<PAGE>
As filed with the Securities and Exchange Commission on May 2, 2000
Registration No. 33-64366
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM S-6
Post-Effective Amendment No. 11 to
Registration Statement Under
THE SECURITIES ACT OF 1933
----------------------
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
(Exact name of trust)
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(Name of depositor)
JOHN HANCOCK PLACE
BOSTON, MASSACHUSETTS 02117
(Complete address of depositor's principal executive offices)
--------------------
RONALD J. BOGAGE, ESQ.
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
JOHN HANCOCK PLACE, BOSTON, 02117
(Name and complete address of agent for service)
--------------------
Copy to:
THOMAS C. LAUERMAN, ESQ.
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
--------------------
It is proposed that this filing become effective(check appropriate box)
/X/immediately upon filing pursuant to paragraph (b) of Rule 485
--
/ /on May 1, 2000 pursuant to paragraph (b) of Rule 485
--
/ /60 days after filing pursuant to paragraph (a)(1) of Rule 485
--
/ /on (date) pursuant to paragraph (a)(1) of Rule 485
--
If appropriate check the following box
/ /this post-effective amendment designates a new effective date for a
previously filed amendment
Pursuant to the provisions of Rule 24f-2, Registrant has registered an
indefinite amount of the securities under the Securities Act of 1933.
<PAGE>
PROSPECTUS DATED MAY 1, 2000
VARIABLE ESTATE PROTECTION
a flexible premium variable life survivorship insurance policy
issued by
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY ("JHVLICO")
The policy provides an investment option with fixed rates of return
declared by JHVLICO and the following variable investment options:
<TABLE>
<CAPTION>
VARIABLE INVESTMENT OPTION MANAGED BY
- -------------------------- ----------
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Managed. . . . . . . . . . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Growth & Income . . . . . Independence Investment Associates, Inc.
Fidelity VIP Contrafund(R). . . . . . . . . . . . . . . . Fidelity Management and Research Company
Equity Index . . . . . . . State Street Global Advisors
Large Cap Value . . . . . T. Rowe Price Associates, Inc.
Large Cap Growth . . . . . Independence Investment Associates, Inc.
Large Cap Aggressive Growth. . . . . . . . . . . . . . . . Alliance Capital Management L.P.
Fidelity VIP Growth. . . Fidelity Management and Research Company
AIM V.I. Value. . . . . . A I M Advisors, Inc.
Mid Cap Value . . . . . . Neuberger Berman, LLC
Fundamental Mid Cap Growth. . . . . . . . . . . . . . . . OppenheimerFunds, Inc.
Mid Cap Growth . . . . . . Janus Capital Corporation
Real Estate Equity . . . . Independence Investment Associates, Inc.
Small/Mid Cap CORE . . . . Goldman Sachs Asset Management
Small/Mid Cap Growth. . . Wellington Management Company, LLP
Small Cap Value . . . . . INVESCO Management & Research, Inc.
Small Cap Growth . . . . . . . . . . . . . . . . . . . . . John Hancock Advisers, Inc.
MFS New Discovery. . . . MFS Investment Management(R)
Global Balanced . . . . . Brinson Partners, Inc.
Templeton International Securities. . . . . . . . . . . . Templeton Investment Counsel, Inc.
International Equity Index . . . . . . . . . . . . . . . . Independence International Associates, Inc.
International Opportunities . . . . . . . . . . . . . . . . Rowe Price-Fleming International, Inc.
Morgan Stanley Dean Witter Investment
Emerging Markets Equity . . . . . . . . . . . . . . . . . Management, Inc.
Short-Term Bond . . . . . Independence Investment Associates, Inc.
Bond Index . . . . . . . . Mellon Bond Associates, LLP
Active Bond . . . . . . . . . . . . . . . . . . . . . . . John Hancock Advisers, Inc.
Global Bond . . . . . . . . . . . . . . . . . . . . . . . J.P. Morgan Investment Management, Inc.
High Yield Bond . . . . . Wellington Management Company, LLP
Money Market . . . . . . . John Hancock Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The variable investment options shown on page 1 are those available as of the
date of this prospectus. We may add, modify or delete variable investment
options in the future.
When you select one or more of these variable investment options, we invest
your money in the corresponding investment option(s) of one or more of the
following: the John Hancock Variable Series Trust I, the AIM Variable Insurance
Funds, Inc., the Templeton Variable Products Series Fund, Fidelity's Variable
Insurance Products Fund and Variable Insurance Products Fund II, and the MFS
Variable Insurance Trust (together, "the Trusts"). In this prospectus, the
investment options of the Trusts are referred to as "funds". In the
prospectuses for the Trusts, the investment options may be referred to as
"funds", "portfolios" or "series".
Each Trust is a so-called "series" type mutual fund registered with the
Securities and Exchange Commission ("SEC"). The investment results of each
variable investment option you select will depend on those of the corresponding
fund of one of the Trusts. Each of the funds is separately managed and has its
own investment objective and strategies. Attached at the end of this prospectus
is a prospectus for each Trust. The Trust prospectuses contain detailed
information about each available fund. Be sure to read those prospectuses
before selecting any of the variable investment options shown on page 1.
* * * * * * * * * * * *
Please note that the SEC has not approved or disapproved these securities, or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
* * * * * * * * * * * *
JHVLICO LIFE SERVICING OFFICE
-----------------------------
Express Delivery U.S. Mail
---------------- ---------
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
2
<PAGE>
GUIDE TO THIS PROSPECTUS
This prospectus contains information that you should know before you buy a
policy or exercise any of your rights under the policy. However, please keep in
mind that this is a prospectus - - it is not the policy. The prospectus
---
simplifies many policy provisions to better communicate the policy's essential
features. Your rights and obligations under the policy will be determined by the
language of the policy itself. When you receive your policy, read it carefully.
This prospectus is arranged in the following way:
. The section which follows is called "Basic Information". It is in a
question and answer format. We suggest you read the Basic Information
section before reading any other section of the prospectus.
. Behind the Basic Information section are illustrations of
hypothetical policy benefits that help clarify how the policy works.
These start on page 22.
. Behind the illustrations is a section called "Additional Information"
that gives more details about the policy. It generally does not
---
repeat information that is in the Basic Information section. A table
of contents for the Additional Information section appears on page
27.
. Behind the Additional Information section are the financial
statements for JHVLICO and Separate Account S. These start on page
42.
. Finally, there is an Alphabetical Index of Key Words and Phrases at
the back of the prospectus on page 90.
After the Alphabetical Index of Key Words and Phrases, this prospectus ends and
the prospectuses for the Trusts begin.
**********
3
<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C>
Question Beginning on page
- --------
.What is the policy?. . . . . . . . . . . . . . . 5
.Who owns the policy?. . . . . . . . . . . . . . 5
.How can I invest money in the policy?. . . . . . 5
.Is there a minimum amount I must invest?. . . . 7
.How will the value of my investment in the policy change 8
over time?. . . . . . . . . . . . . . . . . . . .
.What charges will JHVLICO deduct from my investment in 9
the policy?. . . . . . . . . . . . . . . . . . .
.What charges will the Trusts deduct from my investment in 11
the policy?. . . . . . . . . . . . . . . . . . .
.What other charges could JHVLICO impose in the future? 13
.How can I change my policy's investment allocations? 13
.How can I access my investment in the policy?. . 14
.How much will JHVLICO pay when the last insured person 15
dies?. . . . . . . . . . . . . . . . . . . . . .
.How can I change my policy's insurance coverage? 17
.Can I cancel my policy after it's issued?. . . . 17
.Can I choose the form in which JHVLICO pays out policy 18
proceeds?. . . . . . . . . . . . . . . . . . . .
.To what extent can JHVLICO vary the terms and conditions
of its policies in particular cases?. . . . . . 19
.How will my policy be treated for income tax purposes? 19
.How do I communicate with JHVLICO?. . . . . . . 19
</TABLE>
4
<PAGE>
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
-----
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.
5
<PAGE>
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
35. 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 7 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 2 of this prospectus.
We will also accept premiums:
. by wire or by exchange from another insurance company,
. via an electronic funds transfer program (any owner interested in
making monthly premium payments must use this method), or
-------
. 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.
6
<PAGE>
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,
---
if the policy's surrender value is not sufficient to pay the charges on a
monthly deduction date, 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 1 year 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 and only if you've elected death benefit Option B (see
"How much will JHVLICO pay when the last insured person dies?" on page 15). The
feature guarantees that your Basic Sum Insured will not lapse during the first
10 policy years, 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 15), and
. on each monthly deduction date during that 10 year period 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
7
<PAGE>
Guaranteed Minimum Death Benefit Premiums due to date accumulated at
4%.
The Guaranteed Minimum Death Benefit Premium (or "GMDB Premium) is defined in
the policy and one-twelfth of it is "due" on each monthly deduction date. 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 15).
If the guaranteed minimum death benefit test is not satisfied on any monthly
deduction 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 monthly
deduction date on which default occurred. If it is reinstated more than 1 year
after such monthly deduction 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
---
much will JHVLICO pay when the last insured person dies?" on page 15).
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" beginning on page 31.)
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.
8
<PAGE>
The amount you've invested in the fixed investment option will earn interest
at a rate we declare from time to time. We guarantee that this rate will be at
least 4%. If you want to know what the current declared rate is, just call or
write to us. The current declared rate will also appear in the annual statement
we will send you. Amounts you invest in the fixed investment option will not be
---
subject to the mortality and expense risk charge described on page 10.
Otherwise, the charges applicable to the fixed investment option are the same as
those applicable to the variable investment options.
At any time, the "account value" of your policy is equal to:
. the amount you invested,
. plus or minus the investment experience of the investment options
you've chosen,
. minus all charges we deduct, and
. minus all withdrawals you have made.
If you take a loan on the policy, however, your account value will be computed
somewhat differently. This is discussed beginning on page 15.
WHAT CHARGES WILL JHVLICO DEDUCT FROM MY INVESTMENT IN THE POLICY?
Deductions from premium payments
. Premium tax charge - A charge to cover state premium taxes we currently
--------------------
expect to pay, on average. This charge is currently 2.35% of each premium.
. DAC tax charge - A charge to cover the increased Federal income tax
----------------
burden that we currently expect will result from receipt of premiums. This
charge is currently 1.25% of each premium.
. Premium 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
--------------
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
9
<PAGE>
determined at the time the policy is issued and will appear in the "Policy
Specifications" section of the policy.
. Optional benefits charge - A charge imposed for certain optional
--------------------------
insurance benefits added to the policy by means of a rider.
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 first part of this charge is currently zero.
. Insurance charge - A monthly charge for the cost of insurance. To
------------------
determine the charge, we multiply the amount of insurance for which we are
at risk by a cost of insurance rate. The rate is derived from an actuarial
table. The table in your policy will show the maximum cost of insurance
-------
rates. The cost of insurance rates that we currently apply are generally
less than the maximum rates. We will review the cost of insurance rates at
least every 5 years and may change them from time to time. However, those
rates will never be more than the maximum rates shown in the policy. The
table of rates we use will depend on the insurance risk characteristics
and (usually) gender of 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
------------------------
additional mortality risk if either of the insured persons is subject to
certain types of special insurance risk.
. M &E charge - A daily charge for mortality and expense risks we assume.
-------------
This charge is deducted from the variable investment options. It does not
apply to the fixed investment option. We guarantee that this charge will
never exceed an effective annual rate of .90%. The effective annual rate
will vary depending upon the Total Sum Insured at issue. The current
charge levels are as follows: .625% for a Total Sum Insured of at least
$500,000 but less than $5 million, .575% for a Total Sum Insured of at
least $5 million but less than $15 million, and .525% for a Total Sum
Insured of $15 million or more.
10
<PAGE>
. Guaranteed minimum death benefit charge - A monthly charge beginning in
-----------------------------------------
the 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 at issue and is guaranteed
not to exceed 3c per $1,000 of Basic Sum Insured at issue. 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.
. Optional benefits charge - Monthly charges for certain other optional
--------------------------
insurance benefits added to the policy by means of a rider. We currently
offer a number of such optional riders, such as the accidental death
benefit rider.
. Partial withdrawal charge - A charge for each partial withdrawal of
-------------------------
account value to compensate us for the administrative expenses of
processing the withdrawal. The charge is equal to the lesser of $20 or 2%
of the withdrawal amount.
WHAT CHARGES WILL THE TRUST DEDUCT FROM MY INVESTMENT IN THE POLICY?
The Trusts must pay investment management fees and other operating expenses.
These fees and expenses are different for each fund and reduce the investment
return of each fund. Therefore, they also indirectly reduce the return you will
earn on any variable investment options you select.
The following figures for the funds are based on historical fund expenses, as
a percentage (rounded to two decimal places) of each fund's average daily net
assets for 1999, except as indicated in the Notes appearing at the end of this
table. Expenses of the funds are not fixed or specified under the terms of the
policy, and those expenses may vary from year to year.
<TABLE>
<CAPTION>
Investment Distribution and Other Operating Total Fund Other Operating
Management Service Expenses With Operating Expenses Absent
Fund Name Fee (12b-1) Fees Reimbursement Expenses Reimbursement
- --------- ---------- ---------------- --------------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
JOHN HANCOCK VARIABLE SERIES TRUST I
(NOTE 1):
Managed . . . . . . . . . . . . . . . . 0.32% N/A 0.03% 0.35% 0.03%
Growth & Income . . . . . . . . . . . . 0.25% N/A 0.03% 0.28% 0.03%
Equity Index . . . . . . . . . . . . . 0.14% N/A 0.00% 0.14% 0.08%
Large Cap Value . . . . . . . . . . . . 0.74% N/A 0.10% 0.84% 0.11%
Large Cap Growth . . . . . . . . . . . 0.36% N/A 0.03% 0.39% 0.03%
Large Cap Aggressive Growth . . . . . . 0.98% N/A 0.10% 1.08% 0.19%
Mid Cap Value . . . . . . . . . . . . . 0.80% N/A 0.10% 0.90% 0.12%
Mid Cap Growth . . . . . . . . . . . . 0.82% N/A 0.10% 0.92% 0.11%
Fundamental Mid Cap Growth . . . . . . 0.85% N/A 0.10% 0.95% 0.24%
Real Estate Equity . . . . . . . . . . 0.60% N/A 0.10% 0.70% 0.10%
Small/Mid Cap CORE . . . . . . . . . . 0.80% N/A 0.10% 0.90% 0.66%
Small/Mid Cap Growth . . . . . . . . . 0.75% N/A 0.10% 0.85% 0.10%
Small Cap Value . . . . . . . . . . . . 0.80% N/A 0.10% 0.90% 0.16%
Small Cap Growth . . . . . . . . . . . 0.75% N/A 0.10% 0.85% 0.14%
Global Balanced * . . . . . . . . . . . 0.85% N/A 0.10% 0.95% 0.46%
International Equity Index . . . . . . 0.16% N/A 0.10% 0.26% 0.22%
International Opportunities . . . . . . 0.87% N/A 0.10% 0.97% 0.29%
Emerging Markets Equity . . . . . . . . 1.27% N/A 0.10% 1.37% 2.17%
Short-Term Bond . . . . . . . . . . . . 0.30% N/A 0.10% 0.40% 0.13%
Bond Index . . . . . . . . . . . . . . 0.15% N/A 0.10% 0.25% 0.20%
Active Bond * . . . . . . . . . . . . . 0.25% N/A 0.03% 0.28% 0.03%
Global Bond . . . . . . . . . . . . . . 0.69% N/A 0.10% 0.79% 0.15%
High Yield Bond . . . . . . . . . . . . 0.65% N/A 0.10% 0.75% 0.39%
Money Market . . . . . . . . . . . . . 0.25% N/A 0.06% 0.31% 0.06%
AIM VARIABLE INSURANCE FUNDS, INC.:
AIM V.I. Value . . . . . . . . . . . . 0.61% N/A 0.15% 0.76% 0.15%
VARIABLE INSURANCE PRODUCTS FUND -
SERVICE CLASS (NOTE 2):
Fidelity VIP Growth . . . . . . . . . . 0.58% 0.10% 0.07% 0.75% 0.09%
VARIABLE INSURANCE PRODUCTS FUND II -
SERVICE CLASS (NOTE 2):
Fidelity VIP Contrafund(R) . . . . . . 0.58% 0.10% 0.07% 0.75% 0.10%
FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST - CLASS 2 SHARES (NOTE
3):
Templeton International Securities . . 0.69% 0.25% 0.19% 1.13% 0.19%
MFS VARIABLE INSURANCE TRUST
(NOTE 4):
MFS New Discovery . . . . . . . . . . . 0.90% N/A 0.17% 1.07% 1.59%
</TABLE>
11
<PAGE>
NOTES TO FUND EXPENSE TABLE
(1) John Hancock Variable Series Trust I funds' percentages reflect
management fees and other fund expenses based on the allocation
methodology and expense reimbursement policy adopted April 23, 1999.
Under the policy, John Hancock Life Insurance Company voluntarily
reimburses a fund when the fund's "other fund expenses" exceed 0.10% of
the fund's average daily net assets (0.00% for Equity Index).
* Global Balanced was formerly "International Balanced" and Active Bond
was formerly "Sovereign Bond".
(2) A portion of the brokerage commissions that certain of the Fidelity VIP
funds pay was used to reduce fund expenses. In addition, through
arrangements with certain funds' custodian, credits realized as a result
of uninvested cash balances were used to reduce a portion of each
applicable fund's expenses. Without these reductions, the operating
expenses of the funds would have been higher, as shown in the last column
of this table.
(3) On February 8, 2000, shareholders of each fund approved a merger and
reorganization that combined the Templeton International Equity Fund with
the Templeton International Securities Fund, effective May 1, 2000.
Shareholders of the Templeton International Securities Fund had approved
new management fees, which apply to the combined funds effective May 1,
2000. The table shows restated total expenses for the fund based on the
new fees and the assets, as of December 31, 1999, of the Templeton
International Securities Fund. However, if the table reflected both the
new fees and the combined assets of the Templeton International Equity
Fund and the Templeton International Securities Fund, the estimated
expenses for the two funds combined after May 1, 2000 would be:
Management Fees 0.65%, Distribution and Service Fees 0.25%, Other Expenses
0.20%, and Total Fund Operating Expenses 1.10%.
12
<PAGE>
(4) MFS Variable Insurance Trust funds have an expense offset arrangement
which reduces each fund's custodian fee based upon the amount of cash
maintained by the fund with its custodian and dividend disbursing agent.
Each fund may enter into other such arrangements and directed brokerage
arrangements, which would also have the effect of reducing the fund's
expenses. Expenses do not take into account these expense reductions, and
are therefore higher than the actual expenses of the fund. MFS Investment
Management(R) (also doing business as Massachusetts Financial Services
Company) has contractually agreed to bear expense for the New Discovery
Fund, subject to reimbursement by the fund, such that such fund's "other
fund expenses" shall not exceed 0.15% of the average daily net assets of
the fund during the current fiscal year.
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.
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.
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.
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%.
Transfers of existing account value
You may also transfer your existing account value from one investment option
to another. To do so, you must tell us how much to transfer, either as a whole
number percentage or as a specific dollar amount.
Under our current rules, you can make transfers out of any variable investment
option anytime you wish. However, transfers out of the fixed investment option
are currently subject to the following restrictions:
. You can only make such a transfer once a year and only during the 31 day
period following your policy anniversary.
. We must receive the request for such a transfer during the period
beginning 60 days prior to the policy anniversary and ending 30 days after
it.
13
<PAGE>
. The most you can transfer at any one time is the greater of $500 or 20%
of the assets in your fixed investment option.
We reserve the right to impose a minimum amount limit on transfers out of the
fixed investment option. We also reserve the right to impose limits on the
number and frequency of transfers out of the variable investment options.
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 plus, if surrender occurs in the second
policy year, a refund of a certain portion of sales charges equal to 5% of
premiums paid in the second policy year up to the Target premium. This is called
your "surrender value." You must return your policy when you request a full
surrender.
Partial withdrawals
You may make a partial withdrawal of your surrender value at any time. Each
partial withdrawal must be at least $1,000. There is a charge (usually $20) for
each partial withdrawal. We will automatically reduce the account value of your
policy by the amount of the withdrawal and the related charge. Each investment
option will be reduced in the same proportion as the account value is then
allocated among them. We will not permit a partial withdrawal if it would cause
your account value to fall below 3 months' worth of monthly charges (see
"Deductions from account value" on page 10). We also reserve the right to refuse
any partial withdrawal that would cause the policy's Total Sum Insured to fall
below $500,000. 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 135 and under the guaranteed death benefit feature (see
page 7). 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 7. The total of all Terminated ASI
Withdrawal Amounts cannot exceed the Additional Sum Insured in effect
immediately before the Additional Sum Insured lapses.
14
<PAGE>
Policy loans
You may borrow from your policy at any time 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 7). 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 5% in the first 20 policy years and 4.5% 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.
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. The only limitation on how much Additional Sum
Insured you can have is that it 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 30.
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:
15
<PAGE>
. 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. 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. You may revoke that election at any time, but there may be adverse tax
consequences if you do. An "annual processing date" is the first business day of
a policy year.
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. For
policies of this type, we will apply the "cash value accumulation test" as
described in Federal tax law. Under the cash value accumulation test, we compute
the minimum insurance amount on each monthly deduction date by multiplying the
account value on that date by the 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 for each year the policy remains in
effect. A table showing the factor for each policy year will appear in the
policy.
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
16
<PAGE>
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.
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. However, you will have to provide us with evidence that the surviving
insured persons still meet our requirements for issuing insurance coverage. As
to when an approved increase would take effect, see "Effective date of other
policy transactions" on page 32.
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:
. the remaining Total Sum Insured will be at least $500,000, 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. As to when an approved decrease would take effect, see
"Effective date of other policy transactions" on page 32.
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 35 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 the latest of the following
periods:
. 10 days after you receive it (this period may be longer in some
states);
. 10 days after mailing by JHVLICO of the Notice of Withdrawal Right;
or
17
<PAGE>
. 45 days after the date Part A of the application has been completed.
This is often referred to as the "free look" period. To cancel your policy,
simply deliver or mail the policy to JHVLICO at one of the addresses shown on
page 2, 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
. Option 3 - Equal monthly payments for life, but with payments
guaranteed for a specific number of years
. Option 4 - Equal monthly payments for life with no refund
. Option 5 - Equal monthly payments for life with a refund if all of
the proceeds haven't been paid out
You cannot choose an option if the monthly payments under the option would be
less than $50. We will issue a supplementary agreement when the proceeds are
applied to any alternative payment option. That agreement will spell out the
terms of the option in full. We will credit interest on each of the above
options. For Options 1 and 2A, the interest will be at least an effective annual
rate of 3 1/2%.
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.
18
<PAGE>
Tax impact
There may be tax consequences to you or your beneficiary depending upon which
payment option is chosen. You should consult with a qualified tax adviser before
making that choice.
TO WHAT EXTENT CAN JHVLICO VARY THE TERMS AND CONDITIONS OF ITS POLICIES IN
PARTICULAR CASES?
Listed below are some variations we can make in the terms of our policies. Any
variation will be made only in accordance with uniform rules that we apply
fairly to all of our customers.
State law insurance requirements
Insurance laws and regulations apply to JHVLICO in every state in which its
policies are sold. As a result, various terms and conditions of your insurance
coverage may vary from the terms and conditions described in this prospectus,
depending upon where you reside. These variations will be reflected in your
policy or in endorsements attached to your policy.
Variations in expenses or risks
We may vary the charges and other terms of our policies where special
circumstances result in sales or administrative expenses, mortality risks or
other risks that are different from those normally associated with the policies.
These include the type of variations discussed under "Reduced charges for
eligible classes" on page 34. No variation in any charge will exceed any maximum
stated in this prospectus with respect to that charge.
HOW WILL MY POLICY BE TREATED FOR INCOME TAX PURPOSES?
Generally, death benefits paid under policies such as yours are not subject to
income tax. Earnings on your account value are not subject to income tax as long
as we don't pay them out to you. If we do pay out any amount of your account
value upon surrender or partial withdrawal, all or part of that distribution
should generally be treated as a return of the premiums you've paid and should
not be subject to income tax. Amounts you borrow are generally not taxable to
you.
However, some of the tax rules change if your policy is found to be a
"modified endowment contract." This can happen if you've paid more than a
certain amount of premiums that is prescribed by the tax laws. Additional taxes
and penalties may be payable for policy distributions of any kind.
For further information about the tax consequences of owning a policy, please
read "Tax considerations" beginning on page 35.
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 2.
19
<PAGE>
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 2. 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 "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
20
<PAGE>
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.
21
<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 annual rates of 0%, 6% and 12% (i.e., before any
fees or expenses deducted from Trust assets). After the deduction of average
fees and expenses at the Trust level (as described below) the corresponding net
annual rates of return would be -.77%, 5.18% and 11.14%. Investment return
reflects investment income and all realized and unrealized capital gains and
losses. The tables assume annual Planned Premiums that are paid at the beginning
of each policy year for a male insured person who is 55 years old and a
preferred underwriting risk when the policy is issued and for a female insured
person who is 50 years old and a preferred 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 .66%, and (2) an assumed average asset charge for all
other Trust operating expenses equivalent to an effective annual rate of .11%.
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 as described
in the footnotes to the table beginning on page 11. We currently expect those
reimbursement arrangements to continue indefinitely, but that is not guaranteed.
The second column of each table shows the amount you would have at the end of
each policy year if an amount equal to the assumed Planned Premiums were
invested to earn interest, after taxes, at 5% compounded annually. This is not a
policy value. It is included for comparison purposes only.
Because your circumstances will no doubt differ from those in the
illustrations that follow, values under your policy will differ, in most cases
substantially. Upon request, we will furnish you with a comparable illustration
reflecting your proposed insured persons' issue ages, sex and underwriting risk
classification, and the Total Sum Insured and annual Planned Premium amount
requested.
