLICO deduct from my investment in the
policy?" below.
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The amount you've invested in the fixed investment option will earn interest
at a rate we declare from time to time. We guarantee that this rate will be at
least 4%. If you want to know what the current declared rate is, just call or
write to us. The current declared rate will also appear in the annual statement
we will send you. Amounts you invest in the fixed investment option will not be
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subject to the asset-based risk charge described on page 9. Otherwise, the
charges applicable to the fixed investment option are the same as those
applicable to the variable investment options.
At any time, the "account value" of your policy is equal to:
. the amount you invested,
. plus or minus the investment experience of the investment options
you've chosen,
. minus all charges we deduct, and
. minus all withdrawals you have made.
If you take a loan on the policy, however, your account value will be computed
somewhat differently. This is discussed on page 13.
WHAT CHARGES WILL JHVLICO DEDUCT FROM MY INVESTMENT IN THE POLICY?
Deductions from premium payments
. Premium tax charge - A charge to cover state premium taxes we currently
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expect to pay, on average. This charge is currently 2.35% of each premium.
. DAC tax charge - A charge to cover the increased Federal income tax burden
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that we currently expect will result from receipt of premiums. This charge
is currently 1.25% of each premium.
. Premium processing charge - A charge to help defray our administrative
- - -------------------------
costs. This charge is 1.25% of each premium. For policies with a Total Sum
Insured of $5 million or more, this charge will be reduced to as low as .50%
. Sales charge - A charge to help defray our sales costs. The charge for
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premiums paid in the first policy year is 30% of premiums paid up to the
Target Premium, and 3.5% of premiums paid in excess of the Target Premium.
The charge for premiums paid after the first policy year up to the Target
Premium is 15% in policy years 2 through 5, 10% in policy years 6 through
10, up to 4% (currently 3%) in policy years 11 through 20, and up to 3%
(currently 0%) thereafter. The charge for premiums paid after the first
policy year in excess of the Target Premium is 3.5% in policy years 2
through 10, 3% in policy years 11 through 20, and up to 3% (currently 0%)
thereafter. If the younger of the insured persons is age 71 or older when
the policy is issued, there will be no sales charges deducted from premiums
paid after the eleventh policy year. Because policies of this type were
first offered in 1993, the foregoing waiver and the lower current rates
after policy year 10 are not yet applicable to any policy. The "Target
Premium" is
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determined at the time the policy is issued and will appear in the "Policy
Specifications" section of the policy.
. Optional enhanced cash value rider charge - A charge to cover the cost of
-----------------------------------------
this rider, if elected, equal to 2% of premium paid in the first policy year
that does not exceed the Target Premium.
Deductions from account value
. Issue charge - A monthly charge to help defray our administrative costs.
- - ------------
This charge has two parts: (1) a flat dollar amount of $55.55 deducted only
during the first five policy years, and (2) a charge of 2c per $1,000 of
Total Sum Insured at issue that is deducted only during the first three
policy years. The second part of this monthly charge is guaranteed not to
exceed $200.
. Administrative charge - A monthly charge to help defray our administrative
---------------------
costs. This charge also has two parts: (1) a flat dollar charge of up to $10
(currently $7.50), and (2) a charge of 3c per $1,000 of Total Sum Insured at
issue (currently 1c per $1,000 of Total Sum Insured at issue). However, for
policies with a Total Sum Insured at issue of $5 million or more, the second
part of this charge is currently zero.
. Insurance charge - A monthly charge for the cost of insurance. To determine
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the charge, we multiply the amount of insurance for which we are at risk by
a cost of insurance rate. The rate is derived from an actuarial table. The
table in your policy will show the maximum cost of insurance rates. The cost
of insurance rates that we currently apply are generally less than the
maximum rates. We will review the cost of insurance rates at least every 5
years and may change them from time to time. However, those rates will never
be more than the maximum rates shown in the policy. The table of rates we
use will depend on the insurance risk characteristics and (usually) gender
of each of the insured persons, the Total Sum Insured and the length of time
the policy has been in effect. Regardless of the table used, cost of
insurance rates generally increase each year that you own your policy, as
each insured person's attained age increases. (An insured person's "attained
age" on any date is his or her age on the birthday nearest that date.) The
insurance charge is not affected by the death of the first insured person to
die.
. Extra mortality charge - A monthly charge specified in your policy for
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additional mortality risk if either of the insured persons is subject to
certain types of special insurance risk.
. Asset-based risk charge - A monthly charge for mortality and expense risks
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we assume. The charge is a percentage of that portion of your account value
allocated to variable investment options. The charge does not apply to the
fixed investment option. We guarantee that the percentage will never exceed
.0753% per month (.90% on an effective annual basis). The actual percentage
applied will vary depending upon the policy year in which the charge is made
and the Total Sum Insured at issue. For policy years 1 through 15, the
current monthly percentages are as follows: .0669% for a Total Sum Insured
at issue of less than $5 million, .0627% for a Total Sum Insured at issue of
at least $5 million but less than $15 million, and .0585% for a Total Sum
Insured at issue of $15 million or more. (These monthly percentages equate
to the following
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effective annual percentages: .80%, .75% and .70%, respectively.) For policy
year 16 and thereafter, the current monthly percentages are as follows:
.0250% for a Total Sum Insured at issue of less than $5 million, .0209% for
a Total Sum Insured at issue of at least $5 million but less than $15
million, and .0167% for a Total Sum Insured at issue of $15 million or more.
(These monthly percentages equate to the following effective annual
percentages: .30%, .25% and .20%, respectively.) The reduction after 15
years has not occurred yet under any policy, since no policy has yet been
outstanding for 15 years.
. Guaranteed minimum death benefit charge - A monthly charge beginning in the
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eleventh policy year if the guaranteed minimum death benefit feature is
elected to extend beyond the first ten policy years. This charge is
currently 1c per $1,000 of Basic Sum Insured and is guaranteed not to exceed
3c per $1,000 of Basic Sum Insured. Because policies of this type were first
offered in 1993, this charge is not yet applicable to any policy at the
current rate.
. Policy split option rider charge - A monthly charge if this rider is elected
--------------------------------
at the time of application for the policy. The charge is 3c per $1,000 of
current Total Sum Insured.
. Age 100 waiver of charges rider charge - A monthly charge if this rider is
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elected at the time of application for the policy. To determine the charge,
we multiply the amount of insurance for which we are at risk by a rate based
on age. The rate is derived from an actuarial table. The table in your
policy will show the maximum rates. The rates we will actually apply could
be less than the maximum rates. This charge will not be made until the sixth
policy year.
. Optional benefits charge - Monthly charges for certain other optional
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insurance benefits added to the policy by means of a rider. We currently
offer a number of such optional riders, such as the four year level term
rider.
. Partial withdrawal charge - A charge for each partial withdrawal of account
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value to compensate us for the administrative expenses of processing the
withdrawal. The charge is equal to the lesser of $20 or 2% of the withdrawal
amount.
What charges will the Trust deduct from my investment in the policy?
The Trust must pay investment management fees and other operating expenses.
These fees and expenses are different for each fund of the Trust and reduce the
investment return of each fund. Therefore, they also indirectly reduce the
return you will earn on any variable investment options you select. The figures
in the following chart are expressed as percentages of each fund's average daily
net assets for 1998 (rounded to two decimal places). The percentages reflect the
investment management fees that were payable for1998 and the 1998 other
operating expenses that would have been allocated to the funds under the
allocation rules currently in effect.
<TABLE>
<CAPTION>
Other Total Fund Other Operating
Investment Operating Operating Expenses
Fund Name Management Fee Expenses Expenses Absent Reimbursement*
- --------- -------------- --------- ----------- -----------------------
<S> <C> <C> <C> <C>
Managed ............................. 0.32% 0.05% 0.37% 0.05%
Growth & Income ..................... 0.25% 0.05% 0.30% 0.05%
Equity Index ........................ 0.14% 0.08% 0.22% 0.08%
Large Cap Value ..................... 0.74% 0.07% 0.81% 0.07%
</TABLE>
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<TABLE>
<CAPTION>
Other Total Fund Other Operating
Investment Operating Operating Expenses
Fund Name Management Fee Expenses Expenses Absent Reimbursement*
- --------- -------------- --------- ----------- -----------------------
<S> <C> <C> <C> <C>
Large Cap Growth .................... 0.37% 0.05% 0.42% 0.05%
Mid Cap Value ....................... 0.80% 0.05% 0.85% 0.05%
Mid Cap Growth ...................... 0.85% 0.08% 0.93% 0.08%
Real Estate Equity .................. 0.60% 0.05% 0.65% 0.05%
Small/Mid Cap Growth** .............. 0.75% 0.05% 0.80% 0.05%
Small/Mid Cap CORE .................. 0.80% 0.10% 0.90% 0.23%
Small Cap Value ..................... 0.80% 0.07% 0.87% 0.07%
Small Cap Growth .................... 0.75% 0.08% 0.83% 0.08%
Global Equity ....................... 0.90% 0.10% 1.00% 0.50%
International Balanced .............. 0.85% 0.10% 0.95% 0.64%
International Equity Index .......... 0.17% 0.10% 0.27% 0.23%
International Opportunities ......... 0.87% 0.10% 0.97% 0.32%
Emerging Markets Equity ............. 1.30% 0.10% 1.40% 0.68%
Short-Term Bond ..................... 0.30% 0.05% 0.35% 0.05%
Bond Index .......................... 0.15% 0.05% 0.20% 0.05%
Sovereign Bond ...................... 0.25% 0.05% 0.30% 0.05%
Global Bond** ....................... 0.69% 0.06% 0.75% 0.06%
High Yield Bond ..................... 0.65% 0.07% 0.72% 0.07%
Money Market ........................ 0.25% 0.05% 0.30% 0.05%
</TABLE>
* John Hancock Life Insurance Company reimburses a fund when the fund's other
operating expenses exceed 0.10% of the fund's average daily net assets.
** Small/Mid Cap Growth was formerly "Diversified Mid Cap Growth" and Global
Bond was formerly "Strategic Bond."
What other charges could JHVLICO impose in the future?
Except for the DAC tax charge, we currently make no charge for our Federal
income taxes. However, if we incur, or expect to incur, additional income taxes
attributable to any subaccount of the Account or this class of policies in
future years, we reserve the right to make a charge for such taxes. Any such
charge would reduce what you earn on any affected investment options. However,
we expect that no such charge will be necessary.
Under current laws, we may incur state and local taxes (in addition to premium
taxes) in several states. At present, these taxes are not significant. If there
is a material change in applicable state or local tax laws, we may make charges
for such taxes.
We also reserve the right to increase the premium tax charge and the DAC tax
charge in order to correspond, respectively, with changes in the state premium
tax levels and with changes in the Federal income tax treatment of the deferred
acquisition costs for this type of policy.
How can I change my policy's investment allocations?
Future premium payments
At any time, you may change the investment options in which future premium
payments will be invested. You make the original allocation in the application
for the policy. The percentages you select must be in whole numbers and must
total 100%.
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Transfers of existing account value
You may also transfer your existing account value from one investment option
to another. To do so, you must tell us how much to transfer, either as a whole
number percentage or as a specific dollar amount.
Under our current rules, you can make transfers out of any variable investment
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option anytime you wish. However, transfers out of the fixed investment option
-----
are currently subject to the following restrictions:
. You can only make such a transfer once in each policy year.
. The most you can transfer at any one time is the greater of $500 or 20% of
the assets in your fixed investment option.
We reserve the right to impose limits on:
. the minimum amount of each transfer out of the fixed investment option;
. the maximum amount of any transfer into the fixed investment option after
the second policy year; and
. the number and frequency of transfers out of the variable investment
options.
Dollar cost averaging
This is a program of automatic monthly transfers out of the Money Market
investment option into one or more of the other variable investment options. You
choose the investment options and the dollar amount and timing of the transfers.
The program is designed to reduce the risks that result from market
fluctuations. It does this by spreading out the allocation of your money to
investment options over a longer period of time. This allows you to reduce the
risk of investing most of your money at a time when market prices are high.
Obviously, the success of this strategy depends on market trends and is not
guaranteed.
How can I access my investment in the policy?
Full surrender
You may surrender your policy in full at any time. If you do, we will pay you
the account value less any policy loans. This is called your "surrender value."
You must return your policy when you request a full surrender.
Partial withdrawals
You may make a partial withdrawal of your surrender value at any time.
Generally, each partial withdrawal must be at least $1,000. There is a charge
(usually $20) for each partial withdrawal. We will automatically reduce the
account value of your policy by the amount of the withdrawal and the related
charge. Each investment option will be reduced in the same proportion as the
account value is then allocated among them. We will not permit a partial
withdrawal if it would cause your account value to fall below 3 months' worth of
monthly charges (see "Deductions from account value" on page 9). We also reserve
the right to refuse
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any partial withdrawal that would cause the policy's Total Sum Insured to fall
below $250,000 or the policy's Basic Sum Insured to fall below $250,000. Any
partial withdrawal (other than a Terminated ASI Withdrawal Amount, as described
below) will reduce your death benefit under any of the death benefit options
(see "How much will JHVLICO pay when the last insured person dies?" on page 14)
and under the guaranteed minimum death benefit feature (see page 6). Under
Option A, such a partial withdrawal will reduce the Total Sum Insured. Under
Option B, such a partial withdrawal will reduce your account value. Under the
guaranteed death benefit feature, such a partial withdrawal will reduce the
Basic Sum Insured. A "Terminated ASI Withdrawal Amount" is any partial
withdrawal made while there is an Additional Sum Insured under the policy that
later lapses as described on page 6. The total of all Terminated ASI Withdrawal
Amounts cannot exceed the Additional Sum Insured in effect immediately before
the Additional Sum Insured lapses.
Policy loans
You may borrow from your policy at any time after it has been in effect for 1
year by completing a form satisfactory to us or, if the telephone transaction
authorization form has been completed, by telephone. However, you can't borrow
from your policy during a "grace period" (see "Lapse and reinstatement" on page
6). The maximum amount you can borrow is 90% of your surrender value.
The minimum amount of each loan is $1,000. The interest charged on any loan is
an effective annual rate of 4.75% in the first 10 policy years, 4.50% in policy
years 11 through 20, and 4.25% thereafter. Accrued interest will be added to the
loan daily and will bear interest at the same rate as the original loan amount.
The amount of the loan is deducted from the investment options in the same
proportion as the account value is then allocated among them and is placed in a
special loan account. This special loan account will earn interest at an
effective annual rate of 4.0%. However, if we determine that a loan will be
treated as a taxable distribution because of the differential between the loan
interest rate and the rate being credited on the special loan account, we
reserve the right to decrease the rate credited on the special loan account to a
rate that would, in our reasonable judgement, result in the transaction being
treated as a loan under Federal tax law.
You can repay all or part of a loan at any time. Each repayment will be
allocated among the investment options as follows:
. The same proportionate part of the loan as was borrowed from the
fixed investment option will be repaid to the fixed investment
option.
. The remainder of the repayment will be allocated among the investment
options in the same way a new premium payment would be allocated.
If you want a payment to be used as a loan repayment, you must include
instructions to that effect. Otherwise, all payments will be assumed to be
premium payments.
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<PAGE>
How much will JHVLICO pay when the last insured person dies?
In your application for the policy, you will tell us how much life insurance
coverage you want on the life of the insured persons. This is called the "Total
Sum Insured." Total Sum Insured is composed of the Basic Sum Insured and any
Additional Sum Insured you elect. We reserve the right to impose underwriting
restrictions on the proportions of Additional Sum Insured and Basic Sum Insured
based upon the anticipated frequency of premium payments and other factors.
However, even in the absence of such underwriting restrictions, the Additional
Sum Insured generally cannot exceed 400% of the Basic Sum Insured. There are a
number of factors you should consider in determining whether to elect coverage
in the form of Basic Sum Insured or in the form of Additional Sum insured. These
factors are discussed under "Basic Sum Insured vs. Additional Sum Insured" on
page 33.
When the last of the two insured persons dies, we will pay the death benefit
minus any outstanding loans. There are two ways of calculating the death
benefit. You choose which one you want in the application. The two death benefit
options are:
. Option A - The death benefit will equal the greater of (1) the Total
Sum Insured plus any optional extra death benefit, if elected (as
described below), or (2) the minimum insurance amount (as described
below).
. Option B - The death benefit will equal the greater of (1) the Total
Sum Insured plus your policy's account value on the date of death of
the last surviving insured person, or (2) the minimum insurance
amount.
For the same premium payments, the death benefit under Option B will tend to
be higher than the death benefit under Option A. On the other hand, the monthly
insurance charge will be higher under Option B to compensate us for the
additional insurance risk. Because of that, the account value will tend to be
higher under Option A than under Option B for the same premium payments.
Optional extra death benefit feature
If you elect the Option A death benefit, you may also elect this optional
extra death benefit feature. (This feature is sometimes referred to as "Option
M".) The optional extra death benefit is determined on each annual processing
date as follows:
. First, we multiply your account value by a factor specified in the
policy. The factor is based on the age of the younger insured person.
. We will then subtract your Total Sum Insured.
Any excess is the optional extra death benefit for the remainder of that
policy year. This feature may result in the Option A death benefit being higher
than the minimum insurance amount. Although there is no special charge for this
feature, your monthly insurance charge will be based on that higher death
benefit amount. Election of this feature must be made in the application for the
policy. If you elect this feature, you must elect the "cash value accumulation
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<PAGE>
test" for purposes of determining the minimum insurance amount (see below). You
may revoke your election of this feature at any time, but there may be adverse
tax consequences if you do.
The minimum insurance amount
In order for a policy to qualify as life insurance under Federal tax law,
there has to be a minimum amount of insurance in relation to account value.
There are two tests that can be applied under Federal tax law - - the "guideline
premium and cash value corridor test" and the "cash value accumulation test."
When you elect the death benefit option, you must also elect which test you wish
to have applied. As indicated above, the guideline premium and cash value
corridor test is not available if the optional extra death benefit feature is
elected. Under the guideline premium and cash value corridor test, we compute
the minimum insurance amount each business day by multiplying the account value
on that date by the so-called "corridor factor" applicable on that date. The
corridor factors are derived by applying the guideline premium and cash value
corridor test. The corridor factor starts out at 2.50 for ages at or below 40
and decreases as attained age increases, reaching a low of 1.0 at age 95. A
table showing the factor for each policy year will appear in the policy. Under
the cash value accumulation test, we compute the minimum insurance amount each
business day by multiplying the account value on that date by the so-called
"death benefit factor" applicable on that date. The death benefit factors are
derived by applying the cash value accumulation test. The death benefit factor
decreases as attained age increases. A table showing the factor for each policy
year will appear in the policy. Regardless of which test is applied, the
appropriate factor will be referred to in the policy as the "Required Additional
Death Benefit Factor."
As noted above, you have to elect which test will be applied when you elect
the death benefit option. The cash value accumulation test may be preferable if
you want an increasing death benefit in later policy years and/or want to fund
the policy at the "7 pay" limit for the full 7 years (see "Tax Considerations"
beginning on page 38). The guideline premium and cash value corridor test may be
preferable if you want the account value under the policy to increase without
increasing the death benefit as quickly as might otherwise be required.
Policy split option
At the time of policy issue, you may elect a rider that will permit the Total
Sum Insured to be evenly split into two separate policies, one for each insured
person, but only if the insured persons get divorced or certain Federal tax law
changes occur. The rider may be cancelled at any time, but it will automatically
terminate on the date of death of the first insured person to die or on the
policy anniversary nearest the older insured person's 80th birthday, whichever
is earlier. A policy split could have adverse tax consequences, so check with
your tax adviser before electing this rider.
When the younger insured person reaches 100
If the policy is still in effect on the policy anniversary nearest the 100th
birthday of the younger of the two insured persons, certain things will happen
whether or not the younger insured person is actually alive on that policy
anniversary. What happens depends upon whether the age 100 waiver of charges
rider is in effect on that policy anniversary.
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<PAGE>
If you elected the rider at the time of application for the policy and the
rider is still in effect, the only thing that will happen is that we will stop
deducting any monthly charges (other than the asset-based risk charge) and will
stop accepting premium payments.
If you did not elect the rider at the time of application for the policy (or
if you did elect it and it is no longer in effect), then the following will
happen:
. We will stop deducting any monthly charges (other than the
asset-based risk charge) and will stop accepting any premium
payments.
. The death benefit will become equal to the account value on the date
of death. Death benefit Options A and B (as described above) and the
guaranteed minimum death benefit feature will all cease to apply.
WHAT OPTIONAL RIDER BENEFITS CAN I CHOOSE?
Optional enhanced cash value rider
If you surrender the policy at any time during the first 4 policy years and
this rider is then in effect, we will pay an Enhanced Cash Value Benefit. The
Benefit is paid in addition to the policy surrender value. The Benefit is equal
to a percentage of first year premiums paid up to the Target Premium. The
percentage will be specified in the policy. Also, if you die during the first 4
policy years and the rider is in effect, we will increase the policy's account
value by the amount of the Benefit in determining the death benefit payable.
Since the rider increases the amount of insurance for which we are at risk, it
increases the amount of the insurance charge described on page 9. The maximum
amount you may borrow from the policy or withdraw from the policy through
partial withdrawals is not effected by this rider. This rider can only be
elected at the time of application for the policy.
Other riders
We currently offer a number of other optional riders, such as the four year
level term rider.
HOW CAN I CHANGE MY POLICY'S INSURANCE COVERAGE?
Increase in coverage
The Basic Sum Insured generally cannot be increased after policy issue. After
the first policy year, you may request an increase in the Additional Sum Insured
at any time. (As to when such an increase would take effect, see "Effective date
of other policy transactions" on page 35.) However, you will have to provide us
with evidence that the surviving insured persons still meet our requirements for
issuing insurance coverage.
Decrease in coverage
The Basic Sum Insured generally cannot be decreased after policy issue. After
the first policy year, you may request a reduction in the Additional Sum Insured
at any time, but only if:
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<PAGE>
. the remaining Total Sum Insured will be at least $250,000, and
. the remaining Total Sum Insured will at least equal the minimum
required by the tax laws to maintain the policy's life insurance
status.
We may refuse any decrease in Additional Sum Insured if it would cause the
death benefit to reflect an increase pursuant to the optional extra death
benefit feature.
Change of death benefit option
Changes of death benefit option are not permitted under our current
administrative rules. We expect to be able to allow a change from Option B to
Option A in the near future, but that is not guaranteed.
Tax consequences
Please read "Tax considerations" starting on page 38 to learn about possible
tax consequences of changing your insurance coverage under the policy.
CAN I CANCEL MY POLICY AFTER IT'S ISSUED?
You have the right to cancel your policy within 10 days (or longer in some
states) after you receive it. This is often referred to as the "free look"
period. To cancel your policy, simply deliver or mail the policy to JHVLICO at
one of the addresses shown on page 1, or to the JHVLICO representative who
delivered the policy to you.
In most states, you will receive a refund of any premiums you've paid. In some
states, the refund will be your account value on the date of cancellation plus
all charges deducted by JHVLICO or the Trust prior to that date. The date of
cancellation will be the date of such mailing or delivery.
CAN I CHOOSE THE FORM IN WHICH JHVLICO PAYS OUT POLICY PROCEEDS?
Choosing a payment option
You may choose to receive proceeds from the policy as a single sum. This
includes proceeds that become payable because of death or full surrender.
Alternatively, you can elect to have proceeds of $1,000 or more applied to any
of a number of other payment options, including the following:
. Option 1 - Proceeds left with us to accumulate with interest
. Option 2A - Equal monthly payments of a specified amount until all
proceeds are paid out
. Option 2B - Equal monthly payments for a specified period of time
17
<PAGE>
. Option3 - Equal monthly payments for life, but with payments
guaranteed for a specific number of years
. Option 4 - Equal monthly payments for life with no refund
. Option 5 - Equal monthly payments for life with a refund if all of
the proceeds haven't been paid out
You cannot choose an option if the monthly payments under the option would be
less than $50. We will issue a supplementary agreement when the proceeds are
applied to any alternative payment option. That agreement will spell out the
terms of the option in full. We will credit interest on each of the above
options. For Options 1 and 2A, the interest will be at least an effective annual
rate of 3 1/2%.
Changing a payment option
You can change the payment option at any time before the proceeds are payable.
If you haven't made a choice, the payee of the proceeds has a prescribed period
in which he or she can make that choice.
Tax impact
There may be tax consequences to you or your beneficiary depending upon which
payment option is chosen. You should consult with a qualified tax adviser before
making that choice.
TO WHAT EXTENT CAN JHVLICO VARY THE TERMS AND CONDITIONS OF ITS POLICIES IN
PARTICULAR CASES?
Listed below are some variations we can make in the terms of our policies. Any
variation will be made only in accordance with uniform rules that we apply
fairly to all of our customers.
State law insurance requirements
Insurance laws and regulations apply to JHVLICO in every state in which its
policies are sold. As a result, various terms and conditions described in the
prospectus may vary depending upon where you reside. These variations will be
reflected in your policy or in endorsements attached to your policy.
Variations in expenses or risks
We may vary the charges and other terms of our policies where special
circumstances result in sales or administrative expenses, mortality risks or
other risks that are different from those normally associated with the policies.
These include the type of variations discussed under "Reduced charges for
eligible classes" on page 36. No variation in any charge will exceed any maximum
stated in this prospectus with respect to that charge.
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<PAGE>
HOW WILL MY POLICY BE TREATED FOR INCOME TAX PURPOSES?
Generally, death benefits paid under policies such as yours are not subject to
income tax. Earnings on your account value are not subject to income tax as long
as we don't pay them out to you. If we do pay out any amount of your account
value upon surrender or partial withdrawal, all or part of that distribution
should generally be treated as a return of the premiums you've paid and should
not be subject to income tax. Amounts you borrow are generally not taxable to
you.
However, some of the tax rules change if your policy is found to be a
"modified endowment contract." This can happen if you've paid more than a
certain amount of premiums that is prescribed by the tax laws. Additional taxes
and penalties may be payable for policy distributions of any kind.
For further information about the tax consequences of owning a policy, please
read "Tax considerations" beginning of page 38.
HOW DO I COMMUNICATE WITH JHVLICO?
General Rules
You should mail or express all checks and money orders for premium payments
and loan repayments to the JHVLICO Life Servicing Office at the appropriate
address shown on page 1.
Certain requests must be made in writing and be signed and dated by you. They
include the following:
. loans, surrenders or partial withdrawals
. transfers of account value among investment options
. change of allocation among investment options for new premium
payments
. change of death benefit option
. increase or decrease in Total Sum Insured
. change of beneficiary
. election of payment option for policy proceeds
. tax withholding elections
. election of telephone transaction privilege
You should mail or express these requests to the JHVLICO Life Servicing Office
at the appropriate address shown on page 1. You should also send notice of an
insured person's death and related documentation to the JHVLICO Life Servicing
Office. We don't consider that we've
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<PAGE>
"received" any communication until such time as it has arrived at the proper
place and in the proper and complete form.
We have special forms that should be used for a number of the requests
mentioned above. You can obtain these forms from the JHVLICO Life Servicing
Office or your JHVLICO representative. Each communication to us must include
your name, your policy number and the name of the insured person. We cannot
process any request that doesn't include this required information. Any
communication that arrives after the close of our business day, or on a day that
is not a business day, will be considered "received" by us on the next following
business day. Our business day currently closes at 4:00 p.m. Eastern Standard
Time, but special circumstances (such as suspension of trading on a major
exchange) may dictate an earlier closing time.
Telephone Transactions
If you complete a special authorization form, you can request loans, transfers
among investment options and changes of allocation among investment options
simply by telephoning us at 1-800-732-5543 or by faxing us at 1-617-886-3048.
Any fax request should include your name, daytime telephone number, policy
number and, in the case of transfers and changes of allocation, the names of the
investment options involved. We will honor telephone instructions from anyone
who provides the correct identifying information, so there is a risk of loss to
you if this service is used by an unauthorized person. However, you will receive
written confirmation of all telephone transactions. There is also a risk that
you will be unable to place your request due to equipment malfunction or heavy
phone line usage. If this occurs, you should submit your request in writing.
The policies are not designed for professional market timing organizations or
other persons or entities that use programmed or frequent transfers among
investment options. For reasons such as that, we reserve the right to change our
telephone transaction policies or procedures at any time. We also reserve the
right to suspend or terminate the privilege altogether.
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<PAGE>
ILLUSTRATION OF DEATH BENEFITS, ACCOUNT VALUES,
SURRENDER VALUES AND ACCUMULATED PREMIUMS
The following tables illustrate the changes in death benefit, account value
and surrender value of the policy under certain hypothetical circumstances that
we assume solely for this purpose. Each table separately illustrates the
operation of a policy for specified issue ages, premium payment schedule and
Total Sum Insured. The amounts shown are for the end of each policy year and
assume that all of the account value is invested in funds that achieve
investment returns at constant gross annual rates of 0%, 6% and 12% (i.e.,
before any fees or expenses deducted from Trust assets). After the deduction of
average fees and expenses at the Trust level (as described below), the
corresponding net annual rates of return would be -.66%, 5.30% and 11.20%.
Investment return reflects investment income and all realized and unrealized
capital gains and losses. The tables assume annual Planned Premiums that are
paid at the beginning of each policy year for a male insured person who is 55
years old and a standard non-smoker underwriting risk when the policy is issued
and for a female insured person who is 50 years old and a standard non-smoker
underwriting risk when the policy is issued.