22
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION A DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT 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 $ 4,295 $ 4,579 $ 4,863
2 17,556 500,000 500,000 500,000 10,130 11,037 11,978
3 26,998 500,000 500,000 500,000 15,074 16,954 18,977
4 36,912 500,000 500,000 500,000 20,469 23,687 27,283
5 47,322 500,000 500,000 500,000 25,787 30,723 36,455
6 58,252 500,000 500,000 500,000 32,092 39,183 47,734
7 69,728 500,000 500,000 500,000 38,304 48,023 60,188
8 81,779 500,000 500,000 500,000 44,423 57,255 73,934
9 94,432 500,000 500,000 500,000 50,446 66,896 89,107
10 107,717 500,000 500,000 500,000 56,372 76,960 105,851
11 121,667 500,000 500,000 500,000 62,845 88,147 125,047
12 136,314 500,000 500,000 500,000 69,201 99,815 146,225
13 151,694 500,000 500,000 500,000 75,436 111,982 169,590
14 167,843 500,000 500,000 500,000 81,539 124,660 195,364
15 184,799 500,000 500,000 500,000 87,501 137,863 223,797
16 202,603 500,000 500,000 500,000 93,307 151,604 255,165
17 221,297 500,000 500,000 538,886 98,940 165,895 289,744
18 240,926 500,000 500,000 590,546 104,380 180,746 327,832
19 261,536 500,000 500,000 645,649 109,603 196,168 369,763
20 283,177 500,000 500,000 704,522 114,576 212,171 415,896
25 408,735 500,000 500,000 1,072,595
</TABLE>
23
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION B DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT 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 $504,294 $504,579 $ 504,863 $ 4,294 $ 4,579 $ 4,863
2 17,556 509,721 510,629 511,569 10,129 11,036 11,977
3 26,998 515,072 516,952 518,975 15,072 16,952 18,975
4 36,912 520,466 523,683 527,279 20,466 23,683 27,279
5 47,322 525,782 530,717 536,447 25,782 30,717 36,447
6 58,252 532,084 539,174 547,722 32,084 39,174 47,722
7 69,728 538,293 548,008 560,169 38,293 48,008 60,169
8 81,779 544,407 557,234 573,906 44,407 57,234 73,906
9 94,432 550,424 566,865 589,064 50,424 66,865 89,064
10 107,717 556,341 576,915 605,786 56,341 76,915 105,786
11 121,667 562,804 588,086 624,955 62,804 88,086 124,955
12 136,314 569,147 599,730 646,093 69,147 99,730 146,093
13 151,694 575,360 611,859 669,393 75,360 111,859 169,393
14 167,843 581,430 624,480 695,066 81,430 124,480 195,066
15 184,799 587,344 637,598 723,342 87,344 137,598 223,342
16 202,603 593,082 651,214 754,471 93,082 151,214 254,471
17 221,297 598,621 665,322 788,723 98,621 165,322 288,723
18 240,926 603,929 679,912 826,387 103,929 179,912 326,387
19 261,536 608,972 694,965 867,780 108,972 194,965 367,780
20 283,177 613,704 710,451 913,238 113,704 210,451 413,238
25 408,735 632,169 794,475 1,217,464 132,169 294,475 717,464
30 568,983 632,781 880,391 1,695,715 132,781 380,391 1,195,715
35 773,504 599,160 948,493 2,436,768 99,160 448,493 1,936,768
</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.
24
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION A DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT 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 $ 4,133 $ 4,411 $ 4,690
2 17,556 500,000 500,000 500,000 9,771 10,655 11,572
3 26,998 500,000 500,000 500,000 14,462 16,284 18,248
4 36,912 500,000 500,000 500,000 19,540 22,643 26,119
5 47,322 500,000 500,000 500,000 24,467 29,204 34,719
6 58,252 500,000 500,000 500,000 30,295 37,071 45,264
7 69,728 500,000 500,000 500,000 35,933 45,178 56,786
8 81,779 500,000 500,000 500,000 41,366 53,520 69,370
9 94,432 500,000 500,000 500,000 46,582 62,090 83,114
10 107,717 500,000 500,000 500,000 51,559 70,881 98,120
11 121,667 500,000 500,000 500,000 56,759 80,387 115,042
12 136,314 500,000 500,000 500,000 61,664 90,106 133,522
13 151,694 500,000 500,000 500,000 66,238 100,013 153,703
14 167,843 500,000 500,000 500,000 70,436 110,077 175,745
15 184,799 500,000 500,000 500,000 74,204 120,260 199,827
16 202,603 500,000 500,000 500,000 77,484 130,523 226,165
17 221,297 500,000 500,000 500,000 80,182 140,799 254,991
18 240,926 500,000 500,000 516,152 82,273 151,082 286,533
19 261,536 500,000 500,000 560,081 83,654 161,307 320,758
20 283,177 500,000 500,000 606,150 84,228 171,419 357,825
25 408,735 500,000 500,000 874,630 69,967 217,880 592,281
30 568,983 ** 500,000 1,221,713 ** 244,483 922,644
35 773,504 ** 500,000 1,674,875 ** 218,081 1,372,545
</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, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION B DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT 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 $504,133 $504,411 $ 504,690 $ 4,133 $ 4,411 $ 4,690
2 17,556 509,362 510,246 511,163 9,770 10,653 11,571
3 26,998 514,458 516,279 518,243 14,458 16,279 18,243
4 36,912 519,529 522,631 526,104 19,529 22,631 26,104
5 47,322 524,445 529,177 534,687 24,445 29,177 34,687
6 58,252 530,254 537,019 545,199 30,254 37,019 45,199
7 69,728 535,861 545,085 556,665 35,861 45,085 56,665
8 81,779 541,249 553,362 569,160 41,249 53,362 69,160
9 94,432 546,400 561,838 582,764 46,400 61,838 82,764
10 107,717 551,289 570,491 597,560 51,289 70,491 97,560
11 121,667 556,367 579,804 614,172 56,367 79,804 114,172
12 136,314 561,109 589,252 632,200 61,109 89,252 132,200
13 151,694 565,471 598,788 651,735 65,471 98,788 151,735
14 167,843 569,391 608,349 672,859 69,391 108,349 172,859
15 184,799 572,802 617,857 695,652 72,802 117,857 195,652
16 202,603 575,630 627,223 720,196 75,630 127,223 220,196
17 221,297 577,758 636,313 746,534 77,758 136,313 246,534
18 240,926 579,152 645,068 774,800 79,152 145,068 274,800
19 261,536 579,687 653,331 805,043 79,687 153,331 305,043
20 283,177 579,250 660,950 837,328 79,250 160,950 337,328
25 408,735 557,110 681,970 1,030,465 57,110 181,970 530,465
30 568,983 ** 641,302 1,267,441 ** 141,302 767,441
35 773,504 ** ** 1,519,453 ** ** 1,019,453
</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.
26
<PAGE>
ADDITIONAL INFORMATION
This section of the prospectus provides additional detailed information that
is not contained in the Basic Information section on pages 4 through 21.
<TABLE>
<CAPTION>
CONTENTS OF THIS SECTION BEGINNING ON PAGE
- ------------------------ -----------------
<S> <C>
Description of JHVLICO ...................... 28
How we support the policy and investment options 28
Procedures for issuance of a policy......... 29
Basic Sum Insured vs. Additional Sum Insured 30
Commencement of investment performance...... 31
How we process certain policy transactions.. 31
Effects of policy loans..................... 33
Additional information about how certain policy charges 33
work........................................
How we market the policies.................. 34
Tax considerations.......................... 35
Reports that you will receive............... 37
Voting privileges that you will have........ 37
Changes that JHVLICO can make as to your policy 37
Adjustments we make to death benefits....... 38
When we pay policy proceeds................. 38
Other details about exercising rights and paying benefits 39
Legal matters............................... 39
Registration statement filed with the SEC... 39
Accounting and actuarial experts............ 39
Financial statements of JHVLICO and the Account 40
List of Directors and Executive Officers of JHVLICO 41
</TABLE>
27
<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. As of December 31, 1999, John
Hancock's assets were approximately $71 billion and it had invested
approximately $575 million in JHVLICO in connection with JHVLICO's organization
and operation. It is anticipated that John Hancock will from time to time make
additional capital contributions to JHVLICO to enable us to meet our reserve
requirements and expenses in connection with our business. John Hancock is
committed to make additional capital contributions if necessary to ensure that
we maintain a positive net worth.
HOW WE SUPPORT THE POLICY AND INVESTMENT OPTIONS
Separate Account 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 one of
the Trusts. New subaccounts may be added as new funds are added to the Trusts
and made available to policy owners. Existing subaccounts may be deleted if
existing funds are deleted from the Trusts.
We will purchase and redeem Trust shares for the Account at their net asset
value without any sales or redemption charges. Shares of a Trust represent an
interest in one of the funds of the Trust which corresponds to a subaccount of
the Account. Any dividend or capital gains distributions received by the Account
will be reinvested in shares of that same fund at their net asset value as of
the dates paid.
On each business day, shares of each fund are purchased or redeemed by us for
each subaccount based on, among other things, the amount of net premiums
allocated to the subaccount, distributions reinvested, and transfers to, from
and among subaccounts, all to be effected as of that date. Such
28
<PAGE>
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 $500,000 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 80. All insured persons must meet certain health and other insurance risk
criteria called "underwriting standards".
Policies issued in Montana or in connection with certain employee plans will
not directly reflect the sex of the insured 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
insurance coverage prior to policy delivery" on page 30).
The policy will take effect only if all of the following conditions are
satisfied:
. The policy is delivered to and received by the applicant.
29
<PAGE>
. The Minimum Initial Premium is received by us.
. 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 from account value and
the amount of compensation paid to the selling insurance agent will be less if
coverage is included as Additional Sum Insured, rather than as Basic Sum
Insured. 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
30
<PAGE>
wish to maximize the proportion of the Additional Sum Insured.
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 35).
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.
31
<PAGE>
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 a variable investment option will be effective at the end of the business
day in which we receive at our Life Servicing Office notice satisfactory to us.
If received on or before the policy anniversary, requests for transfer out of
the fixed investment option will be processed on the policy anniversary (or the
next business day if the policy anniversary does not occur on a business day).
If received after the policy anniversary, such a request will be processed at
the end of the business day in which we receive the request at our Life
Servicing Office. If you request a transfer out of the fixed investment option
61 days or more prior to the policy anniversary, we will not process that
portion of the reallocation, and your confirmation statement will not reflect a
transfer out of the fixed investment option as to such request. Currently, there
is no minimum amount limit on transfers into the fixed investment option, but we
reserve the right to impose such a limit in the future. 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.
32
<PAGE>
We process loans, surrenders, partial withdrawals and loan repayments as of
the day we receive such request or repayment.
EFFECTS OF POLICY LOANS
The account value, the surrender value, and any death benefit above the Total
Sum Insured are permanently affected by any loan, whether or not it is repaid in
whole or in part. This is because the amount of the loan is deducted from the
investment options and placed in a special loan account. The investment options
and the special loan account will generally have different rates of investment
return.
The amount of the outstanding loan (which includes accrued and unpaid
interest) is subtracted 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 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 charge
for mortality and expense risks and other gains with respect to the policies, or
from our general assets. (See "How we market the policies" on page 34.)
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 35.)
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
33
<PAGE>
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 (including the M&E charge) 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; 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%.
34
<PAGE>
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, 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)
35
<PAGE>
will be treated as if it had been distributed to the owner if the policy
terminates for any reason.
It is possible that, despite our monitoring, a policy might fail to qualify as
life insurance under Section 7702 of the Code. This could happen, for example,
if we inadvertently failed to return to you any premium payments that were in
excess of permitted amounts, or if the Trust failed to meet certain investment
diversification or other requirements of the Code. If this were to occur, you
would be subject to income tax on the income and gains under the policy for the
period of the disqualification and for subsequent periods.
In the past, the United States Treasury Department has stated that it
anticipated issuing guidelines prescribing circumstances in which the ability of
a policy owner to direct his or her investment to particular funds may cause the
policy owner, rather than the insurance company, to be treated as the owner of
the shares of those funds. In that case, any income and gains attributable to
those shares would be included in your current gross income for federal income
tax purposes. Under current law, however, we believe that we, and not the owner
of a policy, would be considered the owner of the fund's shares for tax
purposes.
Tax consequences of ownership or receipt of policy proceeds under federal,
state and local estate, inheritance, gift and other tax laws depend on the
circumstances of each owner or beneficiary.
Because there may be unfavorable tax consequences (including recognition of
taxable income and the loss of income tax-free treatment for any death benefit
payable to the beneficiary), you should consult a qualified tax adviser prior to
changing the policy's ownership or making any assignment of ownership interests.
7-pay premium limit
At the time of policy issuance, we will determine whether the Planned Premium
schedule will exceed the 7-pay limit discussed below. If so, our standard
procedures prohibit issuance of the policy unless you sign a form acknowledging
that fact.
The 7-pay limit is the total of net level premiums that would have been
payable at any time for a comparable fixed policy to be fully "paid-up" after
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.
36
<PAGE>
All modified endowments issued by the same insurer (or its affiliates) to the
owner during any calendar year generally will be treated as one contract for the
purpose of applying the modified endowment rules. A policy received in exchange
for a modified endowment will itself also be a modified endowment. You should
consult your tax advisor if you have questions regarding the possible impact of
the 7-pay limit on your policy.
Corporate and H.R. 10 plans
The policy may be acquired in connection with the funding of retirement plans
satisfying the qualification requirements of Section 401 of the Code. If so, the
Code provisions relating to such plans and life insurance benefits thereunder
should be carefully scrutinized. We are not responsible for compliance with the
terms of any such plan or with the requirements of applicable provisions of the
Code.
REPORTS THAT YOU WILL RECEIVE
At least annually, we will send you a statement setting forth the following
information as of the end of the most recent reporting period: the amount of the
death benefit, the Basic Sum Insured and the Additional Sum Insured, the account
value, the portion of the account value in each investment option, the surrender
value, premiums received and charges deducted from premiums since the last
report, and any outstanding policy loan (and interest charged for the preceding
policy year). Moreover, you also will receive confirmations of premium payments,
transfers among investment options, policy loans, partial withdrawals and
certain other policy transactions.
Semiannually we will send you a report containing the financial statements of
the Trust, including a list of securities held in each fund.
VOTING PRIVILEGES THAT YOU WILL HAVE
All of the assets in the subaccounts of the Account are invested in shares of
the corresponding funds of the Trust. We will vote the shares of each of the
funds of the Trust which are deemed attributable to variable life insurance
policies at regular and special meetings of the Trust's shareholders in
accordance with instructions received from owners of such policies. Shares of
the Trust held in the Account which are not attributable to such policies, as
well as 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
37
<PAGE>
change to eliminate or restrict the need for such voting privileges, we reserve
the right to proceed in accordance with any such revised requirements. We also
reserve the right, subject to compliance with applicable law, including approval
of owners if so required, (1) to transfer assets determined by JHVLICO to be
associated with the class of policies to which your policy belongs from the
Account to another separate account or subaccount, (2) to operate the Account as
a "management-type investment company" under the 1940 Act, or in any other form
permitted by law, the investment adviser of which would be JHVLICO, John Hancock
or an affiliate of either, (3) to deregister the Account under the 1940 Act, (4)
to substitute for the fund shares held by a subaccount any other investment
permitted by law, and (5) to take any action necessary to comply with or obtain
any exemptions from the 1940 Act. We would notify owners of any of the foregoing
changes and, to the extent legally required, obtain approval of owners and any
regulatory body prior thereto. Such notice and approval, however, may not be
legally required in all cases.
Other permissible changes
We reserve the right to make any changes in the policy necessary to ensure the
policy is within the definition of life insurance under the Federal tax laws and
is in compliance with any changes in Federal or state tax laws.
In our policies, we reserve the right to make certain changes if they would
serve the best interests of policy owners or would be appropriate in carrying
out the purposes of the policies. Such changes include the following:
. Changes necessary to comply with or obtain or continue exemptions under
the federal securities laws
. Combining or removing investment options
. Changes in the form of organization of any separate account
Any such changes will be made only to the extent permitted by applicable laws
and only in the manner permitted by such laws. When required by law, we will
obtain your approval of the changes and the approval of any appropriate
regulatory authority.
ADJUSTMENTS WE MAKE TO DEATH BENEFITS
If 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.
38
<PAGE>
Delay of separate account proceeds
We reserve the right to defer payment of any death benefit, loan or other
distribution that is derived from a variable investment option if (a) the New
York Stock Exchange is closed (other than customary weekend and holiday
closings) or trading on the New York Stock Exchange is restricted; (b) an
emergency exists, as a result of which disposal of securities is not reasonably
practicable or it is not reasonably practicable to fairly determine the account
value; or (c) the SEC by order permits the delay for the protection of owners.
Transfers and allocations of account value among the investment options may also
be postponed under these circumstances. If we need to defer calculation of
separate account values for any of the foregoing reasons, all delayed
transactions will be processed at the next values that we do compute.
OTHER DETAILS ABOUT EXERCISING RIGHTS AND PAYING BENEFITS
Joint ownership
If more than one person owns a policy, all owners must join in most requests
to exercise rights under the policy.
Assigning your policy
You may assign your rights in the policy to someone else as collateral for a
loan or for some other reason. Assignments do not require the consent of any
revocable beneficiary. A copy of the assignment must be forwarded to us. We are
not responsible for any payment we make or any action we take before we receive
notice of the assignment in good order. Nor are we responsible for the validity
of the assignment. An absolute assignment is a change of ownership. All
collateral assignees of record must consent to any full surrender, partial
withdrawal or loan from the policy.
Your beneficiary
You name your beneficiary when you apply for the policy. The beneficiary is
entitled to the proceeds we pay following the 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
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.
39
<PAGE>
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.
40
<PAGE>
LIST OF DIRECTORS AND EXECUTIVE OFFICERS OF JHVLICO
The Directors and Executive Officers of JHVLICO and their principal
occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Directors and Executive Principal Occupations
- ----------------------- ---------------------
Officers
- --------
<S> <C>
David F. D'Alessandro Chairman of the Board and Chief Executive
Officer of JHVLICO; President, Chief Operations
Officer and Chief Executive Officer-Elect, John
Hancock Life Insurance Company.
Michele G. Van Leer. Vice Chairman of the Board and President of
JHVLICO; Senior Vice President, John Hancock
Life Insurance Company.
Ronald J. Bocage . . . Director, Vice President and Counsel of JHVLICO;
Vice President and Counsel, John Hancock Life
Insurance Company.
Bruce M. Jones. . . . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Thomas J. Lee. . . . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Barbara L. Luddy. . . Director, Vice President and Actuary of JHVLICO;
Senior Vice President, John Hancock Life
Insurance Company.
Robert S. Paster. . . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Robert R. Reitano. . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Paul Strong . . . . . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Daniel L. Ouellette. Vice President, Marketing, of JHVLICO; Senior
Vice President, John Hancock Life Insurance
Company.
Edward P. Dowd. . . . Vice President, Investments, of JHVLICO; Senior
Vice President, John Hancock Life Insurance
Company
Roger G. Nastou. . . Vice President, Investments, of JHVLICO; Vice
President, John Hancock Life Insurance Company
Todd G. Engelsen. . . Vice President and Illustration Actuary of
JHVLICO; Second Vice President, John Hancock
Life Insurance Company
Julie H. Indge. . . . Treasurer of JHVLICO; Financial Officer, John
Hancock Life Insurance Company
Patrick F. Smith. . . Controller of JHVLICO; Senior Associate
Controller, John Hancock Life Insurance Company.
Peter H. Scavongelli. Secretary of JHVLICO; State Compliance Officer,
John Hancock Life Insurance Company
</TABLE>
The business address of all Directors and officers of JHVLICO is John Hancock
Place, Boston, Massachusetts 02117.
41
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Directors and Policyholders
John Hancock Variable Life Insurance Company
We have audited the accompanying statutory-basis statements of financial
position of John Hancock Variable Life Insurance Company as of December 31, 1999
and 1998, and the related statutory-basis statements of operations and
unassigned deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Commonwealth of Massachusetts Division of Insurance, which
practices differ from accounting principles generally accepted in the United
States. The variances between such practices and accounting principles generally
accepted in the United States also are described in Note 1. The effects on the
financial statements of these variances are not reasonably determinable but are
presumed to be material.
In our opinion, because of the effects of the matter described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with accounting principles generally accepted in the
United States, the financial position of John Hancock Variable Life Insurance
Company at December 31, 1999 and 1998, or the results of its operations or its
cash flows for the years then ended.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of John Hancock
Variable Life Insurance Company at December 31, 1999 and 1998, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance.
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 2000
42
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
---------- -----------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Bonds--Note 6 . . . . . . . . . . . . . . . . . . . . $ 1,216.3 $1,185.8
Preferred stocks . . . . . . . . . . . . . . . . . . 35.9 36.5
Common stocks . . . . . . . . . . . . . . . . . . . . 3.2 3.1
Investment in affiliates . . . . . . . . . . . . . . 80.7 81.7
Mortgage loans on real estate--Note 6 . . . . . . . . 433.1 388.1
Real estate . . . . . . . . . . . . . . . . . . . . . 25.0 41.0
Policy loans . . . . . . . . . . . . . . . . . . . . 172.1 137.7
Cash items:
Cash in banks . . . . . . . . . . . . . . . . . . 27.2 11.4
Temporary cash investments . . . . . . . . . . . . 222.9 8.5
--------- --------
250.1 19.9
Premiums due and deferred . . . . . . . . . . . . . . 29.9 32.7
Investment income due and accrued . . . . . . . . . . 33.2 29.8
Other general account assets . . . . . . . . . . . . 65.3 47.5
Assets held in separate accounts . . . . . . . . . . 8,268.2 6,595.2
--------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . $10,613.0 $8,599.0
========= ========
OBLIGATIONS AND STOCKHOLDER'S EQUITY
OBLIGATIONS
Policy reserves . . . . . . . . . . . . . . . . . . $ 1,866.6 $1,652.0
Federal income and other taxes payable--Note 1 . . 67.3 44.3
Other general account obligations . . . . . . . . . 219.0 150.9
Transfers from separate accounts, net . . . . . . . (221.6) (190.3)
Asset valuation reserve--Note 1 . . . . . . . . . . 23.1 21.9
Obligations related to separate accounts . . . . . 8,261.6 6,589.4
--------- --------
TOTAL OBLIGATIONS . . . . . . . . . . . . . . . . .
10,216.0 8,268.2
STOCKHOLDER'S EQUITY
Common Stock, $50 par value; authorized 50,000
shares;
issued and outstanding 50,000 shares . . . . . . 2.5 2.5
Paid-in capital . . . . . . . . . . . . . . . . . . 572.4 377.5
Unassigned deficit--Note 10 . . . . . . . . . . . . (177.9) (49.2)
--------- --------
TOTAL STOCKHOLDER'S EQUITY . . . . . . . . . . . . 397.0 330.8
--------- --------
TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY . . . . . $10,613.0 $8,599.0
========= ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
43
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
--------- ---------
(IN MILLIONS)
<S> <C>
INCOME
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . $1,272.3
Net investment income--Note 3 . . . . . . . . . . . . . . . 136.0 122.8
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . 605.4 618.1
--------- --------
1,692.2 2,013.2
BENEFITS AND EXPENSES
Payments to policyholders and beneficiaries . . . . . . . . 349.9 301.4
Additions to reserves to provide for future payments to
policyholders and beneficiaries . . . . . . . . . . . . . 888.8 1,360.2
Expenses of providing service to policyholders and
obtaining new insurance--Note 5 . . . . . . . . . . . . . . 314.4 274.2
State and miscellaneous taxes. . . . . . . . . . . . . . . . 20.5 28.1
---------- --------
1,573.6 1,963.9
----------
Gain from operations before federal income
taxes and net realized capital losses 118.6 49.3
Federal income taxes--Note 1 . . . . . . . . . . . . . . . . 42.9 33.1
---------- --------
GAIN FROM OPERATIONS BEFORE NET REALIZED CAPITAL LOSSES 75.7 16.2
Net realized capital losses--Note 4 . . . . . . . . . . . . (1.7) (0.6)
---------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 74.0 15.6
Unassigned deficit at beginning of year . . . . . . . . . . (49.2) (58.3)
Net unrealized capital losses and other adjustments--Note 4 (3.8) (6.0)
Other reserves and adjustments--Note 10 . . . . . . . . . . (198.9) (0.5)
---------- --------
UNASSIGNED DEFICIT AT END OF YEAR . . . . . . . . . . . $(177.9) $ (49.2)
========== ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
44
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------
1999 1998
------- --------
(IN MILLIONS)
<S> <C>
Cash flows from operating activities:
Insurance premiums . . . . . . . . . . . . . .
Net investment income . . . . . . . . . . . 134.2 118.2
Benefits to policyholders and beneficiaries . (321.6) (275.5)
Dividends paid to policyholders . . . . . . . . . (25.6) (22.3)
Insurance expenses and taxes . . . . . . . . . (344.8) (296.9)
Net transfers to separate accounts . . . . . . . (705.3) (874.4)
Other, net . . . . . . . . . . . . . . . . . . 540.6 551.3
------- -----------
NET CASH PROVIDED FROM OPERATIONS . . . . . . 236.0 475.7
------- -----------
Cash flows used in investing activities:
Bond purchases . . . . . . . . . . . . . . . . (240.7) (618.8)
Bond sales . . . . . . . . . . . . . . . . . . 108.3 340.7
Bond maturities and scheduled redemptions . . 78.4 111.8
Bond prepayments . . . . . . . . . . . . . . . 18.7 76.5
Stock purchases . . . . . . . . . . . . . . . (3.9) (23.4)
Proceeds from stock sales . . . . . . . . . . 3.6 1.9
Real estate purchases . . . . . . . . . . . . (2.2) (4.2)
Real estate sales . . . . . . . . . . . . . . 17.8 2.1
Other invested assets purchases . . . . . . . (4.5) 0.0
Mortgage loans issued. . . . . . . . . . . . . (70.7) (145.5)
Mortgage loan repayments . . . . . . . . . . . 25.3 33.2
Other, net . . . . . . . . . . . . . . . . . . (68.9) (435.2)
------- -----------
NET CASH USED IN INVESTING ACTIVITIES . . . . (138.8) (660.9)
------- -----------
Cash flows from financing activities:
Capital contribution . . . . . . . . . . . . . 194.9
Net (decrease) increase in short-term note
payable. . . . . . . . . . . . . . . . . . . (61.9) 61.9
------- -----------
NET CASH PROVIDED FROM FINANCING ACTIVITIES . . 133.0 61.9
------- -----------
INCREASE (DECREASE) IN CASH AND TEMPORARY CASH
INVESTMENTS 230.2
Cash and temporary cash investments at beginning
of year. . . . . . . . . . . . . . . . . . . . . 19.9 143.2
------- -----------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF
YEAR. . . . . . . . . . . . . . . . . . . . . 250.1 $19.9
======= ===========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
45
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES
John Hancock Variable Life Insurance Company (the Company) is a wholly-owned
subsidiary of John Hancock Life Insurance Company (formerly John Hancock Mutual
Life Insurance Company) (John Hancock). The Company, domiciled in the
Commonwealth of Massachusetts, principally writes variable and universal life
insurance policies. Those policies primarily are marketed through John
Hancock's sales organization, Signator Insurance Agency, which includes a career
agency system composed of Company-supported independent general agencies and a
direct brokerage system that markets directly to external independent brokers.
Policies also are sold through various unaffiliated securities broker-dealers
and certain other financial institutions. Currently, the Company writes
business in all states except New York.
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future
as more information becomes known, which could impact the amounts reported and
disclosed herein.
Basis of Presentation
The financial statements have been prepared using accounting practices
prescribed or permitted by the Commonwealth of Massachusetts Division of
Insurance and in conformity with the practices of the National Association of
Insurance Commissioners (NAIC), which practices differ from generally accepted
accounting principles (GAAP).
The significant differences from GAAP include: (1) policy acquisition costs
are charged to expense as incurred rather than deferred and amortized in
relation to future estimated gross profits; (2) policy reserves are based on
statutory mortality, morbidity, and interest requirements without consideration
of withdrawals and Company experience; (3) certain assets designated as
"nonadmitted assets" are excluded from the balance sheet by direct charges to
surplus; (4) reinsurance recoverables are netted against reserves and claim
liabilities rather than reflected as an asset; (5) bonds held as available for
sale are recorded at amortized cost or market value as determined by the NAIC
rather than at fair value; (6) an Asset Valuation Reserve and Interest
Maintenance Reserve as prescribed by the NAIC are not calculated under GAAP.
Under GAAP, realized capital gains and losses are reported in the income
statement on a pretax basis as incurred and investment valuation allowances are
provided when there has been a decline in value deemed other than temporary; (7)
investments in affiliates are carried at their net equity value with changes in
value being recorded directly to unassigned deficit rather than consolidated in
the financial statements; (8) no provision is made for the deferred income tax
effects of temporary differences between book and tax basis reporting; and (9)
certain items, including modifications to required policy reserves resulting
from changes in actuarial assumptions, are recorded directly to unassigned
deficit rather than being reflected in income. The effects of the foregoing
variances from GAAP have not been determined but are presumed to be material.
The significant accounting practices of the Company are as follows:
Pending Statutory Standards
During March 1998, the NAIC adopted codified statutory accounting principles
("Codification") effective January 1, 2001. Codification will likely change, to
some extent, prescribed statutory accounting practices and may result in changes
to the accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification will require adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Accordingly, before Codification
becomes effective for the Company, the Commonwealth of Massachusetts must adopt
Codification as the prescribed basis of accounting on which domestic insurers
must report their statutory-basis results to the Division
46
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
of Insurance. At this time, it is anticipated that the Commonwealth of
Massachusetts will adopt Codification effective January 1, 2001. The impact of
any such changes on the Company's unassigned deficit is not expected to be
material.
Revenues and Expenses
Premium revenues are recognized over the premium-paying period of the policies
whereas expenses, including the acquisition costs of new business, are charged
to operations as incurred and policyholder dividends are provided as paid or
accrued.
Cash and Temporary Cash Investments
Cash includes currency on hand and demand deposits with financial
institutions. Temporary cash investments are short-term, highly-liquid
investments both readily convertible to known amounts of cash and so near
maturity that there is insignificant risk of changes in value because of changes
in interest rates.
Valuation of Assets
General account investments are carried at amounts determined on the following
bases:
Bond and stock values are carried as prescribed by the NAIC; bonds generally
at amortized amounts or cost, preferred stocks generally at cost and common
stocks at fair value. The discount or premium on bonds is amortized using the
interest method.
Investments in affiliates are included on the statutory equity method.
Loan-backed bonds and structured securities are valued at amortized cost using
the interest method including anticipated prepayments. Prepayment assumptions
are obtained from broker dealer surveys or internal estimates and are based on
the current interest rate and economic environment. The retrospective
adjustment method is used to value all such securities except for interest-only
securities, which are valued using the prospective method.
The net interest effect of interest rate and currency rate swap transactions
is recorded as an adjustment of interest income as incurred. The initial cost
of interest rate cap agreements is amortized to net investment income over the
life of the related agreement. Gains and losses on financial futures contracts
used as hedges against interest rate fluctuations are deferred and recognized in
income over the period being hedged.
Mortgage loans are carried at outstanding principal balance or amortized cost.
Investment real estate is carried at depreciated cost, less encumbrances.
Depreciation on investment real estate is recorded on a straight-line basis.
Accumulated depreciation amounted to $1.9 million in 1999 and $3.0 million in
1998.
Real estate acquired in satisfaction of debt and real estate held for sale are
carried at the lower of cost or fair value.
Policy loans are carried at outstanding principal balance, not in excess of
policy cash surrender value.
47
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Asset Valuation and Interest Maintenance Reserves
The Asset Valuation Reserve (AVR) is computed in accordance with the
prescribed NAIC formula and represents a provision for possible fluctuations in
the value of bonds, equity securities, mortgage loans, real estate and other
invested assets. Changes to the AVR are charged or credited directly to the
unassigned deficit.
The Company also records the NAIC prescribed Interest Maintenance Reserve
(IMR) that represents that portion of the after tax net accumulated unamortized
realized capital gains and losses on sales of fixed income securities,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates. Such gains and losses are deferred and amortized into
income over the remaining expected lives of the investments sold. At December
31, 1999, the IMR, net of 1999 amortization of $2.3 million, amounted to $7.4
million, which is included in policy reserves. The corresponding 1998 amounts
were $2.4 million and $10.7 million, respectively.
Goodwill
The excess of cost over the statutory book value of the net assets of life
insurance business acquired was $8.9 million and $11.4 million at December 31,
1999 and 1998, respectively, and generally is amortized over a ten-year period
using a straight-line method.
Separate Accounts
Separate account assets and liabilities reported in the accompanying
statements of financial position represent funds that are separately
administered, principally for variable life insurance policies, and for which
the contractholder, rather than the Company, generally bears the investment
risk. Separate account obligations are intended to be satisfied from separate
account assets and not from assets of the general account. Separate accounts
generally are reported at fair value. The operations of the separate accounts
are not included in the statement of operations; however, income earned on
amounts initially invested by the Company in the formation of new separate
accounts is included in other income.
Fair Value Disclosure of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair value
information about certain financial instruments, whether or not recognized in
the statement of financial position, for which it is practicable to estimate the
value. In situations where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. SFAS
No. 107 excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements. Therefore, the aggregate fair value amounts
presented do not represent the underlying value of the Company. See Note 11.
The methods and assumptions utilized by the Company in estimating its fair
value disclosures for financial instruments are as follows:
The carrying amounts reported in the statement of financial position for cash
and temporary cash investments approximate their fair values.
Fair values for public bonds are obtained from an independent pricing service.
Fair values for private placement securities and publicly traded bonds not
provided by the independent pricing service are estimated by the
48
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Company by discounting expected future cash flows using current market rates
applicable to the yield, credit quality and maturity of the investments.
The fair values for common and preferred stocks, other than its subsidiary
investments, which are carried at equity values, are based on quoted market
prices.
Fair values for futures contracts are based on quoted market prices. Fair
values for interest rate swap, cap agreements, and currency swap agreements are
based on current settlement values. The current settlement values are based on
brokerage quotes that utilize pricing models or formulas using current
assumptions.
The fair value for mortgage loan is estimated using discounted cash flow
analyses using interest rates adjusted to reflect the credit characteristics of
the underlying loans. Mortgage loans with similar characteristics and credit
risks are engaged into qualitative categories for purposes of the fair value
calculations.
The carrying amount in the statement of financial position for policy loans
approximates their fair value.
The fair value for outstanding commitments to purchase long-term bonds and
issue real estate mortgages is estimated using a discounted cash flow method
incorporating adjustments for the difference in the level of interest rates
between the dates the commitments were made and December 31, 1999.
Capital Gains and Losses
Realized capital gains and losses are determined using the specific
identification method. Realized capital gains and losses, net of taxes and
amounts transferred to the IMR, are included in net gain or loss. Unrealized
gains and losses, which consist of market value and book value adjustments, are
shown as adjustments to the unassigned deficit.
Policy Reserves
Life reserves are developed by actuarial methods and are determined based on
published tables using statutorily specified interest rates and valuation
methods that will provide, in the aggregate, reserves that are greater than or
equal to the minimum or guaranteed policy cash values or the amounts required by
the Commonwealth of Massachusetts Division of Insurance. Reserves for variable
life insurance policies are maintained principally on the modified preliminary
term method using the 1958 and 1980 Commissioner's Standard Ordinary (CSO)
mortality tables, with an assumed interest rate of 4% for policies issued prior
to May 1, 1983 and 41/2% for policies issued on or thereafter. Reserves for
single premium policies are determined by the net single premium method using
the 1958 CSO mortality table, with an assumed interest rate of 4%. Reserves for
universal life policies issued prior to 1985 are equal to the gross account
value which at all times exceeds minimum statutory requirements. Reserves for
universal life policies issued from 1985 through 1988 are maintained at the
greater of the Commissioner's Reserve Valuation Method (CRVM) using the 1958 CSO
mortality table, with 41/2% interest or the cash surrender value. Reserves for
universal life policies issued after 1988 and for flexible variable policies are
maintained using the greater of the cash surrender value or the CRVM method with
the 1980 CSO mortality table and 51/2% interest for policies issued from 1988
through 1992; 5% interest for policies issued in 1993 and 1994; and 41/2%
interest for policies issued in 1995 through 1999.
Federal Income Taxes
Federal income taxes are reported in the financial statements based on amounts
determined to be payable as a result of operations within the current accounting
period. The operations of the Company are consolidated with John Hancock in
filing a consolidated federal income tax return basis for the affiliated group.
The federal income
49
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
taxes of the Company are allocated on a separate return basis with certain
adjustments. The Company made federal income tax payments of $10.6 million in
1999 and $38.2 million in 1998.
Income before taxes differs from taxable income principally due to tax-exempt
investment income, the limitation placed on the tax deductibility of
policyholder dividends, accelerated depreciation, differences in policy reserves
for tax return and financial statement purposes, capitalization of policy
acquisition expenses for tax purposes and other adjustments prescribed by the
Internal Revenue Code.
Amounts for disputed tax issues relating to the prior years are charged or
credited directly to policyholders' contingency reserve.
Adjustments to Policy Reserves
From time to time, the Company finds it appropriate to modify certain required
policy reserves because of changes in actuarial assumptions. Reserve
modifications resulting from such determinations are recorded directly to
stockholder's equity. No such refinements were made during 1999 or 1998.
Reinsurance
Premiums, commissions, expense reimbursements, benefits and reserves related
to reinsured business are accounted for on bases consistent with those used in
accounting for the original policies issued and the terms of the reinsurance
contracts. Premiums ceded to other companies have been reported as a reduction
of premium income. Amounts applicable to reinsurance ceded for future policy
benefits, unearned premium reserves and claim liabilities have been reported as
reductions of these items.
2. ACQUISITION
On June 23, 1993, the Company acquired all of the outstanding shares of stock
of Colonial Penn Annuity and Life Insurance Company (CPAL) from Colonial Penn
Life Insurance Company for an aggregate purchase price of approximately $42.5
million. At the date of acquisition, assets of CPAL were approximately $648.5
million, consisting principally of cash and temporary cash investments and
liabilities were approximately $635.2 million, consisting principally of
reserves related to a block of interest sensitive single-premium whole life
insurance business assumed by CPAL from Charter National Life Insurance Company
(Charter). The purchase price includes contingent payments of up to
approximately $7.3 million payable between 1994 and 1998 based on the actual
lapse experience of the business in force on June 23, 1993. The Company made the
final contingent payment to CPAL of $1.5 million during 1998.
50
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
On June 24, 1993, the Company contributed $24.6 million in additional capital
to CPAL. CPAL was renamed John Hancock Life Insurance Company of America
(JHLICOA) on July 7, 1993. JHLICOA was subsequently renamed Investors Partner
Life Insurance Company (IPL) on March 5, 1998. IPL manages the business assumed
from Charter and began marketing term life and variable universal life products
through brokers in 1999. Summarized financial information for IPL for 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(IN MILLIONS)
<S> <C> <C>
Total assets. . . . . . . . . . . . . . . . 570.7 587.8
Total liabilities. . . . . . . . . . . . . . 498.9 517.5
Total revenue. . . . . . . . . . . . . . . . 35.6 38.8
Net income. . . . . . . . . . . . . . . . . 3.5 3.8
</TABLE>
3. NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
------ ------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Investment expenses . . . . . . . . . . . . . $ 9.5 $ 8.3
Interest expense. . . . . . . . . . . . . . 1.7 2.4
Depreciation expense. . . . . . . . . . . . 0.6 0.8
Investment taxes. . . . . . . . . . . . . . 0.3 0.7
------ ------
$12.1 $12.2
====== ======
</TABLE>
51
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
4. NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital gains (losses) consist of the following items:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
------ ------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net gains from asset sales . . . . . . . . . . . (2.8) 7.6
Capital gains tax . . . . . . . . . . . . . . . . 0.2 (2.9)
Net capital gains transferred to IMR . . . . . . 0.9 (5.3)
------ ------
Net REALIZED CAPITAL LOSSES . . . . . . . . . . . (1.7) (0.6)
====== ======
</TABLE>
Net unrealized capital gains (losses) and other adjustments consist of the
following items:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
------ ------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net losses from changes in security values and book
value adjustments. . . . . . . . . . . . . . . (2.6) (2.7)
Increase in asset valuation reserve . . . . . . . . (1.2) (3.3)
------ ------
Net UNREALIZED CAPITAL LOSSES AND OTHER ADJUSTMENTS (3.8) (6.0)
====== ======
</TABLE>
52
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
5. TRANSACTIONS WITH PARENT
The Company's Parent provides the Company with personnel, property and
facilities in carrying out certain of its corporate functions. The Parent
annually determines a fee for these services and facilities based on a number of
criteria which were revised in 1999 and 1998 to reflect continuing changes in
the Company's operations. The amount of the service fee charged to the Company
was $188.3 million and $157.5 million in 1999 and 1998, respectively, which has
been included in insurance and investment expenses. The Parent has guaranteed
that, if necessary, it will make additional capital contributions to prevent the
Company's stockholder's equity from declining below $1.0 million.
The service fee charged to the Company by the Parent includes $0.2 million and
$0.7 million in 1999 and 1998, respectively, representing the portion of the
provision for retiree benefit plans determined under the accrual method,
including a provision for the 1993 transition liability which is being amortized
over twenty years, that was allocated to the Company.
The Company has a modified coinsurance agreement with John Hancock to reinsure
50% of 1994 through 1999 issues of flexible premium variable life insurance and
scheduled premium variable life insurance policies. In connection with this
agreement, John Hancock transferred $44.5 million and $4.9 million of cash for
tax, commission, and expense allowances to the Company, which increased the
Company's net gain from operations by $20.6 million and $22.2 million in 1999
and 1998, respectively.
Effective January 1, 1996, the Company entered into a modified coinsurance
agreement with John Hancock to reinsure 50% of the 1995 inforce block and 50% of
1996 and all future issue years of certain variable annuity contracts
(Independence Preferred, Declaration, Independence 2000, MarketPlace, and
Revolution). In connection with this agreement, the Company received a net cash
payment of $40.0 million and $12.7 million in 1999 and 1998, respectively, for
surrender benefits, tax, reserve increase, commission, expense allowances and
premium, This agreement increased the Company's net gain from operations by
$26.9 million and $8.4 million in 1999 and 1998, respectively.
Effective January 1, 1997, the Company entered into a stop-loss agreement with
John Hancock to reinsure mortality claims in excess of 110% of expected
mortality claims in 1999 and 1998 for all policies that are not reinsured under
any other indemnity agreement. In connection with the agreement, John Hancock
received $0.8 million and 1.0 million in 1999 and 1998, respectively, for
mortality claims to the Company. This agreement decreased the Company's net
gain from operations in both 1999 and 1998 by $0.5 million.
At December 31, 1998 the Company had outstanding a short-term note of $61.9
million payable to an affiliate at a variable rate of interest. The note was
part of a revolving line of credit and was repaid in 1999. Interest paid in
1999 and 1998 was $1.7 million and $2.9 million, respectively. The note is
included in other general account obligations at December 31, 1998.
53
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
6. INVESTMENTS
The statement value and fair value of bonds are shown below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
-------------- -------------- --------------- ---------
(IN MILLIONS)
December 31, 1999 . .
U.S. Treasury
securities and
obligations of U.S.
government
corporations and
agencies . . . . . . 5.9 0.0 0.1 5.8
Obligations of states
and political
subdivisions . . . . 2.2 0.1 0.1 2.2
Debit securities
issued by foreign
governments. . . . . 13.9 0.8 0.1 14.6
Corporate securities 964.9 13.0 59.4 918.5
Mortgage-backed
securities . . . . . 229.4 0.5 7.8 222.1
-------- ----- ------ --------
Total bonds . . . . .
======== ===== ====== ========
December 31, 1998
U.S. Treasury
securities and
obligations of U.S.
government
corporations and
agencies . . . . . . 5.1 0.1 0.0 5.2
Obligations of states
and political
subdivisions . . . . 3.2 0.3 0.0 3.5
Corporate securities 925.2 50.4 15.0 960.6
Mortgage-backed
securities . . . . . 252.3 10.0 0.1 262.2
-------- ----- ------ --------
Total bonds . . . . . 15.1
======== ===== ====== ========
</TABLE>
54
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
The statement value and fair value of bonds at December 31, 1999, by
contractual maturity, are shown below. Maturities will differ from contractual
maturities because eligible borrowers may exercise their right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
<S> <C> <C>
FAIR
VALUE VALUE
-------- ---------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Due in one year or less. . . . . . . . . . . . . . $ 58.5 58.2
Due after one year through five years. . . . . . . 286.8 282.0
Due after five years through ten years . . . . . . 425.4 405.6
Due after ten years. . . . . . . . . . . . . . . . 216.2 195.3
-------- ---------
986.9 941.1
Mortgage-backed securities . . . . . . . . . . . . 229.4 222.1
-------- ---------
$1,216.3
======== =========
</TABLE>
Gross gains of $0.3 million in 1999 and $3.4 million in 1998 and gross losses
of $4.0 million in 1999 and $0.7 million in 1998 were realized from the sale of
bonds.
At December 31, 1999, bonds with an admitted asset value of $9.1 million were
on deposit with state insurance departments to satisfy regulatory requirements.
The cost of common stocks was $3.1 million and $2.1 million at December 31,
1999 and 1998, respectively. At December 31, 1999, gross unrealized
appreciation on common stocks totaled $1.2 million, and gross unrealized
depreciation totaled $1.1 million. The fair value of preferred stock totaled
$35.9 million at December 31, 1999 and $36.5 million at December 31, 1998.
Bonds with amortized cost of $0.4 million were non-income producing for the
twelve months ended December 31, 1999.
At December 31, 1999, the mortgage loan portfolio was diversified by
geographic region and specific collateral property type as displayed below. The
Company controls credit risk through credit approvals, limits and monitoring
procedures.
55
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GEOGRAPHIC
PROPERTY TYPE CONCENTRATION
Apartments. . . . . . . . $112.1 East North Central $ 71.3
Hotels. . . . . . . . . . 11.3 East South Central 7.4
Industrial. . . . . . . . 66.0 Middle Atlantic 28.5
Office buildings. . . . . 86.4 Mountain 21.0
Retail. . . . . . . . . . 25.5 New England 37.5
Agricultural. . . . . . . 99.6 Pacific 111.1
Other . . . . . . . . . . 32.2 South Atlantic 87.6
West North Central 16.6
West South Central 48.6
Other 3.5
------
$433.1 $433.1
======
</TABLE>
At December 31, 1999, the fair values of the commercial and agricultural
mortgage loans portfolios were $323.5 million and $98.2 million, respectively.
The corresponding amounts as of December 31, 1998 were approximately $331.3
million and $70.0 million, respectively.
The maximum and minimum lending rates for mortgage loans during 1999 were
14.24% and 6.84% for agricultural loans, 7.45% and 7.00% for other properties.
Generally, the maximum percentage of any loan to the value of security at the
time of the loan, exclusive of insured, guaranteed or purchase money mortgages,
is 75%. For city mortgages, fire insurance is carried on all commercial and
residential properties at least equal to the excess of the loan over the maximum
loan which would be permitted by law on the land without the building, except as
permitted by regulations of the Federal Housing Commission on loans fully
insured under the provisions of the National Housing Act. For agricultural
mortgage loans, fire insurance is not normally required on land based loans
except in those instances where a building is critical to the farming operation.
Fire insurance is required on all agri-business facilities in an aggregate
amount equal to the loan balance.
56
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
7. REINSURANCE
The Company cedes business to reinsurers to share risks under variable life,
universal life and flexible variable life insurance policies for the purpose of
reducing exposure to large losses. Premiums, benefits and reserves ceded to
reinsurers in 1999 were $594.9 million, $132.8 million, and $13.6 million,
respectively. The corresponding amounts in 1998 were $590.2 million, $63.2
million, and $8.2 million, respectively.
Reinsurance ceded contracts do not relieve the Company from its obligations to
policyholders. The Company remains liable to its policyholders for the portion
reinsured to the extent that any reinsurer does not meet its obligations for
reinsurance ceded to it under the reinsurance agreements. Failure of the
reinsurers to honor their obligations could result in losses to the Company;
consequently, estimates are established for amounts deemed or estimated to be
uncollectible. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentration of credit risk arising from similar characteristics
of the reinsurer.
Neither the Company, nor any of its related parties, control, either directly
or indirectly, any external reinsurers with which the Company conducts business.
No policies issued by the Company have been reinsured with a foreign company
which is controlled, either directly or indirectly, by a party not primarily
engaged in the business of insurance.
The Company has not entered into any reinsurance agreement in which the
reinsurer may unilaterally cancel any reinsurance for reasons other than
nonpayment of premiums or other similar credits. The Company does not have any
reinsurance agreements in effect in which the amount of losses paid or accrued
through December 31, 1999 would result in a payment to the reinsurer of amounts
which, in the aggregate and allowing for offset of mutual credits from other
reinsurance agreements with the same reinsurer, exceed the total direct premiums
collected under the reinsured policies.
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The notional amounts, carrying values and estimated fail values of the
Company's derivative instruments were as follows at December 31:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <S> <C> <C>
NUMBER OF CONTRACTS/ ASSETS (LIABILITIES)
------------------
NOTIONAL AMOUNTS 1999 1998
FAIR VALUE
---------
------- ------- --------- --------- ---------
(IN MILLIONS)
Futures contracts to $ (0.5)
sell securities 362.0 947.0 $0.6 $0.6 $(0.5)
Interest rate swap (17.7)
agreements $965.0 $365.0 -- 11.5 --
Interest rate cap
agreements 239.4 89.4 5.6 5.6 3.1
Currency rate swap (3.3)
agreements 15.8 15.8 -- (1.6) --
</TABLE>
57
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
The Company uses futures contracts, interest rate swap, cap agreements, and
currency rate swap agreements for other than trading purposes to hedge and
manage its exposure to changes in interest rate levels, foreign exchange rate
fluctuations and to manage duration mismatch of assets and liabilities.
The futures contracts expire in 2000. The interest rate swap agreements
expire in 2000 to 2011. The interest rate cap agreements expire in 2006 to
2008. The currency rate swap agreements expire in 2006 to 2009.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform to the terms of the contract. The Company continually
monitors its position and the credit ratings of the counterparties to these
derivative instruments. To limit exposure associated with counterparty
nonperformance on interest rate and currency swap agreements, the Company enters
into master netting agreements with its counterparties. The Company believes the
risk of incurring losses due to nonperformance by its counterparties is remote
and that such losses, if any, would be immaterial. Futures contracts trade on
organized exchanges and, therefore, have minimal credit risk.
9. POLICY RESERVES POLICYHOLDERS' AND BENIFICIARIES' FUNDS AND OBLIGATIONS
RELATED TO SEPARATE ACCOUNTS
The Company' annuity reserves and deposit fund liabilities that are subject to
discretionary withdrawal, with and without adjustment, are summarized as
follows.
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1999 PERCENT
---------------- ------
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Subject to discretionary withdrawal (with
adjustment)
With market value adjustment . . . . . . . . . $3.8 0.1%
At book value less surrender charge 40.5 1.5
At market value . . . . . . . . . . . . . . . . 2,326.6 87.1
--------
Total with adjustment. . . . . . . . . . . 2,370.9 88.7
Subject to discretionary withdrawal 287.1 10.7
at book value (without adjustment) . . . . .
Not subject to discretionary withdrawal--general
account. . . . . . . . . . . . . . . . . . . . 15.4 0.6
--------
Total annuity reserves and deposit liabilities $2,673.4 100.0%
========
</TABLE>
58
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
The Company has extended commitments to purchase long-term bonds and issue
real estate mortgages totaling $15.4 million and $3.5 million, respectively, at
December 31, 1999. The Company monitors the creditworthiness of borrowers under
long-term bonds commitments and requires collateral as deemed necessary. If
funded, loans related to real estate mortgages would be fully collateralized by
the related properties. The estimated fair value of the commitments described
above is $19.4 million at December 31, 1999. The majority of these commitments
expire in 2000.
In the normal course of its business operations, the Company is involved with
litigation from time to time with claimants, beneficiaries and others, and a
number of litigation matters were pending as of December 31, 1999. It is the
opinion of management, after consultation with counsel, that the ultimate
liability with respect to these claims, if any, will not materially affect the
financial position or results of operations of the Company.
During 1997, John Hancock entered into a court-approved settlement relating to
a class action lawsuit involving certain individual life insurance policies sold
from 1979 through 1996. In entering into the settlement, John Hancock
specifically denied any wrongdoing. During 1999, the Company recorded a $194.9
million reserve, through a direct charge to its unassigned deficit, representing
the Company's share of the settlement and John Hancock contributed $194.9
million of capital to the Company. The reserve held at December 31, 1999
amounted to $136.5 million and is based on a number of factors, including the
estimated number of claims, the expected type of relief to be sought by class
members (general relief or alternative dispute resolution), the estimated cost
per claim and the estimated costs to administer the claims.
Given the uncertainties associated with estimating the reserve, it is
reasonably possible that the final cost of the settlement could differ
materially from the amounts presently provided for by the Company. John Hancock
and the Company will continue to update their estimate of the final cost of the
settlement as claims are processed and more specific information is developed,
particularly as the actual cost of the claims subject to alternative dispute
resolution becomes available. However, based on information available at this
time, and the uncertainties associated with the final claim processing and
alternative dispute resolution, the range of any additional costs related to the
settlement cannot be reasonably estimated. If the Company's share of the
settlement increases, John Hancock will contribute additional capital to the
Company so that the Company's total stockholder's equity would not be impacted.
59
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments:
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31,
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
--------------- ---------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
ASSETS
Bonds--Note 6. . . . .
Preferred stocks--Note
6. . . . . . . . . . . . 35.9 35.9 36.5 36.5
Common stocks--Note 6. 3.2 3.2 3.1 3.1
Mortgage loans on real
estate--Note 6. . . . . 433.1 421.7 388.1 401.3
Policy loans--Note 1. 172.1 172.1 137.7 137.7
Cash items--Note 1. . 250.1 250.1 19.9 19.9
Derivatives assets
(liabilities) relating
to: --Note 8. . . . .
Futures contracts. . . 0.6 0.6 (0.5) (0.5)
Interest rate swaps. . -- 11.5 -- (17.7)
Currency rate swaps. . -- (1.6) -- (3.3)
Interest rate caps. . 5.6 5.6 3.1 3.1
LIABILITIES
Commitments--Note 10. -- 19.4 -- 32.1
</TABLE>
The carrying amounts in the table are included in the statutory-basis
statements of financial position. The method and assumptions utilized by the
Company in estimating its fair value disclosures are described in Note 1.
12. SUBSEQUENT EVENTS
REORGANIZATION AND INITIAL PUBLIC OFFERING
Pursuant to a Plan of Reorganization approved by the policyholders of John
Hancock and the Commonwealth of Massachusetts Division of Insurance, effective
February 1, 2000, John Hancock converted from a mutual life insurance company to
a stock life insurance company (i.e., demutualized) and became a wholly owned
subsidiary of John Hancock Financial Services, Inc., which is a holding company.
In connection with the reorganization, John Hancock changed its name to John
Hancock Life Insurance Company. In addition, on February 1, 2000, John Hancock
Financial Services, Inc. completed its initial public offering and 102 million
shares of common stock were issued at an initial public offering price of $17
per share.