Tables are provided for each of the two death benefit options. The tables
headed "Current Charges" assume that the current rates for all charges deducted
by JHVLICO will apply in each year illustrated. The tables headed "Maximum
Charges" are the same, except that the maximum permitted rates for all years are
used for all charges. The tables do not reflect any charge that we reserve the
right to make but are not currently making. The tables assume that the
guaranteed minimum death benefit has not been elected beyond the tenth policy
year and that no Additional Sum Insured or optional rider benefits have been
elected.
With respect to fees and expenses deducted from Trust assets, the amounts
shown in all tables reflect (1) investment management fees equivalent to an
effective annual rate of .59%, and (2) an assumed average asset charge for all
other Trust operating expenses equivalent to an effective annual rate of .07%.
These rates are the arithmetic average for all funds of the Trust. In other
words, they are based on the hypothetical assumption that policy account values
are allocated equally among the variable investment options. The actual rates
associated with any policy will vary depending upon the actual allocation of
policy values among the investment options. The charge shown above for all other
Trust operating expenses reflects reimbursements to certain funds by John
Hancock Life Insurance Company as described in the footnote to the table on page
11. We currently expect that reimbursement arrangement to continue indefinitely,
but that is not guaranteed.
The second column of each table shows the amount you would have at the end of
each policy year if an amount equal to the assumed Planned Premiums were
invested to earn interest, after taxes, at 5% compounded annually. This is not a
policy value. It is included for comparison purposes only.
Because your circumstances will no doubt differ from those in the
illustrations that follow, values under your policy will differ, in most cases
substantially. Upon request, we will furnish you with a comparable illustration
reflecting the issue age, sex and underwriting risk classification of each of
your proposed insured persons, and the Total Sum Insured and annual Planned
Premium amount requested.
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PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP
$500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, NONSMOKER UNDERWRITING CLASS
FEMALE, ISSUE AGE 50, NONSMOKER UNDERWRITING CLASS
OPTION A DEATH BENEFIT
GUIDELINE PREMIUM AND CASH VALUE CORRIDOR TEST
NO GUARANTEED MINIMUM DEATH BENEFIT OPTION AFTER TENTH POLICY YEAR
PLANNED PREMIUM: $8,156*
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> <C> <C> <C> <C> <C> <C> <C>
1 $ 8,564 $500,000 $500,000 $ 500,000 $ 4,291 $ 4,574 $ 4,859
2 17,556 500,000 500,000 500,000 10,119 11,024 11,965
3 26,998 500,000 500,000 500,000 15,052 16,928 18,950
4 36,912 500,000 500,000 500,000 20,433 23,642 27,234
5 47,322 500,000 500,000 500,000 25,734 30,654 36,377
6 58,252 500,000 500,000 500,000 32,018 39,083 47,618
7 69,728 500,000 500,000 500,000 38,206 47,885 60,020
8 81,779 500,000 500,000 500,000 44,296 57,071 73,702
9 94,432 500,000 500,000 500,000 50,288 66,657 88,794
10 107,717 500,000 500,000 500,000 56,179 76,657 105,439
11 121,667 500,000 500,000 500,000 62,613 87,769 124,512
12 136,314 500,000 500,000 500,000 68,927 99,351 145,542
13 151,694 500,000 500,000 500,000 75,116 111,419 168,727
14 167,843 500,000 500,000 500,000 81,170 123,985 194,288
15 184,799 500,000 500,000 500,000 87,079 137,062 222,466
16 202,603 500,000 500,000 500,000 93,298 151,422 254,812
17 221,297 500,000 500,000 500,000 99,366 166,426 290,662
18 240,926 500,000 500,000 500,000 105,262 182,091 330,408
19 261,536 500,000 500,000 500,000 110,959 198,438 374,495
20 283,177 500,000 500,000 500,000 116,427 215,484 423,431
25 408,735 500,000 500,000 800,544 140,397 313,784 762,423
30 568,983 500,000 500,000 1,396,206 151,963 437,391 1,329,720
35 773,504 500,000 628,023 2,385,397 138,838 598,117 2,271,807
</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, Guaranteed Minimum
Death Benefit after the tenth Policy Year, 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.
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<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP
$500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, NONSMOKER UNDERWRITING CLASS
FEMALE, ISSUE AGE 50, NONSMOKER UNDERWRITING CLASS
OPTION B DEATH BENEFIT
GUIDELINE PREMIUM AND CASH VALUE CORRIDOR TEST
NO GUARANTEED MINIMUM DEATH BENEFIT OPTION AFTER TENTH POLICY YEAR
PLANNED PREMIUM: $8,156*
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> <C> <C> <C> <C> <C> <C> <C>
1 $ 8,564 $504,290 $504,574 $ 504,859 $ 4,291 $ 4,574 $ 4,859
2 17,556 509,710 510,616 511,556 10,118 11,023 11,964
3 26,998 515,050 516,926 518,947 15,050 16,926 18,947
4 36,912 520,430 523,638 527,230 20,430 23,638 27,230
5 47,322 525,729 530,648 536,369 25,729 30,648 36,369
6 58,252 532,010 539,074 547,606 32,010 39,074 47,606
7 69,728 538,195 547,871 560,002 38,195 47,871 60,002
8 81,779 544,281 557,050 573,674 44,281 57,050 73,674
9 94,432 550,267 566,627 588,751 50,267 66,627 88,751
10 107,717 556,148 576,612 605,374 56,148 76,612 105,374
11 121,667 562,573 587,708 624,421 62,573 87,708 124,421
12 136,314 568,873 599,267 645,410 68,873 99,267 145,410
13 151,694 575,040 611,297 668,531 75,040 111,297 168,531
14 167,843 581,061 623,806 693,991 81,061 123,806 193,991
15 184,799 586,923 636,799 722,014 86,923 136,799 222,014
16 202,603 593,074 651,032 754,120 93,074 151,032 254,120
17 221,297 599,046 665,852 789,606 99,046 165,852 289,606
18 240,926 604,807 681,251 828,807 104,807 181,251 328,807
19 261,536 610,321 697,220 872,086 110,321 197,220 372,086
20 283,177 615,540 713,736 919,837 115,540 213,736 419,837
25 408,735 636,644 804,896 1,244,234 136,644 304,896 744,234
30 568,983 639,987 902,018 1,767,235 139,987 402,018 1,267,235
35 773,504 608,633 986,347 2,600,409 108,633 486,347 2,100,409
</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, Guaranteed Minimum
Death Benefit after the tenth Policy Year, 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.
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<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP
$500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, NONSMOKER UNDERWRITING CLASS
FEMALE, ISSUE AGE 50, NONSMOKER UNDERWRITING CLASS
OPTION A DEATH BENEFIT GUIDELINE PREMIUM AND CASH VALUE CORRIDOR TEST
NO GUARANTEED MINIMUM DEATH BENEFIT OPTION AFTER TENTH POLICY YEAR
PLANNED PREMIUM: $8,156*
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> <C> <C> <C> <C> <C> <C> <C>
1 $ 8,564 $500,000 $500,000 $ 500,000 $ 4,137 $ 4,416 $ 4,695
2 17,556 500,000 500,000 500,000 9,785 10,670 11,589
3 26,998 500,000 500,000 500,000 14,491 16,317 18,286
4 36,912 500,000 500,000 500,000 19,589 22,701 26,188
5 47,322 500,000 500,000 500,000 24,541 29,296 34,832
6 58,252 500,000 500,000 500,000 30,400 37,207 45,437
7 69,728 500,000 500,000 500,000 36,075 45,368 57,038
8 81,779 500,000 500,000 500,000 41,551 53,775 69,723
9 94,432 500,000 500,000 500,000 46,813 62,424 83,593
10 107,717 500,000 500,000 500,000 51,843 71,305 98,754
11 121,667 500,000 500,000 500,000 57,099 80,918 115,866
12 136,314 500,000 500,000 500,000 62,065 90,757 134,576
13 151,694 500,000 500,000 500,000 66,706 100,802 155,035
14 167,843 500,000 500,000 500,000 70,974 111,022 177,407
15 184,799 500,000 500,000 500,000 74,815 121,380 201,884
16 202,603 500,000 500,000 500,000 78,171 131,838 228,689
17 221,297 500,000 500,000 500,000 80,949 142,332 258,069
18 240,926 500,000 500,000 500,000 83,122 152,858 290,370
19 261,536 500,000 500,000 500,000 84,587 163,352 325,960
20 283,177 500,000 500,000 500,000 85,247 173,762 365,301
25 408,735 500,000 500,000 667,847 71,430 222,313 636,044
30 568,983 500,000 500,000 1,127,031 894 252,867 1,073,363
35 773,504 ** 500,000 1,847,623 ** 235,779 1,759,641
</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, Guaranteed Minimum
Death Benefit after the tenth Policy Year, 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.
24
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP
$500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, NONSMOKER UNDERWRITING CLASS
FEMALE, ISSUE AGE 50, NONSMOKER UNDERWRITING CLASS
OPTION B DEATH BENEFIT
GUIDELINE PREMIUM AND CASH VALUE CORRIDOR TEST
NO GUARANTEED MINIMUM DEATH BENEFIT OPTION AFTER TENTH POLICY YEAR
PLANNED PREMIUM: $8,156*
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> <C> <C> <C> <C> <C> <C> <C>
1 $ 8,564 $504,137 $504,415 $ 504,695 $ 4,137 $ 4,415 $ 4,695
2 17,556 509,376 510,261 511,180 9,784 10,668 11,587
3 26,998 514,486 516,312 518,280 14,486 16,312 18,280
4 36,912 519,578 522,689 526,173 19,578 22,689 26,173
5 47,322 524,519 529,269 534,800 24,519 29,269 34,800
6 58,252 530,359 537,154 545,371 30,359 37,154 45,371
7 69,728 536,003 545,274 556,916 36,003 45,274 56,916
8 81,779 541,433 553,617 569,511 41,433 53,617 69,511
9 94,432 546,630 562,170 583,240 46,630 62,170 83,240
10 107,717 551,570 570,913 598,190 51,570 70,913 98,190
11 121,667 556,704 580,330 614,989 56,704 80,330 114,989
12 136,314 561,507 589,896 633,243 61,507 89,896 133,243
13 151,694 565,932 599,567 653,048 65,932 99,567 153,048
14 167,843 569,919 609,277 674,492 69,919 109,277 174,492
15 184,799 573,400 618,951 697,663 73,400 118,951 197,663
16 202,603 576,299 628,502 722,649 76,299 128,502 222,649
17 221,297 578,499 637,793 749,503 78,499 137,793 249,503
18 240,926 579,966 646,767 778,369 79,966 146,767 278,369
19 261,536 580,573 655,268 809,306 80,573 155,268 309,306
20 283,177 580,205 663,143 842,390 80,205 163,143 342,390
25 408,735 558,340 685,704 1,041,616 58,340 185,704 541,616
30 568,983 ** 646,862 1,289,945 ** 146,862 789,945
35 773,504 ** ** 1,562,070 ** ** 1,062,070
</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, Guaranteed Minimum
Death Benefit after the tenth Policy Year, 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.
25
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP
$500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, NONSMOKER UNDERWRITING CLASS
FEMALE, ISSUE AGE 50, NONSMOKER UNDERWRITING CLASS
OPTION A DEATH BENEFIT
CASH VALUE ACCUMULATION TEST
NO GUARANTEED MINIMUM DEATH BENEFIT OPTION AFTER TENTH POLICY YEAR
PLANNED PREMIUM: $8,156*
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> <C> <C> <C> <C> <C> <C> <C>
1 $ 8,564 $500,000 $500,000 $ 500,000 $ 4,291 $ 4,574 $ 4,859
2 17,556 500,000 500,000 500,000 10,119 11,024 11,965
3 26,998 500,000 500,000 500,000 15,052 16,928 18,950
4 36,912 500,000 500,000 500,000 20,433 23,642 27,234
5 47,322 500,000 500,000 500,000 25,734 30,654 36,377
6 58,252 500,000 500,000 500,000 32,018 39,083 47,618
7 69,728 500,000 500,000 500,000 38,206 47,885 60,020
8 81,779 500,000 500,000 500,000 44,296 57,071 73,702
9 94,432 500,000 500,000 500,000 50,288 66,657 88,794
10 107,717 500,000 500,000 500,000 56,179 76,657 105,439
11 121,667 500,000 500,000 500,000 62,613 87,769 124,512
12 136,314 500,000 500,000 500,000 68,927 99,351 145,542
13 151,694 500,000 500,000 500,000 75,116 111,419 168,727
14 167,843 500,000 500,000 500,000 81,170 123,985 194,288
15 184,799 500,000 500,000 500,000 87,079 137,062 222,466
16 202,603 500,000 500,000 500,000 93,298 151,422 254,812
17 221,297 500,000 500,000 540,534 99,366 166,426 290,631
18 240,926 500,000 500,000 594,917 105,262 182,091 330,259
19 261,536 500,000 500,000 653,188 110,959 198,438 374,080
20 283,177 500,000 500,000 715,726 116,427 215,484 422,510
25 408,735 500,000 500,000 1,112,016 140,397 313,784 753,033
30 568,983 500,000 575,953 1,706,351 151,963 434,962 1,288,644
35 773,504 500,000 706,909 2,614,024 138,838 579,306 2,142,170
</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, Guaranteed Minimum
Death Benefit after the tenth Policy Year, 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.
26
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP
$500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, NONSMOKER UNDERWRITING CLASS
FEMALE, ISSUE AGE 50, NONSMOKER UNDERWRITING CLASS
OPTION B DEATH BENEFIT
CASH VALUE ACCUMULATION TEST
NO GUARANTEED MINIMUM DEATH BENEFIT OPTION AFTER TENTH POLICY YEAR
PLANNED PREMIUM: $8,156*
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> <C> <C> <C> <C> <C> <C> <C>
1 $ 8,564 $504,290 $504,574 $ 504,859 $ 4,291 $ 4,574 $ 4,859
2 17,556 509,710 510,616 511,556 10,118 11,023 11,964
3 26,998 515,050 516,926 518,947 15,050 16,926 18,947
4 36,912 520,430 523,638 527,230 20,430 23,638 27,230
5 47,322 525,729 530,648 536,369 25,729 30,648 36,369
6 58,252 532,010 539,074 547,606 32,010 39,074 47,606
7 69,728 538,195 547,871 560,002 38,195 47,871 60,002
8 81,779 544,281 557,050 573,674 44,281 57,050 73,674
9 94,432 550,267 566,627 588,751 50,267 66,627 88,751
10 107,717 556,148 576,612 605,374 56,148 76,612 105,374
11 121,667 562,573 587,708 624,421 62,573 87,708 124,421
12 136,314 568,873 599,267 645,410 68,873 99,267 145,410
13 151,694 575,040 611,297 668,531 75,040 111,297 168,531
14 167,843 581,061 623,806 693,991 81,061 123,806 193,991
15 184,799 586,923 636,799 722,014 86,923 136,799 222,014
16 202,603 593,074 651,032 754,120 93,074 151,032 254,120
17 221,297 599,046 665,852 789,606 99,046 165,852 289,606
18 240,926 604,807 681,251 828,807 104,807 181,251 328,807
19 261,536 610,321 697,220 872,086 110,321 197,220 372,086
20 283,177 615,540 713,736 919,837 115,540 213,736 419,837
25 408,735 636,644 804,896 1,244,234 136,644 304,896 744,234
30 568,983 639,987 902,018 1,767,235 139,987 402,018 1,267,235
35 773,504 608,633 986,347 2,600,409 108,633 486,347 2,100,409
</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, Guaranteed Minimum
Death Benefit after the tenth Policy Year, 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.
27
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP
$500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, NONSMOKER UNDERWRITING CLASS
FEMALE, ISSUE AGE 50, NONSMOKER UNDERWRITING CLASS
OPTION A DEATH BENEFIT
CASH VALUE ACCUMULATION TEST
NO GUARANTEED MINIMUM DEATH BENEFIT OPTION AFTER TENTH POLICY YEAR
PLANNED PREMIUM: $8,156*
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> <C> <C> <C> <C> <C> <C> <C>
1 $ 8,564 $500,000 $500,000 $ 500,000 $ 4,137 $ 4,416 $ 4,695
2 17,556 500,000 500,000 500,000 9,785 10,670 11,589
3 26,998 500,000 500,000 500,000 14,491 16,317 18,286
4 36,912 500,000 500,000 500,000 19,589 22,701 26,188
5 47,322 500,000 500,000 500,000 24,541 29,296 34,832
6 58,252 500,000 500,000 500,000 30,400 37,207 45,437
7 69,728 500,000 500,000 500,000 36,075 45,368 57,038
8 81,779 500,000 500,000 500,000 41,551 53,775 69,723
9 94,432 500,000 500,000 500,000 46,813 62,424 83,593
10 107,717 500,000 500,000 500,000 51,843 71,305 98,754
11 121,667 500,000 500,000 500,000 57,099 80,918 115,866
12 136,314 500,000 500,000 500,000 62,065 90,757 134,576
13 151,694 500,000 500,000 500,000 66,706 100,802 155,035
14 167,843 500,000 500,000 500,000 70,974 111,022 177,407
15 184,799 500,000 500,000 500,000 74,815 121,380 201,884
16 202,603 500,000 500,000 500,000 78,171 131,838 228,689
17 221,297 500,000 500,000 500,000 80,949 142,332 258,069
18 240,926 500,000 500,000 522,795 83,122 152,858 290,221
19 261,536 500,000 500,000 567,726 84,587 163,352 325,136
20 283,177 500,000 500,000 614,905 85,247 173,762 362,993
25 408,735 500,000 500,000 890,916 71,430 222,313 603,310
30 568,983 500,000 500,000 1,249,928 894 252,867 943,951
35 773,504 ** 500,000 1,721,426 ** 235,779 1,410,694
</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, Guaranteed Minimum
Death Benefit after the tenth Policy Year, 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.
28
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP
$500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, NONSMOKER UNDERWRITING CLASS
FEMALE, ISSUE AGE 50, NONSMOKER UNDERWRITING CLASS
OPTION B DEATH BENEFIT
CASH VALUE ACCUMULATION TEST
NO GUARANTEED MINIMUM DEATH BENEFIT OPTION AFTER TENTH POLICY YEAR
PLANNED PREMIUM: $8,156*
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> <C> <C> <C> <C> <C> <C> <C>
1 $ 8,564 $504,137 $504,415 $ 504,695 $ 4,137 $ 4,415 $ 4,695
2 17,556 509,376 510,261 511,180 9,784 10,668 11,587
3 26,998 514,486 516,312 518,280 14,486 16,312 18,280
4 36,912 519,578 522,689 526,173 19,578 22,689 26,173
5 47,322 524,519 529,269 534,800 24,519 29,269 34,800
6 58,252 530,359 537,154 545,371 30,359 37,154 45,371
7 69,728 536,003 545,274 556,916 36,003 45,274 56,916
8 81,779 541,433 553,617 569,511 41,433 53,617 69,511
9 94,432 546,630 562,170 583,240 46,630 62,170 83,240
10 107,717 551,570 570,913 598,190 51,570 70,913 98,190
11 121,667 556,704 580,330 614,989 56,704 80,330 114,989
12 136,314 561,507 589,896 633,243 61,507 89,896 133,243
13 151,694 565,932 599,567 653,048 65,932 99,567 153,048
14 167,843 569,919 609,277 674,492 69,919 109,277 174,492
15 184,799 573,400 618,951 697,663 73,400 118,951 197,663
16 202,603 576,299 628,502 722,649 76,299 128,502 222,649
17 221,297 578,499 637,793 749,503 78,499 137,793 249,503
18 240,926 579,966 646,767 778,369 79,966 146,767 278,369
19 261,536 580,573 655,268 809,306 80,573 155,268 309,306
20 283,177 580,205 663,143 842,390 80,205 163,143 342,390
25 408,735 558,340 685,704 1,041,616 58,340 185,704 541,616
30 568,983 ** 646,862 1,289,945 ** 146,862 789,945
35 773,504 ** ** 1,562,070 ** ** 1,062,070
</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, Guaranteed Minimum
Death Benefit after the tenth Policy Year, 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.
29
<PAGE>
ADDITIONAL INFORMATION
This section of the prospectus provides additional detailed information that
is not contained in the Basic Information section on pages 3 through 20.
CONTENTS OF THIS SECTION PAGES TO SEE
- ------------------------ ------------
Description of JHVLICO ......................................... 31
How we support the policy and investment options ............... 31-32
Procedures for issuance of a policy ............................ 32-33
Basic Sum Insured vs. Additional Sum Insured ................... 33-34
Commencement of investment performance ......................... 34
How we process certain policy transactions ..................... 34-35
Effects of policy loans ........................................ 35-36
Additional information about how certain policy charges work ... 36-37
How we market the policies ..................................... 37-38
Tax considerations ............................................. 38-39
Reports that you will receive .................................. 39-40
Voting privileges that you will have ........................... 40
Changes that JHVLICO can make as to your policy ................ 40-41
Adjustments we make to death benefits .......................... 41
When we pay policy proceeds .................................... 41
Other details about exercising rights and paying benefits ...... 41-42
Legal matters .................................................. 42
Registration statement filed with the SEC ...................... 42
Accounting and actuarial experts ............................... 42
Financial statements of JHVLICO and the Account ................ 42
List of Directors and Executive Officers of JHVLICO ............ 43
30
<PAGE>
DESCRIPTION OF JHVLICO
We are JHVLICO, a stock life insurance company chartered in 1979 under
Massachusetts law. We are authorized to transact a life insurance and annuity
business in all states other than New York and in the District of Columbia. We
began selling variable life insurance policies in 1980.
We are regulated and supervised by the Massachusetts Commissioner of
Insurance, who periodically examines our affairs. We also are subject to the
applicable insurance laws and regulations of all jurisdictions in which we are
authorized to do business. We are required to submit annual statements of our
operations, including financial statements, to the insurance departments of the
various jurisdictions in which we do business for purposes of determining
solvency and compliance with local insurance laws and regulations. The
regulation to which we are subject, however, does not provide a guarantee as to
such matters.
We are a wholly-owned subsidiary of John Hancock Life Insurance Company ("John
Hancock"), a Massachusetts stock life insurance company. On February 1, 2000,
John Hancock Mutual Life Insurance Company (which was chartered in Massachusetts
in 1862) converted to a stock company by "demutualizing" and changed its name to
John Hancock Life Insurance Company. As part of the demutualization process,
John Hancock became a subsidiary of John Hancock Financial Services, Inc., a
newly formed publicly-traded corporation. John Hancock's home office is at John
Hancock Place, Boston, Massachusetts 02117. At year end 1998, John Hancock's
assets were approximately $67 billion and it had invested over $380 million in
JHVLICO in connection with JHVLICO's organization and operation. It is
anticipated that John Hancock will from time to time make additional capital
contributions to JHVLICO to enable us to meet our reserve requirements and
expenses in connection with our business. John Hancock is committed to make
additional capital contributions if necessary to ensure that we maintain a
positive net worth.
HOW WE SUPPORT THE POLICY AND INVESTMENT OPTIONS
Separate Account S
The variable investment options shown on page 1 are in fact subaccounts of
Separate Account S (the "Account"), a separate account established by us under
Massachusetts law. The Account meets the definition of "separate account" under
the Federal securities laws and is registered as a unit investment trust under
the Investment Company Act of 1940 ("1940 Act"). Such registration does not
involve supervision by the SEC of the management of the Account or JHVLICO.
The Account's assets are the property of JHVLICO. Each policy provides that
amounts we hold in the Account pursuant to the policies cannot be reached by any
other persons who may have claims against us.
The assets in each subaccount are invested in the corresponding fund of the
Trust. New subaccounts may be added as new funds are added to the Trust and made
available to policy owners. Existing subaccounts may be deleted if existing
funds are deleted from the Trust.
We will purchase and redeem Trust shares for the Account at their net asset
value without any sales or redemption charges. Shares of the Trust represent an
interest in one of the funds of the Trust which corresponds to a subaccount of
the Account. Any dividend or capital gains distributions received by the Account
will be reinvested in shares of that same fund at their net asset value as of
the dates paid.
On each business day, shares of each fund are purchased or redeemed by us for
each subaccount based on, among other things, the amount of net premiums
allocated to the subaccount, distributions reinvested, and transfers to, from
and among subaccounts, all to be effected as of that date. Such
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purchases and redemptions are effected at each fund's net asset value per share
determined for that same date. A "business day" is any date on which the New
York Stock Exchange is open for trading. We compute policy values for each
business day as of the close of that day (usually 4:00 p.m. Eastern Standard
Time).
Our general account
Our obligations under the policy's fixed investment option are backed by our
general account assets. Our general account consists of assets owned by us other
than those in the Account and in other separate accounts that we may establish.
Subject to applicable law, we have sole discretion over the investment of assets
of the general account and policy owners do not share in the investment
experience of, or have any preferential claim on, those assets. Instead, we
guarantee that the account value allocated to the fixed investment option will
accrue interest daily at an effective annual rate of at least 4% without regard
to the actual investment experience of the general account.
Because of exemptive and exclusionary provisions, interests in our fixed
investment option have not been registered under the Securities Act of 1933 and
our general account has not been registered as an investment company under the
1940 Act. Accordingly, neither the general account nor any interests therein are
subject to the provisions of these acts, and we have been advised that the staff
of the SEC has not reviewed the disclosure in this prospectus relating to the
fixed investment option. Disclosure regarding the fixed investment option may,
however, be subject to certain generally-applicable provisions of the Federal
securities laws relating to accuracy and completeness of statements made in
prospectuses.
PROCEDURES FOR ISSUANCE OF A POLICY
Generally, the policy is available with a minimum Total Sum Insured at issue
of $250,000 and a minimum Basic Sum Insured at issue of $250,000. At the time of
issue, each insured person must have an attained age of at least 20 and no more
than 85. All insured persons must meet certain health and other insurance risk
criteria called "underwriting standards".
Policies issued in Montana or in connection with certain employee plans will
not directly reflect the sex of the insured persons in either the premium rates
or the charges or values under the policy. The illustrations set forth in this
prospectus are sex-distinct and, therefore, may not reflect the rates, charges,
or values that would apply to such policies.
Minimum Initial Premium
The Minimum Initial Premium must be received by us at our Life Servicing
Office in order for the policy to be in full force and effect. There is no grace
period for the payment of the Minimum Initial Premium. The Minimum Initial
Premium is determined by us based on the characteristics of each of the insured
persons, the Total Sum Insured at issue, and the policy options you have
selected.
Commencement of insurance coverage
After you apply for a policy, it can sometimes take up to several weeks for us
to gather and evaluate all the information we need to decide whether to issue a
policy to you and, if so, what the insured persons' rate classes should be.
After we approve an application for a policy and assign an appropriate insurance
rate class, we will prepare the policy for delivery. We will not pay a death
benefit under a policy unless the policy is in effect when the last surviving
insured person dies (except for the circumstances described under "Temporary
coverage prior to policy delivery" on page 33).
The policy will take effect only if all of the following conditions are
satisfied:
. The policy is delivered to and received by the applicant.
. The Minimum Initial Premium is received by us.
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. Each insured person is living and still meets our health criteria for
issuing insurance.
If all of the above conditions are satisfied, the policy will take effect on
the date shown in the policy as the "date of issue." That is the date on which
we begin to deduct monthly charges. Policy months, policy years and policy
anniversaries are all measured from the date of issue.
Backdating
In order to preserve a younger age at issue for one or both of the insured
persons, we can designate a date of issue that is up to 60 days earlier than the
date that would otherwise apply. This is referred to as "backdating" and is
allowed under state insurance laws. Backdating can also be used in certain
corporate-owned life insurance cases involving multiple policies to retain a
common monthly deduction date.
The conditions for coverage described above under "Commencement of insurance
coverage" must still be satisfied, but in a backdating situation the policy
always takes effect retroactively. Backdating results in a lower insurance
charge (because of an insured person's younger age at issue), but monthly
charges begin earlier than would otherwise be the case. Those monthly charges
will be deducted as soon as we receive premiums sufficient to pay them.
Temporary coverage prior to policy delivery
If a specified amount of premium is paid with the application for a policy and
other conditions are met, we will provide temporary survivorship term life
insurance coverage on the insured persons for a period prior to the time
coverage under the policy takes effect. Such temporary term coverage will be
subject to the terms and conditions described in the application for the policy,
including limits on amount and duration of coverage.
Monthly deduction dates
Each charge that we deduct monthly is assessed against your account value or
the subaccounts at the close of business on the date of issue and at the close
of the first business day in each subsequent policy month.
BASIC SUM INSURED VS. ADDITIONAL SUM INSURED
As noted earlier in this prospectus, you should consider a number of factors
in determining whether to elect coverage in the form of Basic Sum Insured or in
the form of Additional Sum Insured.
The amount of sales charge deducted from premiums and the amount of
compensation paid to the selling insurance agent will be less if coverage is
included as Additional Sum Insured, rather than as Basic Sum Insured. On the
other hand, the amount of any Additional Sum Insured is not included in the
guaranteed minimum death benefit feature. Therefore, if the policy's surrender
value is insufficient to pay the monthly charges as they fall due (including the
charges for the Additional Sum Insured), the Additional Sum Insured coverage
will lapse, even if the Basic Sum Insured stays in effect pursuant to the
guaranteed minimum death benefit feature.
Generally, you will incur lower sales charges and have more flexible coverage
with respect to the Additional Sum Insured than with respect to the Basic Sum
Insured. If this is your priority, you may wish to maximize the proportion of
the Additional Sum Insured. However, if your priority is to take advantage of
the guaranteed minimum death benefit feature, the proportion of the Policy's
Total Sum Insured that is guaranteed can be increased by taking out more
coverage as Basic Sum Insured at the time of policy issuance. As stated earlier
in this prospectus, the guaranteed minimum death benefit feature does not apply
if the Additional Sum Insured is scheduled to exceed the Basic Sum Insured at
any time. If such was the case, you would presumably wish to maximize the
proportion of the Additional Sum Insured.
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If you want to purchase Additional Sum Insured, you may select from among
several forms of 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.
Any decision you make to modify the amount of Additional Sum Insured coverage
after issue can have significant tax consequences (see "Tax Considerations"
beginning on page 38).
COMMENCEMENT OF INVESTMENT PERFORMANCE
Any premium payment processed prior to the twentieth day after the date of
issue will automatically be allocated to the Money Market investment option. On
the later of the date such payment is received or the twentieth day following
the date of issue, the portion of the Money Market investment option
attributable to such payment will be reallocated automatically among the
investment options you have chosen.
All other premium payments will be allocated among the investment options you
have chosen as soon as they are processed.
HOW WE PROCESS CERTAIN POLICY TRANSACTIONS
Premium payments
We will process any premium payment as of the day we receive it, unless one of
the following exceptions applies:
(1) We will process a payment received prior to a policy's date of issue as
if received on the date of issue.
(2) If the Minimum Initial Premium is not received prior to the date of
issue, we will process each premium payment received thereafter as if received
on the business day immediately preceding the date of issue until all of the
Minimum Initial Premium is received.
(3) We will process the portion of any premium payment for which we require
evidence of an insured person's continued insurability only after we have
received such evidence and found it satisfactory to us.
(4) If we receive any premium payment that we think will cause a policy to
become a modified endowment or will cause a policy to lose its status as life
insurance under the tax laws, we will not accept the excess portion of that
premium payment and will immediately notify the owner. We will refund the excess
premium when the premium payment check has had time to clear the banking system
(but in no case more than two weeks after receipt), except in the following
circumstances:
. The tax problem resolves itself prior to the date the refund is to be made;
or
. The tax problem relates to modified endowment status and we receive a signed
acknowledgment from the owner prior to the refund date instructing us to
process the premium notwithstanding the tax issues involved.
In the above cases, we will treat the excess premium as having been received on
the date the tax problem resolves itself or the date we receive the signed
acknowledgment. We will then process it accordingly.
(5) If a premium payment is received or is otherwise scheduled to be
processed (as specified above) on a date that is not a business day, the premium
payment will be processed on the business day next following that date.
Transfers among investment options
Any reallocation among investment options must be such that the total in all
investment options after reallocation equals 100% of account value. Transfers
out of any investment option will be effective at the
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end of the business day in which we receive at our Life Servicing Office notice
satisfactory to us.
We have the right to defer transfers of amounts out of the fixed investment
option for up to six months.
Dollar cost averaging
Scheduled transfers under this option may be made from the Money Market
investment option to not more than nine other variable investment options.
However, the amount transferred to any one investment option must be at least
$100.
Once we receive the election in form satisfactory to us at our Life Servicing
Office, transfers will begin on the second monthly deduction date following its
receipt. If you have any questions with respect to this provision, call
1-800-732-5543.
Once elected, the scheduled monthly transfer option will remain in effect for
so long as you have at least $2,500 of your account value in the Money Market
investment option, or until we receive written notice from you of cancellation
of the option or notice of the death of the last surviving insured person. We
reserve the right to modify, terminate or suspend the dollar cost averaging
program at any time.
Telephone transfers and policy loans
Once you have completed a written authorization, you may request a transfer or
policy loan by telephone or by fax. If the fax request option becomes
unavailable, another means of telecommunication will be substituted.
If you authorize telephone transactions, you will be liable for any loss,
expense or cost arising out of any unauthorized or fraudulent telephone
instructions which we reasonably believe to be genuine, unless such loss,
expense or cost is the result of our mistake or negligence. We employ procedures
which provide safeguards against the execution of unauthorized transactions, and
which are reasonably designed to confirm that instructions received by telephone
are genuine. These procedures include requiring personal identification, tape
recording calls, and providing written confirmation to the owner. If we do not
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, we may be liable for any loss due to unauthorized or
fraudulent instructions.
Effective date of other policy transactions
The following transactions take effect on the policy anniversary on or next
following the date we approve the request:
. Total Sum Insured decreases
. Additional Sum Insured increases
. Change of death benefit option from Option B to Option A, when and if
permitted by our administrative rules (see "Change of death benefit
option" on page 17)
Reinstatements of lapsed policies take effect on the monthly deduction date on
or next following the date we approve the request for reinstatement.
We process loans, surrenders, partial withdrawals and loan repayments as of
the day we receive the request or repayment.
EFFECTS OF POLICY LOANS
The account value, the surrender value, and any death benefit above the Total
Sum Insured are permanently affected by any loan, whether or not it is repaid in
whole or in part. This is because the amount of the loan is deducted from the
investment options and placed in a special loan account. The investment options
and the special loan account will generally have different rates of investment
return.
The amount of the outstanding loan (which includes accrued and unpaid
interest) is subtracted from the amount otherwise payable when the policy
proceeds become payable.
Whenever the outstanding loan exceeds 90% of your account value, the policy
will terminate 31 days
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after we have mailed notice of termination to you (and to any assignee of record
at such assignee's last known address) specifying the minimum amount that must
be paid to avoid termination, unless a repayment of at least the amount
specified is made within that period.
ADDITIONAL INFORMATION ABOUT HOW CERTAIN POLICY CHARGES WORK
Sales expenses and related charges
The sales charges help to compensate us for the cost of selling our policies.
(See "What charges will JHVLICO deduct from my investment in the policy?" in the
Basic Information section of this prospectus.) The amount of the charges in any
policy year does not specifically correspond to sales expenses for that year. We
expect to recover our total sales expenses over the life of the policies. To the
extent that the sales charges do not cover total sales expenses, the sales
expenses may be recovered from other sources, including gains from the
asset-based risk charge and other gains with respect to the policies, or from
our general assets. (See "How we market the policies" on page 37.)
Effect of premium payment pattern
You may structure the timing and amount of premium payments to minimize the
sales charges, although doing so involves certain risks. Paying less than one
Target Premium in the first policy year or paying more than one Target Premium
in any policy year could reduce your total sales charges over time. For example,
if the Target Premium was $10,000 and you paid a premium of $10,000 in each of
the first ten policy years, you would pay total sales charges of $14,000. If you
paid $20,000 (i.e., two times the Target Premium amount) in every other policy
year up to the ninth policy year, you would pay total sales charges of only
$9,750. However, delaying the payment of Target Premiums to later policy years
could increase the risk that the guaranteed minimum death benefit feature will
lapse and the account value will be insufficient to pay monthly policy charges
as they come due. As a result, the policy or any Additional Sum Insured may
lapse and eventually terminate. Conversely, accelerating the payment of Target
Premiums to earlier policy years could cause aggregate premiums paid to exceed
the policy's 7-pay premium limit and, as a result, cause the policy to become a
modified endowment, with adverse tax consequences to you upon receipt of policy
distributions. (See "Tax consequences" beginning on page 38.)
Monthly charges
We deduct the monthly charges described in the Basic Information section from
your policy's investment options in proportion to the amount of account value
you have in each. For each month that we cannot deduct any charge because of
insufficient account value, the uncollected charges will accumulate and be
deducted when and if sufficient account value becomes available.
The insurance under the policy continues in full force during any grace period
but, if the last surviving insured person dies during the policy grace period,
the amount of unpaid monthly charges is deducted from the death benefit
otherwise payable.
Reduced charges for eligible classes
The charges otherwise applicable may be reduced with respect to policies
issued to a class of associated individuals or to a trustee, employer or similar
entity where we anticipate that the sales to the members of the class will
result in lower than normal sales or administrative expenses, lower taxes or
lower risks to us. We will make these reductions in accordance with our rules in
effect at the time of the application for a policy. The factors we consider in
determining the eligibility of a particular group for reduced charges, and the
level of the reduction, are as follows: the nature of the association and its
organizational framework; the method by which sales will be made to the members
of the class; the facility with which premiums will be collected from the
associated individuals and the association's capabilities with respect to
administrative tasks; the anticipated lapse and surrender rates of the policies;
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the size of the class of associated individuals and the number of years it has
been in existence; the aggregate amount of premiums paid; and any other such
circumstances which result in a reduction in sales or administrative expenses,
lower taxes or lower risks. Any reduction in charges will be reasonable and will
apply uniformly to all prospective policy purchasers in the class and will not
unfairly discriminate against any owner.
HOW WE MARKET THE POLICIES
Signator Investors, Inc. ("Signator"), an indirect wholly-owned subsidiary of
John Hancock located at 197 Clarendon Street, Boston, MA 02117, is registered as
a broker-dealer under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc. and the Securities Investor
Protection Corporation. Signator acts as principal underwriter and principal
distributor of the policies pursuant to a sales agreement among John Hancock,
Signator, JHVLICO, and the Account. Signator also serves as principal
underwriter for John Hancock Variable Annuity Accounts U, I and V, John Hancock
Mutual Variable Life Insurance Account UV and John Hancock Variable Life
Accounts U and V, all of which are registered under the 1940 Act. Signator is
also the principal underwriter for John Hancock Variable Series Trust I.
Applications for policies are solicited by agents who are licensed by state
insurance authorities to sell JHVLICO's policies and who are also registered
representatives ("representatives") of Signator or other broker-dealer firms, as
discussed below. John Hancock (on behalf of JHVLICO) performs insurance
underwriting and determines whether to accept or reject the application for a
policy and each insured person's risk classification. JHVLICO will make the
appropriate refund if a policy ultimately is not issued or is returned under the
"free look" provision. Officers and employees of John Hancock and JHVLICO are
covered by a blanket bond by a commercial carrier in the amount of $25 million.
Signator's representatives are compensated for sales of the policies on a
commission and service fee basis by Signator, and JHVLICO reimburses Signator
for such compensation and for other direct and indirect expenses (including
agency expense allowances, general agent, district manager and supervisor's
compensation, agent's training allowances, deferred compensation and insurance
benefits of agents, general agents, district managers and supervisors, agency
office clerical expenses and advertising) actually incurred in connection with
the marketing and sale of the policies.
The maximum commission payable to a Signator representative for selling a
policy is 45% of the Target Premium paid in the first policy year, 5% of the
Target Premium paid in each of the second through fifth policy years, and 3% of
the Target Premium paid in each policy year thereafter. The maximum commission
on any premium paid in any policy year in excess of the Target Premium is 3%.
Representatives with less than four years of service with Signator and those
compensated on salary plus bonus or level commission programs may be paid on a
different basis. Representatives who meet certain productivity and persistency
standards with respect to the sale of policies issued by JHVLICO and John
Hancock will be eligible for additional compensation.
The policies are also sold through other registered broker-dealers that have
entered into selling agreements with Signator and whose representatives are
authorized by applicable law to sell variable life insurance policies. The
commissions which will be paid by such broker-dealers to their representatives
will be in accordance with their established rules. The commission rates may be
more or less than those set forth above for Signator's representatives. In
addition, their qualified registered representatives may be reimbursed by the
broker-dealers under expense reimbursement allowance programs in any year for
approved voucherable expenses incurred. Signator will compensate the
broker-dealers as provided in the selling agreements,
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and JHVLICO will reimburse Signator for such amounts and for certain other
direct expenses in connection with marketing the policies through other
broker-dealers.
Representatives of Signator and the other broker-dealers mentioned above may
also earn "credits" toward qualification for attendance at certain business
meetings sponsored by John Hancock.
The offering of the policies is intended to be continuous, but neither JHVLICO
nor Signator is obligated to sell any particular amount of policies.
TAX CONSIDERATIONS
This description of federal income tax consequences is only a brief summary
and is not intended as tax advice. Tax consequences will vary based on your own
particular circumstances, and for further information you should consult a
qualified tax advisor. Federal, state and local tax laws, regulations and
interpretations can change from time to time. As a result, the tax consequences
to you and the beneficiary may be altered, in some cases retroactively.
Policy proceeds
We believe the policy will receive the same federal income and estate tax
treatment as fixed benefit life insurance policies. Section 7702 of the Internal
Revenue Code (the "Code") defines life insurance for federal tax purposes. If
certain standards are met at issue and over the life of the policy, the policy
will satisfy that definition. We will monitor compliance with these standards.
If the policy complies with the definition of life insurance, we believe the
death benefit under the policy will be excludable from the beneficiary's gross
income under the Code. In addition, increases in account value as a result of
interest or investment experience will not be subject to federal income tax
unless and until values are actually received through distributions.
Distributions for tax purposes can include amounts received upon surrender or
partial withdrawals. You may also be deemed to have received a distribution for
tax purposes if you assign all or part of your policy rights or change your
policy's ownership.
In general, the owner will be taxed on the amount of distributions that exceed
the premiums paid under the policy. But under certain circumstances within the
first 15 policy years, the owner may be taxed on a distribution even if total
withdrawals do not exceed total premiums paid. Any taxable distribution will be
ordinary income to the owner (rather than capital gains).
We also believe that, except as noted below, loans received under the policy
will be treated as indebtedness of an owner and that no part of any loan will
constitute income to the owner. However, the amount of any outstanding loan that
was not previously considered income (as discussed below) will be treated as if
it had been distributed to the owner if the policy terminates for any reason.
It is possible that, despite our monitoring, a policy might fail to qualify as
life insurance under Section 7702 of the Code. This could happen, for example,
if we inadvertently failed to return to you any premium payments that were in
excess of permitted amounts, or if the Trust failed to meet certain investment
diversification or other requirements of the Code. If this were to occur, you
would be subject to income tax on the income and gains under the policy for the
period of the disqualification and for subsequent periods.
In the past, the United States Treasury Department has stated that it
anticipated issuing guidelines prescribing circumstances in which the ability of
a policy owner to direct his or her investment to particular funds may cause the
policy owner, rather than the insurance company, to be treated as the owner of
the shares of those funds. In that case, any income and gains attributable to
those shares would be included in your current gross income for federal income
tax purposes. Under current law, however, we believe that we, and not the
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owner of a policy, would be considered the owner of the fund's shares for tax
purposes.
Tax consequences of ownership or receipt of policy proceeds under federal,
state and local estate, inheritance, gift and other tax laws depend on the
circumstances of each owner or beneficiary.
Because there may be unfavorable tax consequences (including recognition of
taxable income and the loss of income tax-free treatment for any death benefit
payable to the beneficiary), you should consult a qualified tax adviser prior to
changing the policy's ownership or making any assignment of ownership interests.
7-pay premium limit
At the time of policy issuance, we will determine whether the Planned Premium
schedule will exceed the 7-pay limit discussed below. If so, our standard
procedures prohibit issuance of the policy unless you sign a form acknowledging
that fact.
The 7-pay limit is the total of net level premiums that would have been
payable at any time for a comparable fixed policy to be fully "paid-up" after
the payment of 7 equal annual premiums. "Paid-up" means that no further premiums
would be required to continue the coverage in force until maturity, based on
certain prescribed assumptions. If the total premiums paid at any time during
the first 7 policy years exceed the 7-pay limit, the policy will be treated as a
"modified endowment", which can have adverse tax consequences.
The owner will be taxed on distributions and loans from a "modified endowment"
to the extent of any income (gain) to the owner (on an income-first basis). The
distributions and loans affected will be those made on or after, and within the
two year period prior to, the time the policy becomes a modified endowment.
Additionally, a 10% penalty tax may be imposed on taxable portions of such
distributions or loans that are made before the owner attains age 591/2.
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, a change in death benefit option, or reinstatement of a
lapsed policy), the policy will have a new 7-pay limit as if it were a
newly-issued policy. If a prescribed portion of the policy's then account value,
plus all other premiums paid within 7 years after the material change, at any
time exceed the new 7-pay limit, the policy will become a modified endowment.
Moreover, if benefits under a policy are reduced (such as a reduction in the
Total Sum Insured or death benefit or the reduction or cancellation of certain
rider benefits) during the 7 years in which a 7-pay test is being applied, the
7-pay limit will be recalculated based on the reduced benefits. If the premiums
paid to date are greater than the recalculated 7-pay limit, the policy will
become a modified endowment.
All modified endowments issued by the same insurer (or its affiliates) to the
owner during any calendar year generally will be treated as one contract for the
purpose of applying the modified endowment rules. A policy received in exchange
for a modified endowment will itself also be a modified endowment. You should
consult your tax advisor if you have questions regarding the possible impact of
the 7-pay limit on your policy.
Corporate and H.R. 10 plans
The policy may be acquired in connection with the funding of retirement plans
satisfying the qualification requirements of Section 401 of the Code. If so, the
Code provisions relating to such plans and life insurance benefits thereunder
should be carefully scrutinized. We are not responsible for compliance with the
terms of any such plan or with the requirements of applicable provisions of the
Code.
REPORTS THAT YOU WILL RECEIVE
At least annually, we will send you a statement setting forth the following
information as of the end
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of the most recent reporting period: the amount of the death benefit, the Basic
Sum Insured and the Additional Sum Insured, the account value, the portion of
the account value in each investment option, the surrender value, premiums
received and charges deducted from premiums since the last report, and any
outstanding policy loan (and interest charged for the preceding policy year).
Moreover, you also will receive confirmations of premium payments, transfers
among investment options, policy loans, partial withdrawals and certain other
policy transactions.
Semiannually we will send you a report containing the financial statements of
the Trust, including a list of securities held in each fund.
VOTING PRIVILEGES THAT YOU WILL HAVE
All of the assets in the subaccounts of the Account are invested in shares of
the corresponding funds of the Trust. We will vote the shares of each of the
funds of the Trust which are deemed attributable to variable life insurance
policies at regular and special meetings of the Trust's shareholders in
accordance with instructions received from owners of such policies. Shares of
the Trust held in the Account which are not attributable to such policies, as
well as shares for which instructions from owners are not received, will be
represented by us at the meeting. We will vote such shares for and against each
matter in the same proportions as the votes based upon the instructions received
from the owners of such policies.
We determine the number of a fund's shares held in a subaccount attributable
to each owner by dividing the amount of a policy's account value held in the
subaccount by the net asset value of one share in the fund. Fractional votes
will be counted. We determine the number of shares as to which the owner may
give instructions as of the record date for the Trust's meeting. Owners of
policies may give instructions regarding the election of the Board of Trustees
of the Trust, ratification of the selection of independent auditors, approval of
Trust investment advisory agreements and other matters requiring a shareholder
vote. We will furnish owners with information and forms to enable owners to give
voting instructions.
However, we may, in certain limited circumstances permitted by the SEC's
rules, disregard voting instructions. If we do disregard voting instructions,
you will receive a summary of that action and the reasons for it in the next
semi-annual report to owners.
CHANGES THAT JHVLICO CAN MAKE AS TO YOUR POLICY
Changes relating to the Trust or the Account
The voting privileges described in this prospectus reflect our understanding
of applicable Federal securities law requirements. To the extent that applicable
law, regulations or interpretations change to eliminate or restrict the need for
such voting privileges, we reserve the right to proceed in accordance with any
such revised requirements. We also reserve the right, subject to compliance with
applicable law, including approval of owners if so required, (1) to transfer
assets determined by JHVLICO to be associated with the class of policies to
which your policy belongs from the Account to another separate account or
subaccount, (2) to operate the Account as a "management-type investment company"
under the 1940 Act, or in any other form permitted by law, the investment
adviser of which would be JHVLICO, John Hancock, or an affiliate of either, (3)
to deregister the Account under the 1940 Act, (4) to substitute for the fund
shares held by a subaccount any other investment permitted by law, and (5) to
take any action necessary to comply with or obtain any exemptions from the 1940
Act. We would notify owners of any of the foregoing changes and, to the extent
legally required, obtain approval of owners and any regulatory body prior
thereto. Such notice and approval, however, may not be legally required in all
cases.
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Other permissible changes
We reserve the right to make any changes in the policy necessary to ensure the
policy is within the definition of life insurance under the Federal tax laws and
is in compliance with any changes in Federal or state tax laws.
In our policies, we reserve the right to make certain changes if they would
serve the best interests of policy owners or would be appropriate in carrying
out the purposes of the policies. Such changes include the following:
. Changes necessary to comply with or obtain or continue exemptions under
the federal securities laws
. Combining or removing investment options
. Changes in the form of organization of any separate account
Any such changes will be made only to the extent permitted by applicable laws
and only in the manner permitted by such laws. When required by law, we will
obtain your approval of the changes and the approval of any appropriate
regulatory authority.
ADJUSTMENTS WE MAKE TO DEATH BENEFITS
If either insured person commits suicide within certain time periods, the
amount of death benefit we pay will be limited as described in the policy. Also,
if an application misstated the age or gender of either insured person, we will
adjust the amount of any death benefit as described in the policy.
WHEN WE PAY POLICY PROCEEDS
General
We will pay any death benefit, withdrawal, surrender value or loan within 7
days after we receive the last required form or request (and, with respect to
the death benefit, any other documentation that may be required). If we don't
have information about the desired manner of payment within 7 days after the
date we receive notification of the death of the last surviving insured person,
we will pay the proceeds as a single sum, normally within 7 days thereafter.
Delay to challenge coverage
We may challenge the validity of your insurance policy based on any material
misstatements made to us in the application for the policy. We cannot make such
a challenge, however, beyond certain time limits that are specified in the
policy.
Delay for check clearance
We reserve the right to defer payment of that portion of your account value
that is attributable to a premium payment made by check for a reasonable period
of time (not to exceed 15 days) to allow the check to clear the banking system.
Delay of separate account proceeds
We reserve the right to defer payment of any death benefit, loan or other
distribution that is derived from a variable investment option if (a) the New
York Stock Exchange is closed (other than customary weekend and holiday
closings) or trading on the New York Stock Exchange is restricted; (b) an
emergency exists, as a result of which disposal of securities is not reasonably
practicable or it is not reasonably practicable to fairly determine the account
value; or (c) the SEC by order permits the delay for the protection of owners.
Transfers and allocations of account value among the investment options may also
be postponed under these circumstances. If we need to defer calculation of
separate account values for any of the foregoing reasons, all delayed
transactions will be processed at the next values that we do compute.
OTHER DETAILS ABOUT EXERCISING RIGHTS AND PAYING BENEFITS
Joint ownership
If more than one person owns a policy, all owners must join in most requests
to exercise rights under the policy.
41
<PAGE>
Assigning your policy
You may assign your rights in the policy to someone else as collateral for a
loan or for some other reason. Assignments do not require the consent of any
revocable beneficiary. A copy of the assignment must be forwarded to us. We are
not responsible for any payment we make or any action we take before we receive
notice of the assignment in good order. Nor are we responsible for the validity
of the assignment. An absolute assignment is a change of ownership. All
collateral assignees of record must consent to any full surrender, partial
withdrawal or loan from the policy.
Your beneficiary
You name your beneficiary when you apply for the policy. The beneficiary is
entitled to the proceeds we pay following the death of the last surviving
insured person. You may change the beneficiary during that insured person's
lifetime. Such a change requires the consent of any irrevocable named
beneficiary. A new beneficiary designation is effective as of the date you sign
it, but will not affect any payments we make before we receive it. If no
beneficiary is living when the last surviving insured person dies, we will pay
the insurance proceeds to the owner or the owner's estate.
LEGAL MATTERS
The legal validity of the policies described in this prospectus has been
passed on by Ronald J. Bocage, Vice President and Counsel for JHVLICO. Messrs.
Freedman, Levy, Kroll & Simonds, Washington, D.C., have advised us on certain
Federal securities law matters in connection with the policies.
REGISTRATION STATEMENT FILED WITH THE SEC
This prospectus omits certain information contained in the Registration
Statement which has been filed with the SEC. More details may be obtained from
the SEC upon payment of the prescribed fee.
ACCOUNTING AND ACTUARIAL EXPERTS
Certain of the financial statements of JHVLICO and the Account included in
this prospectus have been audited by Ernst & Young LLP, independent auditors,
for the periods indicated in their reports thereon which appear elsewhere herein
and 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 Todd G. Engelsen, F.S.A.,an Actuary of JHVLICO
and Second Vice President of John Hancock.
FINANCIAL STATEMENTS OF JHVLICO AND THE ACCOUNT
The financial statements of JHVLICO included herein should be distinguished
from the financial statements of the Account and should be considered only as
bearing upon the ability of JHVLICO to meet its obligations under the policies.
In addition to those financial statements of JHVLICO and the Account included
herein that have been audited by Ernst & Young LLP, this prospectus also
contains unaudited financial statements of both JHVLICO and the Account for a
period subsequent to the period covered by the audited financial statements.
42
<PAGE>
LIST OF DIRECTORS AND EXECUTIVE OFFICERS OF JHVLICO
The Directors and Executive Officers of JHVLICO and their principal
occupations during the past five years are as follows:
Directors Principal Occupations
- --------- ---------------------
David F. D'Alessandro Chairman of the Board and Chief Executive Officer of
JHVLICO; President and Chief Operating Officer, John
Hancock Life Insurance Company.
Michele G. Van Leer Vice Chairman of the Board and President of JHVLICO;
Senior Vice President, John Hancock Life Insurance
Company.
Ronald J. Bocage Director, Vice President and Counsel of JHVLICO; Vice
President and Counsel, John Hancock Life Insurance
Company.
Bruce M. Jones Director and Vice President of JHVLICO; Vice President,
John Hancock Life Insurance Company.
Thomas J. Lee Director and Vice President of JHVLICO; Vice President,
John Hancock Life Insurance Company.
Barbara L. Luddy Director, Vice President and Actuary of JHVLICO; Second
Vice President, John Hancock Life Insurance Company.
Robert S. Paster Director and Vice President of JHVLICO; Second Vice
President, John Hancock Life Insurance Company.
Robert R. Reitano Director and Vice President of JHVLICO; Vice President,
John Hancock Life Insurance Company.
Joseph A. Tomlinson Director and Vice President of JHVLICO; Vice President,
John Hancock Life Insurance Company.
Daniel L. Ouellette Vice President, Marketing, of JHVLICO; Senior Vice
President, John Hancock Life Insurance Company.
Edward P. Dowd Vice President, Investments, of JHVLICO; Senior Vice
President, John Hancock Life Insurance Company
Roger G. Nastou Vice President, Investments, of JHVLICO; Vice
President, John Hancock Life Insurance Company
Todd G. Engelsen Vice President and Illustration Actuary of JHVLICO;
Second Vice President, John Hancock Life Insurance
Company
Julie H. Indge Treasurer of JHVLICO; Financial Officer, John Hancock
Life Insurance Company
Patrick F. Smith Controller of JHVLICO; Senior Associate Controller,
John Hancock Life Insurance Company.
Peter H. Scavongelli Secretary of JHVLICO; State Compliance Officer, John
Hancock Life Insurance Company
The business address of all Directors and officers of JHVLICO is John Hancock
Place, Boston, Massachusetts 02117.
43
<PAGE>
UNAUDITED FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
(Unaudited)
September 30 December 31
1999 1998
------------ -------------
(In millions)
ASSETS
Bonds............................................ $1,246.0 $1,185.8
Preferred stocks................................. 33.9 36.5
Common stocks.................................... 2.0 3.1
Investment in affiliates......................... 80.8 81.7
Mortgage loans on real estate.................... 416.2 388.1
Real estate...................................... 24.9 41.0
Policy loans..................................... 163.3 137.7
Cash items:
Cash in banks.................................. (6.3) 11.4
Temporary cash investments..................... 79.1 8.5
-------- --------
72.8 19.9
Premiums due and deferred........................ 29.3 32.7
Investment income due and accrued................ 38.2 29.8
Other general account assets..................... 75.8 47.5
Assets held in separate accounts................. 7,259.0 6,595.2
-------- --------
TOTAL ASSETS..................................... $9,442.2 $8,599.0
======== ========
OBLIGATIONS AND STOCKHOLDER'S EQUITY
OBLIGATIONS
Policy reserves................................ $1,807.6 $1,652.0
Federal income and other taxes payable......... 43.7 44.3
Other general account obligations.............. 318.2 150.9
Transfers from separate account, net........... (330.1) (190.3)
Asset valuation reserve........................ 23.8 21.9
Obligations related to separate accounts....... 7,253.0 6,589.4
-------- --------
TOTAL OBLIGATIONS................................ 9,116.2 8,268.2
STOCKHOLDER'S EQUITY
Common Stock, $50 par value; authorized 50,000
shares; issued and outstanding 50,000 shares 2.5 2.5
Paid-in capital................................ 547.9 377.5
Unassigned deficit............................. (224.4) (49.2)
-------- --------
TOTAL STOCKHOLDER'S EQUITY....................... 326.0 330.8
-------- --------
TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY....... $9,442.2 $8,599.0
======== ========
See condensed notes to the financial statements (unaudited).