60
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENT--(CONTINUED)
13. IMPACT OF YEAR 2000 (UNAUDITED)
The Company participated in the Year 2000 remediation project of its parent,
John Hancock. By late 1999, John Hancock and the Company completed their Year
2000 readiness plan to address issues that could result from computer programs
written using two digits to define the applicable year rather than four to
define the applicable year and century. As a result, John Hancock and the
Company were prepared for the transition to the Year 2000 and did not experience
any significant Year 2000 problems with respect to mission critical information
technology ("IT") or non-IT systems, applications or infrastructure. During the
date rollover to the year 2000, John Hancock and the Company implemented and
monitored their millennium rollover plan and conducted business as usual on
Monday, January 3, 2000.
Since January 3, 2000, the information systems, including mission critical
systems, which in the event of a Year 2000 failure would have the greatest
impact on operations, have functioned properly. In addition, neither John
Hancock nor the Company have experienced any significant Year 2000 issues
related to interactions with material business partners. No disruptions have
occurred which impact John Hancock or the Company's ability to process claims,
update customer accounts, process financial transactions, or report accurate
data to management and no business interruptions due to Year 2000 issues have
been experienced. While John Hancock and the Company continue to monitor their
systems, and those of material business partners, closely to ensure that no
unexpected Year 2000 issues develop, neither John Hancock nor the Company have
reason to expect any such issues.
The costs of the Year 2000 project consist of internal IT personnel and
external costs such as consultants, programmers, replacement software, and
hardware. The costs of the Year 2000 project are expensed as incurred. The
project is funded partially through a reallocation of resources from
discretionary projects. Through December 31, 1999, John Hancock has incurred
and expensed approximately $20.8 million in related payroll costs for internal
IT personnel on the project. The estimated remaining IT personnel costs of the
project are approximately $1.0 million. Through December 31, 1999, John Hancock
has incurred and expensed approximately $47.0 million in external costs for the
project. John Hancock's estimated remaining external cost of the project is
approximately $2.0 million. The total costs of the Year 2000 project to John
Hancock, based on management's best estimates, include approximately $21.7
million in internal IT personnel, $14.6 million in the external modification of
software, $18.3 million for external solution providers, $9.1 million in
replacement costs of non-compliant IT systems and $6.9 million in oversight,
test facilities and other expenses. Accordingly, the estimated range of total
costs of the Year 2000 project to John Hancock, internal and external, is
approximately $70 to $72.5 million. John Hancock's total Year 2000 project
costs include the estimated impact of external solution providers based on
presently available information.
61
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Policyholders of 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, Small Cap Growth,
International Balanced, Mid Cap Growth, Large Cap Value, Money Market, Mid Cap
Value, Small/Mid Cap Growth (formerly, Diversified Mid Cap Growth), Real Estate
Equity, Growth & Income, Managed, Short-Term Bond, Small Cap Value,
International Opportunities, Equity Index, Global Bond (formerly, Strategic
Bond), Turner Core Growth, Brandes International Equity, Frontier Capital
Appreciation, Enhanced U.S. Equity, Emerging Markets Equity, Global Equity, Bond
Index, Small/Mid Cap CORE and High Yield Bond Subaccounts) as of December 31,
1999, and the related statements of operations and changes in net assets for
each of the periods indicated therein. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting John Hancock Variable Life Account S at December 31,
1999, the results of their operations and the changes in their net assets for
each of the periods indicated, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Boston, Massachusetts
February 11, 2000
62
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
INTERNATIONAL
LARGE CAP SOVEREIGN EQUITY SMALL CAP
GROWTH BOND INDEX GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ----------- ------------- -------------
-------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . $ 8,016 $ 2,380 $ 2,435 $ 2,357
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . 115,521,551 38,321,474 33,198,674 31,022,828
Investments in shares
of portfolios of M
Fund Inc., at value -- -- -- --
Receivable from:
John Hancock Variable
Series Trust I . . 21,617 12,536 419 208,513
M Fund Inc. . . . . -- -- -- --
------------ ----------- ----------- -----------
Total assets . . . . 115,551,184 38,336,390 33,201,528 31,233,698
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company . . . . . . 20,467 12,194 75 208,172
M Fund Inc. . . . . -- -- -- --
Asset charges payable 9,166 2,723 2,779 2,698
------------ ----------- ----------- -----------
Total liabilities . . 29,633 14,917 2,854 210,870
------------ ----------- ----------- -----------
Net assets . . . . . $115,521,551 $38,321,473 $33,198,674 $31,022,828
============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL MID CAP LARGE CAP MONEY
BALANCED GROWTH VALUE MARKET
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ----------- ----------- -------------
------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . . $ 304 $ 4,698 $ 1,803 $ 3,061
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value . . . . . . . . 4,591,857 63,499,616 27,106,918 61,006,769
Investments in shares
of portfolios of M
Fund Inc., at value . -- -- -- --
Receivable from:
John Hancock Varidable
Series Trust I . . . 52 27,659 12,738 1,396,082
M Fund Inc. . . . . . -- -- -- --
---------- ----------- ----------- -----------
Total assets . . . . . 4,592,213 63,531,973 27,121,459 62,405,912
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company. . . . . . . 9 26,980 12,479 1,395,329
M Fund Inc. . . . . . -- -- -- --
Asset charges payable 348 5,377 2,063 3,814
---------- ----------- ----------- -----------
Total liabilities . . 357 32,357 14,542 1,399,143
---------- ----------- ----------- -----------
Net assets . . . . . . $4,591,856 $63,499,616 $27,106,917 $61,006,769
========== =========== =========== ===========
</TABLE>
See accompanying notes.
63
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MID CAP SMALL/MID CAP REAL ESTATE GROWTH&
VALUE GROWTH EQUITY INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . $ 1,422 $ 701 $ 611 $ 17,877
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . 19,138,533 9,925,831 9,238,646 209,525,898
Investments in shares
of portfolios of M
Fund Inc., at value -- -- -- --
Receivable from:
John Hancock Variable
Series Trust I . . 38,609 580,155 88 330,982
M Fund Inc. . . . . -- -- -- --
------------ -------------- ------------ ------------
Total assets . . . . 19,178,564 10,506,687 9,239,345 209,874,757
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company . . . . . . 38,404 580,049 -- 328,424
M Fund Inc. . . . . -- -- -- --
Asset charges payable 1,627 807 699 20,434
------------ -------------- ------------ ------------
Total liabilities . . 40,031 580,856 699 348,858
------------ -------------- ------------ ------------
Net assets . . . . . $ 19,138,533 $ 9,925,831 $ 9,238,646 $209,525,899
============ ============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM SMALL CAP INTERNATIONAL
MANAGED BOND VALUE OPPORTUNITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- -------------
-------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . $ 13,307 $ 731 $ 1,430 $ 2,454
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . 125,710,809 11,728,988 18,783,397 31,535,050
Investments in shares
of portfolios of M
Fund Inc., at value -- -- -- --
Receivable from:
John Hancock Variable
Series Trust I . . 34,311 215 189,514 1,308
M Fund Inc. . . . . -- -- -- --
------------ ----------- ----------- -----------
Total assets . . . . 125,758,427 11,729,934 18,974,341 31,538,812
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company . . . . . . 32,402 114 189,306 955
M Fund Inc. . . . . -- -- -- --
Asset charges payable 15,216 832 1,639 2,808
------------ ----------- ----------- -----------
Total liabilities . . 47,618 946 190,945 3,763
------------ ----------- ----------- -----------
Net assets . . . . . $125,710,809 $11,728,988 $18,783,396 $31,535,049
============ =========== =========== ===========
</TABLE>
See accompanying notes.
64
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
TURNER BRANDES
EQUITY GLOBAL CORE INTERNATIONAL
INDEX BOND GROWTH EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------- ---------------
------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . . $ 10,574 $ 734 $ 1,535 $ 1,016
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value . . . . . . . . 149,913,130 8,838,516 -- --
Investments in shares
of portfolios of M
Fund Inc., at value . -- -- 22,671,006 17,415,296
Receivable from:
John Hancock Variable
Series Trust I . . . 126,680 766,077 222 271
M Fund Inc. . . . . . -- -- -- --
------------ ---------- ----------- -----------
Total assets . . . . . 150,050,384 9,605,327 22,672,763 17,416,583
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company. . . . . . . 125,115 765,972 -- 122
M Fund Inc. . . . . . -- -- -- --
Asset charges payable 12,138 839 1,758 1,165
------------ ---------- ----------- -----------
Total liabilities . . 137,253 766,811 1,758 1,287
------------ ---------- ----------- -----------
Net assets . . . . . . $149,913,131 $8,838,516 $22,671,005 $17,415,296
============ ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FRONTIER EMERGING
CAPITAL ENHANCED MARKETS GLOBAL
APPRECIATION U.S. EQUITY EQUITY EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ----------- ---------- ------------
---------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . . . $ 1,031 $ 437 $ 370 $ 71
Investments in shares of
portfolios of John
Hancock Variable Series
Trust I, at value . . . -- -- 3,723,380 836,878
Investments in shares of
portfolios of M Fund
Inc., at value . . . . . 16,985,022 6,738,214 -- --
Receivable from:
John Hancock Variable
Series Trust I . . . . 771 63 254 24
M Fund Inc. . . . . . . -- -- -- --
----------- ---------- ---------- --------
Total assets . . . . . . 16,986,824 6,738,714 3,724,004 836,973
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance Company 620 -- 204 13
M Fund Inc. . . . . . . -- -- -- --
Asset charges payable . . 1,182 500 420 82
----------- ---------- ---------- --------
Total liabilities . . . . 1,802 500 624 95
----------- ---------- ---------- --------
Net assets . . . . . . . $16,985,022 $6,738,214 $3,723,380 $836,878
=========== ========== ========== ========
</TABLE>
See accompanying notes.
65
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SMALL/ MID
CAP CORE HIGH
BOND SUBACCOUNT YIELD
INDEX ---------- BOND
SUBACCOUNT SUBACCOUNT
---------- ------------
------------------------------------
<S> <C> <C> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . $ 374 $ 56 $ 310
Investments in shares of portfolios of
John Hancock Variable Series Trust I, at
value . . . . . . . . . . . . . . . . . 5,126,051 616,813 4,273,214
Investments in shares of portfolios of M
Fund Inc., at value . . . . . . . . . . -- -- --
Receivable from:
John Hancock Variable Series Trust I . 87 7 906,251
M Fund Inc. . . . . . . . . . . . . . . -- -- --
---------- -------- ----------
Total assets . . . . . . . . . . . . . . 5,126,512 616,876 5,179,775
LIABILITIES
Payable to:
John Hancock Variable Life Insurance
Company. . . . . . . . . . . . . . . . 20 -- 906,193
M Fund Inc. . . . . . . . . . . . . . . -- -- --
Asset charges payable . . . . . . . . . 441 63 368
---------- -------- ----------
Total liabilities . . . . . . . . . . . 461 63 906,561
---------- -------- ----------
Net assets . . . . . . . . . . . . . . . $5,126,051 $616,813 $4,273,214
========== ======== ==========
</TABLE>
See accompanying notes.
66
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
LARGE CAP GROWTH SUBACCOUNT SOVEREIGN BOND SUBACCOUNT
-------------------------------------- -----------------------------------
1999 1998 1997 1999 1998 1997
------------ ----------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $17,558,034 $ 6,312,073 $ 2,884,498 $ 2,851,613 $2,190,901 $855,742
M Fund Inc. . . . . -- -- -- -- -- --
----------- ----------- ----------- ----------- ---------- --------
Total investment
income . . . . . . . 17,558,034 6,312,073 2,884,498 2,851,613 2,190,901 855,742
Expenses:
Mortality and expense
risks . . . . . . . 324,595 168,652 91,256 126,407 93,556 39,184
----------- ----------- ----------- ----------- ---------- --------
Net investment income 17,233,439 6,143,421 2,793,242 2,725,206 2,097,345 816,558
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 5,003,007 1,750,881 619,721 (1,391,910) 185,230 80,538
Net unrealized
appreciation
(depreciation)
during the period . (2,053,672) 8,041,022 2,301,920 (1,837,190) (378,058) 63,687
----------- ----------- ----------- ----------- ---------- --------
Net realized and
unrealized gain
(loss) on investments 2,949,335 9,791,903 2,921,641 (3,229,100) (192,828) 144,225
----------- ----------- ----------- ----------- ---------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $20,182,774 $15,935,324 $ 5,714,883 $ (503,894) $1,904,517 $960,783
=========== =========== =========== =========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY INDEX SUBACCOUNT SMALL CAP GROWTH SUBACCOUNT
-------------------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 936,475 $1,930,710 $ 422,913 $ 3,697,955 $ -- $ 473
M Fund Inc. . . . . -- -- -- -- -- --
---------- ---------- ----------- ----------- ---------- --------
Total investment
income . . . . . . . 936,475 1,930,710 422,913 3,697,955 -- 473
Expenses:
Mortality and expense
risks . . . . . . . 81,058 45,651 33,893 60,221 22,593 6,547
---------- ---------- ----------- ----------- ---------- --------
Net investment income
(loss) . . . . . . . 855,417 1,885,059 389,020 3,637,734 (22,593) (6,074)
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains . 753,750 152,030 244,810 2,548,944 58,729 21,707
Net unrealized
appreciation
(depreciation)
during the period . 4,871,167 78,480 (1,219,540) 3,920,455 1,070,805 126,699
---------- ---------- ----------- ----------- ---------- --------
Net realized and
unrealized gain
(loss) on investments 5,624,917 230,510 (974,730) 6,469,399 1,129,534 148,406
---------- ---------- ----------- ----------- ---------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $6,480,334 $2,115,569 $ (585,710) $10,107,133 $1,106,941 $142,332
========== ========== =========== =========== ========== ========
</TABLE>
See accompanying notes.
67
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED SUBACCOUNT MID CAP GROWTH SUBACCOUNT
---------------------------------- ---------------------------------
1999 1998 1997 1999 1998 1997
----------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 372,766 $ 185,760 $ 61,249 $ 6,491,783 $1,114,374 $ --
M Fund Inc. . . . . -- -- -- -- -- --
---------- ---------- --------- ----------- ---------- --------
Total investment
income . . . . . . . 372,766 185,760 61,249 6,491,783 1,114,374 --
Expenses:
Mortality and expense
risks . . . . . . . 13,792 9,687 4,443 102,248 26,123 8,287
---------- ---------- --------- ----------- ---------- --------
Net investment income
(loss) . . . . . . . 358,974 176,073 56,806 6,389,535 1,088,251 (8,287)
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains . 15,640 24,206 8,667 5,188,018 599,619 1,235
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . (173,912) 147,461 (67,714) 15,078,681 1,184,263 486,186
---------- ---------- --------- ----------- ---------- --------
Net realized and
unrealized gain
(loss) on investments (158,272) 171,667 (59,047) 20,266,699 1,783,882 487,421
---------- ---------- --------- ----------- ---------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $ 200,702 $ 347,740 $ (2,241) $26,656,234 $2,872,133 $479,134
========== ========== ========= =========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
LARGE CAP VALUE SUBACCOUNT MONEY MARKET 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 . . $ 1,809,072 $ 797,874 $194,199 $3,279,928 $1,854,829 $758,434
M Fund Inc. . . . . -- -- -- -- -- --
----------- ---------- -------- ---------- ---------- --------
Total investment
income . . . . . . . 1,809,072 797,874 194,199 3,279,928 1,854,829 758,434
Expenses:
Mortality and expense
risks . . . . . . . 88,877 41,415 11,163 291,398 167,813 66,882
----------- ---------- -------- ---------- ---------- --------
Net investment income 1,720,195 756,459 183,036 2,988,530 1,687,016 691,552
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains . 705,454 330,827 164,821 -- -- --
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . (2,181,112) 145,355 279,449 -- -- --
----------- ---------- -------- ---------- ---------- --------
Net realized and
unrealized gain
(loss) on investments (1,475,658) 476,182 444,270 -- -- --
----------- ---------- -------- ---------- ---------- --------
Net increase in net
assets resulting from
operations . . . . . $ 244,537 $1,232,641 $627,306 $2,988,530 $1,687,016 $691,552
=========== ========== ======== ========== ========== ========
</TABLE>
See accompanying notes.
68
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MID CAP VALUE SUBACCOUNT SMALL/MID CAP GROWTH SUBACCOUNT
----------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
----------- ------------ --------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I . . . . . $ 110,190 $ 120,469 $446,081 $ 1,421,656 $ 142,469 $ 878,600
M Fund Inc. . . . . . . . . . . . . . . . . . -- -- -- -- -- --
---------- ----------- -------- ----------- ------------- -----------
Total investment income . . . . . . . . . . . . 110,190 120,469 446,081 1,421,656 142,469 878,600
Expenses:
Mortality and expense risks. . . . . . . . . . 68,611 45,020 11,421 32,995 34,432 35,934
---------- ----------- -------- ----------- ------------- -----------
Net investment income . . . . . . . . . . . . . 41,579 75,449 434,660 1,388,661 108,037 842,666
Net realized and unrealized gain (loss) on
investments:
Net realized gains (losses) . . . . . . . . . (860,332) (538,516) 101,787 13,375 232,246 297,666
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . . . 1,757,919 (830,390) (39,717) (1,001,208) 236,333 (730,748)
---------- ----------- -------- ----------- ------------- -----------
Net realized and unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . 897,587 (1,368,906) 62,070 (987,833) 468,579 (433,082)
---------- ----------- -------- ----------- ------------- -----------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . $ 939,166 $(1,293,457) $496,730 $ 400,828 $ 576,616 $ 409,584
========== =========== ======== =========== ============= ===========
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE EQUITY SUBACCOUNT GROWTH & INCOME SUBACCOUNT
---------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997
---------- ------------ --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 544,845 $ 305,783 $246,677 $23,565,679 $ 9,266,175 $5,917,063
M Fund Inc. . . . . -- -- -- -- -- --
--------- ----------- -------- ----------- ----------- ----------
Total investment
income . . . . . . . 544,845 305,783 246,677 23,565,679 9,266,175 5,917,063
Expenses:
Mortality and expense
risks . . . . . . . 29,468 22,716 13,879 715,377 290,361 169,135
--------- ----------- -------- ----------- ----------- ----------
Net investment income 515,377 283,067 232,798 22,850,302 8,975,814 5,747,928
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . (735,504) (454,979) 252,095 6,207,253 2,061,212 2,390,414
Net unrealized
appreciation
(depreciation)
during the period . 80,925 (698,676) (13,488) (5,814,839) 7,759,307 435,778
--------- ----------- -------- ----------- ----------- ----------
Net realized and
unrealized gain
(loss) on investments (654,579) (1,153,655) 238,607 392,414 9,820,519 2,826,192
--------- ----------- -------- ----------- ----------- ----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $(139,202) $ (870,588) $471,405 $23,242,716 $18,796,333 $8,574,120
========= =========== ======== =========== =========== ==========
</TABLE>
See accompanying notes.
69
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MANAGED SUBACCOUNT SHORT-TERM BOND SUBACCOUNT
------------------------------------ ------------------------------------
1999 1998 1997 1999 1998 1997
------------ ---------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $11,251,980 $3,606,186 $1,879,954 $ 957,614 $ 977,164 $ 415,542
M Fund Inc. . . . . -- -- -- -- -- --
----------- ---------- ---------- ---------- ----------- ---------
Total investment
income . . . . . . . 11,251,980 3,606,186 1,879,954 957,614 977,164 415,542
Expenses:
Mortality and expense
risks . . . . . . . 495,544 121,905 65,383 50,128 50,947 20,551
----------- ---------- ---------- ---------- ----------- ---------
Net investment income 10,756,436 3,484,281 1,814,571 907,486 926,217 394,991
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 2,233,258 278,186 171,318 (441,667) 24,740 35,294
Net unrealized
appreciation
(depreciation)
during the period . (6,419,069) 1,791,231 715,231 (85,754) (136,999) (25,976)
----------- ---------- ---------- ---------- ----------- ---------
Net realized and
unrealized gain
(loss) on investments (4,185,811) 2,069,417 886,549 (527,421) (112,259) 9,318
----------- ---------- ---------- ---------- ----------- ---------
Net increase in net
assets resulting from
operations . . . . . $ 6,570,625 $5,553,698 $2,701,120 $ 380,065 $ 813,958 $ 404,309
=========== ========== ========== ========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL OPPORTUNITIES
SMALL CAP VALUE 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 . . $ 409,324 $ 47,350 $299,278 $2,096,195 $ 103,399 $ 69,078
M Fund Inc. . . . . -- -- -- -- -- --
--------- --------- -------- ---------- ---------- ---------
Total investment
income . . . . . . . 409,324 47,350 299,278 2,096,195 103,399 69,078
Expenses:
Mortality and expense
risks . . . . . . . 64,613 33,335 8,494 90,191 50,003 13,177
--------- --------- -------- ---------- ---------- ---------
Net investment income 344,711 14,015 290,784 2,006,004 53,396 55,901
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . (979,002) (9,919) 75,149 1,907,809 191,495 80,782
Net unrealized
appreciation
(depreciation)
during the period . 325,684 (523,693) (18,626) 3,818,953 1,108,416 (260,664)
--------- --------- -------- ---------- ---------- ---------
Net realized and
unrealized gain
(loss) on investments (653,318) (533,612) 56,523 5,726,762 1,299,911 (179,882)
--------- --------- -------- ---------- ---------- ---------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $(308,607) $(519,597) $347,307 $7,732,766 $1,353,307 $(123,981)
========= ========= ======== ========== ========== =========
</TABLE>
See accompanying notes.
70
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY INDEX SUBACCOUNT GLOBAL BOND SUBACCOUNT
----------------------------------- --------------------------------
1999 1998 1997 1999 1998 1997
----------- ---------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 5,839,023 $1,337,750 $ 409,920 $ 460,088 $303,545 $ 74,850
M Fund Inc. . . . . -- -- -- -- -- --
----------- ---------- ---------- ----------- -------- --------
Total investment
income . . . . . . . 5,839,023 1,337,750 409,920 460,088 303,545 74,850
Expenses:
Mortality and expense
risks . . . . . . . 335,573 126,021 31,223 35,321 19,894 3,820
----------- ---------- ---------- ----------- -------- --------
Net investment income 5,503,450 1,211,729 378,697 424,767 283,651 71,030
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 7,681,081 691,270 901,978 (204,675) 81,659 8,335
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . 4,678,509 6,098,919 392,256 (433,526) 43,608 (11,727)
----------- ---------- ---------- ----------- -------- --------
Net realized and
unrealized gain
(loss) on investments 12,359,590 6,790,189 1,294,234 (638,201) 125,267 (3,392)
----------- ---------- ---------- ----------- -------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $17,863,040 $8,001,918 $1,672,931 $ (213,434) $408,918 $ 67,638
=========== ========== ========== =========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
BRANDES INTERNATIONAL
TURNER CORE GROWTH SUBACCOUNT EQUITY SUBACCOUNT
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
---------- -------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series
Trust I . . . . . . $1,349,358 $ -- $ -- $ 549,978 $ -- $ --
M Fund Inc. . . . . -- 84,940 91,360 -- 358,080 32,677
---------- -------- -------- ---------- -------- --------
Total investment
income . . . . . . . 1,349,358 84,940 91,360 549,978 358,080 32,677
Expenses:
Mortality and expense
risks . . . . . . . 33,920 7,737 4,071 34,297 14,434 7,502
---------- -------- -------- ---------- -------- --------
Net investment income 1,315,438 77,203 87,289 515,681 343,646 25,175
Net realized and
unrealized gain
(loss) on
investments: . . . .
Net realized gains . 1,038,462 156,278 76,711 507,727 89,337 12,541
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . 1,626,646 562,620 32,626 3,486,097 91,915 (26,022)
---------- -------- -------- ---------- -------- --------
Net realized and
unrealized gain
(loss) on investments 2,665,108 718,898 109,337 3,993,824 181,252 (13,481)
---------- -------- -------- ---------- -------- --------
Net increase in net
assets resulting from
operations . . . . . $3,980,546 $796,101 $196,626 $4,509,505 $524,898 $ 11,694
========== ======== ======== ========== ======== ========
</TABLE>
See accompanying notes.
71
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FRONTIER CAPITAL APPRECIATION
SUBACCOUNT ENHANCED U.S. EQUITY SUBACCOUNT
--------------------------------- --------------------------------
1999 1998 1997 1999 1998 1997*
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 487,465 $ -- $ -- $532,067 $ -- $ --
M Fund Inc. . . . . -- 34,738 128,190 -- 72,302 15,335
---------- --------- --------- -------- -------- -------
Total investment
income . . . . . . . 487,465 34,738 128,190 532,067 72,302 15,335
Expenses:
Mortality and expense
risks . . . . . . . 37,471 24,841 10,040 13,930 4,069 478
---------- --------- --------- -------- -------- -------
Net investment income 449,994 9,897 118,150 518,137 68,233 14,857
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 624,068 (445,752) 614,358 264,436 87,723 4,177
Net unrealized
appreciation
(depreciation)
during the period . 3,431,408 432,064 (368,570) 151,562 89,677 6,844
---------- --------- --------- -------- -------- -------
Net realized and
unrealized gain
(loss) on investments 4,055,476 (13,688) 245,788 415,998 177,400 11,021
---------- --------- --------- -------- -------- -------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $4,505,470 $ (3,791) $ 363,938 $934,135 $245,633 $25,878
========== ========= ========= ======== ======== =======
</TABLE>
<TABLE>
<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 . . $ 137,724 $ 522 $ 6,063 $ 491 $ 140,772 $ 23,842
M Fund Inc. . . . . -- -- -- -- -- --
---------- -------- -------- -------- --------- --------
Total investment
income . . . . . . . 137,724 522 6,063 491 140,772 23,842
Expenses:
Mortality and expense
risks . . . . . . . 5,465 387 1,859 339 10,636 937
---------- -------- -------- -------- --------- --------
Net investment income 132,259 135 4,204 152 130,136 22,905
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 663,998 (45,975) 82,873 (21,835) (104,174) 1,002
Net unrealized
appreciation
(depreciation)
during the period . 432,248 2,289 47,295 4,812 (78,192) (10,217)
---------- -------- -------- -------- --------- --------
Net realized and
unrealized gain
(loss) on investments 1,096,246 (43,686) 130,168 (17,023) (182,366) (9,215)
---------- -------- -------- -------- --------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $1,228,505 $(43,551) $134,372 $(16,871) $ (52,230) $ 13,690
========== ======== ======== ======== ========= ========
</TABLE>
- ---------
* From July 1, 1997 (commencement of operations).
** From May 1, 1998 (commencement of operations).
72
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<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 . . . . . . . . . . . $ 54,784 $ -- $ 352,641 $ 88,721
M Fund Inc. . . . . . . . . . . -- -- -- --
-------- -------- --------- --------
Total investment income . . . . 54,784 -- 352,641 88,721
Expenses:
Mortality and expense risks . . 2,073 535 12,206 1,962
-------- -------- --------- --------
Net investment income (loss) . . 52,711 (535) 340,435 86,759
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses) . . 65,733 (25,196) 42,365 64,824
Net unrealized appreciation
(depreciation) during the
period . . . . . . . . . . . . (10,735) 18,718 (139,659) 149,416
-------- -------- --------- --------
Net realized and unrealized gain
(loss) on investments . . . . . 54,998 (6,478) (97,294) 214,240
-------- -------- --------- --------
Net increase (decrease) in net
assets resulting from operations $107,709 $ (7,013) $ 243,141 $300,999
======== ======== ========= ========
</TABLE>
- ---------
** From May 1, 1998 (commencement of operations).
See accompanying notes.