44
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
<TABLE>
<CAPTION>
(Unaudited)
Three months ended Nine months ended
September 30 September 30
------------------- ---------------------
1999 1998 1999 1998
--------- -------- --------- ----------
(In millions)
<S> <C> <C> <C> <C>
INCOME
Premiums............................................ $ 236.9 $274.7 $ 689.1 $1,047.3
Net investment income............................... 35.0 28.6 99.4 86.5
Other, net.......................................... 162.9 181.5 424.8 459.2
------- ------ -------- --------
434.8 484.8 1,213.3 1,593.0
BENEFITS AND EXPENSES
Payments to policyholders and
beneficiaries..................................... 91.5 74.4 265.9 224.6
Additions to reserves to provide for future payments
to policyholders and beneficiaries................ 223.0 333.1 659.8 1,124.0
Expenses of providing service to policyholders and
obtaining new insurance........................... 71.8 55.4 225.3 196.7
State and miscellaneous taxes....................... 5.0 6.0 15.9 23.5
------- ------ -------- --------
391.3 468.9 1,166.9 1,568.8
------- ------ -------- --------
GAIN FROM OPERATIONS BEFORE FEDERAL INCOME
TAXES AND NET REALIZED CAPITAL GAINS (LOSSES) 43.5 15.9 46.4 24.2
Federal income taxes.................................. 20.8 7.6 20.4 13.6
------- ------ -------- --------
GAIN FROM OPERATIONS BEFORE NET REALIZED
CAPITAL GAINS (LOSSES)....................... 22.7 8.3 26.0 10.6
Net realized capital gains (losses)................... 1.4 0.3 0.4 (0.6)
------- ------ -------- --------
NET INCOME.................................... 24.1 8.6 26.4 10.0
Unassigned deficit at beginning of period............. (52.2) (55.2) (49.2) (58.3)
Net unrealized capital gains (losses) and other
adjustments.......................................... (0.4) 1.2 (3.5) 3.7
Provision for Litigation Reserve...................... (194.9) 0.0 (194.9) 0.0
Other reserves and adjustments........................ (1.0) (0.1) (3.2) (0.9)
------- ------ -------- --------
UNASSIGNED DEFICIT AT END OF PERIOD................... $(224.4) $(45.5) $ (224.4) $ (45.5)
======= ====== ======== ========
</TABLE>
See condensed notes to the financial statements (unaudited).
45
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30
-------------------------------
1999 1998
------------ -- -----------
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Insurance premiums....................... $ 691.1 $1,051.7
Net investment income.................... 92.1 81.0
Benefits to policyholders and
beneficiaries.......................... (358.0) (203.2)
Dividends paid to policyholders.......... (19.0) (16.6)
Insurance expenses and taxes............. (268.1) (243.7)
Net transfers to separate accounts....... (519.4) (676.5)
Other, net............................... 386.7 459.7
------- --------
NET CASH PROVIDED FROM OPERATIONS..... 5.4 452.4
------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Bond purchases........................... (194.8) (533.8)
Bond sales............................... 61.2 192.6
Bond maturities and scheduled redemptions 57.5 71.9
Bond prepayments......................... 16.6 52.3
Stock purchases.......................... (1.2) (20.9)
Proceeds from stock sales................ 3.6 1.7
Real estate purchases.................... (1.9) (2.0)
Real estate sales........................ 17.8 1.3
Other invested assets purchases.......... (4.5) 0.0
Proceeds from the sale of other invested
assets................................. 0.0 0.2
Mortgage loans issued.................... (48.0) (76.2)
Mortgage loan repayments................. 19.6 20.9
Other, net............................... 13.3 (443.8)
------- --------
NET CASH USED IN INVESTING ACTIVITIES (60.8) (735.8)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution..................... 170.4 0.0
Net increase (decrease) in short-term note
payable................................ (62.1) 152.3
------- --------
NET CASH PROVIDED FROM FINANCING
ACTIVITIES........................... 108.3 152.3
------- --------
INCREASE/DECREASE IN CASH AND TEMPORARY CASH
INVESTMENTS............................... 52.9 (131.1)
Cash and temporary cash investments at
beginning of year......................... 19.9 143.2
------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT END
OF PERIOD................................. $ 72.8 $ 12.1
======= ========
See condensed notes to the financial statements (unaudited).
46
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
Common Paid-In Unassigned
Stock Capital Deficit Total
------ ------- ---------- ----------
(In millions)
For the nine months ended September
30, 1998 (unaudited)
Balance at January 1, 1998........... $2.5 $377.5 $(58.3) $ 321.7
1998 Transactions:
Capital Contribution...............
Net gain........................... 10.0 10.0
Net unrealized capital gains and
other adjustments................ 3.7 3.7
Other reserves and adjustments..... (0.9) (0.9)
---- ------ ------- -------
Balance at September 30, 1998........ $2.5 $377.5 $ (45.5) $ 334.5
==== ====== ======= =======
For the nine months ended September
30, 1999 (unaudited)
Balance at January 1, 1999........... $2.5 $377.5 $ (49.2) $ 330.8
1999 Transactions:
Capital Contribution............... 170.4 170.4
Net gain........................... 26.4 26.4
Net unrealized capital gains and
other adjustments................ (3.5) (3.5)
Provision for Litigation Reserve... (194.9) (194.9)
Other reserves and adjustments..... (3.2) (3.2)
---- ------ ------- -------
Balance at September 30, 1999........ $2.5 $547.9 $(224.4) $ 326.0
==== ====== ======= =======
See condensed notes to the financial statements (unaudited).
47
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been prepared on
the basis of accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance and in conformity with the practices of the
National Association of Insurance Commissioners, which practices differ from
generally accepted accounting principles (GAAP). Pursuant to Financial
Accounting Standard Board Interpretation 40, "Applicability of General Accepted
Accounting Principles to Mutual Life Insurance and Other Enterprises" (FIN 40),
as amended which was effective for 1996 financial statements, financial
statements based on statutory accounting practices can no longer be described as
prepared in conformity with GAAP.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine-month period ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999.
48
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Directors and Policyholders
John Hancock Variable Life Insurance Company
We have audited the accompanying statutory-basis statements of financial
position of John Hancock Variable Life Insurance Company as of December 31, 1998
and 1997, and the related statutory-basis statements of operations and
unassigned deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Commonwealth of Massachusetts Division of Insurance, which
practices differ from generally accepted accounting principles. The variances
between such practices and generally accepted accounting principles also are
described in Note 1. The effects on the financial statements of these variances
are not reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matter described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of John Hancock Variable Life Insurance Company at December
31, 1998 and 1997, or the results of its operations or its cash flows for the
years then ended.
Also, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of John Hancock
Variable Life Insurance Company at December 31, 1998 and 1997, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance.
ERNST & YOUNG LLP
Boston, Massachusetts
February 19, 1999
49
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION
December 31
---------------------
1998 1997
--------- ----------
(In millions)
ASSETS
Bonds--Note 6......................................... $1,185.8 $1,092.7
Preferred stocks...................................... 36.5 17.2
Common stocks......................................... 3.1 2.3
Investment in affiliates.............................. 81.7 79.1
Mortgage loans on real estate--Note 6................. 388.1 273.9
Real estate........................................... 41.0 39.9
Policy loans.......................................... 137.7 106.8
Cash items:
Cash in banks....................................... 11.4 83.1
Temporary cash investments.......................... 8.5 60.1
-------- --------
19.9 143.2
Premiums due and deferred............................. 32.7 33.8
Investment income due and accrued..................... 29.8 24.7
Other general account assets.......................... 47.5 16.8
Assets held in separate accounts...................... 6,595.2 4,691.1
-------- --------
TOTAL ASSETS.......................................... $8,599.0 $6,521.5
======== ========
OBLIGATIONS AND STOCKHOLDER'S EQUITY
OBLIGATIONS
Policy reserves..................................... $1,652.0 $1,124.3
Federal income and other taxes payable--Note 1...... 44.3 36.1
Other general account obligations................... 150.9 481.9
Transfers from separate accounts, net............... (190.3) (146.8)
Asset valuation reserve--Note 1..................... 21.9 18.6
Obligations related to separate accounts............ 6,589.4 4,685.7
-------- --------
TOTAL OBLIGATIONS..................................... 8,268.2 6,199.8
STOCKHOLDER'S EQUITY
Common Stock, $50 par value; authorized 50,000
shares; issued and outstanding 50,000 shares...... 2.5 2.5
Paid-in capital..................................... 377.5 377.5
Unassigned deficit.................................. (49.2) (58.3)
-------- --------
TOTAL STOCKHOLDER'S EQUITY............................ 330.8 321.7
-------- --------
TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY............ $8,599.0 $6,521.5
======== ========
The accompanying notes are an integral part of the statutory-basis financial
statements.
50
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
Year ended December 31
-----------------------
1998 1997
----------- ----------
(In millions)
INCOME
Premiums........................................ $1,272.3 $ 872.7
Net investment income--Note 3................... 122.8 89.7
Other, net...................................... 618.1 449.1
-------- --------
2,013.2 1,411.5
BENEFITS AND EXPENSES
Payments to policyholders and beneficiaries..... 301.4 264.0
Additions to reserves to provide for future
payments to policyholders and beneficiaries... 1,360.2 826.2
Expenses of providing service to policyholders
and obtaining new insurance--Note 5........... 274.2 233.2
State and miscellaneous taxes................... 28.1 19.1
-------- --------
1,963.9 1,342.5
-------- --------
GAIN FROM OPERATIONS BEFORE FEDERAL INCOME
TAXES AND NET REALIZED CAPITAL LOSSES....... 49.3 69.0
Federal income taxes--Note 1...................... 33.1 38.5
-------- --------
GAIN FROM OPERATIONS BEFORE NET REALIZED
CAPITAL LOSSES.............................. 16.2 30.5
Net realized capital losses--Note 4............... (0.6) (3.0)
-------- --------
NET INCOME................................... 15.6 27.5
Unassigned deficit at beginning of year........... (58.3) (96.9)
Net unrealized capital (losses) gains and other
adjustments--Note 4.............................. (6.0) 5.0
Other reserves and adjustments.................... (0.5) 6.1
-------- --------
UNASSIGNED DEFICIT AT END OF YEAR................. $ (49.2) $ (58.3)
======== ========
The accompanying notes are an integral part of the statutory-basis financial
statements.
51
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
Year ended December 31
----------------------
1998 1997
---------- ----------
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Insurance premiums .............................. $1,275.3 $ 877.0
Net investment income ........................... 118.2 89.9
Benefits to policyholders and beneficiaries ..... (275.5) (245.2)
Dividends paid to policyholders ................. (22.3) (18.7)
Insurance expenses and taxes .................... (296.9) (267.2)
Net transfers to separate accounts .............. (874.4) (715.2)
Other, net ...................................... 551.3 408.9
-------- --------
NET CASH PROVIDED FROM OPERATIONS ............ 475.7 129.5
-------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Bond purchases .................................. (618.8) (621.6)
Bond sales ...................................... 340.7 197.3
Bond maturities and scheduled redemptions ....... 111.8 34.1
Bond prepayments ................................ 76.5 51.6
Stock purchases ................................. (23.4) (15.7)
Proceeds from stock sales ....................... 1.9 6.7
Real estate purchases ........................... (4.2) (1.3)
Real estate sales ............................... 2.1 0.4
Other invested assets purchases ................. 0.0 (1.0)
Proceeds from the sale of other invested assets . 0.0 0.3
Mortgage loans issued ........................... (145.5) (94.5)
Mortgage loan repayments ........................ 33.2 32.4
Other, net ...................................... (435.2) 393.1
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ........ (660.9) (18.2)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term note payable ......... 61.9 0.0
-------- --------
NET CASH PROVIDED FROM FINANCING ACTIVITIES .. 61.9 0.0
-------- --------
(DECREASE) INCREASE IN CASH AND TEMPORARY CASH
INVESTMENTS ...................................... (123.3) 111.3
Cash and temporary cash investments at beginning of
year ............................................. 143.2 31.9
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 19.9 $ 143.2
======== ========
The accompanying notes are an integral part of the statutory-basis financial
statements.
52
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES
John Hancock Variable Life Insurance Company (the Company) is a wholly-owned
subsidiary of John Hancock Mutual Life Insurance Company (John Hancock). The
Company, domiciled in the Commonwealth of Massachusetts, principally writes
variable and universal life insurance policies. Those policies primarily are
marketed through John Hancock's sales organization, which includes a career
agency system composed of company-owned, unionized branch offices and
independent general agencies. Policies also are sold through various
unaffiliated securities broker-dealers and certain other financial institutions.
Currently, the Company writes business in all states except New York.
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes known, which could impact the amounts reported and
disclosed herein.
Basis of Presentation: The financial statements have been prepared using
accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance and in conformity with the practices of the
National Association of Insurance Commissioners (NAIC), which practices differ
from generally accepted accounting principles (GAAP).
The significant differences from GAAP include: (1) policy acquisition costs are
charged to expense as incurred rather than deferred and amortized over the
related premium-paying period; (2) policy reserves are based on statutory
mortality, morbidity, and interest requirements without consideration of
withdrawals and Company experience; (3) certain assets designated as
"nonadmitted assets" are excluded from the balance sheet by direct charges to
surplus; (4) reinsurance recoverables are netted against reserves and claim
liabilities rather than reflected as an asset; (5) bonds held as available for
sale are recorded at amortized cost or market value as determined by the NAIC
rather than at fair value; (6) an Asset Valuation Reserve and Interest
Maintenance Reserve as prescribed by the NAIC are not calculated under GAAP.
Under GAAP, realized capital gains and losses are reported in the income
statement on a pretax basis as incurred and investment valuation allowances are
provided when there has been a decline in value deemed other than temporary; (7)
investments in affiliates are carried at their net equity value with changes in
value being recorded directly to unassigned deficit rather than consolidated in
the financial statements; (8) no provision is made for the deferred income tax
effects of temporary differences between book and tax basis reporting; and (9)
certain items, including modifications to required policy reserves resulting
from changes in actuarial assumptions, are recorded directly to unassigned
deficit rather than being reflected in income. The effects of the foregoing
variances from GAAP have not been determined but are presumed to be material.
The significant accounting practices of the Company are as follows:
Pending Statutory Standards: During March 1998, the NAIC adopted the
codification of statutory accounting practices, which is effective in 2001.
Codification will likely change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting practices that the Company
uses to prepare its statutory-basis financial statements. Codification will
require adoption by the various states before it becomes the prescribed
statutory basis of accounting for insurance companies domesticated within those
states. Accordingly, before codification becomes effective for the Company, the
Massachusetts Division of Insurance must adopt codification as the prescribed
basis of accounting on which domestic insurers must report their statutory-basis
results to the Division of Insurance. The impact of any such changes on the
Company's unassigned deficit is not expected to be material.
Revenues and Expenses: Premium revenues are recognized over the premium-paying
period of the policies whereas expenses, including the acquisition costs of new
business, are charged to operations as incurred and policyholder dividends are
provided as paid or accrued.
53
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
Cash and Temporary Cash Investments: Cash includes currency on hand and demand
deposits with financial institutions. Temporary cash investments are short-term,
highly-liquid investments both readily convertible to known amounts of cash and
so near maturity that there is insignificant risk of changes in value because of
changes in interest rates.
Valuation of Assets: General account investments are carried at amounts
determined on the following bases:
Bond and stock values are carried as prescribed by the NAIC; bonds generally
at amortized amounts or cost, preferred stocks generally at cost and common
stocks at fair value. The discount or premium on bonds is amortized using the
interest method.
Investments in affiliates are included on the statutory equity method.
Loan-backed bonds and structured securities are valued at amortized cost using
the interest method including anticipated prepayments. Prepayment assumptions
are obtained from broker dealer surveys or internal estimates and are based on
the current interest rate and economic environment. The retrospective
adjustment method is used to value all such securities except for
interest-only securities, which are valued using the prospective method.
The net interest effect of interest rate and currency rate swap transactions
is recorded as an adjustment of interest income as incurred. The initial cost
of interest rate cap agreements is amortized to net investment income over the
life of the related agreement. Gains and losses on financial futures contracts
used as hedges against interest rate fluctuations are deferred and recognized
in income over the period being hedged.
Mortgage loans are carried at outstanding principal balance or amortized cost.
Investment real estate is carried at depreciated cost, less encumbrances.
Depreciation on investment real estate is recorded on a straight-line basis.
Accumulated depreciation amounted to $3.0 million in 1998 and $2.1 million in
1997.
Real estate acquired in satisfaction of debt and real estate held for sale are
carried at the lower of cost or fair value.
Policy loans are carried at outstanding principal balance, not in excess of
policy cash surrender value.
Asset Valuation and Interest Maintenance Reserves: The Asset Valuation Reserve
(AVR) is computed in accordance with the prescribed NAIC formula and represents
a provision for possible fluctuations in the value of bonds, equity securities,
mortgage loans, real estate and other invested assets. Changes to the AVR are
charged or credited directly to the unassigned deficit.
The Company also records the NAIC prescribed Interest Maintenance Reserve (IMR)
that represents that portion of the after tax net accumulated unamortized
realized capital gains and losses on sales of fixed income securities,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates. Such gains and losses are deferred and amortized into
income over the remaining expected lives of the investments sold. At December
31, 1998, the IMR, net of 1998 amortization of $2.4 million, amounted to $10.7
million, which is included in policy reserves. The corresponding 1997 amounts
were $1.2 million and $7.8 million, respectively.
Goodwill: The excess of cost over the statutory book value of the net assets of
life insurance business acquired was $11.4 million and $13.1 million at December
31, 1998 and 1997, respectively, and generally is amortized over a ten-year
period using a straight-line method.
54
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
Separate Accounts: Separate account assets and liabilities reported in the
accompanying statements of financial position represent funds that are
separately administered, principally for variable life insurance policies, and
for which the contractholder, rather than the Company, generally bears the
investment risk. Separate account obligations are intended to be satisfied from
separate account assets and not from assets of the general account. Separate
accounts generally are reported at fair value. The operations of the separate
accounts are not included in the statement of operations; however, income earned
on amounts initially invested by the Company in the formation of new separate
accounts is included in other income.
Fair Value Disclosure of Financial Instruments: Statement of Financial
Accounting Standards (SFAS) No. 107, "Disclosure about Fair Value of Financial
Instruments," requires disclosure of fair value information about certain
financial instruments, whether or not recognized in the statement of financial
position, for which it is practicable to estimate the value. In situations where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. SFAS No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Therefore, the aggregate fair value amounts presented do not
represent the underlying value of the Company. See Note 11.
The methods and assumptions utilized by the Company in estimating its fair value
disclosures for financial instruments are as follows:
The carrying amounts reported in the statement of financial position for cash
and temporary cash investments approximate their fair values.
Fair values for public bonds are obtained from an independent pricing service.
Fair values for private placement securities and publicly traded bonds not
provided by the independent pricing service are estimated by the Company by
discounting expected future cash flows using current market rates applicable
to the yield, credit quality and maturity of the investments.
The fair values for common and preferred stocks, other than its subsidiary
investments, which are carried at equity values, are based on quoted market
prices.
Fair values for futures contracts are based on quoted market prices. Fair
values for interest rate swap, cap agreements, and currency swap agreements
are based on current settlement values. The current settlement values are
based on brokerage quotes that utilize pricing models or formulas using
current assumptions.
The fair value for mortgage loans is estimated using discounted cash flow
analyses using interest rates adjusted to reflect the credit characteristics
of the underlying loans. Mortgage loans with similar characteristics and
credit risks are aggregated into qualitative categories for purposes of the
fair value calculations.
The carrying amount in the statement of financial position for policy loans
approximates their fair value.
The fair value for outstanding commitments to purchase long-term bonds and
issue real estate mortgages is estimated using a discounted cash flow method
incorporating adjustments for the difference in the level of interest rates
between the dates the commitments were made and December 31, 1998.
Capital Gains and Losses: Realized capital gains and losses are determined using
the specific identification method. Realized capital gains and losses, net of
taxes and amounts transferred to the IMR, are included in net gain or loss.
Unrealized gains and losses, which consist of market value and book value
adjustments, are shown as adjustments to the unassigned deficit.
55
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
Policy Reserves: Life reserves are developed by actuarial methods and are
determined based on published tables using statutorily specified interest rates
and valuation methods that will provide, in the aggregate, reserves that are
greater than or equal to the minimum or guaranteed policy cash values or the
amounts required by the Commonwealth of Massachusetts Division of Insurance.
Reserves for variable life insurance policies are maintained principally on the
modified preliminary term method using the 1958 and 1980 Commissioner's Standard
Ordinary (CSO) mortality tables, with an assumed interest rate of 4% for
policies issued prior to May 1, 1983 and 4 1/2% for policies issued on or
thereafter. Reserves for single premium policies are determined by the net
single premium method using the 1958 CSO mortality table, with an assumed
interest rate of 4%. Reserves for universal life policies issued prior to 1985
are equal to the gross account value which at all times exceeds minimum
statutory requirements. Reserves for universal life policies issued from 1985
through 1988 are maintained at the greater of the Commissioner's Reserve
Valuation Method (CRVM) using the 1958 CSO mortality table, with 4 1/2% interest
or the cash surrender value. Reserves for universal life policies issued after
1988 and for flexible variable policies are maintained using the greater of the
cash surrender value or the CRVM method with the 1980 CSO mortality table and
5 1/2% interest for policies issued from 1988 through 1992; 5% interest for
policies issued in 1993 and 1994; and 4 1/2% interest for policies issued in
1995 through 1998.
Federal Income Taxes: Federal income taxes are reported in the financial
statements based on amounts determined to be payable as a result of operations
within the current accounting period. The operations of the Company are
consolidated with John Hancock in filing a consolidated federal income tax
return basis for the affiliated group. The federal income taxes of the Company
are allocated on a separate return basis with certain adjustments. The Company
made payments of $38.2 million in 1998 and $29.6 million in 1997.
Income before taxes differs from taxable income principally due to tax-exempt
investment income, the limitation placed on the tax deductibility of
policyholder dividends, accelerated depreciation, differences in policy reserves
for tax return and financial statement purposes, capitalization of policy
acquisition expenses for tax purposes and other adjustments prescribed by the
Internal Revenue Code.
Amounts for disputed tax issues relating to the prior years are charged or
credited directly to policyholders' contingency reserve.
Adjustments to Policy Reserves: From time to time, the Company finds it
appropriate to modify certain required policy reserves because of changes in
actuarial assumptions. Reserve modifications resulting from such determinations
are recorded directly to stockholder's equity. During 1997, the Company refined
certain actuarial assumptions inherent in the calculation of reserves related to
AIDS claims under individual life insurance policies resulting in a $6.4 million
increase in stockholder's equity at December 31, 1997. No additional refinements
were made during 1998.
Reinsurance: Premiums, commissions, expense reimbursements, benefits and
reserves related to reinsured business are accounted for on bases consistent
with those used in accounting for the original policies issued and the terms of
the reinsurance contracts. Premiums ceded to other companies have been reported
as a reduction of premium income. Amounts applicable to reinsurance ceded for
future policy benefits, unearned premium reserves and claim liabilities have
been reported as reductions of these items.
Reclassification: Certain 1997 amounts have been reclassified to conform to the
1998 presentation.
56
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 2--ACQUISITION
On June 23, 1993, the Company acquired all of the outstanding shares of stock of
Colonial Penn Annuity and Life Insurance Company (CPAL) from Colonial Penn Life
Insurance Company for an aggregate purchase price of approximately $42.5
million. At the date of acquisition, assets of CPAL were approximately $648.5
million, consisting principally of cash and temporary cash investments and
liabilities were approximately $635.2 million, consisting principally of
reserves related to a block of interest sensitive single-premium whole life
insurance business assumed by CPAL from Charter National Life Insurance Company
(Charter). The purchase price includes contingent payments of up to
approximately $7.3 million payable between 1994 and 1998 based on the actual
lapse experience of the business in force on June 23, 1993. The Company made
contingent payments to CPAL of $1.5 million during 1998 and 1997.
On June 24, 1993, the Company contributed $24.6 million in additional capital to
CPAL. CPAL was renamed John Hancock Life Insurance Company of America (JHLICOA)
on July 7, 1993. JHLICOA was subsequently renamed Investors Partner Life Company
(IPL) on March 5, 1998. IPL manages the business assumed from Charter and does
not currently issue new business.
NOTE 3--NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
1998 1997
------ ------
(In millions)
Investment expenses ................................... $ 8.3 $5.0
Interest expense ...................................... 2.4 0.7
Depreciation expense .................................. 0.8 1.1
Investment taxes ...................................... 0.7 0.4
----- ----
$12.2 $7.2
===== ====
NOTE 4--NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital gains (losses) consist of the following items:
1998 1997
------ ------
(In millions)
Net gains from asset sales ............................ $ 7.6 $ 0.8
Capital gains tax ..................................... (2.9) (0.7)
Net capital gains transferred to IMR .................. (5.3) (3.1)
----- -----
Net Realized Capital Losses ......................... $(0.6) $(3.0)
===== =====
Net unrealized capital (losses) gains and other adjustments consist of the
following items:
1998 1997
------ ------
(In millions)
Net (losses) gains from changes in security values
and book value adjustments ........................... $(2.7) $ 7.0
Increase in asset valuation reserve ................... (3.3) (2.0)
----- -----
Net Unrealized Capital (Losses) Gains and Other
Adjustments ....................................... $(6.0) $ 5.0
===== =====
57
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 5--TRANSACTIONS WITH PARENT
The Company's Parent provides the Company with personnel, property and
facilities in carrying out certain of its corporate functions. The Parent
annually determines a fee for these services and facilities based on a number of
criteria which were revised in 1998 and 1997 to reflect continuing changes in
the Company's operations. The amount of the service fee charged to the Company
was $157.5 million and $123.6 million in 1998 and 1997, respectively, which has
been included in insurance and investment expenses. The Parent has guaranteed
that, if necessary, it will make additional capital contributions to prevent the
Company's stockholder's equity from declining below $1.0 million.
The service fee charged to the Company by the Parent includes $0.7 million and
$0.9 million in 1998 and 1997, respectively, representing the portion of the
provision for retiree benefit plans determined under the accrual method,
including a provision for the 1993 transition liability which is being amortized
over twenty years, that was allocated to the Company.
The Company has a modified coinsurance agreement with John Hancock to reinsure
50% of 1994 through 1998 issues of flexible premium variable life insurance and
scheduled premium variable life insurance policies. In connection with this
agreement, John Hancock transferred $4.9 million and $22.0 million of cash for
tax, commission, and expense allowances to the Company, which increased the
Company's net gain from operations by $22.2 million and $10.1 million in 1998
and 1997, respectively.
The Company also has a modified coinsurance agreement with John Hancock to
reinsure 50% of 1995 through 1998 issues of certain retail annuity contracts
(Independence Preferred and Declaration). In connection with this agreement, the
Company received a net cash payment of $12.7 million in 1998 and made a net cash
payment of $1.1 million in 1997 for surrender benefits, tax, reserve increase,
commission, expense allowances and premium. This agreement increased the
Company's net gain from operations by $8.4 million and $9.8 million in 1998 and
1997, respectively.
Effective January 1, 1997, the Company entered into a stop-loss agreement with
John Hancock to reinsure mortality claims in excess of 110% of expected
mortality claims in 1998 and 1997 for all policies that are not reinsured under
any other indemnity agreement. In connection with the agreement, John Hancock
received $1.0 million in 1998 and transferred $2.4 million in 1997 of cash for
mortality claims to the Company, which decreased by $0.5 million and increased
by $1.3 million the Company's net gain from operations in 1998 and 1997,
respectively.
At December 31, 1998, the Company had outstanding a short-term note of $61.9
million payable to an affiliate at a variable rate of interest. The note is part
of a revolving line of credit. Interest paid in 1998 was $2.9 million. The note
is included in other general account obligations.
58
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 6--INVESTMENTS
The statement value and fair value of bonds are shown below:
<TABLE>
<CAPTION>
Gross Gross
Statement Unrealized Unrealized Fair
December 31, 1998 Value Gains Losses Value
----------------- --------- ---------- ----------- -----
(In millions)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies ................ $ 5.1 $ 0.1 $ 0.0 $ 5.2
Obligations of states and
political subdivisions ................... 3.2 0.3 0.0 3.5
Corporate securities ...................... 925.2 50.4 15.0 960.6
Mortgage-backed securities ................ 252.3 10.0 0.1 262.2
-------- ----- ----- --------
Total bonds ............................. $1,185.8 $60.8 $15.1 $1,231.5
======== ===== ===== ========
December 31, 1997
-----------------
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>
The statement value and fair value of bonds at December 31, 1998, by contractual
maturity, are shown below. Maturities will differ from contractual maturities
because eligible borrowers may exercise their right to call or prepay
obligations with or without call or prepayment penalties.
Statement Fair
Value Value
--------- -------
(In millions)
Due in one year or less ........................... $ 57.3 $ 59.1
Due after one year through five years ............. 283.4 294.1
Due after five years through ten years ............ 374.9 388.7
Due after ten years ............................... 217.9 227.4
-------- --------
933.5 969.3
Mortgage-backed securities ........................ 252.3 262.2
-------- --------
$1,185.8 $1,231.5
======== ========
Gross gains of $3.4 million in 1998 and $1.1 million in 1997 and gross losses of
$0.7 million in 1998 and $4.5 million in 1997 were realized from the sale of
bonds.
At December 31, 1998, bonds with an admitted asset value of $8.6 million were on
deposit with state insurance departments to satisfy regulatory requirements.
The cost of common stocks was $2.1 million and $0.0 million at December 31, 1998
and 1997, respectively. At December 31, 1998, gross unrealized appreciation on
common stocks totaled $1.3 million, and gross unrealized
59
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 6--INVESTMENTS--CONTINUED
depreciation totaled $0.3 million. The fair value of preferred stock totaled
$36.5 million at December 31, 1998 and $17.2 million at December 31, 1997.
Bonds with amortized cost of $0.9 million were non-income producing for the
twelve months ended December 31, 1998.
At December 31, 1998, the mortgage loan portfolio was diversified by geographic
region and specific collateral property type as displayed below. The Company
controls credit risk through credit approvals, limits and monitoring procedures.
<TABLE>
<CAPTION>
Statement Geographic Statement
Property Type Value Concentration Value
------------- --------- ------------- ---------
(In millions) (In millions)
<S> <C> <C> <C>
Apartments ...................... $106.4 East North Central .............. $ 56.4
Hotels .......................... 9.6 East South Central .............. 0.9
Industrial ...................... 71.9 Middle Atlantic ................. 26.2
Office buildings ................ 78.2 Mountain ........................ 27.5
Retail .......................... 29.6 New England ..................... 36.9
Agricultural .................... 71.5 Pacific ......................... 96.4
Other ........................... 20.9 South Atlantic .................. 83.8
West North Central .............. 13.1
West South Central .............. 43.3
Other ........................... 3.6
------ ------
$388.1 $388.1
====== ======
</TABLE>
At December 31, 1998, the fair values of the commercial and agricultural
mortgage loans portfolios were $331.3 million and $70.0 million, respectively.