73
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
LARGE CAP GROWTH SUBACCOUNT SOVEREIGN BOND SUBACCOUNT
------------------------------------------ -----------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income . . . . . . . . $ 17,233,439 $ 6,143,421 $ 2,793,242 $ 2,725,206 $ 2,097,345 $ 816,558
Net realized gains (losses) . . . . . 5,003,007 1,750,881 619,721 (1,391,910) 185,230 80,538
Net unrealized appreciation
(depreciation) during the period . . (2,053,672) 8,041,022 2,301,920 (1,837,190) (378,058) 63,687
------------ ------------ ------------ ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . 20,182,774 15,935,324 5,714,883 (503,894) 1,904,517 960,783
From policyholder transactions:
Net premiums from policyholders . . . 75,667,981 29,859,648 20,264,849 74,595,720 38,567,292 21,324,560
Net benefits to policyholders . . . . (45,347,424) (13,281,028) (10,390,849) (68,312,320) (27,391,317) (8,009,615)
------------ ------------ ------------ ------------ ------------ -----------
Net increase in net assets resulting
from policyholder
transactions . . . . . . . . . . . . . 30,320,557 16,578,620 9,874,000 6,283,400 11,175,975 13,314,945
------------ ------------ ------------ ------------ ------------ -----------
Net increase in net assets . . . . . . 50,503,331 32,513,944 15,588,883 5,779,506 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 . . . . . . $115,521,551 $ 65,018,220 $ 32,504,276 $ 38,321,473 $ 32,541,967 $19,461,475
============ ============ ============ ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY SMALL CAP
INDEX SUBACCOUNT GROWTH SUBACCOUNT
---------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) . . . . . . $ 855,417 $ 1,885,059 $ 389,020 $ 3,637,734 $ (22,593) $ (6,074)
Net realized gains . . . . . . . . . . . 753,750 152,030 244,810 2,548,944 58,729 21,707
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . 4,871,167 78,480 (1,219,540) 3,920,455 1,070,805 126,699
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . 6,480,334 2,115,569 (585,710) 10,107,133 1,106,941 142,332
From policyholder transactions:
Net premiums from policyholders . . . . . 53,332,374 10,034,119 8,150,400 52,637,861 12,088,047 2,870,481
Net benefits to policyholders . . . . . . (39,209,664) (8,344,107) (4,505,840) (40,800,272) (6,621,834) (1,005,386)
------------ ----------- ----------- ------------ ----------- -----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . 14,122,710 1,690,012 3,644,560 11,837,589 5,466,213 1,865,095
------------ ----------- ----------- ------------ ----------- -----------
Net increase in net assets . . . . . . . . 20,603,044 3,805,581 3,058,850 21,944,722 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 . . . . . . . $ 33,198,674 $12,595,630 $ 8,790,049 $ 31,022,828 $ 9,078,106 $ 2,504,952
============ =========== =========== ============ =========== ===========
</TABLE>
See accompanying notes.
74
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED
SUBACCOUNT MID CAP GROWTH SUBACCOUNT
-------------------------------------- ---------------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------ ----------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) . . . . . $ 358,974 $ 176,073 $ 56,806 $ 6,389,535 $ 1,088,251 $ (8,287)
Net realized gains . . . . . . . . . . 15,640 24,206 8,667 5,188,018 599,619 1,235
Net unrealized appreciation
(depreciation) during the period . . (173,912) 147,461 (67,714) 15,078,681 1,184,263 486,186
----------- ----------- ---------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations . . . . . . 200,702 347,740 (2,241) 26,656,234 2,872,133 479,134
From policyholder transactions:
Net premiums from policyholders . . . 6,295,052 3,163,316 1,608,069 65,183,285 11,323,614 3,212,754
Net benefits to policyholders . . . . (5,007,225) (1,882,974) (282,878) (41,018,347) (5,132,055) (915,459)
----------- ----------- ---------- ------------- ------------- -------------
Net increase in net assets resulting
from policyholder transactions . . . . 1,287,827 1,280,342 1,325,191 24,164,938 6,191,559 2,297,295
----------- ----------- ---------- ------------- ------------- -------------
Net increase in net assets . . . . . . 1,488,529 1,628,082 1,322,950 50,821,172 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 . . . . . . $ 4,591,856 $ 3,103,327 $1,475,245 $ 63,499,616 $ 12,678,444 $ 3,614,752
=========== =========== ========== ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
LARGE CAP VALUE SUBACCOUNT MONEY MARKET SUBACCOUNT
---------------------------------------- ---------------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income . . . . . . . $ 1,720,195 $ 756,459 $ 183,036 $ 2,988,530 $ 1,687,016 $ 691,552
Net realized gains . . . . . . . . . 705,454 330,827 164,821 -- -- --
Net unrealized appreciation
(depreciation) during the period . (2,181,112) 145,355 279,449 -- -- --
------------ ----------- ----------- ------------- ------------- -------------
Net increase in net assets resulting
from operations . . . . . . . . . . 244,537 1,232,641 627,306 2,988,530 1,687,016 691,552
From policyholder transactions:
Net premiums from policyholders . . 37,432,039 15,144,316 5,421,062 890,376,545 340,377,358 103,737,470
Net benefits to policyholders . . . (27,199,179) (4,937,583) (1,620,578) (918,869,964) (269,723,839) (100,296,756)
------------ ----------- ----------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from policyholder
transactions . . . . . . . . . . . . 10,232,860 10,206,733 3,800,484 (28,493,419) 70,653,519 3,440,714
------------ ----------- ----------- ------------- ------------- -------------
Net increase (decrease) in net assets 10,477,397 11,439,374 4,427,790 (25,504,889) 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 . . . . . $ 27,106,917 $16,629,520 $ 5,190,146 $ 61,006,769 $ 86,511,658 $ 14,171,123
============ =========== =========== ============= ============= =============
</TABLE>
See accompanying notes.
75
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SMALL/MID CAP
MID CAP VALUE SUBACCOUNT GROWTH SUBACCOUNT
---------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income . . . . . . . . . . $ 41,579 $ 75,449 $ 434,660 $ 1,388,661 $ 108,037 $ 842,666
Net realized gains (losses) . . . . . . . (860,332) (538,516) 101,787 13,375 232,246 297,666
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . 1,757,919 (830,390) (39,717) (1,001,208) 236,333 (730,748)
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from
operations . . . . . . . . . . . . . . . 939,166 (1,293,457) 496,730 400,828 576,616 409,584
From policyholder transactions:
Net premiums from policyholders . . . . . 32,024,751 18,837,112 6,323,061 11,809,133 4,563,154 8,511,081
Net benefits to policyholders . . . . . . (29,579,995) (7,855,945) (1,089,206) (9,775,543) (6,481,542) (6,274,668)
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from policyholder transactions 2,444,756 10,981,167 5,233,855 2,033,590 (1,918,388) 2,236,413
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets . . 3,383,922 9,687,710 5,730,585 2,434,418 (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 . . . . . . . $ 19,138,533 $15,754,611 $ 6,066,901 $ 9,925,831 $ 7,491,413 $ 8,833,185
============ =========== =========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE EQUITY SUBACCOUNT GROWTH & INCOME SUBACCOUNT
---------------------------------------- -------------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income . . . . . . . . $ 515,377 $ 283,067 $ 232,798 $ 22,850,302 $ 8,975,814 $ 5,747,928
Net realized gains (losses) . . . . . (735,504) (454,979) 252,095 6,207,253 2,061,212 2,390,414
Net unrealized appreciation
(depreciation) during the period . . 80,925 (698,676) (13,488) (5,814,839) 7,759,307 435,778
------------ ----------- ----------- ------------- ------------ ------------
Net increase (decrease) in net assets
resulting from
operations . . . . . . . . . . . . . . (139,202) (870,588) 471,405 23,242,716 18,796,333 8,574,120
From policyholder transactions:
Net premiums from policyholders . . . 22,699,314 6,964,604 4,833,914 196,639,863 60,975,616 35,535,599
Net benefits to policyholders . . . . (18,093,640) (5,513,221) (2,393,463) (106,763,955) (31,360,866) (21,776,809)
------------ ----------- ----------- ------------- ------------ ------------
Net increase in net assets resulting
from policyholder
transactions . . . . . . . . . . . . . 4,605,674 1,451,383 2,440,451 89,875,908 29,614,750 13,758,790
------------ ----------- ----------- ------------- ------------ ------------
Net increase in net assets . . . . . . 4,466,472 580,795 2,911,856 113,118,624 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 . . . . . . $ 9,238,646 $ 4,772,174 $ 4,191,379 $ 209,525,899 $ 96,407,275 $ 47,996,192
============ =========== =========== ============= ============ ============
</TABLE>
See accompanying notes.
76
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SHORT-TERM BOND
MANAGED 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 . . . . . . . . . $ 10,756,436 $ 3,484,281 $ 1,814,571 $ 907,486 $ 926,217 $ 394,991
Net realized gains (losses) . . . . . . 2,233,258 278,186 171,318 (441,667) 24,740 35,294
Net unrealized appreciation
(depreciation) during the period . . . (6,419,069) 1,791,231 715,231 (85,754) (136,999) (25,976)
------------ ----------- ----------- ------------ ------------ -----------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . 6,570,625 5,553,698 2,701,120 380,065 813,958 404,309
From policyholder transactions:
Net premiums from policyholders . . . . 113,292,872 21,019,273 16,914,475 41,259,110 27,490,588 12,911,228
Net benefits to policyholders . . . . . (34,219,380) (8,281,600) (9,357,535) (49,156,693) (21,534,195) (4,234,624)
------------ ----------- ----------- ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from policyholder transactions 79,073,492 12,737,673 7,556,940 (7,897,583) 5,956,393 8,676,604
------------ ----------- ----------- ------------ ------------ -----------
Net increase (decrease) in net assets . . 85,644,117 18,291,371 10,258,060 (7,517,518) 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 . . . . . . . $125,710,809 $40,066,692 $21,775,321 $ 11,728,988 $ 19,246,506 $12,476,155
============ =========== =========== ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL OPPORTUNITIES
SMALL CAP VALUE 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 . . . . . . . . . . $ 344,711 $ 14,015 $ 290,784 $ 2,006,004 $ 53,396 $ 55,901
Net realized gains (losses) . . . . . . . (979,002) (9,919) 75,149 1,907,809 191,495 80,782
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . 325,684 (523,693) (18,626) 3,818,953 1,108,416 (260,664)
------------ ----------- ---------- ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . (308,607) (519,597) 347,307 7,732,766 1,353,307 (123,981)
From policyholder transactions:
Net premiums from policyholders . . . . . 39,172,672 11,420,833 4,182,527 43,216,216 23,844,756 8,906,153
Net benefits to policyholders . . . . . . (30,591,417) (4,363,378) (897,951) (38,372,463) (12,275,087) (3,655,731)
------------ ----------- ---------- ------------ ------------ -----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . 8,581,255 7,057,455 3,284,576 4,843,753 11,569,669 5,250,422
------------ ----------- ---------- ------------ ------------ -----------
Net increase in net assets . . . . . . . . 8,272,648 6,537,858 3,631,883 12,576,519 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 . . . . . . . $ 18,783,396 $10,510,748 $3,972,890 $ 31,535,049 $ 18,958,530 $ 6,035,554
============ =========== ========== ============ ============ ===========
</TABLE>
See accompanying notes.
77
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY INDEX SUBACCOUNT
-----------------------------------------------------
1999 1998 1997
------------------------- ------------- ------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 5,503,450 $ 1,211,729 $ 378,697
Net realized gains
(losses). . . . . . 7,681,081 691,270 901,978
Net unrealized
appreciation
(depreciation)
during the period . 4,678,509 6,098,919 392,256
------------------------ ------------ -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 17,863,040 8,001,918 1,672,931
From policyholder
transactions:
Net premiums from
policyholders . . . 225,994,914 60,690,933 23,412,687
Net benefits to
policyholders . . . (147,909,470) (31,166,123) (9,622,006)
------------------------ ------------ -----------
Net increase in net
assets resulting from
policyholder
transactions . . . . 78,085,444 29,524,810 13,790,681
------------------------ ------------ -----------
Net increase in net
assets . . . . . . . 95,948,484 37,526,728 15,463,612
Net assets at
beginning of period 53,964,647 16,437,919 974,307
------------------------ ------------ -----------
Net assets at end of
period . . . . . . . $ 149,913,131 $ 53,964,647 $16,437,919
======================== ============ ===========
<CAPTION>
GLOBAL BOND SUBACCOUNT
--------------------------------------------------
1999 1998 1997
------------------------ ------------ -------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 424,767 $ 283,651 $ 71,030
Net realized gains (204,675) 81,659 8,335
(losses). . . . . .
Net unrealized
appreciation (433,526) 43,608 (11,727)
(depreciation) ----------------------- ----------- ----------
during the period .
Net increase (213,434) 408,918 67,638
(decrease) in net
assets resulting from
operations . . . . .
From policyholder
transactions:
Net premiums from 11,387,398 9,258,713 1,828,179
policyholders . . .
Net benefits to
policyholders . . . (10,615,019) (3,008,341) (534,164)
----------------------- ----------- ----------
Net increase in net
assets resulting from 772,379 6,250,372 1,294,015
policyholder ----------------------- ----------- ----------
transactions . . . .
Net increase in net 558,945 6,659,290 1,361,653
assets . . . . . . .
Net assets at
beginning of period 8,279,571 1,620,281 258,628
----------------------- ----------- ----------
Net assets at end of
period . . . . . . . $ 8,838,516 $ 8,279,571 $1,620,281
======================= =========== ==========
</TABLE>
<TABLE>
<CAPTION>
BRANDES INTERNATIONAL
TURNER CORE GROWTH 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 . . . . . . . . . . . $ 1,315,438 $ 77,203 $ 87,289 $ 515,681 $ 343,646 $ 25,175
Net realized gains . . . . . . . . . . . . . 1,038,462 156,278 76,711 507,727 89,337 12,541
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . . 1,626,646 562,620 32,626 3,486,097 91,915 (26,022)
----------- ----------- ---------- ----------- ------------ -----------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . . 3,980,546 796,101 196,626 4,509,505 524,898 11,694
From policyholder transactions:
Net premiums from policyholders . . . . . . 23,098,524 4,779,974 743,622 12,134,533 5,520,633 2,484,010
Net benefits to policyholders . . . . . . . (9,308,254) (1,690,860) (580,027) (5,569,496) (2,041,375) (1,088,249)
----------- ----------- ---------- ----------- ------------ -----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . . 13,790,270 3,089,114 163,595 6,565,037 3,479,258 1,395,761
----------- ----------- ---------- ----------- ------------ -----------
Net increase in net assets . . . . . . . . . 17,770,816 3,885,215 360,221 11,074,542 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 . . . . . . . . . $22,671,005 $ 4,900,189 $1,014,974 $17,415,296 $ 6,340,754 $ 2,336,598
=========== =========== ========== =========== ============ ===========
</TABLE>
See accompanying notes.
78
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FRONTIER CAPITAL APPRECIATION
SUBACCOUNT
--------------------------------------------------------------------
1999 1998 1997
----------------------------------------- ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 449,994 $ 9,897 $ 118,150
Net realized gains
(losses). . . . . . 624,068 (445,752) 614,358
Net unrealized
appreciation
(depreciation)
during the period . 3,431,408 432,064 (368,570)
---------------------------------------- ----------- -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 4,505,470 (3,791) 363,938
From policyholder
transactions:
Net premiums from
policyholders . . . 25,135,447 13,982,031 10,030,418
Net benefits to
policyholders . . . (22,331,613) (9,695,520) (5,969,436)
---------------------------------------- ----------- -----------
Net increase in net
assets resulting from
policyholder
transactions . . . . 2,803,834 4,286,511 4,060,982
---------------------------------------- ----------- -----------
Net increase in net
assets . . . . . . . 7,309,304 4,282,720 4,424,920
Net assets at
beginning of period 9,675,718 5,392,998 968,078
---------------------------------------- ----------- -----------
Net assets at end of
period . . . . . . . $ 16,985,022 $ 9,675,718 $ 5,392,998
======================================== =========== ===========
<CAPTION>
ENHANCED U.S.
EQUITY SUBACCOUNT
---------------------------------------------------------
1999 1998 1997*
-------------------------------- ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 518,137 $ 68,233 $ 14,857
Net realized gains 264,436 87,723 4,177
(losses). . . . . .
Net unrealized
appreciation 151,562 89,677 6,844
(depreciation) ------------------------------- ----------- ---------
during the period .
Net increase 934,135 245,633 25,878
(decrease) in net
assets resulting from
operations . . . . .
From policyholder
transactions:
Net premiums from 6,480,741 3,031,309 475,503
policyholders . . .
Net benefits to
policyholders . . . (3,151,279) (1,299,530) (4,176)
------------------------------- ----------- ---------
Net increase in net
assets resulting from 3,329,462 1,731,779 471,327
policyholder ------------------------------- ----------- ---------
transactions . . . .
Net increase in net 4,263,597 1,977,412 497,205
assets . . . . . . .
Net assets at
beginning of period 2,474,617 497,205 0
------------------------------- ----------- ---------
Net assets at end of
period . . . . . . . $ 6,738,214 $ 2,474,617 $ 497,205
=============================== =========== =========
</TABLE>
<TABLE>
<CAPTION>
EMERGING MARKETS GLOBAL EQUITY BOND INDEX
EQUITY 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 . . . . . . . . . . . $ 132,259 $ 135 $ 4,204 $ 152 $ 130,136 $ 22,905
Net realized gains (losses) . . . . . . . . 663,998 (45,975) 82,873 (21,835) (104,174) 1,002
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . 432,248 2,289 47,295 4,812 (78,192) (10,217)
------------ ----------- ----------- ----------- ----------- ----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . 1,228,505 (43,551) 134,372 (16,871) (52,230) 13,690
From policyholder transactions:
Net premiums from policyholders . . . . . . 18,579,194 2,434,226 3,151,983 2,372,034 6,471,518 1,176,234
Net benefits to policyholders . . . . . . . (16,271,324) (2,203,670) (2,613,505) (2,191,135) (2,358,694) (124,467)
------------ ----------- ----------- ----------- ----------- ----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . . 2,307,870 230,556 538,478 180,899 4,112,824 1,051,767
------------ ----------- ----------- ----------- ----------- ----------
Net increase in net assets . . . . . . . . . 3,536,375 187,005 672,850 164,028 4,060,594 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 . . . . . . . . $ 3,723,380 $ 187,005 $ 836,878 $ 164,028 $ 5,126,051 $1,065,457
============ =========== =========== =========== =========== ==========
</TABLE>
- ---------
* From July 1, 1997 (commencement of operations).
** From May 1, 1998 (commencement of operations).
See accompanying notes.
79
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SMALL/MID CAP CORE HIGH YIELD BOND
SUBACCOUNT SUBACCOUNT
------------------------ ----------------------------------------
1999 1998** 1999 1998**
------------ ----------- --------------------------- --------------
<S> <C> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income
(loss). . . . . . . $ 52,711 $ (535) $ 340,435 $ 86,759
Net realized gains
(losses). . . . . . 65,733 (25,196) 42,365 64,824
Net unrealized
appreciation
(depreciation)
during the period . (10,735) 18,718 (139,659) 149,416
----------- ---------- -------------------------- -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 107,709 (7,013) 243,141 300,999
From policyholder
transactions:
Net premiums from
policyholders . . . 5,817,483 1,089,030 19,870,990 6,683,673
Net benefits to
policyholders . . . (5,611,532) (778,864) (20,368,501) (2,457,088)
----------- ---------- -------------------------- -----------
Net increase
(decrease) in net
assets resulting from
policyholder
transactions . . . . 205,951 310,166 (497,511) 4,226,585
----------- ---------- -------------------------- -----------
Net increase
(decrease) in net
assets . . . . . . . 313,660 303,153 (254,370) 4,527,584
Net assets at
beginning of period 303,153 0 4,527,584 0
----------- ---------- -------------------------- -----------
Net assets at end of
period . . . . . . . $ 616,813 $ 303,153 $ 4,273,214 $ 4,527,584
=========== ========== ========================== ===========
</TABLE>
- ---------
** From May 1, 1998 (commencement of operations).
See accompanying notes.
80
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 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, Small Cap
Growth, International Balanced, Mid Cap Growth, Large Cap Value, Money Market,
Mid Cap Value, Small/Mid Cap Growth (formerly, Diversified Mid Cap Growth), Real
Estate Equity, Growth & Income, Managed, Short-Term Bond, Small Cap Value,
International Opportunities, Equity Index, Global Bond (formerly, Strategic
Bond), Turner Core Growth, Brandes International Equity, Frontier Capital
Appreciation, 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.
81
<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, 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.