The corresponding amounts as of December 31, 1997 were approximately $243.8
million and $42.0 million, respectively.
The maximum and minimum lending rates for mortgage loans during 1998 were 9.19%
and 6.82% for agricultural loans and 8.88% and 6.56% for other properties.
Generally, the maximum percentage of any loan to the value of security at the
time of the loan, exclusive of insured, guaranteed or purchase money mortgages,
is 75%. For city mortgages, fire insurance is carried on all commercial and
residential properties at least equal to the excess of the loan over the maximum
loan which would be permitted by law on the land without the building, except as
permitted by regulations of the Federal Housing Commission on loans fully
insured under the provisions of the National Housing Act. For agricultural
mortgage loans, fire insurance is not normally required on land based loans
except in those instances where a building is critical to the farming operation.
Fire insurance is required on all agri-business facilities in an aggregate
amount equal to the loan balance.
NOTE 7--REINSURANCE
The Company cedes business to reinsurers to share risks under variable life,
universal life and flexible variable life insurance policies for the purpose of
reducing exposure to large losses. Premiums, benefits and reserves ceded to
reinsurers in 1998 were $590.2 million, $21.5 million, and $8.2 million,
respectively. The corresponding amounts in 1997 were $427.4 million, $18.3
million, and $10.1 million, respectively.
60
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 7--REINSURANCE--CONTINUED
Reinsurance ceded contracts do not relieve the Company from its obligations to
policyholders. The Company remains liable to its policyholders for the portion
reinsured to the extent that any reinsurer does not meet its obligations for
reinsurance ceded to it under the reinsurance agreements. Failure of the
reinsurers to honor their obligations could result in losses to the Company;
consequently, estimates are established for amounts deemed or estimated to be
uncollectible. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentration of credit risk arising from similar characteristics
of the reinsurer.
Neither the Company, nor any of its related parties, control, either directly or
indirectly, any external reinsurers with which the Company conducts business. No
policies issued by the Company have been reinsured with a foreign company which
is controlled, either directly or indirectly, by a party not primarily engaged
in the business of insurance.
The Company has not entered into any reinsurance agreements in which the
reinsurer may unilaterally cancel any reinsurance for reasons other than
nonpayment of premiums or other similar credits. The Company does not have any
reinsurance agreements in effect in which the amount of losses paid or accrued
through December 31, 1998 would result in a payment to the reinsurer of amounts
which, in the aggregate and allowing for offset of mutual credits from other
reinsurance agreements with the same reinsurer, exceed the total direct premiums
collected under the reinsured policies.
NOTE 8--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The notional amounts, carrying values and estimated fair values of the Company's
derivative instruments were as follows at December 31:
<TABLE>
<CAPTION>
Assets (Liabilities)
Number of Contracts/ -------------------------------------------------
Notional Amounts 1998 1997
-------------------- ---------------------- -----------------------
Carrying Fair Carrying Fair
1998 1997 Value Value Value Value
------ ------ ------- ------- --------- -------
($ In millions)
<S> <C> <C> <C> <C> <C> <C>
Futures contracts to
sell securities ................ 947 367 $(0.5) $(0.5) $(0.4) $(0.4)
Interest rate swap
agreements ..................... $365.0 $245.0 -- (17.7) -- (7.8)
Interest rate cap
agreements ..................... 89.4 89.4 3.1 3.1 1.4 1.4
Currency rate swap
agreements ..................... 15.8 14.3 -- (3.3) -- (2.1)
</TABLE>
The Company uses futures contracts, interest rate swap, cap agreements, and
currency rate swap agreements for other than trading purposes to hedge and
manage its exposure to changes in interest rate levels, foreign exchange rate
fluctuations and to manage duration mismatch of assets and liabilities.
The futures contracts expire in 1999. The interest rate swap agreements expire
in 1999 to 2009. The interest rate cap agreements expire in 2006 to 2007. The
currency rate swap agreements expire in 2006 to 2009.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform to the terms of the contract. The Company continually
monitors its position and the credit ratings of the counterparties to these
derivative instruments. To limit exposure associated with counterparty
nonperformance on interest rate and currency swap agreements, the Company enters
into master netting agreements with its counterparties. The Company believes the
risk of incurring losses due to nonperformance by its counterparties is remote
and that such losses, if any, would be immaterial. Futures contracts trade on
organized exchanges and, therefore, have minimal credit risk.
61
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 9--POLICY RESERVES, POLICYHOLDERS' AND BENEFICIARIES' FUNDS AND OBLIGATIONS
RELATED TO SEPARATE ACCOUNTS
The Company's annuity reserves and deposit fund liabilities that are subject to
discretionary withdrawal, with and without adjustment, are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1998 Percent
----------------- -------
(In millions)
<S> <C> <C>
Subject to discretionary withdrawal (with adjustment)
With market value adjustment ........................ $ 0.9 0.1%
At book value less surrender charge ................. 1,677.9 88.8
-------- ------
Total with adjustment ............................ 1,678.8 88.9
Subject to discretionary withdrawal at book value
(without adjustment) ................................. 203.6 10.8
Not subject to discretionary withdrawal--general
account .............................................. 6.5 0.3
-------- ------
Total annuity reserves and deposit
liabilities ..................................... $1,888.9 100.0%
======== ======
</TABLE>
NOTE 10--COMMITMENTS AND CONTINGENCIES
The Company has extended commitments to purchase long-term bonds and issue real
estate mortgages totaling $5.9 million and $24.8 million, respectively, at
December 31, 1998. The Company monitors the creditworthiness of borrowers under
long-term bond commitments and requires collateral as deemed necessary. If
funded, loans related to real estate mortgages would be fully collateralized by
the related properties. The estimated fair value of the commitments described
above is $32.1 million at December 31, 1998. The majority of these commitments
expire in 1999.
In the normal course of its business operations, the Company is involved with
litigation from time to time with claimants, beneficiaries and others, and a
number of litigation matters were pending as of December 31, 1998. It is the
opinion of management, after consultation with counsel, that the ultimate
liability with respect to these claims, if any, will not materially affect the
financial position or results of operations of the Company.
62
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------
1998 1997
----------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ------- ---------- -------
(In millions)
<S> <C> <C> <C> <C>
Assets
Bonds--Note 6 ............................ $1,185.8 $1,231.5 $1,092.7 $1,138.5
Preferred stocks--Note 6 ................. 36.5 36.5 17.2 17.2
Common stocks--Note 6 .................... 3.1 3.1 2.3 2.3
Mortgage loans on real
estate--Note 6 ......................... 388.1 401.3 273.9 285.8
Policy loans--Note 1 ..................... 137.7 137.7 106.8 106.8
Cash and cash
equivalents--Note 1 .................... 19.9 19.9 143.2 143.2
Derivatives assets
(liabilities) relating
to:--Note 8
Futures contracts ........................ (0.5) (0.5) (0.4) (0.4)
Interest rate swaps ...................... -- (17.7) -- (7.8)
Currency rate swaps ...................... -- (3.3) -- (2.1)
Interest rate caps ....................... 3.1 3.1 1.4 1.4
Liabilities
Commitments--Note 10 ..................... -- 32.1 -- 194.5
</TABLE>
The carrying amounts in the table are included in the statutory-basis statements
of financial position. The method and assumptions utilized by the Company in
estimating its fair value disclosures are described in Note 1.
NOTE 12--IMPACT OF YEAR 2000 (UNAUDITED)
The Company relies on John Hancock, its parent company, for information
processing services. John Hancock is executing its plan to address the impact of
the Year 2000 issues that result from computer programs being written using two
digits to reflect the year rather than four to define the applicable year and
century. Historically, the first two digits were hardcoded to save memory. Many
of John Hancock's computer programs that have date-sensitive software, including
those relied upon by the Company, may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in an information technology
(IT) system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities. In addition,
non-IT systems including, but not limited to, security alarms, elevators and
telephones are subject to malfunction due to their dependence on embedded
technology such as microcontrollers for proper operation. As described, the Year
2000 project presents a number of challenges for financial institutions since
the correction of Year 2000 issues in IT and non-IT systems will be complex and
costly for the entire industry.
John Hancock began to address the Year 2000 project as early as 1994. John
Hancock's plan to address the Year 2000 Project includes an awareness campaign,
an assessment period, a renovation stage, validation work and an implementation
of Company solutions.
The continuous awareness campaign serves several purposes: defining the problem,
gaining executive level support and sponsorship, establishing a team and overall
strategy, and assessing existing information system management resources.
Additionally, the awareness campaign establishes an education process to ensure
that all employees are aware of the Year 2000 issue and knowledgeable of their
role in securing solutions.
63
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 12--IMPACT OF YEAR 2000 (UNAUDITED)--CONTINUED
The assessment phase, which was completed for both IT and non-IT systems as of
April 1998, included the identification, inventory, analysis, and prioritization
of IT and non-IT systems and processes to determine their conversion or
replacement.
The renovation stage reflects the conversion, validation, replacement, or
elimination of selected platforms, applications, databases and utilities,
including the modification of applicable interfaces. Additionally, the
renovation stage includes performance, functionality, and regression testing and
implementation. As of December 31, 1998, the renovation phase was substantially
complete for computer applications, systems and desktops. For all remaining
components, the renovation phase is underway and will be complete before the end
of the second quarter of 1999.
The validation phase consists of the compliance testing of renovated systems.
The validation phase is expected to be complete by mid 1999, after renovation is
accomplished. Testing facilities will be used through the remainder of 1999 to
perform special functional testing. Special functional testing includes testing,
as required, with material third parties and industry groups and performing
reviews of "dry runs" of year-end activities. Scheduled testing of material
relationships with third parties, including those impacting the Company, is
underway. It is anticipated that testing with material business partners will
continue through much of 1999.
Finally, the implementation phase involves the actual implementation of
converted or replaced platforms, applications, databases, utilities, interfaces,
and contingency planning. Implementation is being performed concurrently during
the renovation phase and is expected to be completed before the end of the
second quarter of 1999.
The costs of the Year 2000 project consist of internal IT personnel and external
costs such as consultants, programmers, replacement software, and hardware. The
costs of the Year 2000 project are expensed as incurred. The project is funded
partially through a reallocation of resources from discretionary projects.
Through December 31, 1998, John Hancock has incurred and expensed approximately
$9.8 million in related payroll costs for its internal IT personnel on the
project. The estimated range of remaining internal IT personnel costs of the
project is approximately $8 to $9 million. Through December 31, 1998, John
Hancock has incurred and expensed approximately $36.4 million in external costs
for the project. The estimated range of remaining external costs of the project
is approximately $35 to $36 million. The total costs of the Year 2000 project to
John Hancock, based on management's best estimates, include approximately $18
million in internal IT personnel, $7.4 million in the external modification of
software, $34.2 million for external solution providers, $19.4 million in
replacement costs of non-compliant IT systems and $12.6 million in oversight,
test facilities and other expenses. Accordingly, the estimated range of total
costs of the Year 2000 project to John Hancock, internal and external, is
approximately $90 to $95 million. However, there can be no guarantee that these
estimates will be achieved and actual results could materially differ from those
plans. Specific factors that might cause such material differences include, but
are not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and similar
uncertainties.
64
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 12--IMPACT OF YEAR 2000 (UNAUDITED)--CONTINUED
John Hancock's total Year 2000 project costs include the estimated impact of
external solution providers and are based on presently available information.
However, there is no guarantee that the systems of other companies that John
Hancock's systems rely on will be timely converted, or that a failure to convert
by another company, or a conversion that is incompatible with John Hancock's
systems, including those upon which the Company relies, would not have material
adverse effect on John Hancock or the Company. It is documented in trade
publications that companies in foreign countries are not acting as intensively
as domestic companies to remediate Year 2000 issues. Accordingly, it is expected
that Company facilities based outside the United States face higher degrees of
risks from data exchanges with material business partners. In addition, the
Company has numerous customers that hold products of the Company. Nearly all
products sold by the Company contain date sensitive data, examples of which are
policy expiration dates, birth dates and premium payment dates. Finally, the
regulated nature of the Company's industry exposes it to potential supervisory
or enforcement actions relating to Year 2000 issues.
John Hancock's contingency planning initiative related to the Year 2000 project
is underway. The plan is addressing John Hancock's readiness as well as that of
material business partners on whom John Hancock and the Company depend. John
Hancock's contingency plans are being designed to keep each subsidiary's
operations functioning in the event of a failure or delay due to the Year 2000
record format and date calculation changes. Contingency plans are being
constructed based on the foundation of extensive business resumption plans that
John Hancock has maintained and updated periodically, which outline responses to
situations that may affect critical business functions. These plans also provide
emergency operations guidance, which defines a documented order of actions to
respond to problems. These extensive business resumption plans are being
enhanced to cover Year 2000 situations.
65
<PAGE>
UNAUDITED FINANCIAL STATEMENTS
------------------------------
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
INTERNATIONAL
LARGE CAP SOVEREIGN EQUITY SMALL CAP INTERNATIONAL
GROWTH BOND INDEX GROWTH BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of portfolios of
John Hancock Variable Series Trust I,
at value .............................. $92,200,781 $39,346,141 $21,832,323 $15,284,598 $ 4,084,101
Investments in shares of portfolios of
M Fund Inc., at value ................. -- -- -- -- --
Receivable from:
John Hancock Variable Series Trust I .. 54,995 229,864 22,731 -- 10,203
M Fund Inc. ........................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total assets ........................... 92,255,776 39,576,005 21,855,054 15,284,598 4,094,304
LIABILITIES
Payable to:
John Hancock Variable Life Insurance
Company .............................. -- -- -- -- --
M Fund Inc. ........................... -- -- -- -- --
Asset charges payable .................. 911 361 246 175 38
----------- ----------- ----------- ----------- -----------
Total liabilities ...................... 911 361 246 175 38
----------- ----------- ----------- ----------- -----------
Net assets ............................. $92,254,865 $39,575,644 $21,854,808 $15,284,423 $ 4,094,266
=========== =========== =========== =========== ===========
<CAPTION>
MID CAP LARGE CAP MONEY MID CAP SMALL/MID
GROWTH VALUE MARKET VALUE CAP GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of portfolios of
John Hancock Variable Series Trust I,
at value .............................. $27,931,146 $29,520,166 $83,999,034 $17,751,143 $ 7,148,507
Investments in shares of portfolios of
M Fund Inc., at value ................. -- -- -- -- --
Receivable from:
John Hancock Variable Series Trust I .. -- 45,438 11,775 5,708 --
M Fund Inc. ........................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total assets ........................... 27,931,146 29,565,604 84,010,809 17,756,851 7,148,507
LIABILITIES
Payable to:
John Hancock Variable Life Insurance
Company .............................. -- -- -- -- --
M Fund Inc. ........................... -- -- -- -- --
Asset charges payable 306 274 979 186 87
----------- ----------- ----------- ----------- -----------
Total liabilities ...................... 306 274 979 186 87
----------- ----------- ----------- ----------- -----------
Net assets ............................. $27,930,840 $29,565,330 $84,009,830 $17,756,665 $ 7,148,420
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
66
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
REAL ESTATE GROWTH & SHORT-TERM SMALL CAP
EQUITY INCOME MANAGED BOND VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of portfolios of
John Hancock Variable Series Trust I,
at value .............................. $ 10,906,437 $173,115,471 $115,657,144 $ 11,871,018 $ 14,572,300
Investments in shares of portfolios of
M Fund Inc., at value ................. -- -- -- -- --
Receivable from:
John Hancock Variable Series Trust I .. 104,247 174,505 292,487 61,438 14,293
M Fund Inc. ........................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total assets ........................... 11,010,684 173,289,976 115,949,631 11,932,456 14,586,593
LIABILITIES
Payable to:
John Hancock Variable Life Insurance
Company .............................. -- -- -- -- --
M Fund Inc. ........................... -- -- -- -- --
Asset charges payable .................. 90 2,171 1,752 107 187
------------ ------------ ------------ ------------ ------------
Total liabilities ...................... 90 2,171 1,752 107 187
------------ ------------ ------------ ------------ ------------
Net assets ............................. $ 11,010,594 $173,287,805 $115,947,879 $ 11,932,349 $ 14,586,406
============ ============ ============ ============ ============
<CAPTION>
TURNER BRANDES
INTERNATIONAL EQUITY GLOBAL CORE INTERNATIONAL
OPPORTUNITIES INDEX BOND GROWTH EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of portfolios of
John Hancock Variable Series Trust I,
at value .............................. $ 23,208,617 $103,805,746 $ 8,153,781 $ 7,571,495 $ 11,847,858
Investments in shares of portfolios of
M Fund Inc., at value ................. -- -- -- -- --
Receivable from:
John Hancock Variable Series Trust I .. 6,844 136,338 33,554 -- --
M Fund Inc. ........................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total assets ........................... 23,215,461 103,942,084 8,187,335 7,571,495 11,847,858
LIABILITIES
Payable to:
John Hancock Variable Life Insurance
Company .............................. -- -- -- -- --
M Fund Inc. ........................... -- -- -- -- --
Asset charges payable .................. 254 996 95 77 103
------------ ------------ ------------ ------------ ------------
Total liabilities ...................... 254 996 95 77 103
------------ ------------ ------------ ------------ ------------
Net assets ............................. $ 23,215,207 $103,941,088 $ 8,187,240 $ 7,571,418 $ 11,847,755
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
67
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
FRONTIER EMERGING HIGH
CAPITAL ENHANCED MARKETS GLOBAL BOND SMALL/MID YIELD
APPRECIATION U.S. EQUITY EQUITY EQUITY INDEX CAP CORE 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 .................................. $12,627,493 $ 4,469,282 $ 3,746,618 $ 2,109,315 $ 507,671 $ 2,826,207 $ 462,394
Investments in shares of portfolios of M
Fund Inc., at value .................... -- -- -- -- -- -- --
Receivable from:
John Hancock Variable Series Trust I ... -- -- 25,297 -- 476 15,484 840
M Fund Inc. ............................ -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total assets ............................ 12,627,493 4,469,282 3,771,915 2,109,315 508,147 2,841,691 463,234
LIABILITIES
Payable to:
John Hancock Variable Life
Insurance Company ..................... -- -- -- -- -- -- --
M Fund Inc. ............................ -- -- -- -- -- -- --
Asset charges payable ................... 114 41 33 27 6 37 6
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities ....................... 114 41 33 27 6 37 6
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net assets .............................. $12,627,379 $ 4,469,241 $ 3,771,882 $ 2,109,288 $ 508,141 $ 2,841,654 $ 463,228
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
68
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 1999, AND THE YEARS ENDED DECEMBER 31, 1998,
AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
LARGE CAP GROWTH SOVEREIGN BOND
SUBACCOUNT SUBACCOUNT
------------------------------------------- ---------------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I ...................... $ 227,104 $ 6,312,073 $ 2,884,498 $ 2,002,341 $ 2,190,901 $ 855,742
M Fund Inc. ................... -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total investment income ......... 227,104 6,312,073 2,884,498 2,002,341 2,190,901 855,742
Expenses:
Mortality and expense risks .... 229,975 168,652 91,256 94,007 93,556 39,184
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss) .... (2,871) 6,143,421 2,793,242 1,908,334 2,097,345 816,558
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses) .... 3,387,468 1,750,881 619,721 (1,027,518) 185,230 80,538
Net unrealized appreciation
(depreciation) during the
period ........................ (113,963) 8,041,022 2,301,920 (1,369,595) (378,058) 63,687
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments .......... 3,273,505 9,791,903 2,921,641 (2,397,113) (192,828) 144,225
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations ..................... $ 3,270,634 $15,935,324 $ 5,714,883 $ (488,779) $ 1,904,517 $ 960,783
=========== =========== =========== =========== =========== ===========
<CAPTION>
INTERNATIONAL EQUITY INDEX SMALL CAP GROWTH
SUBACCOUNT SUBACCOUNT
------------------------------------------- ---------------------------------------------
1999 1998 1997 1999 1998 1997*
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I ...................... $ 195,872 $ 1,930,710 $ 422,913 $ -- $ -- $ 473
M Fund Inc. ................... -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total investment income ......... 195,872 1,930,710 422,913 -- -- 473
Expenses:
Mortality and expense risks .... 54,048 45,651 33,893 37,686 22,593 6,547
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss) .... 141,824 1,885,059 389,020 (37,686) (22,593) (6,074
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses) .... (142,141) 152,030 244,810 1,498,613 58,729 21,707
Net unrealized appreciation
(depreciation) during the
period ........................ 1,614,434 78,480 (1,219,540) 195,008 1,070,805 126,699
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments .......... 1,472,293 230,510 (974,730) 1,693,621 1,129,534 148,406
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations ..................... $ 1,614,117 $ 2,115,569 $ (585,710) $ 1,655,935 $ 1,106,941 $ 142,332
=========== =========== =========== =========== =========== ===========
</TABLE>
- ---------
* From May 1, 1997 (commencement of operations).
See accompanying notes.
69
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE PERIOD ENDED SEPTEMBER 30, 1999, AND THE YEARS ENDED DECEMBER 31, 1998,
AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED MID CAP GROWTH
SUBACCOUNT SUBACCOUNT
-------------------------------------------- --------------------------------------------
1999 1998 1997* 1999 1998 1997*
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I ...................... $ 80,598 $ 185,760 $ 61,249 $ -- $ 1,114,374 $ --
M Fund Inc. ................... -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total investment income ......... 80,598 185,760 61,249 1,114,374 --
Expenses:
Mortality and expense risks .... 10,024 9,687 4,443 58,615 26,123 8,287
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss) .... 70,574 176,073 56,806 (58,615) 1,088,251 (8,287)
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses) .... 16,541 24,206 8,667 3,658,156 599,619 1,235
Net unrealized appreciation
(depreciation) during the
period ........................ (154,517) 147,461 (67,714) 2,310,392 1,184,263 486,186
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments .......... (137,976) 171,667 (59,047) 5,968,548 1,783,882 487,421
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations ..................... $ (67,402) $ 347,740 $ (2,241) $ 5,909,933 $ 2,872,133 $ 479,134
=========== =========== =========== =========== =========== ===========
<CAPTION>
LARGE CAP VALUE MONEY MARKET
SUBACCOUNT SUBACCOUNT
-------------------------------------------- --------------------------------------------
1999 1998 1997* 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I ...................... $ 347,879 $ 797,874 $ 194,199 $ 2,315,311 $ 1,854,829 $ 758,434
M Fund Inc. ................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total investment income ......... 347,879 797,874 194,199 2,315,311 1,854,829 758,434
Expenses:
Mortality and expense risks .... 63,869 41,415 11,163 212,053 167,813 66,882
----------- ----------- ----------- ----------- ----------- -----------
Net investment income ........... 284,010 756,459 183,036 2,103,258 1,687,016 691,552
Net realized and unrealized gain
(loss) on investments:
Net realized gains ............. 518,175 330,827 164,821 -- -- --
Net unrealized appreciation
(depreciation) during the
period ........................ (959,529) 145,355 279,449 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments .......... (441,354) 476,182 444,270 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations .................... $ (157,344) $ 1,232,641 $ 627,306 $ 2,103,258 $ 1,687,016 $ 691,552
=========== =========== =========== =========== =========== ===========
</TABLE>
- ---------
* From May 1, 1997 (commencement of operations).
See accompanying notes.
70
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE PERIOD ENDED SEPTEMBER 30, 1999, AND THE YEARS ENDED DECEMBER 31, 1998,
AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
MID CAP VALUE SMALL/MID CAP
SUBACCOUNT GROWTH SUBACCOUNT
--------------------------------------------- --------------------------------------------
1999 1998 1997* 1999 1998 1997*
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I ..................... $ 81,045 $ 120,469 $ 446,081 $ -- $ 142,469 $ 878,600
M Fund Inc. .................. -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total investment income ........ 81,045 120,469 446,081 -- 142,469 878,600
Expenses:
Mortality and expense risks ... 50,885 45,020 11,421 24,475 34,432 35,934
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss) ... 30,160 75,449 434,660 (24,475) 108,037 842,666
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses) ... (1,028,769) (538,516) 101,787 89,273 232,246 297,666
Net unrealized appreciation
(depreciation) during the
period ....................... 191,362 (830,390) (39,717) (414,715) 236,333 (730,748)
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments ......... (837,407) (1,368,906) 62,070 (325,442) 468,579 (433,082)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations .................... $ (807,247) $(1,293,457) $ 496,730 $ (349,917) $ 576,616 $ 409,584
=========== =========== =========== =========== =========== ===========
<CAPTION>
REAL ESTATE EQUITY GROWTH & INCOME
SUBACCOUNT SUBACCOUNT
--------------------------------------------- --------------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I ..................... $ 411,677 $ 305,783 $ 246,677 $ 1,174,537 $ 9,266,175 $ 5,917,063
M Fund Inc. .................. -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total investment income ........ 411,677 305,783 246,677 1,174,537 9,266,175 5,917,063
Expenses:
Mortality and expense risks ... 21,292 22,716 13,879 496,079 290,361 169,135
----------- ----------- ----------- ----------- ----------- -----------
Net investment income .......... 390,385 283,067 232,798 678,458 8,975,814 5,747,928
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses) ... (468,995) (454,979) 252,095 5,350,546 2,061,212 2,390,414
Net unrealized appreciation
(depreciation) during the
period ....................... (73,436) (698,676) (13,488) (5,293,387) 7,759,307 435,778
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments ......... (542,431) (1,153,655) 238,607 57,159 9,820,519 2,826,192
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations .................... $ (152,046) $ (870,588) $ 471,405 $ 735,617 $18,796,333 $ 8,574,120
=========== =========== =========== =========== =========== ===========
</TABLE>
- ---------
* From May 1, 1997 (commencement of operations).
See accompanying notes.
71
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE PERIOD ENDED SEPTEMBER 30, 1999, AND THE YEARS ENDED DECEMBER 31, 1998,
AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
MANAGED SHORT-TERM BOND
SUBACCOUNT SUBACCOUNT
--------------------------------------------- -------------------------------------------
1999 1998 1997 1999 1998 1997*
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I.......................... $ 1,923,327 $ 3,606,186 $ 1,879,954 $ 774,406 $ 977,164 $ 415,542
M Fund Inc........................ -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total investment income............. 1,923,327 3,606,186 1,879,954 774,406 977,164 415,542
Expenses:
Mortality and expense risks........ 326,877 121,905 65,383 40,485 50,947 20,551
----------- ----------- ----------- ----------- ----------- -----------
Net investment income............... 1,596,450 3,484,281 1,814,571 733,921 926,217 394,991
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses)........ 1,839,191 278,186 171,318 (409,973) 24,740 35,294
Net unrealized appreciation
(depreciation) during the
period............................ (5,324,871) 1,791,231 715,231 (33,284) (136,999) (25,976)
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments.............. (3,485,680) 2,069,417 886,549 (443,257) (112,259) 9,318
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from operations... $(1,889,230) $ 5,553,698 $ 2,701,120 $ 290,664 $ 813,958 $ 404,309
=========== =========== =========== =========== =========== ===========
<CAPTION>
SMALL CAP VALUE INTERNATIONAL OPPORTUNITIES
SUBACCOUNT SUBACCOUNT
--------------------------------------------- -------------------------------------------
1999 1998 1997* 1999 1998 1997*
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I.......................... $ 52,178 $ 47,350 $ 299,278 $ 194,885 $ 103,399 $ 69,078
M Fund Inc........................ -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total investment income............. 52,178 47,350 299,278 194,885 103,399 69,078
Expenses:
Mortality and expense risks........ 47,179 33,335 8,494 62,943 50,003 13,177
----------- ----------- ----------- ----------- ----------- -----------
Net investment income............... 4,999 14,015 290,784 131,942 53,396 55,901
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses)........ (615,546) (9,919) 75,149 591,897 191,495 80,782
Net unrealized appreciation
(depreciation) during the
period............................ 214,351 (523,693) (18,626) 889,233 1,108,416 (260,664)
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments.............. (401,195) (533,612) 56,523 1,481,130 1,299,911 (179,882)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations......................... $ (396,196) $ (519,597) $ 347,307 $ 1,613,072 $ 1,353,307 $ (123,981)
=========== =========== =========== =========== =========== ===========
</TABLE>
- ---------
* From May 1, 1997 (commencement of operations).
See accompanying notes.