82
<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, 1999 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO SHARES OWNED COST VALUE
--------- ------------ ------------ --------------
<S> <C> <C> <C>
Large Cap Growth . . . . . . 4,226,550 $108,181,136 $115,521,551
Sovereign Bond . . . . . . . 4,200,440 40,512,273 38,321,473
International Equity Index . 1,689,937 29,224,059 33,198,674
Small Cap Growth . . . . . . 1,622,919 25,907,535 31,022,828
International Balanced . . . 428,930 4,680,715 4,591,856
Mid Cap Growth . . . . . . . 2,172,468 46,744,046 63,499,616
Large Cap Value . . . . . . . 2,009,306 28,839,671 27,106,917
Money Market . . . . . . . . 6,100,677 61,006,768 61,006,769
Mid Cap Value . . . . . . . . 1,497,913 18,236,811 19,138,533
Small/Mid Cap Growth . . . . 707,222 10,888,164 9,925,831
Real Estate Equity . . . . . 805,182 9,643,804 9,238,646
Growth & Income . . . . . . . 10,470,370 207,387,033 209,525,899
Managed . . . . . . . . . . . 8,137,552 130,087,567 125,710,809
Short-Term Bond . . . . . . . 1,206,452 11,963,663 11,728,988
Small Cap Value . . . . . . . 1,720,546 18,985,985 18,783,396
International Opportunities . 2,078,452 26,831,679 31,535,049
Equity Index . . . . . . . . 7,327,855 138,687,664 149,913,131
Global Bond . . . . . . . . . 900,154 9,240,752 8,838,516
Turner Core Growth . . . . . 988,705 20,433,059 22,671,005
Brandes International Equity 1,122,129 13,875,593 17,415,296
Frontier Capital Appreciation 804,225 13,485,020 16,985,022
Enhanced U.S. Equity . . . . 321,327 6,490,133 6,738,214
Emerging Markets Equity . . . 303,646 3,288,843 3,723,380
Global Equity . . . . . . . . 68,965 784,773 836,878
Bond Index . . . . . . . . . 550,115 5,214,459 5,126,051
Small/Mid Cap CORE . . . . . 62,841 608,830 616,813
High Yield Bond . . . . . . . 475,514 4,263,457 4,273,214
</TABLE>
83
<PAGE>
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 during 1999 were as
follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
--------- ------------ --------------
<S> <C> <C>
Large Cap Growth . . . . . . . . . $ 62,265,535 $ 14,711,539
Sovereign Bond . . . . . . . . . . 38,288,617 29,280,010
International Equity Index . . . . 32,519,440 17,541,313
Small Cap Growth . . . . . . . . . 27,757,302 12,281,978
International Balanced . . . . . . 3,415,587 1,768,784
Mid Cap Growth . . . . . . . . . . 45,338,211 14,783,738
Large Cap Value . . . . . . . . . . 22,257,609 10,304,554
Money Market . . . . . . . . . . . 304,141,849 329,646,739
Mid Cap Value . . . . . . . . . . . 15,413,952 12,927,617
Small/Mid Cap Growth . . . . . . . 8,759,614 5,337,363
Real Estate Equity . . . . . . . . 13,375,520 8,254,469
Growth & Income . . . . . . . . . . 144,949,345 32,223,136
Managed . . . . . . . . . . . . . . 111,633,323 21,803,394
Short-Term Bond . . . . . . . . . . 17,352,671 24,342,768
Small Cap Value . . . . . . . . . . 16,062,747 7,136,780
International Opportunities . . . . 24,767,973 17,918,215
Equity Index . . . . . . . . . . . 124,086,502 40,497,607
Global Bond . . . . . . . . . . . . 10,322,531 9,125,384
Turner Core Growth . . . . . . . . 20,980,047 5,874,338
Brandes International Equity . . . 10,664,333 3,583,615
Frontier Capital Appreciation . . . 13,387,462 10,133,633
Enhanced U.S. Equity . . . . . . . 5,925,334 2,077,734
Emerging Markets Equity . . . . . . 9,682,573 7,242,444
Global Equity . . . . . . . . . . . 2,167,637 1,624,954
Bond Index . . . . . . . . . . . . 5,900,997 1,658,038
Small/Mid Cap CORE . . . . . . . . 3,312,578 3,053,916
High Yield Bond . . . . . . . . . . 11,898,171 12,055,248
</TABLE>
84
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. NET ASSETS
Accumulation shares attributable to net assets of policyholders and
accumulation share values for each subaccount at December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
VEP CLASS #1 VEP CLASS #2 VEP CLASS #3
-------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . . 432,627 $34.19 442,008 $34.29 156,934 $34.39
Sovereign Bond . . . . . . . 226,496 13.80 170,995 13.84 28,389 13.88
International Equity Index . 205,346 17.52 163,712 17.58 4,631 17.63
Small Cap Growth . . . . . . 151,029 21.68 131,551 21.71 42,832 21.76
International Balanced . . . 21,487 13.28 25,817 13.30 12,453 13.33
Mid Cap Growth . . . . . . . 202,405 35.56 145,034 35.62 45,513 35.69
Large Cap Value . . . . . . . 191,629 16.15 140,376 16.18 4,476 16.21
Money Market . . . . . . . . 613,611 13.08 1,102,161 13.12 347,735 13.15
Mid Cap Value . . . . . . . . 106,938 14.05 45,955 14.08 2,990 14.10
Small/Mid Cap Growth . . . . 83,852 19.77 90,674 19.83 41,701 19.88
Real Estate Equity . . . . . 94,768 14.40 68,355 14.44 2,732 14.49
Growth & Income . . . . . . . 945,411 30.90 579,234 31.00 212,540 31.09
Managed . . . . . . . . . . . 554,374 20.88 279,936 20.94 23,988 21.00
Short-Term Bond . . . . . . . 94,078 12.97 84,892 13.00 7,712 13.04
Small Cap Value . . . . . . . 114,641 12.30 82,461 12.33 55,278 12.35
International Opportunities . 115,902 16.52 159,219 16.55 2,521 16.58
Equity Index . . . . . . . . 442,683 23.06 565,394 23.10 189,577 23.14
Global Bond . . . . . . . . . 55,090 12.15 48,036 12.17 16,751 12.19
Turner Core Growth . . . . . 31,697 28.29 15,337 28.36 -- --
Brandes International Equity 18,319 16.91 33,342 16.94 -- --
Frontier Capital Appreciation 20,409 22.75 13,182 22.80 -- --
Enhanced U.S. Equity . . . . 3,102 17.47 -- 17.50 -- --
Emerging Markets Equity . . . 31,332 12.77 114,481 12.78 4,803 12.79
Global Equity . . . . . . . . 11,223 12.22 15,873 12.23 777 12.24
Bond Index . . . . . . . . . 99,617 10.34 99,264 10.34 64,039 10.35
Small/Mid Cap CORE . . . . . 12,833 10.76 3,271 10.77 4,416 10.78
High Yield Bond . . . . . . . 51,021 10.09 40,169 10.10 -- --
</TABLE>
85
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
V COLI CLASS #4 V COLI CLASS #5 V COLI CLASS #6
-------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ------------ ------------ ------------ ------------ ------------ --------------
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . . 646,018 $34.50 282,553 $34.49 252,596 $34.52
Sovereign Bond . . . . . . . 17,426 14.64 538,047 14.66 335,449 14.67
International Equity Index . 63,956 16.24 130,903 16.26 235,165 16.28
Small Cap Growth . . . . . . 90,088 22.04 39,929 22.05 38,804 22.07
International Balanced . . . 68,220 13.50 6,065 13.51 54,964 13.52
Mid Cap Growth . . . . . . . 146,264 36.15 124,116 36.18 5,992 36.19
Large Cap Value . . . . . . . 151,753 16.42 133,066 16.43 416,273 16.44
Money Market . . . . . . . . 218,714 13.01 5,906 13.02 136,140 13.04
Mid Cap Value . . . . . . . . 69,726 14.29 24,485 14.30 281,375 14.30
Small/Mid Cap Growth . . . . 27,983 19.77 958 19.79 42,902 19.81
Real Estate Equity . . . . . 58,475 14.92 4,323 14.93 203,728 14.95
Growth & Income . . . . . . . 641,268 30.84 447,326 30.87 16,723 30.91
Managed . . . . . . . . . . . 162,478 21.64 83,071 21.66 150,514 21.68
Short-Term Bond . . . . . . . 99,163 13.21 351,710 13.22 -- --
Small Cap Value . . . . . . . 32,245 12.51 49,419 12.52 281,896 12.53
International Opportunities . 203,225 16.80 157,727 16.80 74,340 16.81
Equity Index . . . . . . . . 324,024 23.44 37,253 23.46 533,298 23.47
Global Bond . . . . . . . . . 54,500 12.35 9,809 12.36 -- --
Turner Core Growth . . . . . 7,772 28.80 12,496 28.83 -- --
Brandes International Equity 104,626 17.21 81,372 17.23 42,458 17.25
Frontier Capital Appreciation 74,553 23.16 62,806 23.18 -- --
Enhanced U.S. Equity . . . . 13,962 17.68 1 17.68 -- --
Emerging Markets Equity . . . -- -- 24,692 12.87 -- --
Global Equity . . . . . . . . -- -- -- 12.32 -- --
Bond Index . . . . . . . . . 2,519 10.42 10,132 10.42 -- --
Small/Mid Cap CORE . . . . . -- -- -- 10.84 -- --
High Yield Bond . . . . . . . 1,998 10.18 310 10.18 85,180 10.18
</TABLE>
86
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MEDALLION EXECUTIVE VLI CLASS #7 MVEP CLASS #8 MVUL CLASS #9
--------------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ---------------- ---------------- ------------ ------------ ------------ --------------
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . 92,840 $79.68 781,223 $24.82 213,207 $22.10
Sovereign Bond . . . . . . 57,389 23.69 765,173 12.44 500,049 11.71
International Equity Index 113,572 27.55 780,218 15.05 200,089 15.54
Small Cap Growth . . . . . 193,672 21.70 298,417 21.90 197,401 24.61
International Balanced . . 52,288 13.29 41,158 13.41 36,634 12.85
Mid Cap Growth . . . . . . 168,579 35.59 383,762 35.92 103,210 39.83
Large Cap Value . . . . . . 269,931 16.17 125,284 16.31 115,052 13.95
Money Market . . . . . . . 280,073 18.10 339,940 11.94 435,648 11.42
Mid Cap Value . . . . . . . 412,439 14.06 242,213 14.19 70,954 12.00
Small/Mid Cap Growth . . . 3,416 19.80 257,950 12.63 33,652 12.85
Real Estate Equity . . . . 39,901 22.14 116,040 12.27 38,147 9.54
Growth & Income . . . . . . 828,857 68.13 1,383,220 21.88 552,475 19.13
Managed . . . . . . . . . . 2,321,332 39.65 236,592 16.81 102,294 15.37
Short-Term Bond . . . . . . 63,598 12.99 63,326 11.93 95,428 11.43
Small Cap Value . . . . . . 473,526 12.32 281,097 12.43 87,362 11.80
International Opportunities 559,454 16.54 227,841 16.68 335,763 15.97
Equity Index . . . . . . . 477,728 23.08 1,251,427 23.29 598,377 19.87
Global Bond . . . . . . . . 146,786 12.16 62,185 12.27 258,673 11.58
Turner Core Growth . . . . -- -- 229,705 25.66 76,087 24.67
Brandes International
Equity . . . . . . . . . . -- -- 495,542 16.53 58,572 17.67
Frontier Capital
Appreciation . . . . . . . -- -- 405,890 19.23 119,967 18.62
Enhanced U.S. Equity . . . -- -- 145,784 17.59 139,459 17.59
Emerging Markets Equity . . 45,954 12.77 18,062 12.82 40,257 12.82
Global Equity . . . . . . . 2,967 12.23 4,588 12.28 29,228 12.28
Bond Index . . . . . . . . 18,855 10.34 12,439 10.38 185 10.38
Small/Mid Cap CORE . . . . -- -- 16,742 10.81 477 10.81
High Yield Bond . . . . . . 34,470 10.10 82,547 10.14 72,026 10.14
</TABLE>
87
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MVUL 98 CLASS #10 MVEP 98 CLASS #11 MEVL II CLASS #12
-------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ------------ ------------ ------------ ------------ ------------ --------------
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . . 221,057 $22.10 133,186 $24.82 -- --
Sovereign Bond . . . . . . . 122,492 11.71 96,742 12.44 -- --
International Equity Index . 40,197 15.54 68,833 15.05 -- --
Small Cap Growth . . . . . . 158,068 24.61 34,357 21.90 -- --
International Balanced . . . 22,819 12.85 3,040 13.41 -- --
Mid Cap Growth . . . . . . . 291,628 39.83 111,636 35.92 -- --
Large Cap Value . . . . . . . 66,485 13.95 73,993 16.31 -- --
Money Market . . . . . . . . 575,670 11.42 718,107 11.94 -- --
Mid Cap Value . . . . . . . . 62,352 11.99 52,021 14.19 -- --
Small/Mid Cap Growth . . . . 15,710 12.85 20,460 12.63 -- --
Real Estate Equity . . . . . 10,691 9.54 7,405 12.27 -- --
Growth & Income . . . . . . . 1,047,922 19.13 196,321 21.88 -- --
Managed . . . . . . . . . . . 55,779 15.37 43,618 16.81 -- --
Short-Term Bond . . . . . . . 26,887 11.43 31,697 11.93 -- --
Small Cap Value . . . . . . . 22,247 11.80 40,374 12.43 -- --
International Opportunities . 39,238 15.97 35,379 16.68 -- --
Equity Index . . . . . . . . 1,960,860 19.87 440,030 23.29 -- --
Global Bond . . . . . . . . . 35,346 11.58 51,458 12.27 -- --
Turner Core Growth . . . . . 377,311 24.67 142,883 25.66 -- --
Brandes International Equity 82,135 17.67 116,504 16.53 -- --
Frontier Capital Appreciation 90,807 18.62 69,320 20.00 -- --
Enhanced U.S. Equity . . . . 48,887 17.59 30,852 17.59 -- --
Emerging Markets Equity . . . 7,584 12.82 3,832 12.82 -- --
Global Equity . . . . . . . . 1,070 12.28 2,561 12.28 -- --
Bond Index . . . . . . . . . 137,733 10.38 46,924 10.38 -- --
Small/Mid Cap CORE . . . . . 10,536 10.81 8,881 10.81 -- --
High Yield Bond . . . . . . . 15,036 10.14 38,875 10.14 -- --
</TABLE>
88
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
VEP CLASS #13
--------------------------
ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES
--------- ------------ --------------
----------------------------
<S> <C> <C>
Large Cap Growth . . . . . . -- --
Sovereign Bond . . . . . . . -- --
International Equity Index . -- --
Small Cap Growth . . . . . . -- --
International Balanced . . . -- --
Mid Cap Growth . . . . . . . -- --
Large Cap Value . . . . . . . -- --
Money Market . . . . . . . . -- --
Mid Cap Value . . . . . . . . -- --
Small/Mid Cap Growth . . . . -- --
Real Estate Equity . . . . . -- --
Growth & Income . . . . . . . -- --
Managed . . . . . . . . . . . -- --
Short-Term Bond . . . . . . . -- --
Small Cap Value . . . . . . . -- --
International Opportunities . -- --
Equity Index . . . . . . . . -- --
Global Bond . . . . . . . . . -- --
Turner Core Growth . . . . . -- --
Brandes International Equity -- --
Frontier Capital Appreciation -- --
Enhanced U.S. Equity . . . . -- --
Emerging Markets Equity . . . -- --
Global Equity . . . . . . . . -- --
Bond Index . . . . . . . . . -- --
Small/Mid Cap CORE . . . . . -- --
High Yield Bond . . . . . . . -- --
</TABLE>
89
<PAGE>
ALPHABETICAL INDEX OF KEY WORDS AND PHRASES
This index should help you locate more information about many of the important
concepts in this prospectus.
<TABLE>
<CAPTION>
KEY WORD OR PHRASE PAGE KEY WORD OR PHRASE PAGE
<S> <C> <C> <C> <C>
Account . . . . . . . 28 30
account value . . . . 9 10
Additional Sum Insured 15 16
annual processing date 16 16
attained age. . . . . 10 16
Basic Sum Insured . . 15 5
beneficiary . . . . . 39 14
business day. . . . . 29 11
changing Option A or B 17 18
changing the Total Sum
Insured . . . . . . 17 7
charges . . . . . . . 9 30
Code. . . . . . . . . 35 16
cost of insurance
rates. . . . . . . . 10 30
date of issue . . . . 30 5
death benefit . . . . 5 3
deductions. . . . . . 9 20
dollar cost averaging 14 7
expenses of the Trusts 11 9
fixed investment
option . . . . . . . 29 2
full surrender. . . . 14 28
fund. . . . . . . . . 2 2
grace period. . . . . 7 15
guaranteed minimum
death benefit . . . 7 28
Guaranteed Minimum
Death Benefit Premium 8 14
insurance charge. . . 10 14
insured person. . . . 5 9
investment options. . 1 35
JHVLICO . . . . . . . 28 20
lapse . . . . . . . . 7 15
loan. . . . . . . . . 15 13
loan interest . . . . 15 2
maximum premiums. . . 6 1
Minimum Initial
Premium. . . . . . . 29 28
minimum insurance
amount . . . . . . . 16 14
minimum premiums. . . 6 11
modified endowment
contract . . . . . . 36 5
</TABLE>
90
<PAGE>
PROSPECTUS DATED MAY 1, 2000
VARIABLE ESTATE PROTECTION
a flexible premium variable life survivorship insurance policy
issued by
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY ("JHVLICO")
The policy provides an investment option with fixed rates of return
declared by JHVLICO and the following variable investment options:
<TABLE>
<CAPTION>
VARIABLE INVESTMENT OPTION MANAGED BY
- -------------------------- ----------
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Managed. . . . . . . . . . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Growth & Income . . . . . Independence Investment Associates, Inc.
Fidelity VIP Contrafund(R). . . . . . . . . . . . . . . . Fidelity Management and Research Company
Equity Index . . . . . . . State Street Global Advisors
Large Cap Value . . . . . T. Rowe Price Associates, Inc.
Large Cap Growth . . . . . Independence Investment Associates, Inc.
Large Cap Aggressive Growth. . . . . . . . . . . . . . . . Alliance Capital Management L.P.
Fidelity VIP Growth. . . Fidelity Management and Research Company
AIM V.I. Value. . . . . . A I M Advisors, Inc.
Mid Cap Value . . . . . . Neuberger Berman, LLC
Fundamental Mid Cap Growth. . . . . . . . . . . . . . . . OppenheimerFunds, Inc.
Mid Cap Growth . . . . . . Janus Capital Corporation
Real Estate Equity . . . . Independence Investment Associates, Inc.
Small/Mid Cap CORE . . . . Goldman Sachs Asset Management
Small/Mid Cap Growth. . . Wellington Management Company, LLP
Small Cap Value . . . . . INVESCO Management & Research, Inc.
Small Cap Growth . . . . . . . . . . . . . . . . . . . . . John Hancock Advisers, Inc.
MFS New Discovery. . . . MFS Investment Management(R)
Global Balanced . . . . . Brinson Partners, Inc.
Templeton International Securities. . . . . . . . . . . . Templeton Investment Counsel, Inc.
International Equity Index . . . . . . . . . . . . . . . . Independence International Associates, Inc.
International Opportunities . . . . . . . . . . . . . . . . Rowe Price-Fleming International, Inc.
Morgan Stanley Dean Witter Investment
Emerging Markets Equity . . . . . . . . . . . . . . . . . Management, Inc.
Short-Term Bond . . . . . Independence Investment Associates, Inc.
Bond Index . . . . . . . . Mellon Bond Associates, LLP
Active Bond . . . . . . . . . . . . . . . . . . . . . . . John Hancock Advisers, Inc.
Global Bond . . . . . . . . . . . . . . . . . . . . . . . J.P. Morgan Investment Management, Inc.
High Yield Bond . . . . . Wellington Management Company, LLP
Money Market. . . . . . . John Hancock Life Insurance Company
Brandes International Equity. . . . . . . . . . . . . . . Brandes Investment Partners, L.P.
Turner Core Growth. . . . Turner Investment Partners, Inc.
Frontier Capital Appreciation. . . . . . . . . . . . . . . Frontier Capital Management Company, LLC
Clifton Enhanced U.S. Equity. . . . . . . . . . . . . . . The Clifton Group
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The variable investment options shown on page 1 are those available as of the
date of this prospectus. We may add, modify or delete variable investment
options in the future.
When you select one or more of these variable investment options, we invest
your money in the corresponding investment option(s) of one or more of the
following: the John Hancock Variable Series Trust I, the AIM Variable Insurance
Funds, Inc., the Templeton Variable Products Series Fund, Fidelity's Variable
Insurance Products Fund and Variable Insurance Products Fund II, the MFS
Variable Insurance Trust, and the M Fund, Inc. (together, "the Trusts"). In this
prospectus, the investment options of the Trusts are referred to as "funds".
In the prospectuses for the Trusts, the investment options may be referred to
as "funds", "portfolios" or "series".
Each Trust is a so-called "series" type mutual fund registered with the
Securities and Exchange Commission ("SEC"). The investment results of each
variable investment option you select will depend on those of the corresponding
fund of one of the Trusts. Each of the funds is separately managed and has its
own investment objective and strategies. Attached at the end of this prospectus
is a prospectus for each Trust. The Trust prospectuses contain detailed
information about each available fund. Be sure to read those prospectuses
before selecting any of the variable investment options shown on page 1.
* * * * * * * * * * * *
Please note that the SEC has not approved or disapproved these securities, or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
* * * * * * * * * * * *
JHVLICO LIFE SERVICING OFFICE
-----------------------------
Express Delivery U.S. Mail
---------------- ---------
529 Main Street (X-4) P.O. Box 111
Charlestown, MA 02129 Boston, MA 02117
Phone: 1-800-521-1234
Fax: 1-617-572-6956
2
<PAGE>
GUIDE TO THIS PROSPECTUS
This prospectus contains information that you should know before you buy a
policy or exercise any of your rights under the policy. However, please keep in
mind that this is a prospectus - - it is not the policy. The prospectus
---
simplifies many policy provisions to better communicate the policy's essential
features. Your rights and obligations under the policy will be determined by the
language of the policy itself. When you receive your policy, read it carefully.
This prospectus is arranged in the following way:
. The section which follows is called "Basic Information". It is in a
question and answer format. We suggest you read the Basic Information
section before reading any other section of the prospectus.
. Behind the Basic Information section are illustrations of
hypothetical policy benefits that help clarify how the policy works.
These start on page 22.
. Behind the illustrations is a section called "Additional Information"
that gives more details about the policy. It generally does not
---
repeat information that is in the Basic Information section. A table
of contents for the Additional Information section appears on page
27.
. Behind the Additional Information section are the financial
statements for JHVLICO and Separate Account S. These start on page
42.
. Finally, there is an Alphabetical Index of Key Words and Phrases at
the back of the prospectus on page 90.
After the Alphabetical Index of Key Words and Phrases, this prospectus ends and
the prospectuses for the Trusts begin.
* * * * * * * * * * * *
3
<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C>
Question Beginning on page
- --------
.What is the policy?. . . . . . . . . . . . . . . 5
.Who owns the policy?. . . . . . . . . . . . . . 5
.How can I invest money in the policy?. . . . . . 5
.Is there a minimum amount I must invest?. . . . 7
.How will the value of my investment in the policy change 8
over time?. . . . . . . . . . . . . . . . . . . .
.What charges will JHVLICO deduct from my investment in 9
the policy?. . . . . . . . . . . . . . . . . . .
.What charges will the Trusts deduct from my investment in 11
the policy?. . . . . . . . . . . . . . . . . . .
.What other charges could JHVLICO impose in the future? 13
.How can I change my policy's investment allocations? 13
.How can I access my investment in the policy?. . 14
.How much will JHVLICO pay when the last insured person 15
dies?. . . . . . . . . . . . . . . . . . . . . .
.How can I change my policy's insurance coverage? 17
.Can I cancel my policy after it's issued?. . . . 17
.Can I choose the form in which JHVLICO pays out policy 18
proceeds?. . . . . . . . . . . . . . . . . . . .
.To what extent can JHVLICO vary the terms and conditions
of its policies in particular cases?. . . . . . 19
.How will my policy be treated for income tax purposes? 19
.How do I communicate with JHVLICO?. . . . . . . 20
</TABLE>
4
<PAGE>
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
-----
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.
5
<PAGE>
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
35. 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 7 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 2 of this prospectus.
We will also accept premiums:
. by wire or by exchange from another insurance company,
. via an electronic funds transfer program (any owner interested in
making monthly premium payments must use this method), or
-------
. 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.
6
<PAGE>
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,
---
if the policy's surrender value is not sufficient to pay the charges on a
monthly deduction date, 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 1 year 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 and only if you've elected death benefit Option B (see
"How much will JHVLICO pay when the last insured person dies?" on page 15). The
feature guarantees that your Basic Sum Insured will not lapse during the first
10 policy years, 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 15), and
. on each monthly deduction date during that 10 year period 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
7
<PAGE>
Guaranteed Minimum Death Benefit Premiums due to date accumulated at
4%.
The Guaranteed Minimum Death Benefit Premium (or "GMDB Premium) is defined in
the policy and one-twelfth of it is "due" on each monthly deduction date. 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 15).
If the guaranteed minimum death benefit test is not satisfied on any monthly
deduction 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 monthly
deduction date on which default occurred. If it is reinstated more than 1 year
after such monthly deduction 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
---
much will JHVLICO pay when the last insured person dies?" on page 15).
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" beginning on page 31.)
Over time, the amount you've invested in any variable investment option will
increase or decrease the same as if you had invested the same amount directly in
the corresponding fund of one of the Trusts 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.
8
<PAGE>
The amount you've invested in the fixed investment option will earn interest
at a rate we declare from time to time. We guarantee that this rate will be at
least 4%. If you want to know what the current declared rate is, just call or
write to us. The current declared rate will also appear in the annual statement
we will send you. Amounts you invest in the fixed investment option will not be
---
subject to the mortality and expense risk charge described on page 10.
Otherwise, the charges applicable to the fixed investment option are the same as
those applicable to the variable investment options.
At any time, the "account value" of your policy is equal to:
. the amount you invested,
. plus or minus the investment experience of the investment options
you've chosen,
. minus all charges we deduct, and
. minus all withdrawals you have made.
If you take a loan on the policy, however, your account value will be computed
somewhat differently. This is discussed beginning on page 15.
WHAT CHARGES WILL JHVLICO DEDUCT FROM MY INVESTMENT IN THE POLICY?
Deductions from premium payments
. Premium tax charge - A charge to cover state premium taxes we currently
--------------------
expect to pay, on average. This charge is currently 2.35% of each premium.
. DAC tax charge - A charge to cover the increased Federal income tax
----------------
burden that we currently expect will result from receipt of premiums. This
charge is currently 1.25% of each premium.
. Premium 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
--------------
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
9
<PAGE>
determined at the time the policy is issued and will appear in the "Policy
Specifications" section of the policy.
. Optional benefits charge - A charge imposed for certain optional
--------------------------
insurance benefits added to the policy by means of a rider.
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 first 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 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
------------------------
additional mortality risk if either of the insured persons is subject to
certain types of special insurance risk.
. M &E charge - A daily charge for mortality and expense risks we assume.
-------------
This charge is deducted from the variable investment options. It does not
apply to the fixed investment option. We guarantee that this charge will
never exceed an effective annual rate of .90%. The effective annual rate
will vary depending upon the Total Sum Insured at issue. The current
charge levels are as follows: .625% for a Total Sum Insured of at least
$500,000 but less than $5 million, .575% for a Total Sum Insured of at
least $5 million but less than $15 million, and .525% for a Total Sum
Insured of $15 million or more.
. Guaranteed minimum death benefit charge - A monthly charge beginning in
-----------------------------------------
the 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
10
<PAGE>
Sum Insured at issue and is guaranteed not to exceed 3c per $1,000 of
Basic Sum Insured at issue. 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.
. Optional benefits charge - Monthly charges for certain other optional
--------------------------
insurance benefits added to the policy by means of a rider.
. Partial withdrawal charge - A charge for each partial withdrawal of
-------------------------
account value to compensate us for the administrative expenses of
processing the withdrawal. The charge is equal to the lesser of $20 or 2%
of the withdrawal amount.
WHAT CHARGES WILL THE TRUSTS DEDUCT FROM MY INVESTMENT IN THE POLICY?
The Trusts must pay investment management fees and other operating expenses.
These fees and expenses are different for each fund and reduce the investment
return of each fund. Therefore, they also indirectly reduce the return you will
earn on any variable investment options you select.
The following figures for the funds are based on historical fund expenses, as
a percentage (rounded to two decimal places) of each fund's average daily net
assets for 1999, except as indicated in the Notes appearing at the end of this
table. Expenses of the funds are not fixed or specified under the terms of the
policy, and those expenses may vary from year to year.
<TABLE>
<CAPTION>
Investment Distribution and Other Operating Total Fund Other Operating
Management Service Expenses With Operating Expenses Absent
Fund Name Fee (12b-1) Fees Reimbursement Expenses Reimbursement
- --------- ---------- ---------------- --------------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
JOHN HANCOCK VARIABLE SERIES TRUST I
(NOTE 1):
Managed . . . . . . . . . . . . . . . . 0.32% N/A 0.03% 0.35% 0.03%
Growth & Income . . . . . . . . . . . . 0.25% N/A 0.03% 0.28% 0.03%
Equity Index . . . . . . . . . . . . . 0.14% N/A 0.00% 0.14% 0.08%
Large Cap Value . . . . . . . . . . . . 0.74% N/A 0.10% 0.84% 0.11%
Large Cap Growth . . . . . . . . . . . 0.36% N/A 0.03% 0.39% 0.03%
Large Cap Aggressive Growth . . . . . . 0.98% N/A 0.10% 1.08% 0.19%
Mid Cap Value . . . . . . . . . . . . . 0.80% N/A 0.10% 0.90% 0.12%
Mid Cap Growth . . . . . . . . . . . . 0.82% N/A 0.10% 0.92% 0.11%
Fundamental Mid Cap Growth . . . . . . 0.85% N/A 0.10% 0.95% 0.24%
Real Estate Equity . . . . . . . . . . 0.60% N/A 0.10% 0.70% 0.10%
Small/Mid Cap CORE . . . . . . . . . . 0.80% N/A 0.10% 0.90% 0.66%
Small/Mid Cap Growth . . . . . . . . . 0.75% N/A 0.10% 0.85% 0.10%
Small Cap Value . . . . . . . . . . . . 0.80% N/A 0.10% 0.90% 0.16%
Small Cap Growth . . . . . . . . . . . 0.75% N/A 0.10% 0.85% 0.14%
Global Balanced * . . . . . . . . . . . 0.85% N/A 0.10% 0.95% 0.46%
International Equity Index . . . . . . 0.16% N/A 0.10% 0.26% 0.22%
International Opportunities . . . . . . 0.87% N/A 0.10% 0.97% 0.29%
Emerging Markets Equity . . . . . . . . 1.27% N/A 0.10% 1.37% 2.17%
Short-Term Bond . . . . . . . . . . . . 0.30% N/A 0.10% 0.40% 0.13%
Bond Index . . . . . . . . . . . . . . 0.15% N/A 0.10% 0.25% 0.20%
Active Bond * . . . . . . . . . . . . . 0.25% N/A 0.03% 0.28% 0.03%
Global Bond . . . . . . . . . . . . . . 0.69% N/A 0.10% 0.79% 0.15%
High Yield Bond . . . . . . . . . . . . 0.65% N/A 0.10% 0.75% 0.39%
Money Market . . . . . . . . . . . . . 0.25% N/A 0.06% 0.31% 0.06%
AIM VARIABLE INSURANCE FUNDS, INC.:
AIM V.I. Value . . . . . . . . . . . . 0.61% N/A 0.15% 0.76% 0.15%
VARIABLE INSURANCE PRODUCTS FUND -
SERVICE CLASS (NOTE 2):
Fidelity VIP Growth . . . . . . . . . . 0.58% 0.10% 0.07% 0.75% 0.09%
VARIABLE INSURANCE PRODUCTS FUND II -
SERVICE CLASS (NOTE 2):
Fidelity VIP Contrafund(R) . . . . . . 0.58% 0.10% 0.07% 0.75% 0.10%
FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST - CLASS 2 SHARES (NOTE
3):
Templeton International Securities . . 0.69% 0.25% 0.19% 1.13% 0.19%
MFS VARIABLE INSURANCE TRUST
(NOTE 4):
MFS New Discovery . . . . . . . . . . . 0.90% N/A 0.17% 1.07% 1.59%
M FUND, INC. (NOTE 5):
Brandes International Equity . . . . . 0.96% N/A 0.25% 1.21% 0.97%
Turner Core Growth . . . . . . . . . . 0.45% N/A 0.25% 0.70% 0.95%
Frontier Capital Appreciation . . . . . 0.90% N/A 0.25% 1.15% 0.57%
Clifton Enhanced U.S. Equity** . . . . 0.55% N/A 0.25% 0.80% 1.08%
</TABLE>
11
<PAGE>
NOTES TO FUND EXPENSE TABLE
(1) John Hancock Variable Series Trust I funds' percentages reflect
management fees and other fund expenses based on the allocation
methodology and expense reimbursement policy adopted April 23, 1999.
Under the policy, John Hancock Life Insurance Company voluntarily
reimburses a fund when the fund's "other fund expenses" exceed 0.10% of
the fund's average daily net assets (0.00% for Equity Index).
* Global Balanced was formerly "International Balanced" and Active Bond
was formerly "Sovereign Bond".
(2) A portion of the brokerage commissions that certain of the Fidelity VIP
funds pay was used to reduce fund expenses. In addition, through
arrangements with certain funds' custodian, credits realized as a result
of uninvested cash balances were used to reduce a portion of each
applicable fund's expenses. Without these reductions, the operating
expenses of the funds would have been higher, as shown in the last column
of this table.
(3) On February 8, 2000, shareholders of each fund approved a merger and
reorganization that combined the Templeton International Equity Fund with
the Templeton International Securities Fund, effective May 1, 2000.
Shareholders of the Templeton International Securities Fund had approved
new management fees, which apply to the combined funds effective May 1,
2000. The table shows restated total expenses for the fund based on the
new fees and the assets, as of December 31, 1999, of the Templeton
International Securities Fund. However, if the table reflected both the
new fees and the combined assets of the Templeton International Equity
Fund and the Templeton International Securities Fund, the estimated
expenses for the two funds combined after May 1, 2000 would be:
Management Fees 0.65%, Distribution and Service Fees 0.25%, Other Expenses
0.20%, and Total Fund Operating Expenses 1.10%.
12
<PAGE>
(4) MFS Variable Insurance Trust funds have an expense offset arrangement
which reduces each fund's custodian fee based upon the amount of cash
maintained by the fund with its custodian and dividend disbursing agent.
Each fund may enter into other such arrangements and directed brokerage
arrangements, which would also have the effect of reducing the fund's
expenses. Expenses do not take into account these expense reductions, and
are therefore higher than the actual expenses of the fund. MFS Investment
Management(R) (also doing business as Massachusetts Financial Services
Company) has contractually agreed to bear expense for the New Discovery
Fund, subject to reimbursement by the fund, such that such fund's "other
fund expenses" shall not exceed 0.15% of the average daily net assets of
the fund during the current fiscal year.
(5) M Fund, Inc. funds' percentages reflect the investment management fees
currently payable and other fund expenses allocated in 1999. M Financial
Advisers, Inc. reimburses a fund when the fund's other operating expenses
exceed 0.25% of that fund's average daily net assets.
** Clifton Enhanced U.S. Equity was formerly "Enhanced U.S. Equity".
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.
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.
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.
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%.
Transfers of existing account value
You may also transfer your existing account value from one investment option
to another. To do so, you must tell us how much to transfer, either as a whole
number percentage or as a specific dollar amount.
Under our current rules, you can make transfers out of any variable investment
option anytime you wish. However, transfers out of the fixed investment option
are currently subject to the following restrictions:
13
<PAGE>
. You can only make such a transfer once a year and only during the 31 day
period following your policy anniversary.
. We must receive the request for such a transfer during the period
beginning 60 days prior to the policy anniversary and ending 30 days after
it.
. The most you can transfer at any one time is the greater of $500 or 20%
of the assets in your fixed investment option.
We reserve the right to impose a minimum amount limit on transfers out of the
fixed investment option. We also reserve the right to impose limits on the
number and frequency of transfers out of the variable investment options.
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 plus, if surrender occurs in the second
policy year, a refund of a certain portion of sales charges equal to 5% of
premiums paid in the second policy year up to the Target premium. This is called
your "surrender value." You must return your policy when you request a full
surrender.
Partial withdrawals
You may make a partial withdrawal of your surrender value at any time. Each
partial withdrawal must be at least $1,000. There is a charge (usually $20) for
each partial withdrawal. We will automatically reduce the account value of your
policy by the amount of the withdrawal and the related charge. Each investment
option will be reduced in the same proportion as the account value is then
allocated among them. We will not permit a partial withdrawal if it would cause
your account value to fall below 3 months' worth of monthly charges (see
"Deductions from account value" on page 10). We also reserve the right to refuse
any partial withdrawal that would cause the policy's Total Sum Insured to fall
below $500,000. 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 15) and under the guaranteed death benefit feature (see
page 7). 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
14
<PAGE>
Withdrawal Amount" is any partial withdrawal made while there is an Additional
Sum Insured under the policy that later lapses as described on page 7. 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 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 7). 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 5% in the first 20 policy years and 4.5% 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.
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. The only limitation on how much Additional Sum
Insured you can have is that it 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 30.
15
<PAGE>
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. 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. You may revoke that election at any time, but there may be adverse tax
consequences if you do. An "annual processing date" is the first business day of
a policy year.
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. For
policies of this type, we will apply the "cash value accumulation test" as
described in Federal tax law. Under the cash value accumulation test, we compute
the minimum insurance amount on each monthly deduction date by multiplying the
account value on that date by the 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 for each year the policy remains in
effect. A table showing the factor for each policy year will appear in the
policy.
16
<PAGE>
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.
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. However, you will have to provide us with evidence that the surviving
insured persons still meet our requirements for issuing insurance coverage. As
to when an approved increase would take effect, see "Effective date of other
policy transactions" on page 32.
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:
. the remaining Total Sum Insured will be at least $500,000, 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. As to when an approved decrease would take effect, see
"Effective date of other policy transactions" on page 32.
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 35 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 the latest of the following
periods:
17
<PAGE>
. 10 days after you receive it (this period may be longer in some
states);
. 10 days after mailing by JHVLICO of the Notice of Withdrawal Right;
or
. 45 days after the date Part A of the application has been completed.
This is often referred to as the "free look" period. To cancel your policy,
simply deliver or mail the policy to JHVLICO at one of the addresses shown on
page 2, 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 Trusts 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
. Option 3 - Equal monthly payments for life, but with payments
guaranteed for a specific number of years
. Option 4 - Equal monthly payments for life with no refund
. Option 5 - Equal monthly payments for life with a refund if all of
the proceeds haven't been paid out
You cannot choose an option if the monthly payments under the option would be
less than $50. We will issue a supplementary agreement when the proceeds are
applied to any alternative payment option. That agreement will spell out the
terms of the option in full. We will credit interest on each of the above
options. For Options 1 and 2A, the interest will be at least an effective annual
rate of 3 1/2%.
18
<PAGE>
Changing a payment option
You can change the payment option at any time before the proceeds are payable.
If you haven't made a choice, the payee of the proceeds has a prescribed period
in which he or she can make that choice.
Tax impact
There may be tax consequences to you or your beneficiary depending upon which
payment option is chosen. You should consult with a qualified tax adviser before
making that choice.
TO WHAT EXTENT CAN 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 of your insurance
coverage may vary from the terms and conditions described in this prospectus,
depending upon where you reside. These variations will be reflected in your
policy or in endorsements attached to your policy.
Variations in expenses or risks
We may vary the charges and other terms of our policies where special
circumstances result in sales or administrative expenses, mortality risks or
other risks that are different from those normally associated with the policies.
These include the type of variations discussed under "Reduced charges for
eligible classes" on page 34. No variation in any charge will exceed any maximum
stated in this prospectus with respect to that charge.
HOW WILL MY POLICY BE TREATED FOR INCOME TAX PURPOSES?
Generally, death benefits paid under policies such as yours are not subject to
income tax. Earnings on your account value are not subject to income tax as long
as we don't pay them out to you. If we do pay out any amount of your account
value upon surrender or partial withdrawal, all or part of that distribution
should generally be treated as a return of the premiums you've paid and should
not be subject to income tax. Amounts you borrow are generally not taxable to
you.
However, some of the tax rules change if your policy is found to be a
"modified endowment contract." This can happen if you've paid more than a
certain amount of premiums that is prescribed by the tax laws. Additional taxes
and penalties may be payable for policy distributions of any kind.
For further information about the tax consequences of owning a policy, please
read "Tax considerations" beginning on page 35.
19
<PAGE>
HOW DO I COMMUNICATE WITH JHVLICO?
General Rules
You should mail or express all checks and money orders for premium payments
and loan repayments to the JHVLICO Life Servicing Office at the appropriate
address shown on page 2.
Certain requests must be made in writing and be signed and dated by you. They
include the following:
. loans, surrenders or partial withdrawals
. transfers of account value among investment options
. change of allocation among investment options for new premium
payments
. change of death benefit option
. increase or decrease in Total Sum Insured
. change of beneficiary
. election of payment option for policy proceeds
. tax withholding elections
. election of telephone transaction privilege
You should mail or express these requests to the JHVLICO Life Servicing Office
at the appropriate address shown on page 2. 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 "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
20
<PAGE>
us at 1-800-521-1234 or by faxing us at 1-617-572-6956. 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.
21
<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 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 -.79%, 5.16% and 11.12%. 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
preferred underwriting risk when the policy is issued and for a female insured
person who is 50 years old and a preferred 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 .66%, and (2) an assumed average asset charge for all
other Trust operating expenses equivalent to an effective annual rate of .13%.
These rates are the arithmetic average for all funds of the Trusts. In other
words, they are based on the hypothetical assumption that policy account values
are allocated equally among the variable investment options. The actual rates
associated with any policy will vary depending upon the actual allocation of
policy values among the investment options. The charge shown above for all other
Trust operating expenses reflects reimbursements to certain funds as described
in the footnotes to the table beginning on page 11. We currently expect those
reimbursement arrangements to continue indefinitely, but that is not guaranteed.
The second column of each table shows the amount you would have at the end of
each policy year if an amount equal to the assumed Planned Premiums were
invested to earn interest, after taxes, at 5% compounded annually. This is not a
policy value. It is included for comparison purposes only.
Because your circumstances will no doubt differ from those in the
illustrations that follow, values under your policy will differ, in most cases
substantially. Upon request, we will furnish you with a comparable illustration
reflecting your proposed insured persons' issue ages, sex and underwriting risk
classification, and the Total Sum Insured and annual Planned Premium amount
requested.
22
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION A DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT 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 $ 4,294 $ 4,578 $ 4,862
2 17,556 500,000 500,000 500,000 10,127 11,034 11,975
3 26,998 500,000 500,000 500,000 15,068 16,948 18,970
4 36,912 500,000 500,000 500,000 20,459 23,675 27,270
5 47,322 500,000 500,000 500,000 25,772 30,705 36,434
6 58,252 500,000 500,000 500,000 32,070 39,157 47,703
7 69,728 500,000 500,000 500,000 38,275 47,986 60,142
8 81,779 500,000 500,000 500,000 44,385 57,206 73,870
9 94,432 500,000 500,000 500,000 50,399 66,832 89,020
10 107,717 500,000 500,000 500,000 56,313 76,878 105,736
11 121,667 500,000 500,000 500,000 62,774 88,044 124,897
12 136,314 500,000 500,000 500,000 69,118 99,689 146,033
13 151,694 500,000 500,000 500,000 75,338 111,828 169,347
14 167,843 500,000 500,000 500,000 81,427 124,475 195,061
15 184,799 500,000 500,000 500,000 87,372 137,643 223,421
16 202,603 500,000 500,000 500,000 93,160 151,345 254,703
17 221,297 500,000 500,000 537,841 98,776 165,593 289,183
18 240,926 500,000 500,000 589,323 104,197 180,395 327,153
19 261,536 500,000 500,000 644,225 109,399 195,763 368,947
20 283,177 500,000 500,000 702,871 114,352 211,707 414,922
25 408,735 500,000 500,000 1,069,317 135,449 302,176 724,119
30 568,983 500,000 544,394 1,606,849 143,646 411,129 1,213,501
35 773,504 500,000 656,507 2,409,998 126,458 538,002 1,974,972
</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.
23
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION B DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT AFTER TENTH POLICY YEAR PLANNED PREMIUM: $8,156* USING CURRENT
CHARGES
<TABLE>
<CAPTION>
Death Benefit Surrender Value
------------------------------ ------------------------------
Assuming Hypothetical Assuming Hypothetical
Planned Premiums Gross Annual Return of Gross Annual Return of
End of Accumulated at ------------------------------ ------------------------------
Policy Year 5% Annual Interest 0% 6% 12% 0% 6% 12%
- ----------- ------------------ -------- -------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 8,564 $504,293 $504,578 $ 504,862 $ 4,293 $ 4,578 $ 4,862
2 17,556 509,718 510,625 511,566 10,126 11,033 11,974
3 26,998 515,066 516,946 518,968 15,066 16,946 18,968
4 36,912 520,456 523,672 527,266 20,456 23,672 27,266
5 47,322 525,767 530,699 536,426 25,767 30,699 36,426
6 58,252 532,063 539,148 547,691 32,063 39,148 47,691
7 69,728 538,264 547,972 560,123 38,264 47,972 60,123
8 81,779 544,370 557,185 573,841 44,370 57,185 73,841
9 94,432 550,377 566,801 588,977 50,377 66,801 88,977
10 107,717 556,282 576,833 605,671 56,282 76,833 105,671
11 121,667 562,734 587,983 624,806 62,734 87,983 124,806
12 136,314 569,064 599,604 645,901 69,064 99,604 145,901
13 151,694 575,262 611,706 669,150 75,262 111,706 169,150
14 167,843 581,318 624,296 694,763 81,318 124,296 194,763
15 184,799 587,215 637,379 722,967 87,215 137,379 222,967
16 202,603 592,936 650,956 754,011 92,936 150,956 254,011
17 221,297 598,457 665,021 788,162 98,457 165,021 288,162
18 240,926 603,746 679,563 825,709 103,746 179,563 325,709
19 261,536 608,770 694,563 866,964 108,770 194,563 366,964
20 283,177 613,482 709,991 912,262 113,482 209,991 412,262
25 408,735 631,837 793,628 1,215,223 131,837 293,628 715,223
30 568,983 632,336 878,972 1,690,955 132,336 378,972 1,190,955
35 773,504 598,625 946,275 2,427,181 98,625 446,275 1,927,181
</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.
24
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION A DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT AFTER TENTH POLICY YEAR PLANNED PREMIUM: $8,156* USING MAXIMUM
CHARGES
<TABLE>
<CAPTION>
Death Benefit Surrender Value
------------------------------ -----------------------------
Assuming hypothetical Assuming hypothetical
Planned Premiums gross annual return of gross annual return of
End of accumulated at ------------------------------ -----------------------------
Policy Year 5% annual interest 0% 6% 12% 0% 6% 12%
- ----------- ------------------ -------- -------- ---------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 8,564 $500,000 $500,000 $ 500,000 $ 4,132 $ 4,410 $ 4,689
2 17,556 500,000 500,000 500,000 9,768 10,652 11,569
3 26,998 500,000 500,000 500,000 14,456 16,277 18,241
4 36,912 500,000 500,000 500,000 19,530 22,632 26,106
5 47,322 500,000 500,000 500,000 24,452 29,187 34,699
6 58,252 500,000 500,000 500,000 30,274 37,046 45,233
7 69,728 500,000 500,000 500,000 35,905 45,143 56,742
8 81,779 500,000 500,000 500,000 41,330 53,473 69,309
9 94,432 500,000 500,000 500,000 46,537 62,030 83,032
10 107,717 500,000 500,000 500,000 51,505 70,803 98,011
11 121,667 500,000 500,000 500,000 56,693 80,291 114,901
12 136,314 500,000 500,000 500,000 61,586 89,988 133,342
13 151,694 500,000 500,000 500,000 66,148 99,870 153,476
14 167,843 500,000 500,000 500,000 70,333 109,906 175,461
15 184,799 500,000 500,000 500,000 74,086 120,057 199,477
16 202,603 500,000 500,000 500,000 77,351 130,286 225,735
17 221,297 500,000 500,000 500,000 80,034 140,522 254,468
18 240,926 500,000 500,000 515,023 82,109 150,762 285,907
19 261,536 500,000 500,000 558,785 83,474 160,939 320,016
20 283,177 500,000 500,000 604,668 84,031 170,996 356,950
25 408,735 500,000 500,000 871,891 69,680 217,080 590,426
30 568,983 ** 500,000 1,216,992 ** 242,962 919,079
35 773,504 ** 500,000 1,667,119 ** 214,855 1,366,190
</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, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION B DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT 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 $504,132 $504,410 $ 504,689 $ 4,132 $ 4,410 $ 4,689
2 17,556 509,359 510,242 511,160 9,767 10,650 11,568
3 26,998 514,452 516,273 518,236 14,452 16,273 18,236
4 36,912 519,519 522,619 526,092 19,519 22,619 26,092
5 47,322 524,430 529,160 534,666 24,430 29,160 34,666
6 58,252 530,233 536,994 545,168 30,233 36,994 45,168
7 69,728 535,833 545,050 556,621 35,833 45,050 56,621
8 81,779 541,213 553,316 569,099 41,213 53,316 69,099
9 94,432 546,355 561,778 582,682 46,355 61,778 82,682
10 107,717 551,234 570,414 597,452 51,234 70,414 97,452
11 121,667 556,301 579,708 614,031 56,301 79,708 114,031
12 136,314 561,033 589,135 632,022 61,033 89,135 132,022
13 151,694 565,382 598,647 651,511 65,382 98,647 151,511
14 167,843 569,289 608,181 672,580 69,289 108,181 172,580
15 184,799 572,687 617,659 695,310 72,687 117,659 195,310
16 202,603 575,501 626,992 719,779 75,501 126,992 219,779
17 221,297 577,615 636,046 746,029 77,615 136,046 246,029
18 240,926 578,995 644,761 774,194 78,995 144,761 274,194
19 261,536 579,516 652,981 804,320 79,516 152,981 304,320
20 283,177 579,065 660,554 836,470 79,065 160,554 336,470
25 408,735 556,868 681,294 1,028,579 56,868 181,294 528,579
30 568,983 ** 640,288 1,263,642 ** 140,288 763,642
35 773,504 ** ** 1,512,267 ** ** 1,012,267
</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.
26
<PAGE>
ADDITIONAL INFORMATION
This section of the prospectus provides additional detailed information that
is not contained in the Basic Information section on pages 4 through 21.
<TABLE>
<CAPTION>
CONTENTS OF THIS SECTION BEGINNING ON PAGE
- ------------------------ -----------------
<S> <C>
Description of JHVLICO ...................... 28
How we support the policy and investment options 28
Procedures for issuance of a policy......... 29
Basic Sum Insured vs. Additional Sum Insured 30
Commencement of investment performance...... 31
How we process certain policy transactions.. 31
Effects of policy loans..................... 33
Additional information about how certain policy charges 33
work........................................
How we market the policies.................. 34
Tax considerations.......................... 35
Reports that you will receive............... 37
Voting privileges that you will have........ 37
Changes that JHVLICO can make as to your policy 37
Adjustments we make to death benefits....... 38
When we pay policy proceeds................. 38
Other details about exercising rights and paying benefits 39
Legal matters............................... 39
Registration statement filed with the SEC... 39
Accounting and actuarial experts............ 39
Financial statements of JHVLICO and the Account 40
List of Directors and Executive Officers of JHVLICO 41
</TABLE>
27
<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. As of December 31, 1999, John
Hancock's assets were approximately $71 billion and it had invested
approximately $575 million in JHVLICO in connection with JHVLICO's organization
and operation. It is anticipated that John Hancock will from time to time make
additional capital contributions to JHVLICO to enable us to meet our reserve
requirements and expenses in connection with our business. John Hancock is
committed to make additional capital contributions if necessary to ensure that
we maintain a positive net worth.
HOW WE SUPPORT THE POLICY AND INVESTMENT OPTIONS
Separate Account 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 one of
the Trusts. New subaccounts may be added as new funds are added to the Trusts
and made available to policy owners. Existing subaccounts may be deleted if
existing funds are deleted from the Trusts.
We will purchase and redeem Trust shares for the Account at their net asset
value without any sales or redemption charges. Shares of a Trust represent an
interest in one of the funds of the Trust which corresponds to a subaccount of
the Account. Any dividend or capital gains distributions received by the Account
will be reinvested in shares of that same fund at their net asset value as of
the dates paid.
On each business day, shares of each fund are purchased or redeemed by us for
each subaccount based on, among other things, the amount of net premiums
allocated to the subaccount, distributions reinvested, and transfers to, from
and among subaccounts, all to be effected as of that date. Such
28
<PAGE>
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 $500,000 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 80. All insured persons must meet certain health and other insurance risk
criteria called "underwriting standards".
Policies issued in Montana or in connection with certain employee plans will
not directly reflect the sex of the insured 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
insurance coverage prior to policy delivery" on page 30).
The policy will take effect only if all of the following conditions are
satisfied:
. The policy is delivered to and received by the applicant.
29
<PAGE>
. The Minimum Initial Premium is received by us.
. 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 from account value and
the amount of compensation paid to the selling insurance agent will be less if
coverage is included as Additional Sum Insured, rather than as Basic Sum
Insured. 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
30
<PAGE>
wish to maximize the proportion of the Additional Sum Insured.
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 35).
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.
31
<PAGE>
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 a variable investment option will be effective at the end of the business
day in which we receive at our Life Servicing Office notice satisfactory to us.
If received on or before the policy anniversary, requests for transfer out of
the fixed investment option will be processed on the policy anniversary (or the
next business day if the policy anniversary does not occur on a business day).
If received after the policy anniversary, such a request will be processed at
the end of the business day in which we receive the request at our Life
Servicing Office. If you request a transfer out of the fixed investment option
61 days or more prior to the policy anniversary, we will not process that
portion of the reallocation, and your confirmation statement will not reflect a
transfer out of the fixed investment option as to such request. Currently, there
is no minimum amount limit on transfers into the fixed investment option, but we
reserve the right to impose such a limit in the future. 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
1-800-521-1234.
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.
32
<PAGE>
We process loans, surrenders, partial withdrawals and loan repayments as of
the day we receive such request or repayment.
EFFECTS OF POLICY LOANS
The account value, the surrender value, and any death benefit above the Total
Sum Insured are permanently affected by any loan, whether or not it is repaid in
whole or in part. This is because the amount of the loan is deducted from the
investment options and placed in a special loan account. The investment options
and the special loan account will generally have different rates of investment
return.
The amount of the outstanding loan (which includes accrued and unpaid
interest) is subtracted 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 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 charge
for mortality and expense risks and other gains with respect to the policies, or
from our general assets. (See "How we market the policies" on page 34.)
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 35.)
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
33
<PAGE>
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 (including the M&E charge) 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; 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%.
34
<PAGE>
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, 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)
35
<PAGE>
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 a Trust failed to meet certain investment
diversification or other requirements of the Code. If this were to occur, you
would be subject to income tax on the income and gains under the policy for the
period of the disqualification and for subsequent periods.
In the past, the United States Treasury Department has stated that it
anticipated issuing guidelines prescribing circumstances in which the ability of
a policy owner to direct his or her investment to particular funds may cause the
policy owner, rather than the insurance company, to be treated as the owner of
the shares of those funds. In that case, any income and gains attributable to
those shares would be included in your current gross income for federal income
tax purposes. Under current law, however, we believe that we, and not the owner
of a policy, would be considered the owner of the fund's shares for tax
purposes.
Tax consequences of ownership or receipt of policy proceeds under federal,
state and local estate, inheritance, gift and other tax laws depend on the
circumstances of each owner or beneficiary.
Because there may be unfavorable tax consequences (including recognition of
taxable income and the loss of income tax-free treatment for any death benefit
payable to the beneficiary), you should consult a qualified tax adviser prior to
changing the policy's ownership or making any assignment of ownership interests.
7-pay premium limit
At the time of policy issuance, we will determine whether the Planned Premium
schedule will exceed the 7-pay limit discussed below. If so, our standard
procedures prohibit issuance of the policy unless you sign a form acknowledging
that fact.
The 7-pay limit is the total of net level premiums that would have been
payable at any time for a comparable fixed policy to be fully "paid-up" after
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.
36
<PAGE>
All modified endowments issued by the same insurer (or its affiliates) to the
owner during any calendar year generally will be treated as one contract for the
purpose of applying the modified endowment rules. A policy received in exchange
for a modified endowment will itself also be a modified endowment. You should
consult your tax advisor if you have questions regarding the possible impact of
the 7-pay limit on your policy.
Corporate and H.R. 10 plans
The policy may be acquired in connection with the funding of retirement plans
satisfying the qualification requirements of Section 401 of the Code. If so, the
Code provisions relating to such plans and life insurance benefits thereunder
should be carefully scrutinized. We are not responsible for compliance with the
terms of any such plan or with the requirements of applicable provisions of the
Code.
REPORTS THAT YOU WILL RECEIVE
At least annually, we will send you a statement setting forth the following
information as of the end of the most recent reporting period: the amount of the
death benefit, the Basic Sum Insured and the Additional Sum Insured, the account
value, the portion of the account value in each investment option, the surrender
value, premiums received and charges deducted from premiums since the last
report, and any outstanding policy loan (and interest charged for the preceding
policy year). Moreover, you also will receive confirmations of premium payments,
transfers among investment options, policy loans, partial withdrawals and
certain other policy transactions.
Semiannually we will send you a report containing the financial statements of
each 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 Trusts. We will vote the shares of each of the
funds of the Trusts which are deemed attributable to variable life insurance
policies at regular and special meetings of the Trusts' shareholders in
accordance with instructions received from owners of such policies. Shares of
the Trusts 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
or Board of Directors of the Trust, ratification of the selection of independent
auditors, approval of Trust investment advisory agreements and other matters
requiring a shareholder vote. We will furnish owners with information and forms
to enable owners to give voting instructions.
However, we may, in certain limited circumstances permitted by the SEC's
rules, disregard voting instructions. If we do disregard voting instructions,
you will receive a summary of that action and the reasons for it in the next
semi-annual report to owners.
CHANGES THAT JHVLICO CAN MAKE AS TO YOUR POLICY
Changes relating to a Trust or the Account
The voting privileges described in this prospectus reflect our understanding
of applicable Federal securities law requirements. To the extent that applicable
law, regulations or interpretations
37
<PAGE>
change to eliminate or restrict the need for such voting privileges, we reserve
the right to proceed in accordance with any such revised requirements. We also
reserve the right, subject to compliance with applicable law, including approval
of owners if so required, (1) to transfer assets determined by JHVLICO to be
associated with the class of policies to which your policy belongs from the
Account to another separate account or subaccount, (2) to operate the Account as
a "management-type investment company" under the 1940 Act, or in any other form
permitted by law, the investment adviser of which would be JHVLICO, John Hancock
or an affiliate of either, (3) to deregister the Account under the 1940 Act, (4)
to substitute for the fund shares held by a subaccount any other investment
permitted by law, and (5) to take any action necessary to comply with or obtain
any exemptions from the 1940 Act. We would notify owners of any of the foregoing
changes and, to the extent legally required, obtain approval of owners and any
regulatory body prior thereto. Such notice and approval, however, may not be
legally required in all cases.
Other permissible changes
We reserve the right to make any changes in the policy necessary to ensure the
policy is within the definition of life insurance under the Federal tax laws and
is in compliance with any changes in Federal or state tax laws.
In our policies, we reserve the right to make certain changes if they would
serve the best interests of policy owners or would be appropriate in carrying
out the purposes of the policies. Such changes include the following:
. Changes necessary to comply with or obtain or continue exemptions under
the federal securities laws
. Combining or removing investment options
. Changes in the form of organization of any separate account
Any such changes will be made only to the extent permitted by applicable laws
and only in the manner permitted by such laws. When required by law, we will
obtain your approval of the changes and the approval of any appropriate
regulatory authority.
ADJUSTMENTS WE MAKE TO DEATH BENEFITS
If 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.
38
<PAGE>
Delay of separate account proceeds
We reserve the right to defer payment of any death benefit, loan or other
distribution that is derived from a variable investment option if (a) the New
York Stock Exchange is closed (other than customary weekend and holiday
closings) or trading on the New York Stock Exchange is restricted; (b) an
emergency exists, as a result of which disposal of securities is not reasonably
practicable or it is not reasonably practicable to fairly determine the account
value; or (c) the SEC by order permits the delay for the protection of owners.