72
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE PERIOD ENDED SEPTEMBER 30, 1999, AND THE YEARS ENDED DECEMBER 31, 1998,
AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY INDEX GLOBAL BOND
SUBACCOUNT SUBACCOUNT
-------------------------------------- --------------------------------------
1999 1998 1997* 1999 1998 1997*
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I.......... $ 928,898 $ 1,337,750 $ 409,920 $ 294,776 $ 303,545 $ 74,850
M Fund Inc.................................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total investment income......................... 928,898 1,337,750 409,920 294,776 303,545 74,850
Expenses:
Mortality and expense risks.................... 225,185 126,021 31,223 26,235 19,894 3,820
----------- ----------- ----------- ----------- ----------- -----------
Net investment income........................... 703,713 1,211,729 378,697 268,541 283,651 71,030
Net realized and unrealized gain (loss) on
investments:
Net realized gains (losses).................... 5,336,591 691,270 901,978 (118,680) 81,659 8,335
Net unrealized appreciation (depreciation)
during the period............................. (4,169,903) 6,098,919 392,256 (347,529) 43,608 (11,727)
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments.................................... 1,166,688 6,790,189 1,294,234 (466,209) 125,267 (3,392)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations................................ $ 1,870,401 $ 8,001,918 $ 1,672,931 $ (197,668) $ 408,918 $ 67,638
=========== =========== =========== =========== =========== ===========
<CAPTION>
TURNER CORE GROWTH BRANDES INTERNATIONAL
SUBACCOUNT EQUITY SUBACCOUNT
-------------------------------------- --------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
Investment income:
Distributions received from:
John Hancock Variable Series Trust I.......... $ 292,199 $ -- $ -- $ -- $ -- $ --
M Fund Inc.................................... -- 84,940 91,360 -- 358,080 32,677
----------- ----------- ----------- ----------- ----------- -----------
Total investment income......................... 292,199 84,940 91,360 -- 358,080 32,677
Expenses:
Mortality and expense risks.................... 21,010 7,737 4,071 22,958 14,434 7,502
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss).................... 271,189 77,203 87,289 (22,958) 343,646 25,175
Net realized and unrealized gain (loss) on
investments:
Net realized gains............................. 941,075 156,278 76,711 461,333 89,337 12,541
Net unrealized appreciation (depreciation)
during the period............................. (717,538) 562,620 32,626 1,215,652 91,915 (26,022)
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments.................................... 223,537 718,898 109,337 1,676,985 181,252 (13,481)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations................................ $ 494,726 $ 796,101 $ 196,626 $ 1,654,027 $ 524,898 $ 11,694
=========== =========== =========== =========== =========== ===========
</TABLE>
- ---------
* From May 1, 1997 (commencement of operations).
See accompanying notes.
73
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE PERIOD ENDED SEPTEMBER 30, 1999, AND THE YEARS ENDED DECEMBER 31, 1998,
AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
FRONTIER CAPITAL APPRECIATION ENHANCED U.S. EQUITY
SUBACCOUNT SUBACCOUNT
------------------------------------------- -------------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I.......................... $ -- $ -- $ -- $ -- $ -- $ --
M Fund Inc........................ -- 34,738 128,190 72,302 15,335
----------- ----------- ----------- ----------- ----------- -----------
Total investment income............. 34,738 128,190 72,302 15,335
Expenses:
Mortality and expense risks........ 26,095 24,841 10,040 9,396 4,069 478
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss)........ (26,095) 9,897 118,150 (9,396) 68,233 14,857
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses)........ 465,257 (445,752) 614,358 113,364 87,723 4,177
Net unrealized appreciation
(depreciation) during the
period............................ 1,081,356 432,064 (368,570) 67,419 89,677 6,844
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments.............. 1,546,613 (13,688) 245,788 180,783 177,400 11,021
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from operations... $ 1,520,518 $ (3,791) $ 363,938 $ 171,387 $ 245,633 $ 25,878
=========== =========== =========== =========== =========== ===========
<CAPTION>
EMERGING
MARKETS EQUITY GLOBAL EQUITY BOND INDEX
SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------------------- --------------------------- ---------------------------
1999 1998** 1999 1998** 1999 1998**
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I.......................... $ 1,810 $ 522 $ 3,415 $ 491 $ 86,677 $ 23,842
M Fund Inc........................ -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total investment income............. 1,810 522 3,415 491 86,677 23,842
Expenses:
Mortality and expense risks........ 1,908 387 1,125 339 6,704 937
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss)........ (98) 135 2,290 152 79,973 22,905
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses)........ 46,712 (45,975) 37,732 (21,835) (57,740) 1,002
Net unrealized appreciation
(depreciation) during the
period............................ (50,240) 2,289 (14,368) 4,812 (52,695) (10,217)
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments.............. (3,528) (43,686) 23,364 (17,023) (110,435) (9,215)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from operations... $ (3,626) $ (43,551) $ 25,654 $ (16,871) $ (30,462) $ 13,690
=========== =========== =========== =========== =========== ===========
</TABLE>
- ---------
** From July 1, 1998 (commencement of operations).
See accompanying notes.
74
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE PERIOD ENDED SEPTEMBER 30, 1999, AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SMALL/MID HIGH YIELD
CAP CORE BOND
SUBACCOUNT SUBACCOUNT
---------------------- -----------------------
1999 1998** 1999 1998**
<S> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I.............................. $ 840 $ -- $ 277,642 $ 88,721
M Fund Inc........................................................ -- -- -- --
------- -------- --------- --------
Total investment income............................................. 840 -- 277,642 88,721
Expenses:
Mortality and expense risks........................................ 1,444 535 8,369 1,962
------- -------- --------- --------
Net investment income (loss)........................................ (604) (535) 269,273 86,759
Net realized and unrealized gain (loss) on investments:
Net realized gains (losses)........................................ 45,449 (25,196) 109,716 64,824
Net unrealized appreciation (depreciation) during the
period............................................................ (33,284) 18,718 (285,080) 149,416
------- -------- --------- --------
Net realized and unrealized gain (loss) on investments.............. 12,165 (6,478) (175,364) 214,240
------- -------- --------- --------
Net increase (decrease) in net assets resulting from operations..... $11,561 $ (7,013) $ 93,909 $300,999
======= ======== ========= ========
</TABLE>
- ---------
** From May 1, 1998 (commencement of operations).
See accompanying notes.
75
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED SEPTEMBER 30, 1999, AND THE YEARS ENDED DECEMBER 31, 1998,
AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
LARGE CAP GROWTH SOVEREIGN BOND
SUBACCOUNT SUBACCOUNT
------------------------------------------ ------------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss)......... $ (2,871) $ 6,143,421 $ 2,793,242 $ 1,908,334 $ 2,097,345 $ 816,558
Net realized gains (losses).......... 3,387,468 1,750,881 619,721 (1,027,518) 185,230 80,538
Net unrealized appreciation
(depreciation) during the period.... (113,963) 8,041,022 2,301,920 (1,369,595) (378,058) 63,687
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations............ 3,270,634 15,935,324 5,714,883 (488,779) 1,904,517 960,783
From policyholder transactions:
Net premiums from policyholders...... 54,064,981 29,859,648 20,264,849 64,319,705 38,567,292 21,324,560
Net benefits to policyholders........ (30,098,970) (13,281,028) (10,390,849) (56,797,249) (27,391,317) (8,009,615)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting
from policyholder transactions....... 23,996,011 16,578,620 9,874,000 7,522,456 11,175,975 13,314,945
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets............ 27,236,645 32,513,944 15,588,883 7,033,677 13,080,492 14,275,728
Net assets at beginning of period..... 65,018,220 32,504,276 16,915,393 32,541,967 19,461,475 5,185,747
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period........... $ 92,254,865 $ 65,018,220 $ 32,504,276 $ 39,575,644 $ 32,541,967 $ 19,461,475
============ ============ ============ ============ ============ ============
<CAPTION>
INTERNATIONAL EQUITY INDEX SMALL CAP GROWTH
SUBACCOUNT SUBACCOUNT
------------------------------------------ ------------------------------------------
1999 1998 1997 1999 1998 1997*
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss)......... $ 141,824 $ 1,885,059 $ 389,020 $ (37,686) $ (22,593) $ (6,074)
Net realized gains (losses).......... (142,141) 152,030 244,810 1,498,613 58,729 21,707
Net unrealized appreciation
(depreciation) during the period.... 1,614,434 78,480 (1,219,540) 195,008 1,070,805 126,699
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from operations..... 1,614,117 2,115,569 (585,710) 1,655,935 1,106,941 142,332
From policyholder transactions:
Net premiums from policyholders...... 35,900,399 10,034,119 8,150,400 30,452,605 12,088,047 2,870,481
Net benefits to policyholders........ (28,255,338) (8,344,107) (4,505,840) (25,902,223) (6,621,834) (1,005,386)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets
resulting from policyholder
transactions......................... 7,645,061 1,690,012 3,644,560 4,550,382 5,466,213 1,865,095
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets............ 9,259,178 3,805,581 3,058,850 6,206,317 6,573,154 2,007,427
Net assets at beginning of period..... 12,595,630 8,790,049 5,731,199 9,078,106 2,504,952 497,525
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period........... $ 21,854,808 $ 12,595,630 $ 8,790,049 $ 15,284,423 $ 9,078,106 $ 2,504,952
============ ============ ============ ============ ============ ============
</TABLE>
- ---------
* From May 1, 1997 (commencement of operations).
See accompanying notes.
76
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE PERIOD ENDED SEPTEMBER 30, 1999, AND THE YEARS ENDED DECEMBER 31, 1998,
AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED MID CAP GROWTH
SUBACCOUNT SUBACCOUNT
------------------------------------------- -------------------------------------------
1999 1998 1997* 1999 1998 1997*
------------ ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss)......... $ 70,574 $ 176,073 $ 56,806 $ (58,615) $ 1,088,251 $ (8,287)
Net realized gains................... 16,541 24,206 8,667 3,658,156 599,619 1,235
Net unrealized appreciation
(depreciation) during the period.... (154,517) 147,461 (67,714) 2,310,392 1,184,263 486,186
------------ ------------ ------------- ------------ ------------- ------------
Net increase (decrease) in net assets
resulting from operations............ (67,402) 347,740 (2,241) 5,909,933 2,872,133 479,134
From policyholder transactions:
Net premiums from policyholders...... 4,281,430 3,163,316 1,608,069 37,185,080 11,323,614 3,212,754
Net benefits to policyholders........ (3,223,089) (1,882,974) (282,878) (27,842,617) (5,132,055) (915,459)
------------ ------------ ------------- ------------ ------------- ------------
Net increase in net assets resulting
from policyholder transactions....... 1,058,341 1,280,342 1,325,191 9,342,463 6,191,559 2,297,295
------------ ------------ ------------- ------------ ------------- ------------
Net increase in net assets............ 990,939 1,628,082 1,322,950 15,252,396 9,063,692 2,776,429
Net assets at beginning of period..... 3,103,327 1,475,245 152,295 12,678,444 3,614,752 838,323
------------ ------------ ------------- ------------ ------------- ------------
Net assets at end of period........... $ 4,094,266 $ 3,103,327 $ 1,475,245 $ 27,930,840 $ 12,678,444 $ 3,614,752
============ ============ ============= ============ ============= ============
<CAPTION>
LARGE CAP VALUE MONEY MARKET
SUBACCOUNT SUBACCOUNT
------------------------------------------- -------------------------------------------
1999 1998 1997* 1999 1998 1997
------------ ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets from
operations:
Net investment income................ $ 284,010 $ 756,459 $ 183,036 $ 2,103,258 $ 1,687,016 $ 691,552
Net realized gains................... 518,175 330,827 164,821 -- -- --
Net unrealized appreciation
during the period................... (959,529) 145,355 279,449 -- -- --
------------ ------------ ------------- ------------ ------------- ------------
Net increase (decrease) in net assets
resulting from operations............ (157,344) 1,232,641 627,306 2,103,258 1,687,016 691,552
From policyholder transactions:
Net premiums from policyholders...... 33,138,914 15,144,316 5,421,062 717,899,106 340,377,358 103,737,470
Net benefits to policyholders........ (20,045,760) (4,937,583) (1,620,578) 722,504,192) (269,723,839) 100,296,756)
------------ ------------ ------------- ------------ ------------- ------------
Net increase in net assets resulting
from policyholder transactions....... 13,093,154 10,206,733 3,800,484 (4,605,086) 70,653,519 3,440,714
------------ ------------ ------------- ------------ ------------- ------------
Net increase in net assets............ 12,935,810 11,439,374 4,427,790 (2,501,828) 72,340,535 4,132,266
Net assets at beginning of period..... 16,629,520 5,190,146 762,356 86,511,658 14,171,123 10,038,857
------------ ------------ ------------- ------------ ------------- ------------
Net assets at end of period........... $ 29,565,330 $ 16,629,520 $ 5,190,146 $ 84,009,830 $ 86,511,658 $ 14,171,123
============ ============ ============= ============ ============= ============
</TABLE>
- ---------
* From May 1, 1997 (commencement of operations).
See accompanying notes.
77
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE PERIOD ENDED SEPTEMBER 30, 1999, AND THE YEARS ENDED DECEMBER 31, 1998,
AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
MID CAP VALUE SMALL/MID CAP GROWTH
SUBACCOUNT SUBACCOUNT
------------------------------------------- -------------------------------------------
1999 1998 1997* 1999 1998 1997
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) ........... $ 30,160 $ 75,449 $ 434,660 $ (24,475) $ 108,037 $ 842,666
Net realized gains (losses) ............ (1,028,769) (538,516) 101,787 89,273 232,246 297,666
Net unrealized appreciation
(depreciation) during the period ...... 191,362 (830,390) (39,717) (414,715) 236,333 (730,748)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations .............. (807,247) (1,293,457) 496,730 (349,917) 576,616 409,584
From policyholder transactions:
Net premiums from policyholders ........ 27,209,180 18,837,112 6,323,061 8,162,289 4,563,154 8,511,081
Net benefits to policyholders .......... (24,399,879) (7,855,945) (1,089,206) (8,155,365) (6,481,542) (6,274,668)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from policyholder
transactions............................ 2,809,301 10,981,167 5,233,855 6,924 (1,918,388) 2,236,413
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net assets ... 2,002,054 9,687,710 5,730,585 (342,993) (1,341,772) 2,645,997
Net assets at beginning of period ....... 15,754,611 6,066,901 336,316 7,491,413 8,833,185 6,187,188
------------- ------------- ------------- ------------- ------------- -------------
Net assets at end of period ............. $ 17,756,665 $ 15,754,611 $ 6,066,901 $ 7,148,420 $ 7,491,413 $ 8,833,185
============= ============= ============= ============= ============= =============
<CAPTION>
REAL ESTATE EQUITY GROWTH & INCOME
SUBACCOUNT SUBACCOUNT
------------------------------------------- -------------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income .................. $ 390,385 $ 283,067 $ 232,798 $ 678,458 $ 8,975,814 $ 5,747,928
Net realized gains (losses) ............ (468,995) (454,979) 252,095 5,350,546 2,061,212 2,390,414
Net unrealized appreciation
(depreciation) during the
period ................................ (73,436) (698,676) (13,488) (5,293,387) 7,759,307 435,778
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations .............. (152,046) (870,588) 471,405 735,617 18,796,333 8,574,120
From policyholder transactions:
Net premiums from policyholders ........ 16,990,725 6,964,604 4,833,914 140,801,657 60,975,616 35,535,599
Net benefits to policyholders .......... (10,600,259) (5,513,221) (2,393,463) (64,656,744) (31,360,866) (21,776,809)
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets resulting
from policyholder transactions ......... 6,390,466 1,451,383 2,440,451 76,144,913 29,614,750 13,758,790
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets .............. 6,238,420 580,795 2,911,856 76,880,530 48,411,083 22,332,910
Net assets at beginning of period ....... 4,772,174 4,191,379 1,279,523 96,407,275 47,996,192 25,663,282
------------- ------------- ------------- ------------- ------------- -------------
Net assets at end of period ............. $ 11,010,594 $ 4,772,174 $ 4,191,379 $ 173,287,805 $ 96,407,275 $ 47,996,192
============= ============= ============= ============= ============= =============
</TABLE>
- ---------
* From May 1, 1997 (commencement of operations).
See accompanying notes.
78
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
For the period ended September 30, 1999, and the years ended December 31, 1998,
and December 31, 1997
<TABLE>
<CAPTION>
MANAGED SHORT-TERM BOND
SUBACCOUNT SUBACCOUNT
---------------------------------------- -------------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income .................. $ 1,596,450 $ 3,484,281 $ 1,814,571 $ 733,921 $ 926,217 $ 394,991
Net realized gains (losses) ............ 1,839,191 278,186 171,318 (409,973) 24,740 35,294
Net unrealized appreciation
(depreciation) during the period ...... (5,324,871) 1,791,231 715,231 (33,284) (136,999) (25,976)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations .............. (1,889,230) 5,553,698 2,701,120 290,664 813,958 404,309
From policyholder transactions:
Net premiums from policyholders ........ 104,883,396 21,019,273 16,914,475 39,273,628 27,490,588 12,911,228
Net benefits to policyholders .......... (27,112,979) (8,281,600) (9,357,535) (46,878,449) (21,534,195) (4,234,624)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from policyholder
transactions ........................... 77,770,417 12,737,673 7,556,940 (7,604,821) 5,956,393 8,676,604
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net assets ... 75,881,187 18,291,371 10,258,060 (7,314,157) 6,770,351 9,080,913
Net assets at beginning of period ....... 40,066,692 21,775,321 11,517,261 19,246,506 12,476,155 3,395,242
------------- ------------- ------------- ------------- ------------- -------------
Net assets at end of period ............. $ 115,947,879 $ 40,066,692 $ 21,775,321 $ 11,932,349 $ 19,246,506 $ 12,476,155
============= ============= ============= ============= ============= =============
<CAPTION>
SMALL CAP VALUE INTERNATIONAL OPPORTUNITIES
SUBACCOUNT SUBACCOUNT
---------------------------------------- -------------------------------------------
1999 1998 1997* 1999 1998 1997*
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net
assets from operations:
Net investment income .................. $ 4,999 $ 14,015 $ 290,784 $ 131,942 $ 53,396 $ 55,901
Net realized gains (losses) ............ (615,546) (9,919) 75,149 591,897 191,495 80,782
Net unrealized appreciation
(depreciation) during the
period ................................ 214,351 (523,693) (18,626) 889,233 1,108,416 (260,664)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net
assets resulting from operations ....... (396,196) (519,597) 347,307 1,613,072 1,353,307 (123,981)
From policyholder transactions:
Net premiums from policyholders ........ 25,596,286 11,420,833 4,182,527 32,646,700 23,844,756 8,906,153
Net benefits to policyholders .......... (21,124,432) (4,363,378) (897,951) (30,003,095) (12,275,087) (3,655,731)
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets
resulting from policyholder
transactions ........................... 4,471,854 7,057,455 3,284,576 2,643,605 11,569,669 5,250,422
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets .............. 4,075,658 6,537,858 3,631,883 4,256,677 12,922,976 5,126,441
Net assets at beginning of period ...... 10,510,748 3,972,890 341,007 18,958,530 6,035,554 909,113
------------- ------------- ------------- ------------- ------------- -------------
Net assets at end of period ............. $ 14,586,406 $ 10,510,748 $ 3,972,890 $ 23,215,207 $ 18,958,530 $ 6,035,554
============= ============= ============= ============= ============= =============
</TABLE>
- ---------
* From May 1, 1997 (commencement of operations).
See accompanying notes.
79
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
For the period ended September 30, 1999, and the years ended December 31, 1998,
and December 31, 1997
<TABLE>
<CAPTION>
Equity Index Global Bond
Subaccount Subaccount
---------------------------------------- -------------------------------------------
1999 1998 1997* 1999 1998 1997*
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income .................... $ 703,713 $ 1,211,729 $ 378,697 $ 268,541 $ 283,651 $ 71,030
Net realized gains (losses) .............. 5,336,591 691,270 901,978 (118,680) 81,659 8,335
Net unrealized appreciation (depreciation)
during the period ....................... (4,169,903) 6,098,919 392,256 (347,529) 43,608 (11,727)
------------ ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations ................ 1,870,401 8,001,918 1,672,931 (197,668) 408,918 67,638
From policyholder transactions:
Net premiums from policyholders .......... 129,159,523 60,690,933 23,412,687 9,779,696 9,258,713 1,828,179
Net benefits to policyholders ............ (81,053,483) (31,166,123) (9,622,006) (9,674,359) (3,008,341) (534,164)
------------ ------------- ------------- ------------- ------------- -------------
Net increase in net assets resulting from
policyholder transactions ................ 48,106,040 29,524,810 13,790,681 105,337 6,250,372 1,294,015
------------ ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net assets ..... 49,976,441 37,526,728 15,463,612 (92,331) 6,659,290 1,361,653
Net assets at beginning of period ......... 53,964,647 16,437,919 974,307 8,279,571 1,620,281 258,628
------------ ------------- ------------- ------------- ------------- -------------
Net assets at end of period ............... $103,941,088 $ 53,964,647 $ 16,437,919 $ 8,187,240 $ 8,279,571 $ 1,620,281
============ ============= ============= ============= ============= =============
<CAPTION>
Turner Core Growth Brandes International
Subaccount Equity Subaccount
---------------------------------------- -------------------------------------------
1999 1998 1997* 1999 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) ............. $ 271,189 $ 77,203 $ 87,289 $ (22,958) $ 343,646 $ 25,175
Net realized gains ....................... 941,075 156,278 76,711 461,333 89,337 12,541
Net unrealized appreciation
(depreciation) during the period ........ (717,538) 562,620 32,626 1,215,652 91,915 (26,022)
------------ ------------- ------------- ------------- ------------- -------------
Net increase in net assets resulting
from operations .......................... 494,726 796,101 196,626 1,654,027 524,898 11,694
From policyholder transactions:
Net premiums from policyholders .......... 8,560,856 4,779,974 743,622 8,619,717 5,520,633 2,484,010
Net benefits to policyholders ............ (6,384,353) (1,690,860) (580,027) (4,766,743) (2,041,375) (1,088,249)
------------ ------------- ------------- ------------- ------------- -------------
Net increase in net assets resulting
from policyholder transactions ........... 2,176,503 3,089,114 163,595 3,852,974 3,479,258 1,395,761
------------ ------------- ------------- ------------- ------------- -------------
Net increase in net assets ................ 2,671,229 3,885,215 360,221 5,507,001 4,004,156 1,407,455
Net assets at beginning of period ......... 4,900,189 1,014,974 654,753 6,340,754 2,336,598 929,143
------------ ------------- ------------- ------------- ------------- -------------
Net assets at end of period ............... $ 7,571,418 $ 4,900,189 $ 1,014,974 $ 11,847,755 $ 6,340,754 $ 2,336,598
============ ============= ============= ============= ============= =============
</TABLE>
- ---------
* From May 1, 1997 (commencement of operations).
See accompanying notes.
80
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE PERIOD ENDED SEPTEMBER 30, 1999, AND THE YEARS ENDED DECEMBER 31, 1998,
AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
FRONTIER CAPITAL APPRECIATION ENHANCED U.S. EQUITY
SUBACCOUNT SUBACCOUNT
---------------------------------------- -------------------------------------
1999 1998 1997* 1999 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) .................. $ (26,095) $ 9,897 $ 118,150 $ (9,396) $ 68,233 $ 14,857
Net realized gains (losses) ................... 465,257 (445,752) 614,358 113,364 87,723 4,177
Net unrealized appreciation (depreciation)
during the period ............................ 1,081,356 432,064 (368,570) 67,419 89,677 6,844
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ..................... 1,520,518 (3,791) 363,938 171,387 245,633 25,878
From policyholder transactions:
Net premiums from policyholders ............... 21,711,615 13,982,031 10,030,418 3,620,720 3,031,309 475,503
Net benefits to policyholders ................. (20,280,472) (9,695,520) (5,969,436) (1,797,483) (1,299,530) (4,176)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
policyholder transactions ..................... 1,431,143 4,286,511 4,060,982 1,823,237 1,731,779 471,327
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets ..................... 2,951,661 4,282,720 4,424,920 1,994,624 1,977,412 497,205
Net assets at beginning of period .............. 9,675,718 5,392,998 968,078 2,474,617 497,205 0
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period .................... $ 12,627,379 $ 9,675,718 $ 5,392,998 $ 4,469,241 $ 2,474,617 $ 497,205
============ ============ ============ ============ ============ ============
<CAPTION>
EMERGING
MARKETS GLOBAL BOND
EQUITY EQUITY INDEX
SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------- ------------------------- -----------------------
1999 1998** 1999 1998** 1999 1998**
------------ ------------ ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) .................. $ (98) $ 135 $ 2,290 $ 152 $ 79,973 $ 22,905
Net realized gains (losses) ................... 46,712 (45,975) 37,732 (21,835) (57,740) 1,002
Net unrealized appreciation (depreciation)
during the period ............................ (50,240) 2,289 (14,368) 4,812 (52,695) (10,217)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting
from operations ............................... (3,626) (43,551) 25,654 (16,871) (30,462) 13,690
From policyholder transactions:
Net premiums from policyholders ............... 9,754,692 2,434,226 1,884,128 2,372,034 2,713,080 1,176,234
Net benefits to policyholders ................. (7,828,783) (2,203,670) (1,565,669) (2,191,135) (906,421) (124,467)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
policyholder transactions ..................... 1,925,909 230,556 318,459 180,899 1,806,659 1,051,767
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets ..................... 1,922,283 187,005 344,113 164,028 1,776,197 1,065,457
Net assets at beginning of period .............. 187,005 0 164,028 0 1,065,457 0
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period .................... $ 2,109,288 $ 187,005 $ 508,141 $ 164,208 $ 2,841,654 $ 1,065,457
============ ============ ============ ============ ============ ============
</TABLE>
- ---------
* From May 1, 1997 (commencement of operations).
** From July 1, 1998 (commencement of operations).
81
<PAGE>
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE PERIOD ENDED SEPTEMBER 30, 1999, AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SMALL/
MID CAP HIGH YIELD
CORE BOND
SUBACCOUNT SUBACCOUNT
------------------------ --------------------------
1999 1998** 1999 1998**
------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income (loss) .......................................... $ (604) $ (535) $ 269,273 $ 86,759
Net realized gains (losses) ........................................... 45,449 (25,196) 109,716 64,824
Net unrealized appreciation (depreciation) during the period .......... (33,284) 18,718 (285,080) 149,416
----------- ----------- ------------ ------------
Net increase (decrease) in net assets resulting from operations ........ 11,561 (7,013) 93,909 300,999
From policyholder transactions:
Net premiums from policyholders ....................................... 3,517,981 1,089,030 12,348,270 6,683,673
Net benefits to policyholders ......................................... (3,369,467) (778,864) (13,197,881) (2,457,088)
----------- ----------- ------------ ------------
Net increase (decrease) in net assets resulting from
policyholder transactions ............................................. 148,514 310,166 (849,611) 4,226,585
----------- ----------- ------------ ------------
Net increase in net assets ............................................. 160,075 303,153 (755,702) 4,527,584
Net assets at beginning of period ...................................... 303,153 0 4,527,584 0
----------- ----------- ------------ ------------
Net assets at end of period ............................................ $ 463,228 $ 303,153 $ 3,771,882 $ 4,527,584
=========== =========== ============ ============
</TABLE>
- ---------
** From July 1, 1997 (commencement of operations).
See accompanying notes.
82
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
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-seven subaccounts. The assets of each subaccount are invested
exclusively in shares of a corresponding Portfolio of John Hancock Variable
Series Trust I (the Fund) or of M Fund Inc. (M Fund). New subaccounts may be
added as new Portfolios are added to the Fund or to M Fund, or as other
investment options are developed, and made available to policyholders. The
twenty-seven Portfolios of the Fund and M Fund which are currently available are
the Large Cap Growth, Sovereign Bond, International Equity Index (formerly,
International Equities), Small Cap Growth, International Balanced, Mid Cap
Growth, Large Cap Value, Money Market, Mid Cap Value, Diversified Mid Cap Growth
(formerly, Special Opportunities), Real Estate Equity, Growth & Income, Managed,
Short-Term Bond (formerly, Short-Term U.S. Government), Small Cap Value,
International Opportunities, Equity Index, Strategic Bond, Turner Core Growth,
Brandes International Equity (formerly, Edinburgh International Equity),
Frontier Capital Appreciation, Enhanced U.S. Equity, Emerging Markets Equity,
Global Equity, Bond Index, Small/Mid Cap CORE, and High Yield Bond 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 respective Portfolio shares are determined
on the basis of identified cost.
Federal Income Taxes
The operations of the Account are included in the federal income tax return
of JHVLICO, which is taxed as a life insurance company under the Internal
Revenue Code. JHVLICO has the right to charge the Account any federal income
taxes, or provision for federal income taxes, attributable to the operations of
the Account or to the policies funded in the Account. Currently, JHVLICO does
not make a charge for income or other taxes. Charges for state and local taxes,
if any, attributable to the Account may also be made.
83
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
Expenses
JHVLICO assumes mortality and expense risks of the variable life insurance
policies for which asset charges are deducted at various rates ranging from .50%
to .625%, depending on the type of policy, of net assets (excluding policy
loans) of the Account. In addition, a monthly charge at varying levels for the
cost of insurance is deducted from the net assets of the Account.
JHVLICO makes certain deductions for administrative expenses and state
premium taxes from premium payments before amounts are transferred to the
Account.
Policy Loans
Policy loans represent outstanding loans plus accrued interest. Interest is
accrued (net of a charge for policy loan administration determined at an annual
rate of .75% of the aggregate amount of policyholder indebtedness) and
compounded daily. At September 30, 1999, 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.
84
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(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 September 30, 1999 were as follows:
SUBACCOUNT SHARES OWNED COST VALUE
---------- ------------ ------------ ------------
Large Cap Growth .............. 3,350,179 $ 82,748,549 $ 92,254,865
Sovereign Bond ................ 4,220,460 39,296,867 39,575,644
International Equity Index .... 1,289,214 20,941,300 21,854,808
Small Cap Growth .............. 1,005,497 13,894,751 15,284,423
International Balanced ........ 379,382 4,083,168 4,094,266
Mid Cap Growth ................ 1,348,597 23,943,865 27,930,840
Large Cap Value ............... 2,083,974 29,728,896 29,565,330
Money Market .................. 8,399,903 81,695,499 84,009,830
Mid Cap Value ................. 1,523,676 18,340,641 17,756,665
Small/Mid Cap Growth .......... 466,143 7,524,348 7,148,420
Real Estate Equity ............ 948,096 11,158,527 11,010,594
Growth & Income ............... 8,647,514 169,455,121 173,287,805
Managed ....................... 7,434,341 117,308,862 115,947,879
Short-Term Bond ............... 1,212,509 11,340,256 11,932,349
Small Cap Value ............... 1,303,827 14,848,337 14,586,406
International Opportunities ... 1,779,348 21,246,924 23,215,207
Equity Index .................. 5,622,569 100,636,131 103,941,088
Global Bond ................... 814,291 8,208,799 8,187,240
Turner Core Growth ............ 403,168 7,385,533 7,571,418
Brandes International Equity .. 892,830 10,578,601 11,847,755
Frontier Capital Appreciation . 709,808 11,477,543 12,627,379
Enhanced U.S. Equity .......... 229,547 4,305,343 4,469,241
Emerging Markets Equity ....... 248,255 2,155,457 2,109,288
Global Equity ................. 48,380 514,289 508,141
Bond Index .................... 297,230 2,817,925 2,841,654
Small/Mid Cap CORE ............ 50,219 476,961 463,228
High Yield Bond ............... 422,900 3,629,939 3,771,882
85
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
Purchases, including reinvestment of dividend distributions, and proceeds
from sales of shares in the Portfolios of the Fund and of M Fund for the period
ended September 30, 1999, were as follows:
SUBACCOUNT PURCHASES SALES
---------- ------------- ------------
Large Cap Growth .............. $ 34,235,658 $ 10,498,710
Sovereign Bond ................ 32,580,304 25,151,495
International Equity Index .... 17,121,702 9,530,443
Small Cap Growth .............. 12,494,479 7,981,608
International Balanced ........ 2,421,724 1,373,369
Mid Cap Growth ................ 20,682,435 11,398,281
Large Cap Value ............... 17,966,555 4,936,996
Money Market .................. 266,413,940 271,230,099
Mid Cap Value ................. 12,940,973 10,182,371
Small/Mid Cap Growth .......... 4,404,096 4,421,559
Real Estate Equity ............ 10,954,580 4,585,315
Growth & Income ............... 100,691,230 25,040,226
Managed ....................... 95,227,910 17,782,619
Short-Term US Government ...... 15,454,331 23,099,529
Small Cap Value ............... 9,053,211 4,628,348
International Opportunities ... 14,424,251 11,843,336
Equity Index .................. 70,660,440 22,778,588
Global Bond ................... 7,982,048 7,902,849
Turner Core Growth ............ 7,149,487 4,993,917
Brandes International Equity .. 7,186,394 3,356,274
Frontier Capital Appreciation . 10,850,270 9,445,107
Enhanced U.S. Equity .......... 3,072,022 1,258,140
Emerging Markets Equity ....... 4,303,816 2,379,787
Global Equity ................. 956,082 638,742
Bond Index .................... 2,652,590 852,599
Small/Mid Cap CORE ............ 1,952,413 1,805,336
High Yield Bond ............... 5,837,959 6,695,905
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), is executing
its plan to address the impact of the Year 2000 issues that result from computer
programs being written using two digits to reflect the year rather than four to
define the applicable year and century. Historically, the first two digits were
hardcoded to save memory. Many of the John Hancock's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in an information technology (IT) system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities. In addition, non-IT systems
including, but not limited to, security alarms, elevators and telephones are
subject to malfunction due to their dependence on embedded technology such as
microcontrollers for proper operation. As described, the Year 2000 project
presents a number of challenges for financial institutions since the correction
of Year 2000 issues in IT and non-IT systems will be complex and costly for the
entire industry.
86
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
John Hancock began to address the Year 2000 project as early as 1994. John
Hancock's plan to address the Year 2000 Project includes an awareness campaign,
an assessment period, a renovation stage, validation work and an implementation
of Company solutions.
The continuous awareness campaign serves several purposes: defining the
problem, gaining executive level support and sponsorship, establishing a team
and overall strategy, and assessing existing information system management
resources. Additionally, the awareness campaign establishes an education process
to ensure that all employees are aware of the Year 2000 issue and knowledgeable
of their role in securing solutions.
The assessment phase, which was completed for both IT and non-IT systems as of
April 1998, included the identification, inventory, analysis, and prioritization
of IT and non-IT systems and processes to determine their conversion or
replacement.
The renovation stage reflects the conversion, validation, replacement, or
elimination of selected platforms, applications, databases and utilities,
including the modification of applicable interfaces. Additionally, the
renovation stage includes performance, functionality, and regression testing and
implementation. As of September 30, 1999, the renovation phase was substantially
complete for computer applications, systems and desktops. For all remaining
components the renovation phase is underway and will be complete before the end
of the second quarter of 1999.
The validation phase consists of the compliance testing of renovated systems.
The validation phase is expected to be complete by mid 1999, after renovation is
accomplished. John Hancock will use its testing facilities through the remainder
of 1999 to perform special functional testing. Special functional testing
includes testing, as required, with material third parties and industry groups
and to perform reviews of "dry run" of year-end activities. Scheduled testing of
John Hancock's material relationships with third parties is underway. It is
anticipated that testing with material business partners will continue through
much of 1999.
Finally, the implementation phase involves the actual implementation of
converted or replaced platforms, applications, databases, utilities, interfaces,
and contingency planning. John Hancock is concurrently performing implementation
during the renovation phase and plans to complete this phase before the end of
the second quarter of 1999.
The costs of the Year 2000 project consist of internal IT personnel, and
external costs such as consultants, programmers, replacement software, and
hardware. The costs of the Year 2000 project are expensed as incurred. The
project is funded partially through a reallocation of resources from
discretionary projects. Through September 30, 1999, John Hancock has incurred
and expensed approximately $9.8 million in related payroll costs for its
internal IT personnel on the project. The estimated range of remaining internal
IT personnel costs of the project is approximately $8 to $9 million. Through
September 30, 1999, John Hancock has incurred and expensed approximately $36.4
million in external costs for the project. The estimated range of remaining
external costs of the project is approximately $35 to $36 million. The total
costs of the Year 2000 project, based on management's best estimates, include
approximately $18 million in internal IT personnel, $7.4 million in the external
modification of software, $34.2 million for external solution providers, $19.4
million in replacement costs of non-compliant IT systems and $12.6 million in
oversight, test facilities and other expenses. Accordingly, the estimated range
of total costs of the Year 2000 project, internal and external, is approximately
$90 to $95 million. However, there can be no guarantee that these estimates will
be achieved and actual results could materially differ from those plans.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
87
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
John Hancock's total Year 2000 project costs include the estimated impact of
external solution providers and are based on presently available information.
However, there is no guarantee that the systems of other companies that John
Hancock's systems rely on will be timely converted, or that a failure to convert
by another company, or a conversion that is incompatible with John Hancock's
systems, would not have material adverse effect on John Hancock. It is
documented in trade publications that companies in foreign countries are not
acting as intensively as domestic companies to remediate Year 2000 issues.
Accordingly, it is expected that Company facilities based outside the United
States face higher degrees of risks from data exchanges with material business
partners. In addition, John Hancock has thousands of individual and business
customers that hold insurance policies, annuities and other financial products
of John Hancock. Nearly all products sold by John Hancock contain date sensitive
data, examples of which are policy expiration dates, birth dates, premium
payment dates. Finally, the regulated nature of John Hancock's industry exposes
it to potential supervisory or enforcement actions relating to Year 2000 issues.
John Hancock's contingency planning initiative related to the Year 2000
project is underway. The plan is addressing John Hancock's readiness as well as
that of material business partners on whom John Hancock depends. John Hancock's
contingency plans are being designed to keep each business unit's operations
functioning in the event of a failure or delay due to the Year 2000 record
format and date calculation changes. Contingency plans are being constructed
based on the foundation of extensive business resumption plans that John Hancock
has maintained and updated periodically, which outline responses to situations
that may affect critical business functions. These plans also provide emergency
operations guidance, which defines a documented order of actions to respond to
problems. These extensive business resumption plans are being enhanced to cover
Year 2000 situations.
88
<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 Equity Index (formerly,
International Equities), Small Cap Growth, International Balanced, Mid Cap
Growth, Large Cap Value, Money Market, Mid Cap Value, Diversified Mid Cap Growth
(formerly, Special Opportunities), Real Estate Equity, Growth & Income, Managed,
Short-Term Bond (formerly, Short-Term U.S. Government), Small Cap Value,
International Opportunities, Equity Index, Strategic Bond, Turner Core Growth,
Enhanced U.S. Equity Fund, Brandes International Equity (formerly, Edinburgh
Overseas Equity Fund), Frontier Capital Appreciation Enhanced U.S. Equity,
Emerging Markets Equity, Global Equity, Bond Index, Small/Mid Cap CORE, and High
Yield Bond Subaccounts) as of December 31, 1998, 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,
1998, the results of their operations and the changes in their net assets for
each of the periods indicated, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 10, 1999
89
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTERNATIONAL
LARGE CAP SOVEREIGN EQUITY SMALL CAP INTERNATIONAL
GROWTH BOND INDEX GROWTH BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of portfolios of
John Hancock Variable Series Trust I,
at value................................. $65,018,220 $32,541,967 $12,595,630 $ 9,078,106 $ 3,103,327
Investments in shares of portfolios of M
Fund Inc., at value....................... -- -- -- -- --
Receivable from:
John Hancock Variable Series Trust I...... 70,159 83,725 29,266 29,789 1,571
M Fund Inc................................ -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total assets............................... 65,088,379 32,625,692 12,624,896 9,107,895 3,104,898
LIABILITIES
Payable to:
John Hancock Variable Life Insurance
Company.................................. 69,513 83,401 29,117 29,679 1,535
M Fund Inc................................ -- -- -- -- --
Asset charges payable...................... 646 324 149 110 36
----------- ----------- ----------- ----------- -----------
Total liabilities.......................... 70,159 83,725 29,266 29,789 1,571
----------- ----------- ----------- ----------- -----------
Net assets................................. $65,018,220 $32,541,967 $12,595,630 $ 9,078,106 $ 3,103,327
=========== =========== =========== =========== ===========
<CAPTION>
DIVERSIFIED
MID CAP LARGE CAP MONEY MID CAP MID CAP
GROWTH VALUE MARKET VALUE GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of portfolios of
John Hancock Variable Series Trust I,
at value................................. $12,678,444 $16,629,520 $ 86,511,658 $15,754,611 $7,491,413
Investments in shares of portfolios of M
Fund Inc., at value....................... -- -- -- -- --
Receivable from:
John Hancock Variable Series Trust I...... 103,676 40,755 20,713,657 117,109 15,168
M Fund Inc................................ -- -- -- -- --
----------- ----------- ------------ ----------- ----------
Total assets............................... 12,782,120 16,670,275 107,225,315 15,871,720 7,506,581
LIABILITIES
Payable to:
John Hancock Variable Life Insurance
Company.................................. 103,543 40,591 20,712,867 116,945 15,077
M Fund Inc................................ -- -- -- -- --
Asset charges payable...................... 133 164 790 164 91
----------- ----------- ------------ ----------- ----------
Total liabilities.......................... 103,676 40,755 20,713,657 117,109 15,168
----------- ----------- ------------ ----------- ----------
Net assets................................. $12,678,444 $16,629,520 $ 86,511,658 $15,754,611 $7,491,413
=========== =========== ============ =========== ==========
</TABLE>
See accompanying notes.
90
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
REAL ESTATE GROWTH & SHORT-TERM SMALL CAP
EQUITY INCOME MANAGED BOND VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of portfolios of
John Hancock Variable Series Trust I, at
value.................................... $ 4,772,174 $96,407,275 $40,066,692 $19,246,506 $10,510,748
Investments in shares of portfolios of M
Fund Inc., at value...................... -- -- -- -- --
Receivable from:
John Hancock Variable
Series Trust I.......................... 115,349 147,773 64,500 1,482 40,758
M Fund Inc............................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total assets.............................. 4,887,523 96,555,048 40,131,192 19,247,988 10,551,506
LIABILITIES
Payable to:
John Hancock Variable Life Insurance
Company................................. 115,288 146,677 64,069 1,304 40,631
M Fund Inc............................... -- -- -- -- --
Asset charges payable..................... 61 1,096 431 178 127
----------- ----------- ----------- ----------- -----------
Total liabilities......................... 115,349 147,773 64,500 1,482 40,758
----------- ----------- ----------- ----------- -----------
Net assets................................ $ 4,772,174 $96,407,275 $40,066,692 $19,246,506 $10,510,748
=========== =========== =========== =========== ===========
<CAPTION>
TURNER BRANDES
INTERNATIONAL EQUITY STRATEGIC CORE INTERNATIONAL
OPPORTUNITIES INDEX BOND GROWTH EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of portfolios of
John Hancock Variable Series Trust I, at
value.................................... $18,958,530 $53,964,646 $ 8,279,571 $ -- $ --
Investments in shares of portfolios of M
Fund Inc., at value...................... -- -- -- 4,900,189 6,340,754
Receivable from:
John Hancock Variable Series Trust I..... 130,881 381,439 149 -- --
M Fund Inc............................... -- -- -- 121,074 59
----------- ----------- ----------- ----------- -----------
Total assets.............................. 19,089,411 54,346,085 8,279,720 5,021,263 6,340,813
LIABILITIES
Payable to:
John Hancock Variable Life Insurance
Company................................. 130,683 380,886 55 -- --
M Fund Inc............................... -- -- -- 121,024 --
Asset charges payable..................... 198 552 94 50 59
----------- ----------- ----------- ----------- -----------
Total liabilities......................... 130,881 381,438 149 121,074 59
----------- ----------- ----------- ----------- -----------
Net assets................................ $18,958,530 $53,964,647 $ 8,279,571 $ 4,900,189 $ 6,340,754
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
91
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
FRONTIER EMERGING HIGH
CAPITAL ENHANCED MARKETS GLOBAL BOND SMALL/MID YIELD
APPRECIATION U.S. EQUITY EQUITY EQUITY INDEX CAP CORE 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.................................... $ -- $ -- $ 187,005 $ 164,028 $1,065,457 $ 303,153 $4,527,584
Investments in shares of portfolios of M
Fund Inc., at value...................... 9,675,718 2,474,617
Receivable from:
John Hancock Variable Series Trust I..... -- -- 2 2 16 4 20
M Fund Inc............................... 17,003 16,938 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets.............................. 9,692,721 2,491,555 187,007 164,030 1,065,473 303,157 4,527,604
LIABILITIES
Payable to:
John Hancock Variable Life Insurance
Company................................. -- -- 2 2 16 4 20
M Fund Inc............................... 16,917 16,917 -- -- -- -- --
Asset charges payable..................... 86 21 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities......................... 17,003 16,938 2 2 16 4 20
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net assets................................ $9,675,718 $2,474,617 $ 187,005 $ 164,028 $1,065,457 $ 303,153 $4,527,584
========== ========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
92
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
LARGE CAP GROWTH SOVEREIGN BOND
SUBACCOUNT SUBACCOUNT
----------------------------------------- ------------------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I............................ $ 6,312,073 $ 2,884,498 $ 2,452,382 $ 2,190,901 $ 855,742 $ 242,881
M Fund Inc.......................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total investment income............... 6,312,073 2,884,498 2,452,382 2,190,901 855,742 242,881
Expenses:
Mortality and expense risks.......... 168,652 91,256 49,880 93,556 39,184 14,129
----------- ----------- ----------- ----------- ----------- -----------
Net investment income................. 6,143,421 2,793,242 2,402,502 2,097,345 816,558 228,752
Net realized and unrealized gain
(loss) on investments:
Net realized gains................... 1,750,881 619,721 444,487 185,230 80,538 5,746
Net unrealized appreciation
(depreciation) during the period.... 8,041,022 2,301,920 (1,104,574) (378,058) 63,687 (69,973)
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments................ 9,791,903 2,921,641 (660,087) (192,828) 144,225 (64,227)
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting
from operations..................... $15,935,324 $ 5,714,883 $ 1,742,415 $ 1,904,517 $ 960,783 $ 164,525
=========== =========== =========== =========== =========== ===========
<CAPTION>
INTERNATIONAL EQUITY INDEX SMALL CAP GROWTH
SUBACCOUNT SUBACCOUNT
----------------------------------------- -------------------------------------------
1998 1997 1996 1998 1997 1996*
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I............................ $ 1,930,710 $ 422,913 $ 52,188 $ -- $ 473 $ 512
M Fund Inc.......................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total investment income............... 1,930,710 422,913 52,188 -- 473 512
Expenses:
Mortality and expense risks.......... 45,651 33,893 23,132 22,593 6,547 1,547
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss).......... 1,885,059 389,020 29,056 (22,593) (6,074) (1,035)
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses).......... 152,030 244,810 165,730 58,729 21,707 (40,018)
Net unrealized appreciation
(depreciation) during the period.... 78,480 (1,219,540) 137,729 1,070,805 126,699 (2,665)
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments................ 230,510 (974,730) 303,459 1,129,534 148,406 (42,683)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations............ $ 2,115,569 $ (585,710) $ 332,515 $ 1,106,941 $ 142,332 $ (43,718)
=========== =========== =========== =========== =========== ===========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
93
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED MID CAP GROWTH
SUBACCOUNT SUBACCOUNT
-------------------------------------------- -------------------------------------------
1998 1997 1996* 1998 1997 1996*
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I........................ $ 185,760 $ 61,249 $ 2,947 $1,114,374 $ -- $ 1,177
M Fund Inc...................... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total investment income........... 185,760 61,249 2,947 1,114,374 -- 1,177
Expenses:
Mortality and expense risks...... 9,687 4,443 356 26,123 8,287 719
---------- ---------- ---------- ---------- ---------- ----------
Net investment income (loss)...... 176,073 56,806 2,591 1,088,251 (8,287) 458
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses)...... 24,206 8,667 56 599,619 1,235 (391)
Net unrealized appreciation
(depreciation) during the
period.......................... 147,461 (67,714) 5,307 1,184,263 486,186 6,440
---------- ---------- ---------- ---------- ---------- ----------
Net realized and unrealized gain
(loss) on investments............ 171,667 (59,047) 5,363 1,783,882 487,421 6,049
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
assets resulting from
operations....................... $ 347,740 $ (2,241) $ 7,954 $2,872,133 $ 479,134 $ 6,507
========== ========== ========== ========== ========== ==========
<CAPTION>
LARGE CAP VALUE MONEY MARKET
SUBACCOUNT SUBACCOUNT
-------------------------------------------- -------------------------------------------
1998 1997 1996* 1998 1997 1996
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I........................ $ 797,874 $ 194,199 $ 13,644 $1,854,829 $ 758,434 $ 287,321
M Fund Inc...................... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total investment income........... 797,874 194,199 13,644 1,854,829 758,434 287,321
Expenses:
Mortality and expense risks...... 41,415 11,163 964 167,813 66,882 30,722
---------- ---------- ---------- ---------- ---------- ----------
Net investment income............. 756,459 183,036 12,680 1,687,016 691,552 256,599
Net realized and unrealized gain
on investments:
Net realized gains............... 330,827 164,821 1,327 -- -- --
Net unrealized appreciation
during the period............... 145,355 279,449 23,553 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net realized and unrealized gain
on investments.................. 476,182 444,270 24,880 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets
resulting from operations........ $1,232,641 $ 627,306 $ 37,560 $1,687,016 $ 691,552 $ 256,599
========== ========== ========== ========== ========== ==========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
94
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MID CAP VALUE DIVERSIFIED MID CAP GROWTH
SUBACCOUNT SUBACCOUNT
--------------------------------------------- -------------------------------------------
1998 1997 1996* 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I....................... $ 120,469 $ 446,081 $ 6,878 $ 142,469 $ 878,600 $ 238,163
M Fund Inc..................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total investment income.......... 120,469 446,081 6,878 142,469 878,600 238,163
Expenses:
Mortality and expense risks..... 45,020 11,421 377 34,432 35,934 21,146
----------- ----------- ----------- ----------- ----------- -----------
Net investment income............ 75,449 434,660 6,501 108,037 842,666 217,017
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses)..... (538,516) 101,787 845 232,246 297,666 317,400
Net unrealized appreciation
(depreciation) during the
period......................... (830,390) (39,717) 13,910 236,333 (730,748) 344,786
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments........... (1,368,906) 62,070 14,755 468,579 (433,082) 662,186
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations...................... $(1,293,457) $ 496,730 $ 21,256 $ 576,616 $ 409,584 $ 879,203
=========== =========== =========== =========== =========== ===========
<CAPTION>
REAL ESTATE EQUITY GROWTH & INCOME
SUBACCOUNT SUBACCOUNT
--------------------------------------------- -------------------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I....................... $ 305,783 $ 246,677 $ 50,204 $ 9,266,175 $ 5,917,063 $ 3,056,625
M Fund Inc..................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total investment income.......... 305,783 246,677 50,204 9,266,175 5,917,063 3,056,625
Expenses:
Mortality and expense risks..... 22,716 13,879 4,547 290,361 169,135 89,391
----------- ----------- ----------- ----------- ----------- -----------
Net investment income............ 283,067 232,798 45,657 8,975,814 5,747,928 2,967,234
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses)..... (454,979) 252,095 19,122 2,061,212 2,390,414 512,402
Net unrealized appreciation
(depreciation) during the
period......................... (698,676) (13,488) 191,067 7,759,307 435,778 (496,647)
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments........... (1,153,655) 238,607 210,189 9,820,519 2,826,192 15,755
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations...................... $ (870,588) $ 471,405 $ 255,846 $18,796,333 $ 8,574,120 $ 2,982,989
=========== =========== =========== =========== =========== ===========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
95
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS (CONTINUED)
For the years and periods ended December 31,
<TABLE>
<CAPTION>
MANAGED SHORT-TERM BOND
SUBACCOUNT SUBACCOUNT
------------------------------------------ -----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I........................... $ 3,606,186 $ 1,879,954 $ 1,281,149 $ 977,164 $ 415,542 $ 181,937
M Fund Inc......................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total investment income.............. 3,606,186 1,879,954 1,281,149 977,164 415,542 181,937
Expenses:
Mortality and expense risks......... 121,905 65,383 35,103 50,947 20,551 9,277
----------- ----------- ----------- ----------- ----------- -----------
Net investment income................ 3,484,281 1,814,571 1,246,046 926,217 394,991 172,660
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses)......... 278,186 171,318 124,493 24,740 35,294 (52,888)
Net unrealized appreciation
(depreciation) during the
period............................ 1,791,231 715,231 (507,517) (136,999) (25,976) (7,734)
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments............... 2,069,417 886,549 (383,024) (112,259) 9,318 (60,622)
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting
from operations..................... $ 5,553,698 $ 2,701,120 $ 863,022 $ 813,958 $ 404,309 $ 112,038
=========== =========== =========== =========== =========== ===========
<CAPTION>
SMALL CAP VALUE INTERNATIONAL OPPORTUNITIES
SUBACCOUNT SUBACCOUNT
------------------------------------------ -------------------------------------------
1998 1997 1996* 1998 1997 1996*
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I........................... $ 47,350 $ 299,278 $ 8,296 $ 103,399 $ 69,078 $ 2,965
M Fund Inc......................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total investment income.............. 47,350 299,278 8,296 103,399 69,078 2,965
Expenses:
Mortality and expense risks......... 33,335 8,494 523 50,003 13,177 1,439
----------- ----------- ----------- ----------- ----------- -----------
Net investment income................ 14,015 290,784 7,773 53,396 55,901 1,526
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses)......... (9,919) 75,149 58 191,495 80,782 242
Net unrealized appreciation
(depreciation) during
the period........................ (523,693) (18,626) 14,046 1,108,416 (260,664) 36,666
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments............... (533,612) 56,523 14,104 1,299,911 (179,882) 36,908
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations.......................... $ (519,597) $ 347,307 $ 21,877 $ 1,353,307 $ (123,981) $ 38,434
=========== =========== =========== =========== =========== ===========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
96
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS (CONTINUED)
For the years and periods ended December 31,
<TABLE>
<CAPTION>
Equity Index Strategic Bond
Subaccount Subaccount
------------------------------------------- -------------------------------------------
1998 1997 1996* 1998 1997 1996*
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I ...................... $1,337,750 $ 409,920 $ 23,300 $ 303,545 $ 74,850 $ 7,425
M Fund Inc. ................... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total investment income ......... 1,337,750 409,920 23,300 303,545 74,850 7,425
Expenses:
Mortality and expense risks .... 126,021 31,223 1,962 19,894 3,820 349
---------- ---------- ---------- ---------- ---------- ----------
Net investment income ........... 1,211,729 378,697 21,338 283,651 71,030 7,076
Net realized and unrealized gain
(loss) on investments:
Net realized gains ............. 691,270 901,978 17,398 81,659 8,335 22
Net unrealized appreciation
(depreciation)
during the period ............. 6,098,919 392,256 55,782 43,608 (11,727) (591)
---------- ---------- ---------- ---------- ---------- ----------
Net realized and unrealized gain
(loss) on investments .......... 6,790,189 1,294,234 73,180 125,267 (3,392) (569)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets
resulting from operations ...... $8,001,918 $1,672,931 $ 94,518 $ 408,918 $ 67,638 $ 6,507
========== ========== ========== ========== ========== ==========
<CAPTION>
Turner Core Growth Brandes International Equity
Subaccount Subaccount
------------------------------------------- -------------------------------------------
1998 1997 1996* 1998 1997 1996
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I ...................... $ -- $ -- $ -- $ -- $ -- $ --
M Fund Inc. ................... 84,940 91,360 21,778 358,080 32,677 5,263
---------- ---------- ---------- ---------- ---------- ----------
Total investment income.......... 84,940 91,360 21,778 358,080 32,677 5,263
Expenses:
Mortality and expense risks .... 7,737 4,071 2,140 14,434 7,502 2,280
---------- ---------- ---------- ---------- ---------- ----------
Net investment income ........... 77,203 87,289 19,638 343,646 25,175 2,983
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses) .... 156,278 76,711 (9,767) 89,337 12,541 (2,433)
Net unrealized appreciation
(depreciation) during the
period ........................ 562,620 32,626 16,054 91,915 (26,022) (12,286)
---------- ---------- ---------- ---------- ---------- ----------
Net realized and unrealized gain
(loss) on investments .......... 718,898 109,337 6,287 181,252 (13,481) (14,719)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
assets resulting from
operations ..................... $ 796,101 $ 196,626 $ 25,925 $ 524,898 $ 11,694 $ (11,736)
========== ========== ========== ========== ========== ==========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
97
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS (CONTINUED)
For the years and periods ended December 31,
<TABLE>
<CAPTION>
ENHANCED
FRONTIER CAPITAL APPRECIATION U.S. EQUITY
SUBACCOUNT SUBACCOUNT
---------------------------------------------- -----------------------------
1998 1997 1996* 1998 1997**
---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I............................. $ -- $ -- $ -- $ -- $ --
M Fund Inc........................... 34,738 128,190 -- 72,302 15,335
--------- --------- --------- --------- ---------
Total investment income................ 34,738 128,190 -- 72,302 15,335
Expenses:
Mortality and expense risks........... 24,841 10,040 1,679 4,069 478
--------- --------- --------- --------- ---------
Net investment income (loss)........... 9,897 118,150 (1,679) 68,233 14,857
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses)........... (445,752) 614,358 (21,044) 87,723 4,177
Net unrealized appreciation
(depreciation) during the period..... 432,064 (368,570) 5,101 89,677 6,844
--------- --------- --------- --------- ---------
Net realized and unrealized gain
(loss) on investments................. (13,688) 245,788 (15,943) 177,400 11,021
--------- --------- --------- --------- ---------
Net increase (decrease) in net
assets resulting from operations...... $ (3,791) $ 363,938 $ (17,622) $ 245,633 $ 25,878
========= ========= ========= ========= =========
<CAPTION>
EMERGING SMALL/
MARKETS GLOBAL BOND MID CAP HIGH YIELD
EQUITY EQUITY INDEX CORE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ----------
1998*** 1998*** 1998*** 1998*** 1998***
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I............................. $ 522 $ 491 $ 23,842 $ -- $ 88,721
M Fund Inc........................... -- -- -- -- --
--------- --------- --------- --------- ---------
Total investment income................ 522 491 23,842 -- 88,721
Expenses:
Mortality and expense risks........... 387 339 937 535 1,962
--------- --------- --------- --------- ---------
Net investment income (loss)........... 135 152 22,905 (535) 86,759
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses)........... (45,975) (21,835) 1,002 (25,196) 64,824
Net unrealized appreciation
(depreciation) during the period..... 2,289 4,812 (10,217) 18,718 149,416
--------- --------- --------- --------- ---------
Net realized and unrealized gain
(loss) on investments................. (43,686) (17,023) (9,215) (6,478) 214,240
--------- --------- --------- --------- ---------
Net increase (decrease) in net
assets resulting from operations...... $ (43,551) $ (16,871) $ 13,690 $ (7,013) $ 300,999
========= ========= ========= ========= =========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
** From July 1, 1997 (commencement of operations).
*** From May 1, 1998 (commencement of operations).
See accompanying notes.
98
<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 SOVEREIGN BOND
SUBACCOUNT SUBACCOUNT
----------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income .................... $ 6,143,421 $ 2,793,242 $ 2,402,502 $ 2,097,345 $ 816,558 $ 228,752
Net realized gains ....................... 1,750,881 619,721 444,487 185,230 80,538 5,746
Net unrealized appreciation (depreciation)
during the period ....................... 8,041,022 2,301,920 (1,104,574) (378,058) 63,687 (69,973)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations ............................... 15,935,324 5,714,883 1,742,415 1,904,517 960,783 164,525
From policyholder transactions:
Net premiums from policyholders .......... 29,859,648 20,264,849 13,036,922 38,567,292 21,324,560 4,312,776
Net benefits to policyholders ............ (13,281,028) (10,390,849) (4,928,834) (27,391,317) (8,009,615) (679,839)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
policyholder transactions ................ 16,578,620 9,874,000 8,108,088 11,175,975 13,314,945 3,632,937
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets ................ 32,513,944 15,588,883 9,850,503 13,080,492 14,275,728 3,797,462
Net assets at beginning of period ......... 32,504,276 16,915,393 7,064,890 19,461,475 5,185,747 1,388,285
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period ............... $ 65,018,220 $ 32,504,276 $ 16,915,393 $ 32,541,967 $ 19,461,475 $ 5,185,747
============ ============ ============ ============ ============ ============
<CAPTION>
INTERNATIONAL EQUITY INDEX SMALL CAP GROWTH
SUBACCOUNT SUBACCOUNT
----------------------------------------- -----------------------------------------
1998 1997 1996 1998 1997 1996*
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) ............. $ 1,885,059 $ 389,020 $ 29,056 $ (22,593) $ (6,074) $ (1,035)
Net realized gains (losses) .............. 152,030 244,810 165,730 58,729 21,707 (40,018)
Net unrealized appreciation (depreciation)
during the period ....................... 78,480 (1,219,540) 137,729 1,070,805 126,699 (2,665)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ................ 2,115,569 (585,710) 332,515 1,106,941 142,332 (43,718)
From policyholder transactions:
Net premiums from policyholders .......... 10,034,119 8,150,400 4,750,218 12,088,047 2,870,481 1,120,880
Net benefits to policyholders ............ (8,344,107) (4,505,840) (1,906,352) (6,621,834) (1,005,386) (579,637)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
policyholder transactions ................ 1,690,012 3,644,560 2,843,866 5,466,213 1,865,095 541,243
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets ................ 3,805,581 3,058,850 3,176,381 6,573,154 2,007,427 497,525
Net assets at beginning of period ......... 8,790,049 5,731,199 2,554,818 2,504,952 497,525 0
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period ............... $ 12,595,630 $ 8,790,049 $ 5,731,199 $ 9,078,106 $ 2,504,952 $ 497,525
============ ============ ============ ============ ============ ============
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
99
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
For the years and periods ended December 31,
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED MID CAP GROWTH
SUBACCOUNT SUBACCOUNT
---------------------------------------- -----------------------------------------
1998 1997 1996* 1998 1997 1996*
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) ............ $ 176,073 $ 56,806 $ 2,591 $ 1,088,251 $ (8,287) $ 458
Net realized gains (losses) ............. 24,206 8,667 56 599,619 1,235 (391)
Net unrealized appreciation (depreciation)
during the period ...................... 147,461 (67,714) 5,307 1,184,263 486,186 6,440
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net
assets resulting from operations ........ 347,740 (2,241) 7,954 2,872,133 479,134 6,507
From policyholder transactions:
Net premiums from policyholders ......... 3,163,316 1,608,069 148,617 11,323.614 3,212,754 858,546
Net benefits to policyholders ........... (1,882,974) (282,878) (4,276) (5,132,055) (915,459) (26,730)
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets resulting
from policyholder transactions .......... 1,280,342 1,325,191 144,341 6,191,559 2,297,295 831,816
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets ............... 1,628,082 1,322,950 152,295 9,063,692 2,776,429 838,323
Net assets at beginning of period ........ 1,475,245 152,295 0 3,614,752 838,323 0
------------- ------------- ------------- ------------- ------------- -------------
Net assets at end of period .............. $ 3,103,327 $ 1,475,245 $ 152,295 $ 12,678,444 $ 3,614,752 $ 838,323
============= ============= ============= ============= ============= =============
<CAPTION>
LARGE CAP VALUE MONEY MARKET
SUBACCOUNT SUBACCOUNT
----------------------------------------- ----------------------------------------
1998 1997 1996* 1998 1997 1996
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income ................... $ 756,459 $ 183,036 $ 12,680 $ 1,687,016 $ 691,552 $ 256,599
Net realized gains ...................... 330,827 164,821 1,327 -- -- --
Net unrealized appreciation during the
period ................................. 145,355 279,449 23,553 -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets resulting from
operations .............................. 1,232,641 627,306 37,560 1,687,016 691,552 256,599
From policyholder transactions:
Net premiums from policyholders ......... 15,144,316 5,421,062 767,660 340,377,358 103,737,470 36,814,029
Net benefits to policyholders ........... (4,937,583) (1,620,578) (42,864) (269,723,839) (100,296,756) (31,658,283)
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets resulting from
policyholder transactions ............... 10,206,733 3,800,484 724,796 70,653,519 3,440,714 5,155,746
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets ............... 11,439,374 4,427,790 762,356 72,340,535 4,132,266 5,412,345
Net assets at beginning of period ........ 5,190,146 762,356 0 14,171,123 10,038,857 4,626,512
------------- ------------- ------------- ------------- ------------- -------------
Net assets at end of period .............. $ 16,629,520 $ 5,190,146 $ 762,356 $ 86,511,658 $ 14,171,123 $ 10,038,857
============= ============= ============= ============= ============= =============
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
100
<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 DIVERSIFIED MID CAP GROWTH
SUBACCOUNT SUBACCOUNT
-------------------------------------- ---------------------------------------
1998 1997 1996* 1998 1997 1996
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income ......................... $ 75,449 $ 434,660 $ 6,501 $ 108,037 $ 842,666 $ 217,017
Net realized gains (losses) ................... (538,516) 101,787 845 232,246 297,666 317,400
Net unrealized appreciation (depreciation)
during the period ........................... (830,390) (39,717) 13,910 236,333 (730,748) 344,786
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ................... (1,293,457) 496,730 21,256 576,616 409,584 879,203
From policyholder transactions:
Net premiums from policyholders ............... 18,837,112 6,323,061 324,248 4,563,154 8,511,081 4,939,686
Net benefits to policyholders ................. (7,855,945) (1,089,206) (9,188) (6,481,542) (6,274,668) (1,301,761)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from policyholder transactions ...... 10,981,167 5,233,855 315,060 (1,918,388) 2,236,413 3,637,925
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets .......... 9,687,710 5,730,585 336,316 (1,341,772) 2,645,997 4,517,128
Net assets at beginning of period .............. 6,066,901 336,316 0 8,833,185 6,187,188 1,670,060
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period .................... $ 15,754,611 $ 6,066,901 $ 336,316 $ 7,491,413 $ 8,833,185 $ 6,187,188
============ ============ ============ ============ ============ ============
<CAPTION>
REAL ESTATE EQUITY GROWTH & INCOME
SUBACCOUNT SUBACCOUNT
------------------------------------- ---------------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income ......................... $ 283,067 $ 232,798 $ 45,657 $ 8,975,814 $ 5,747,928 $ 2,967,234
Net realized gains (losses) ................... (454,979) 252,095 19,122 2,061,212 2,390,414 512,402
Net unrealized appreciation (depreciation)
during the period ........................... (698,676) (13,488) 191,067 7,759,307 435,778 (496,647)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ................... (870,588) 471,405 255,846 18,796,333 8,574,120 2,982,989
From policyholder transactions:
Net premiums from policyholders ............... 6,964,604 4,833,914 748,683 60,975,616 35,535,599 19,263,021
Net benefits to policyholders ................. (5,513,221) (2,393,463) (295,788) (31,360,866) (21,776,809) (5,502,524)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
policyholder transactions ................... 1,451,383 2,440,451 452,895 29,614,750 13,758,790 13,760,497
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets ..................... 580,795 2,911,856 708,741 48,411,083 22,332,910 16,743,486
Net assets at beginning of period .............. 4,191,379 1,279,523 570,782 47,996,192 25,663,282 8,919,796
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period .................... $ 4,772,174 $ 4,191,379 $ 1,279,523 $ 96,407,275 $ 47,996,192 $ 25,663,282
============ ============ ============ ============ ============ ============
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
101
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
For the years and periods ended December 31,
<TABLE>
<CAPTION>
Managed Short-Term Bond
Subaccount Subaccount
-------------------------------------- -------------------------------------
1998 1997 1996* 1998 1997 1996
---------- ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income.......................... $ 3,484,281 $ 1,814,571 $ 1,246,046 $ 926,217 $ 394,991 $ 172,660
Net realized gains (losses).................... 278,186 171,318 124,493 24,740 35,294 (52,888)
Net unrealized appreciation (depreciation)
during the period........................... 1,791,231 715,231 (507,517) (136,999) (25,976) (7,734)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations................................... 5,553,698 2,701,120 863,022 813,958 404,309 112,038
From policyholder transactions:
Net premiums from policyholders................ 21,019,273 16,914,475 9,996,216 27,490,588 12,911,228 8,757,242
Net benefits to policyholders.................. (8,281,600) (9,357,535) (3,151,700) (21,534,195) (4,234,624) (7,683,085)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
policyholder transactions.................... 12,737,673 7,556,940 6,844,516 5,956,393 8,676,604 1,074,157
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets...................... 18,291,371 10,258,060 7,707,538 6,770,351 9,080,913 1,186,195
Net assets at beginning of period............... 21,775,321 11,517,261 3,809,723 12,476,155 3,395,242 2,209,047
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period..................... $ 40,066,692 $ 21,775,321 $ 11,517,261 $ 19,246,506 $ 12,476,155 $ 3,395,242
============ ============ ============ ============ ============ ============
<CAPTION>
Small Cap Value International Opportunities
Subaccount Subaccount
-------------------------------------- -------------------------------------
1998 1997 1996* 1998 1997 1996*
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income.......................... $ 14,015 $ 290,784 $ 7,773 $ 53,396 $ 55,901 $ 1,526
Net realized gains (losses).................... (9,919) 75,149 58 191,495 80,782 242
Net unrealized appreciation (depreciation)
during the period........................... (523,693) (18,626) 14,046 1,108,416 (260,664) 36,666
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from operations............... (519,597) 347,307 21,877 1,353,307 (123,981) 38,434
From policyholder transactions:
Net premiums from policyholders................ 11,420,833 4,182,527 335,271 23,844,756 8,906,153 960,081
Net benefits to policyholders.................. (4,363,378) (897,951) (16,141) (12,275,087) (3,655,731) (89,402)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
policyholder transactions.................... 7,057,455 3,284,576 319,130 11,569,669 5,250,422 870,679
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets...................... 6,537,858 3,631,883 341,007 12,922,976 5,126,441 909,113
Net assets at beginning of period............... 3,972,890 341,007 0 6,035,554 909,113 0
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period..................... $ 10,510,748 $ 3,972,890 $ 341,007 $ 18,958,530 $ 6,035,554 $ 909,113
============ ============ ============ ============ ============ ============
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
102
<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 INDEX STRATEGIC BOND
SUBACCOUNT SUBACCOUNT
-------------------------------------- ---------------------------------------
1998 1997 1996* 1998 1997 1996*
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income ......................... $ 1,211,729 $ 378,697 $ 21,338 $ 283,651 $ 71,030 $ 7,076
Net realized gains ............................ 691,270 901,978 17,398 81,659 8,335 22
Net unrealized appreciation (depreciation)
during the period ........................... 6,098,919 392,256 55,782 43,608 (11,727) (591)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations .................................. 8,001,918 1,672,931 94,518 408,918 67,638 6,507
From policyholder transactions:
Net premiums from policyholders ............... 60,690,933 23,412,687 1,282,798 9,258,713 1,828,179 259,231
Net benefits to policyholders ................. (31,166,123) (9,622,006) (403,009) (3,008,341) (534,164) (7,110)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
policyholder transactions ................... 29,524,810 13,790,681 879,789 6,250,372 1,294,015 252,121
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets ..................... 37,526,728 15,463,612 974,307 6,659,290 1,361,653 258,628
Net assets at beginning of period .............. 16,437,919 974,307 0 1,620,281 258,628 0
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period .................... $ 53,964,647 $ 16,437,919 $ 974,307 $ 8,279,571 $ 1,620,281 $ 258,628
============ ============ ============ ============ ============ ============
<CAPTION>
TURNER CORE GROWTH BRANDES INTERNATIONAL
SUBACCOUNT EQUITY SUBACCOUNT
-------------------------------------- --------------------------------------
1998 1997 1996* 1998 1997 1996
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income ......................... $ 77,203 $ 87,289 $ 19,638 $ 343,646 $ 25,175 $ 2,983
Net realized gains (losses) ................... 156,278 76,711 (9,767) 89,337 12,541 (2,433)
Net unrealized appreciation (depreciation)
during the period ........................... 562,620 32,626 16,054 91,915 (26,022) (12,286)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from operations ............ 796,101 196,626 25,925 524,898 11,694 (11,736)
From policyholder transactions:
Net premiums from policyholders ............... 4,779,974 743,622 1,135,180 5,520,633 2,484,010 1,021,041
Net benefits to policyholders ................. (1,690,860) (580,027) (506,352) 2,041,375 (1,088,249) (80,162)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
policyholder transactions .................... 3,089,114 163,595 628,828 3,479,258 1,395,761 940,879
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets ..................... 3,885,215 360,221 654,753 4,004,156 1,407,455 929,143
Net assets at beginning of period .............. 1,014,974 654,753 0 2,336,598 929,143 0
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period .................... $ 4,900,189 $ 1,014,974 $ 654,753 $ 6,340,754 $ 2,336,598 $ 929,143
============ ============ ============ ============ ============ ============
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
103
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
For the years and periods ended December 31,
<TABLE>
<CAPTION>
FRONTIER CAPITAL APPRECIATION ENHANCED U.S. EQUITY
SUBACCOUNT SUBACCOUNT
------------------------------------------------- ------------------------------
1998 1997 1996* 1998 1997**
---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income................ $ 9,897 $ 118,150 $ (1,679) $ 68,233 $ 14,857
Net realized gains (losses).......... (445,752) 614,358 (21,044) 87,723 4,177
Net unrealized appreciation
(depreciation) during
the period......................... 432,064 (368,570) 5,101 89,677 6,844
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from
operations......................... (3,791) 363,938 (17,622) 245,633 25,878
From policyholder transactions:
Net premiums from policyholders...... 13,982,031 10,030,418 1,535,063 3,031,309 475,503
Net benefits to policyholders........ (9,695,520) (5,969,436) (549,363) 1,299,530 (4,176)
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting
from policyholder transactions..... 4,286,511 4,060,982 985,700 1,731,779 471,327
------------ ------------ ------------ ------------ ------------
Net increase in net assets............ 4,282,720 4,424,920 968,078 1,977,412 497,205
Net assets at beginning of period..... 5,392,998 968,078 0 497,205 0
------------ ------------ ------------ ------------ ------------
Net assets at end of period........... $ 9,675,718 $ 5,392,998 $ 968,078 $ 2,474,617 $ 497,205
============ ============ ============ ============ ============
<CAPTION>
EMERGING SMALL/
MARKETS GLOBAL BOND MID CAP HIGH YIELD
EQUITY EQUITY INDEX CORE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ----------
1998*** 1998*** 1998*** 1998*** 1998***
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss)......... $ 135 $ 152 $ 22,905 $ (535) $ 86,759
Net realized gains (losses).......... (45,975) (21,835) 1,002 (25,196) 64,824
Net unrealized appreciation
(depreciation) during
the period......................... 2,289 4,812 (10,217) 18,718 149,416
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from
operations......................... (43,551) (16,871) 13,690 (7,013) 300,999
From policyholder transactions:
Net premiums from policyholders...... 2,434,226 2,372,034 1,176,234 1,089,030 6,683,673
Net benefits to policyholders........ (2,203,670) (2,191,135) (124,467) (778,864) (2,457,088)
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting
from policyholder transactions..... 230,556 180,899 1,051,767 310,166 4,226,585
------------ ------------ ------------ ------------ ------------
Net increase in net assets............ 187,005 164,028 1,065,457 303,153 4,527,584
Net assets at beginning of period..... 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Net assets at end of period........... $ 187,005 $ 164,208 $ 1,065,457 $ 303,153 $ 4,527,584
============ ============ ============ ============ ============
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
** From July 1, 1997 (commencement of operations).
*** From May 1, 1998 (commencement of operations).
See accompanying notes.
104
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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-seven subaccounts. The assets of each subaccount are invested
exclusively in shares of a corresponding Portfolio of John Hancock Variable
Series Trust I (the Fund) or of M Fund Inc. (M Fund). New subaccounts may be
added as new Portfolios are added to the Fund or to M Fund, or as other
investment options are developed, and made available to policyholders. The
twenty-seven Portfolios of the Fund and M Fund which are currently available are
the Large Cap Growth, Sovereign Bond, International Equity Index (formerly,
International Equities), Small Cap Growth, International Balanced, Mid Cap
Growth, Large Cap Value, Money Market, Mid Cap Value, Diversified Mid Cap Growth
(formerly, Special Opportunities), Real Estate Equity, Growth & Income, Managed,
Short-Term Bond (formerly, Short-Term U.S. Government), Small Cap Value,
International Opportunities, Equity Index, Strategic Bond, Turner Core Growth,
Brandes International Equity (formerly, Edinburgh International Equity),
Frontier Capital Appreciation, Enhanced U.S. Equity, Emerging Markets Equity,
Global Equity, Bond Index, Small/Mid Cap CORE, and High Yield Bond 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 respective Portfolio shares are determined
on the basis of identified cost.
Federal Income Taxes
The operations of the Account are included in the federal income tax return
of JHVLICO, which is taxed as a life insurance company under the Internal
Revenue Code. JHVLICO has the right to charge the Account any federal income
taxes, or provision for federal income taxes, attributable to the operations of
the Account or to the policies funded in the Account. Currently, JHVLICO does
not make a charge for income or other taxes. Charges for state and local taxes,
if any, attributable to the Account may also be made.
105
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(Continued)
Expenses
JHVLICO assumes mortality and expense risks of the variable life insurance
policies for which asset charges are deducted at 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, 1998, 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.
106
<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, 1998 were as follows:
SUBACCOUNT SHARES OWNED COST VALUE
---------- ------------ ----------- -----------
Large Cap Growth .............. 2,482,160 $55,624,133 $65,018,220
Sovereign Bond ................ 3,279,909 32,895,576 32,541,967
International Equity Index .... 809,459 13,492,182 12,595,630
Small Cap Growth .............. 698,985 7,883,267 9,078,106
International Balanced ........ 278,964 3,018,272 3,103,327
Mid Cap Growth ................ 838,771 11,001,555 12,678,444
Large Cap Value ............... 1,186,104 16,181,162 16,629,520
Money Market .................. 8,651,166 86,511,658 86,511,658
Mid Cap Value ................. 1,292,860 16,610,808 15,754,611
Diversified Mid Cap Growth .... 469,987 7,452,538 7,491,413
Real Estate Equity ............ 383,006 5,258,257 4,772,174
Growth & Income ............... 4,945,907 88,453,571 96,407,275
Managed ....................... 2,562,429 38,024,380 40,066,692
Short-Term Bond ............... 1,915,373 19,395,427 19,246,506
Small Cap Value ............... 906,973 11,039,020 10,510,748
International Opportunities ... 1,552,119 18,074,112 18,958,530
Equity Index .................. 3,048,380 47,417,688 53,964,646
Strategic Bond ................ 781,135 8,248,280 8,279,571
Turner Core Growth ............ 274,674 4,288,888 4,900,189
Brandes International Equity .. 584,940 6,287,148 6,340,754
Frontier Capital Appreciation . 641,201 9,607,123 9,675,718
Enhanced U.S. Equity .......... 136,946 2,378,097 2,474,617
Emerging Markets Equity ....... 26,387 184,716 187,005
Global Equity ................. 16,615 159,217 164,028
Bond Index .................... 104,566 1,075,674 1,065,457
Small/Mid Cap CORE ............ 33,614 284,435 303,153
High Yield Bond ............... 490,466 4,378,169 4,527,584
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JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(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, 1998, were as follows:
Subaccount Purchases Sales
---------- ------------ -------------
Large Cap Growth ................... $ 29,361,732 $ 6,639,690
Sovereign Bond ..................... 22,087,283 8,813,963
International Equity Index ......... 9,220,337 5,645,266
Small Cap Growth ................... 7,281,622 1,838,002
International Balanced ............. 2,024,060 567,645
Mid Cap Growth ..................... 9,361,504 2,081,694
Large Cap Value .................... 13,202,174 2,238,984
Money Market ....................... 167,737,824 95,397,289
Mid Cap Value ...................... 15,612,090 4,555,474
Diversified Mid Cap Growth ......... 3,272,496 5,082,848
Real Estate Equity ................. 5,551,879 3,817,431
Growth & Income .................... 50,746,313 12,155,749
Managed ............................ 19,441,220 3,219,267
Short-Term Bond .................... 15,288,727 8,406,118
Small Cap Value .................... 8,944,813 1,873,344
International Opportunities ........ 17,193,176 5,570,111
Equity Index ....................... 35,787,894 5,051,356
Strategic Bond ..................... 9,312,827 2,778,805
Turner Core Growth ................. 4,233,351 1,067,034
Brandes International Equity ....... 5,189,547 1,366,643
Frontier Capital Appreciation ...... 7,380,939 3,084,531
Enhanced U.S. Equity ............... 2,489,737 689,724
Emerging Markets Equity ............ 1,973,067 1,742,376
Global Equity ...................... 2,561,712 2,380,660
Bond Index ......................... 1,154,850 80,178
Small/Mid Cap CORE ................. 987,868 678,237
High Yield Bond .................... 6,156,047 1,842,702
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), is executing
its plan to address the impact of the Year 2000 issues that result from computer
programs being written using two digits to reflect the year rather than four to
define the applicable year and century. Historically, the first two digits were
hardcoded to save memory. Many of the John Hancock's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in an information technology (IT) system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities. In addition, non-IT systems
including, but not limited to, security alarms, elevators and telephones are
subject to malfunction due to their dependence on embedded technology such as
microcontrollers for proper operation. As described, the Year 2000 project
presents a number of challenges for financial institutions since the correction
of Year 2000 issues in IT and non-IT systems will be complex and costly for the
entire industry.
108
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JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(Continued)
John Hancock began to address the Year 2000 project as early as 1994. John
Hancock's plan to address the Year 2000 Project includes an awareness campaign,
an assessment period, a renovation stage, validation work and an implementation
of Company solutions.
The continuous awareness campaign serves several purposes: defining the
problem, gaining executive level support and sponsorship, establishing a team
and overall strategy, and assessing existing information system management
resources. Additionally, the awareness campaign establishes an education process
to ensure that all employees are aware of the Year 2000 issue and knowledgeable
of their role in securing solutions.
The assessment phase, which was completed for both IT and non-IT systems as of
April 1998, included the identification, inventory, analysis, and prioritization
of IT and non-IT systems and processes to determine their conversion or
replacement.
The renovation stage reflects the conversion, validation, replacement, or
elimination of selected platforms, applications, databases and utilities,
including the modification of applicable interfaces. Additionally, the
renovation stage includes performance, functionality, and regression testing and
implementation. As of December 31, 1998, the renovation phase was substantially
complete for computer applications, systems and desktops. For all remaining
components the renovation phase is underway and will be complete before the end
of the second quarter of 1999.
The validation phase consists of the compliance testing of renovated systems.
The validation phase is expected to be complete by mid 1999, after renovation is
accomplished. John Hancock will use its testing facilities through the remainder
of 1999 to perform special functional testing. Special functional testing
includes testing, as required, with material third parties and industry groups
and to perform reviews of "dry run" of year-end activities. Scheduled testing of
John Hancock's material relationships with third parties is underway. It is
anticipated that testing with material business partners will continue through
much of 1999.
Finally, the implementation phase involves the actual implementation of
converted or replaced platforms, applications, databases, utilities, interfaces,
and contingency planning. John Hancock is concurrently performing implementation
during the renovation phase and plans to complete this phase before the end of
the second quarter of 1999.
The costs of the Year 2000 project consist of internal IT personnel, and
external costs such as consultants, programmers, replacement software, and
hardware. The costs of the Year 2000 project are expensed as incurred. The
project is funded partially through a reallocation of resources from
discretionary projects. Through December 31, 1998, John Hancock has incurred and
expensed approximately $9.8 million in related payroll costs for its internal IT
personnel on the project. The estimated range of remaining internal IT personnel
costs of the project is approximately $8 to $9 million. Through December 31,
1998, John Hancock has incurred and expensed approximately $36.4 million in
external costs for the project. The estimated range of remaining external costs
of the project is approximately $35 to $36 million. The total costs of the Year
2000 project, based on management's best estimates, include approximately $18
million in internal IT personnel, $7.4 million in the external modification of
software, $34.2 million for external solution providers, $19.4 million in
replacement costs of non-compliant IT systems and $12.6 million in oversight,
test facilities and other expenses. Accordingly, the estimated range of total
costs of the Year 2000 project, internal and external, is approximately $90 to
$95 million. However, there can be no guarantee that these estimates will be
achieved and actual results could materially differ from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
109
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JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(Continued)
John Hancock's total Year 2000 project costs include the estimated impact of
external solution providers and are based on presently available information.
However, there is no guarantee that the systems of other companies that John
Hancock's systems rely on will be timely converted, or that a failure to convert
by another company, or a conversion that is incompatible with John Hancock's
systems, would not have material adverse effect on John Hancock. It is
documented in trade publications that companies in foreign countries are not
acting as intensively as domestic companies to remediate Year 2000 issues.
Accordingly, it is expected that Company facilities based outside the United
States face higher degrees of risks from data exchanges with material business
partners. In addition, John Hancock has thousands of individual and business
customers that hold insurance policies, annuities and other financial products
of John Hancock. Nearly all products sold by John Hancock contain date sensitive
data, examples of which are policy expiration dates, birth dates, premium
payment dates. Finally, the regulated nature of John Hancock's industry exposes
it to potential supervisory or enforcement actions relating to Year 2000 issues.
John Hancock's contingency planning initiative related to the Year 2000
project is underway. The plan is addressing John Hancock's readiness as well as
that of material business partners on whom John Hancock depends. John Hancock's
contingency plans are being designed to keep each business unit's operations
functioning in the event of a failure or delay due to the Year 2000 record
format and date calculation changes. Contingency plans are being constructed
based on the foundation of extensive business resumption plans that John Hancock
has maintained and updated periodically, which outline responses to situations
that may affect critical business functions. These plans also provide emergency
operations guidance, which defines a documented order of actions to respond to
problems. These extensive business resumption plans are being enhanced to cover
Year 2000 situations.
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ALPHABETICAL INDEX OF KEY WORDS AND PHRASES
This index should help you locate more information about many of the important
concepts in this prospectus.
KEY WORD OR PHRASE PAGE
Account .................................................................. 31
account value ............................................................ 8
Additional Sum Insured ................................................... 14
annual processing date ................................................... 7
asset-based risk charge .................................................. 9
attained age ............................................................. 9
Basic Sum Insured ........................................................ 14
beneficiary .............................................................. 42
business day ............................................................. 31
changing Option A or B ................................................... 17
changing the Total Sum Insured ........................................... 16
charges .................................................................. 8
Code ..................................................................... 38
cost of insurance rates .................................................. 9
date of issue ............................................................ 33
death benefit ............................................................ 4
deductions ............................................................... 8
dollar cost averaging .................................................... 12
expenses of the Trust .................................................... 10
fixed investment option .................................................. 32
full surrender ........................................................... 12
fund ..................................................................... 2
grace period ............................................................. 6
guaranteed minimum death benefit ......................................... 6
Guaranteed Minimum Death Benefit Premium ................................. 7
insurance charge ......................................................... 9
insured person ........................................................... 4
investment options ....................................................... 1
JHVLICO .................................................................. 31
John Hancock Variable Series Trust ....................................... 2
lapse .................................................................... 6
loan ..................................................................... 13
loan interest ............................................................ 13
maximum premiums ......................................................... 5
Minimum Initial Premium .................................................. 32
minimum insurance amount ................................................. 15
minimum premiums ......................................................... 5
modified endowment ....................................................... 39
monthly deduction date ................................................... 33
Option A; Option B ....................................................... 14
optional benefits charge ................................................. 10
optional extra death benefit feature ..................................... 14
owner .................................................................... 4
partial withdrawal ....................................................... 13
partial withdrawal charge ................................................ 10
payment options .......................................................... 17
Planned Premium
policy anniversary ....................................................... 33
policy split option ...................................................... 15
policy year .............................................................. 33
premium; premium payment ................................................. 4
prospectus ............................................................... 2
receive; receipt ......................................................... 20
reinstate; reinstatement ................................................. 6
salescharges ............................................................. 8
SEC ...................................................................... 2
Separate Account S ....................................................... 31
Servicing Office ......................................................... 1
special loan account ..................................................... 13
subaccount ............................................................... 31
surrender ................................................................ 12
surrender value .......................................................... 12
Target Premium ........................................................... 9
tax considerations ....................................................... 38
telephone transfers ...................................................... 20
Total Sum Insured ........................................................ 14
transfers of account value ............................................... 12
variable investment options .............................................. 1
we; us ................................................................... 31
withdrawal ............................................................... 13
withdrawal charges ....................................................... 10
you; your ................................................................ 4
111
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[LOGO OF JOHN HANCOCK]
Policies Issued by John Hancock Variable Life Insurance Company
John Hancock Place,Boston,Massachusetts 02117
S8157-2/00