Transfers and allocations of account value among the investment options may also
be postponed under these circumstances. If we need to defer calculation of
separate account values for any of the foregoing reasons, all delayed
transactions will be processed at the next values that we do compute.
OTHER DETAILS ABOUT EXERCISING RIGHTS AND PAYING BENEFITS
Joint ownership
If more than one person owns a policy, all owners must join in most requests
to exercise rights under the policy.
Assigning your policy
You may assign your rights in the policy to someone else as collateral for a
loan or for some other reason. Assignments do not require the consent of any
revocable beneficiary. A copy of the assignment must be forwarded to us. We are
not responsible for any payment we make or any action we take before we receive
notice of the assignment in good order. Nor are we responsible for the validity
of the assignment. An absolute assignment is a change of ownership. All
collateral assignees of record must consent to any full surrender, partial
withdrawal or loan from the policy.
Your beneficiary
You name your beneficiary when you apply for the policy. The beneficiary is
entitled to the proceeds we pay following the 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
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 Deborah A. Poppel, F.S.A., an Actuary of
JHVLICO and Second Vice President of John Hancock.
39
<PAGE>
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.
40
<PAGE>
LIST OF DIRECTORS AND EXECUTIVE OFFICERS OF JHVLICO
The Directors and Executive Officers of JHVLICO and their principal
occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Directors and Executive Principal Occupations
- ----------------------- ---------------------
Officers
- --------
<S> <C>
David F. D'Alessandro Chairman of the Board and Chief Executive
Officer of JHVLICO; President, Chief Operations
Officer and Chief Executive Officer-Elect, John
Hancock Life Insurance Company.
Michele G. Van Leer. Vice Chairman of the Board and President of
JHVLICO; Senior Vice President, John Hancock
Life Insurance Company.
Ronald J. Bocage . . . Director, Vice President and Counsel of JHVLICO;
Vice President and Counsel, John Hancock Life
Insurance Company.
Bruce M. Jones. . . . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Thomas J. Lee. . . . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Barbara L. Luddy. . . Director, Vice President and Actuary of JHVLICO;
Senior Vice President, John Hancock Life
Insurance Company.
Robert S. Paster. . . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Robert R. Reitano. . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Paul Strong . . . . . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Daniel L. Ouellette. Vice President, Marketing, of JHVLICO; Senior
Vice President, John Hancock Life Insurance
Company.
Edward P. Dowd. . . . Vice President, Investments, of JHVLICO; Senior
Vice President, John Hancock Life Insurance
Company
Roger G. Nastou. . . Vice President, Investments, of JHVLICO; Vice
President, John Hancock Life Insurance Company
Todd G. Engelsen. . . Vice President and Illustration Actuary of
JHVLICO; Second Vice President, John Hancock
Life Insurance Company
Julie H. Indge. . . . Treasurer of JHVLICO; Financial Officer, John
Hancock Life Insurance Company
Patrick F. Smith. . . Controller of JHVLICO; Senior Associate
Controller, John Hancock Life Insurance Company.
Peter H. Scavongelli. Secretary of JHVLICO; State Compliance Officer,
John Hancock Life Insurance Company
</TABLE>
The business address of all Directors and officers of JHVLICO is John Hancock
Place, Boston, Massachusetts 02117.
41
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Directors and Policyholders
John Hancock Variable Life Insurance Company
We have audited the accompanying statutory-basis statements of financial
position of John Hancock Variable Life Insurance Company as of December 31, 1999
and 1998, and the related statutory-basis statements of operations and
unassigned deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Commonwealth of Massachusetts Division of Insurance, which
practices differ from accounting principles generally accepted in the United
States. The variances between such practices and accounting principles generally
accepted in the United States also are described in Note 1. The effects on the
financial statements of these variances are not reasonably determinable but are
presumed to be material.
In our opinion, because of the effects of the matter described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with accounting principles generally accepted in the
United States, the financial position of John Hancock Variable Life Insurance
Company at December 31, 1999 and 1998, or the results of its operations or its
cash flows for the years then ended.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of John Hancock
Variable Life Insurance Company at December 31, 1999 and 1998, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance.
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 2000
42
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
---------- -----------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Bonds--Note 6 . . . . . . . . . . . . . . . . . . . . $ 1,216.3 $1,185.8
Preferred stocks . . . . . . . . . . . . . . . . . . 35.9 36.5
Common stocks . . . . . . . . . . . . . . . . . . . . 3.2 3.1
Investment in affiliates . . . . . . . . . . . . . . 80.7 81.7
Mortgage loans on real estate--Note 6 . . . . . . . . 433.1 388.1
Real estate . . . . . . . . . . . . . . . . . . . . . 25.0 41.0
Policy loans . . . . . . . . . . . . . . . . . . . . 172.1 137.7
Cash items:
Cash in banks . . . . . . . . . . . . . . . . . . 27.2 11.4
Temporary cash investments . . . . . . . . . . . . 222.9 8.5
--------- --------
250.1 19.9
Premiums due and deferred . . . . . . . . . . . . . . 29.9 32.7
Investment income due and accrued . . . . . . . . . . 33.2 29.8
Other general account assets . . . . . . . . . . . . 65.3 47.5
Assets held in separate accounts . . . . . . . . . . 8,268.2 6,595.2
--------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . $10,613.0 $8,599.0
========= ========
OBLIGATIONS AND STOCKHOLDER'S EQUITY
OBLIGATIONS
Policy reserves . . . . . . . . . . . . . . . . . . $ 1,866.6 $1,652.0
Federal income and other taxes payable--Note 1 . . 67.3 44.3
Other general account obligations . . . . . . . . . 219.0 150.9
Transfers from separate accounts, net . . . . . . . (221.6) (190.3)
Asset valuation reserve--Note 1 . . . . . . . . . . 23.1 21.9
Obligations related to separate accounts . . . . . 8,261.6 6,589.4
--------- --------
TOTAL OBLIGATIONS . . . . . . . . . . . . . . . . .
10,216.0 8,268.2
STOCKHOLDER'S EQUITY
Common Stock, $50 par value; authorized 50,000
shares;
issued and outstanding 50,000 shares . . . . . . 2.5 2.5
Paid-in capital . . . . . . . . . . . . . . . . . . 572.4 377.5
Unassigned deficit--Note 10 . . . . . . . . . . . . (177.9) (49.2)
--------- --------
TOTAL STOCKHOLDER'S EQUITY . . . . . . . . . . . . 397.0 330.8
--------- --------
TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY . . . . . $10,613.0 $8,599.0
========= ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
43
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
--------- ---------
(IN MILLIONS)
<S> <C>
INCOME
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . $1,272.3
Net investment income--Note 3 . . . . . . . . . . . . . . . 136.0 122.8
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . 605.4 618.1
--------- --------
1,692.2 2,013.2
BENEFITS AND EXPENSES
Payments to policyholders and beneficiaries . . . . . . . . 349.9 301.4
Additions to reserves to provide for future payments to
policyholders and beneficiaries . . . . . . . . . . . . . 888.8 1,360.2
Expenses of providing service to policyholders and
obtaining new insurance--Note 5 . . . . . . . . . . . . . . 314.4 274.2
State and miscellaneous taxes. . . . . . . . . . . . . . . . 20.5 28.1
---------- --------
1,573.6 1,963.9
----------
Gain from operations before federal income
taxes and net realized capital losses 118.6 49.3
Federal income taxes--Note 1 . . . . . . . . . . . . . . . . 42.9 33.1
---------- --------
GAIN FROM OPERATIONS BEFORE NET REALIZED CAPITAL LOSSES 75.7 16.2
Net realized capital losses--Note 4 . . . . . . . . . . . . (1.7) (0.6)
---------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 74.0 15.6
Unassigned deficit at beginning of year . . . . . . . . . . (49.2) (58.3)
Net unrealized capital losses and other adjustments--Note 4 (3.8) (6.0)
Other reserves and adjustments--Note 10 . . . . . . . . . . (198.9) (0.5)
---------- --------
UNASSIGNED DEFICIT AT END OF YEAR . . . . . . . . . . . $(177.9) $ (49.2)
========== ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
44
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------
1999 1998
------- --------
(IN MILLIONS)
<S> <C>
Cash flows from operating activities:
Insurance premiums . . . . . . . . . . . . . .
Net investment income . . . . . . . . . . . 134.2 118.2
Benefits to policyholders and beneficiaries . (321.6) (275.5)
Dividends paid to policyholders . . . . . . . . . (25.6) (22.3)
Insurance expenses and taxes . . . . . . . . . (344.8) (296.9)
Net transfers to separate accounts . . . . . . . (705.3) (874.4)
Other, net . . . . . . . . . . . . . . . . . . 540.6 551.3
------- -----------
NET CASH PROVIDED FROM OPERATIONS . . . . . . 236.0 475.7
------- -----------
Cash flows used in investing activities:
Bond purchases . . . . . . . . . . . . . . . . (240.7) (618.8)
Bond sales . . . . . . . . . . . . . . . . . . 108.3 340.7
Bond maturities and scheduled redemptions . . 78.4 111.8
Bond prepayments . . . . . . . . . . . . . . . 18.7 76.5
Stock purchases . . . . . . . . . . . . . . . (3.9) (23.4)
Proceeds from stock sales . . . . . . . . . . 3.6 1.9
Real estate purchases . . . . . . . . . . . . (2.2) (4.2)
Real estate sales . . . . . . . . . . . . . . 17.8 2.1
Other invested assets purchases . . . . . . . (4.5) 0.0
Mortgage loans issued. . . . . . . . . . . . . (70.7) (145.5)
Mortgage loan repayments . . . . . . . . . . . 25.3 33.2
Other, net . . . . . . . . . . . . . . . . . . (68.9) (435.2)
------- -----------
NET CASH USED IN INVESTING ACTIVITIES . . . . (138.8) (660.9)
------- -----------
Cash flows from financing activities:
Capital contribution . . . . . . . . . . . . . 194.9
Net (decrease) increase in short-term note
payable. . . . . . . . . . . . . . . . . . . (61.9) 61.9
------- -----------
NET CASH PROVIDED FROM FINANCING ACTIVITIES . . 133.0 61.9
------- -----------
INCREASE (DECREASE) IN CASH AND TEMPORARY CASH
INVESTMENTS 230.2
Cash and temporary cash investments at beginning
of year. . . . . . . . . . . . . . . . . . . . . 19.9 143.2
------- -----------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF
YEAR. . . . . . . . . . . . . . . . . . . . . 250.1 $19.9
======= ===========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
45
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES
John Hancock Variable Life Insurance Company (the Company) is a wholly-owned
subsidiary of John Hancock Life Insurance Company (formerly John Hancock Mutual
Life Insurance Company) (John Hancock). The Company, domiciled in the
Commonwealth of Massachusetts, principally writes variable and universal life
insurance policies. Those policies primarily are marketed through John
Hancock's sales organization, Signator Insurance Agency, which includes a career
agency system composed of Company-supported independent general agencies and a
direct brokerage system that markets directly to external independent brokers.
Policies also are sold through various unaffiliated securities broker-dealers
and certain other financial institutions. Currently, the Company writes
business in all states except New York.
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future
as more information becomes known, which could impact the amounts reported and
disclosed herein.
Basis of Presentation
The financial statements have been prepared using accounting practices
prescribed or permitted by the Commonwealth of Massachusetts Division of
Insurance and in conformity with the practices of the National Association of
Insurance Commissioners (NAIC), which practices differ from generally accepted
accounting principles (GAAP).
The significant differences from GAAP include: (1) policy acquisition costs
are charged to expense as incurred rather than deferred and amortized in
relation to future estimated gross profits; (2) policy reserves are based on
statutory mortality, morbidity, and interest requirements without consideration
of withdrawals and Company experience; (3) certain assets designated as
"nonadmitted assets" are excluded from the balance sheet by direct charges to
surplus; (4) reinsurance recoverables are netted against reserves and claim
liabilities rather than reflected as an asset; (5) bonds held as available for
sale are recorded at amortized cost or market value as determined by the NAIC
rather than at fair value; (6) an Asset Valuation Reserve and Interest
Maintenance Reserve as prescribed by the NAIC are not calculated under GAAP.
Under GAAP, realized capital gains and losses are reported in the income
statement on a pretax basis as incurred and investment valuation allowances are
provided when there has been a decline in value deemed other than temporary; (7)
investments in affiliates are carried at their net equity value with changes in
value being recorded directly to unassigned deficit rather than consolidated in
the financial statements; (8) no provision is made for the deferred income tax
effects of temporary differences between book and tax basis reporting; and (9)
certain items, including modifications to required policy reserves resulting
from changes in actuarial assumptions, are recorded directly to unassigned
deficit rather than being reflected in income. The effects of the foregoing
variances from GAAP have not been determined but are presumed to be material.
The significant accounting practices of the Company are as follows:
Pending Statutory Standards
During March 1998, the NAIC adopted codified statutory accounting principles
("Codification") effective January 1, 2001. Codification will likely change, to
some extent, prescribed statutory accounting practices and may result in changes
to the accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification will require adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Accordingly, before Codification
becomes effective for the Company, the Commonwealth of Massachusetts must adopt
Codification as the prescribed basis of accounting on which domestic insurers
must report their statutory-basis results to the Division
46
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
of Insurance. At this time, it is anticipated that the Commonwealth of
Massachusetts will adopt Codification effective January 1, 2001. The impact of
any such changes on the Company's unassigned deficit is not expected to be
material.
Revenues and Expenses
Premium revenues are recognized over the premium-paying period of the policies
whereas expenses, including the acquisition costs of new business, are charged
to operations as incurred and policyholder dividends are provided as paid or
accrued.
Cash and Temporary Cash Investments
Cash includes currency on hand and demand deposits with financial
institutions. Temporary cash investments are short-term, highly-liquid
investments both readily convertible to known amounts of cash and so near
maturity that there is insignificant risk of changes in value because of changes
in interest rates.
Valuation of Assets
General account investments are carried at amounts determined on the following
bases:
Bond and stock values are carried as prescribed by the NAIC; bonds generally
at amortized amounts or cost, preferred stocks generally at cost and common
stocks at fair value. The discount or premium on bonds is amortized using the
interest method.
Investments in affiliates are included on the statutory equity method.
Loan-backed bonds and structured securities are valued at amortized cost using
the interest method including anticipated prepayments. Prepayment assumptions
are obtained from broker dealer surveys or internal estimates and are based on
the current interest rate and economic environment. The retrospective
adjustment method is used to value all such securities except for interest-only
securities, which are valued using the prospective method.
The net interest effect of interest rate and currency rate swap transactions
is recorded as an adjustment of interest income as incurred. The initial cost
of interest rate cap agreements is amortized to net investment income over the
life of the related agreement. Gains and losses on financial futures contracts
used as hedges against interest rate fluctuations are deferred and recognized in
income over the period being hedged.
Mortgage loans are carried at outstanding principal balance or amortized cost.
Investment real estate is carried at depreciated cost, less encumbrances.
Depreciation on investment real estate is recorded on a straight-line basis.
Accumulated depreciation amounted to $1.9 million in 1999 and $3.0 million in
1998.
Real estate acquired in satisfaction of debt and real estate held for sale are
carried at the lower of cost or fair value.
Policy loans are carried at outstanding principal balance, not in excess of
policy cash surrender value.
47
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Asset Valuation and Interest Maintenance Reserves
The Asset Valuation Reserve (AVR) is computed in accordance with the
prescribed NAIC formula and represents a provision for possible fluctuations in
the value of bonds, equity securities, mortgage loans, real estate and other
invested assets. Changes to the AVR are charged or credited directly to the
unassigned deficit.
The Company also records the NAIC prescribed Interest Maintenance Reserve
(IMR) that represents that portion of the after tax net accumulated unamortized
realized capital gains and losses on sales of fixed income securities,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates. Such gains and losses are deferred and amortized into
income over the remaining expected lives of the investments sold. At December
31, 1999, the IMR, net of 1999 amortization of $2.3 million, amounted to $7.4
million, which is included in policy reserves. The corresponding 1998 amounts
were $2.4 million and $10.7 million, respectively.
Goodwill
The excess of cost over the statutory book value of the net assets of life
insurance business acquired was $8.9 million and $11.4 million at December 31,
1999 and 1998, respectively, and generally is amortized over a ten-year period
using a straight-line method.
Separate Accounts
Separate account assets and liabilities reported in the accompanying
statements of financial position represent funds that are separately
administered, principally for variable life insurance policies, and for which
the contractholder, rather than the Company, generally bears the investment
risk. Separate account obligations are intended to be satisfied from separate
account assets and not from assets of the general account. Separate accounts
generally are reported at fair value. The operations of the separate accounts
are not included in the statement of operations; however, income earned on
amounts initially invested by the Company in the formation of new separate
accounts is included in other income.
Fair Value Disclosure of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair value
information about certain financial instruments, whether or not recognized in
the statement of financial position, for which it is practicable to estimate the
value. In situations where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. SFAS
No. 107 excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements. Therefore, the aggregate fair value amounts
presented do not represent the underlying value of the Company. See Note 11.
The methods and assumptions utilized by the Company in estimating its fair
value disclosures for financial instruments are as follows:
The carrying amounts reported in the statement of financial position for cash
and temporary cash investments approximate their fair values.
Fair values for public bonds are obtained from an independent pricing service.
Fair values for private placement securities and publicly traded bonds not
provided by the independent pricing service are estimated by the
48
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Company by discounting expected future cash flows using current market rates
applicable to the yield, credit quality and maturity of the investments.
The fair values for common and preferred stocks, other than its subsidiary
investments, which are carried at equity values, are based on quoted market
prices.
Fair values for futures contracts are based on quoted market prices. Fair
values for interest rate swap, cap agreements, and currency swap agreements are
based on current settlement values. The current settlement values are based on
brokerage quotes that utilize pricing models or formulas using current
assumptions.
The fair value for mortgage loan is estimated using discounted cash flow
analyses using interest rates adjusted to reflect the credit characteristics of
the underlying loans. Mortgage loans with similar characteristics and credit
risks are engaged into qualitative categories for purposes of the fair value
calculations.
The carrying amount in the statement of financial position for policy loans
approximates their fair value.
The fair value for outstanding commitments to purchase long-term bonds and
issue real estate mortgages is estimated using a discounted cash flow method
incorporating adjustments for the difference in the level of interest rates
between the dates the commitments were made and December 31, 1999.
Capital Gains and Losses
Realized capital gains and losses are determined using the specific
identification method. Realized capital gains and losses, net of taxes and
amounts transferred to the IMR, are included in net gain or loss. Unrealized
gains and losses, which consist of market value and book value adjustments, are
shown as adjustments to the unassigned deficit.
Policy Reserves
Life reserves are developed by actuarial methods and are determined based on
published tables using statutorily specified interest rates and valuation
methods that will provide, in the aggregate, reserves that are greater than or
equal to the minimum or guaranteed policy cash values or the amounts required by
the Commonwealth of Massachusetts Division of Insurance. Reserves for variable
life insurance policies are maintained principally on the modified preliminary
term method using the 1958 and 1980 Commissioner's Standard Ordinary (CSO)
mortality tables, with an assumed interest rate of 4% for policies issued prior
to May 1, 1983 and 41/2% for policies issued on or thereafter. Reserves for
single premium policies are determined by the net single premium method using
the 1958 CSO mortality table, with an assumed interest rate of 4%. Reserves for
universal life policies issued prior to 1985 are equal to the gross account
value which at all times exceeds minimum statutory requirements. Reserves for
universal life policies issued from 1985 through 1988 are maintained at the
greater of the Commissioner's Reserve Valuation Method (CRVM) using the 1958 CSO
mortality table, with 41/2% interest or the cash surrender value. Reserves for
universal life policies issued after 1988 and for flexible variable policies are
maintained using the greater of the cash surrender value or the CRVM method with
the 1980 CSO mortality table and 51/2% interest for policies issued from 1988
through 1992; 5% interest for policies issued in 1993 and 1994; and 41/2%
interest for policies issued in 1995 through 1999.
Federal Income Taxes
Federal income taxes are reported in the financial statements based on amounts
determined to be payable as a result of operations within the current accounting
period. The operations of the Company are consolidated with John Hancock in
filing a consolidated federal income tax return basis for the affiliated group.
The federal income
49
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
taxes of the Company are allocated on a separate return basis with certain
adjustments. The Company made federal income tax payments of $10.6 million in
1999 and $38.2 million in 1998.
Income before taxes differs from taxable income principally due to tax-exempt
investment income, the limitation placed on the tax deductibility of
policyholder dividends, accelerated depreciation, differences in policy reserves
for tax return and financial statement purposes, capitalization of policy
acquisition expenses for tax purposes and other adjustments prescribed by the
Internal Revenue Code.
Amounts for disputed tax issues relating to the prior years are charged or
credited directly to policyholders' contingency reserve.
Adjustments to Policy Reserves
From time to time, the Company finds it appropriate to modify certain required
policy reserves because of changes in actuarial assumptions. Reserve
modifications resulting from such determinations are recorded directly to
stockholder's equity. No such refinements were made during 1999 or 1998.
Reinsurance
Premiums, commissions, expense reimbursements, benefits and reserves related
to reinsured business are accounted for on bases consistent with those used in
accounting for the original policies issued and the terms of the reinsurance
contracts. Premiums ceded to other companies have been reported as a reduction
of premium income. Amounts applicable to reinsurance ceded for future policy
benefits, unearned premium reserves and claim liabilities have been reported as
reductions of these items.
2. ACQUISITION
On June 23, 1993, the Company acquired all of the outstanding shares of stock
of Colonial Penn Annuity and Life Insurance Company (CPAL) from Colonial Penn
Life Insurance Company for an aggregate purchase price of approximately $42.5
million. At the date of acquisition, assets of CPAL were approximately $648.5
million, consisting principally of cash and temporary cash investments and
liabilities were approximately $635.2 million, consisting principally of
reserves related to a block of interest sensitive single-premium whole life
insurance business assumed by CPAL from Charter National Life Insurance Company
(Charter). The purchase price includes contingent payments of up to
approximately $7.3 million payable between 1994 and 1998 based on the actual
lapse experience of the business in force on June 23, 1993. The Company made the
final contingent payment to CPAL of $1.5 million during 1998.
50
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
On June 24, 1993, the Company contributed $24.6 million in additional capital
to CPAL. CPAL was renamed John Hancock Life Insurance Company of America
(JHLICOA) on July 7, 1993. JHLICOA was subsequently renamed Investors Partner
Life Insurance Company (IPL) on March 5, 1998. IPL manages the business assumed
from Charter and began marketing term life and variable universal life products
through brokers in 1999. Summarized financial information for IPL for 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(IN MILLIONS)
<S> <C> <C>
Total assets. . . . . . . . . . . . . . . . 570.7 587.8
Total liabilities. . . . . . . . . . . . . . 498.9 517.5
Total revenue. . . . . . . . . . . . . . . . 35.6 38.8
Net income. . . . . . . . . . . . . . . . . 3.5 3.8
</TABLE>
3. NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
------ ------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Investment expenses . . . . . . . . . . . . . $ 9.5 $ 8.3
Interest expense. . . . . . . . . . . . . . 1.7 2.4
Depreciation expense. . . . . . . . . . . . 0.6 0.8
Investment taxes. . . . . . . . . . . . . . 0.3 0.7
------ ------
$12.1 $12.2
====== ======
</TABLE>
51
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
4. NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital gains (losses) consist of the following items:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
------ ------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net gains from asset sales . . . . . . . . . . . (2.8) 7.6
Capital gains tax . . . . . . . . . . . . . . . . 0.2 (2.9)
Net capital gains transferred to IMR . . . . . . 0.9 (5.3)
------ ------
Net REALIZED CAPITAL LOSSES . . . . . . . . . . . (1.7) (0.6)
====== ======
</TABLE>
Net unrealized capital gains (losses) and other adjustments consist of the
following items:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
------ ------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net losses from changes in security values and book
value adjustments. . . . . . . . . . . . . . . (2.6) (2.7)
Increase in asset valuation reserve . . . . . . . . (1.2) (3.3)
------ ------
Net UNREALIZED CAPITAL LOSSES AND OTHER ADJUSTMENTS (3.8) (6.0)
====== ======
</TABLE>
52
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
5. TRANSACTIONS WITH PARENT
The Company's Parent provides the Company with personnel, property and
facilities in carrying out certain of its corporate functions. The Parent
annually determines a fee for these services and facilities based on a number of
criteria which were revised in 1999 and 1998 to reflect continuing changes in
the Company's operations. The amount of the service fee charged to the Company
was $188.3 million and $157.5 million in 1999 and 1998, respectively, which has
been included in insurance and investment expenses. The Parent has guaranteed
that, if necessary, it will make additional capital contributions to prevent the
Company's stockholder's equity from declining below $1.0 million.
The service fee charged to the Company by the Parent includes $0.2 million and
$0.7 million in 1999 and 1998, respectively, representing the portion of the
provision for retiree benefit plans determined under the accrual method,
including a provision for the 1993 transition liability which is being amortized
over twenty years, that was allocated to the Company.
The Company has a modified coinsurance agreement with John Hancock to reinsure
50% of 1994 through 1999 issues of flexible premium variable life insurance and
scheduled premium variable life insurance policies. In connection with this
agreement, John Hancock transferred $44.5 million and $4.9 million of cash for
tax, commission, and expense allowances to the Company, which increased the
Company's net gain from operations by $20.6 million and $22.2 million in 1999
and 1998, respectively.
Effective January 1, 1996, the Company entered into a modified coinsurance
agreement with John Hancock to reinsure 50% of the 1995 inforce block and 50% of
1996 and all future issue years of certain variable annuity contracts
(Independence Preferred, Declaration, Independence 2000, MarketPlace, and
Revolution). In connection with this agreement, the Company received a net cash
payment of $40.0 million and $12.7 million in 1999 and 1998, respectively, for
surrender benefits, tax, reserve increase, commission, expense allowances and
premium, This agreement increased the Company's net gain from operations by
$26.9 million and $8.4 million in 1999 and 1998, respectively.
Effective January 1, 1997, the Company entered into a stop-loss agreement with
John Hancock to reinsure mortality claims in excess of 110% of expected
mortality claims in 1999 and 1998 for all policies that are not reinsured under
any other indemnity agreement. In connection with the agreement, John Hancock
received $0.8 million and 1.0 million in 1999 and 1998, respectively, for
mortality claims to the Company. This agreement decreased the Company's net
gain from operations in both 1999 and 1998 by $0.5 million.
At December 31, 1998 the Company had outstanding a short-term note of $61.9
million payable to an affiliate at a variable rate of interest. The note was
part of a revolving line of credit and was repaid in 1999. Interest paid in
1999 and 1998 was $1.7 million and $2.9 million, respectively. The note is
included in other general account obligations at December 31, 1998.
53
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
6. INVESTMENTS
The statement value and fair value of bonds are shown below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
-------------- -------------- --------------- ---------
(IN MILLIONS)
December 31, 1999 . .
U.S. Treasury
securities and
obligations of U.S.
government
corporations and
agencies . . . . . . 5.9 0.0 0.1 5.8
Obligations of states
and political
subdivisions . . . . 2.2 0.1 0.1 2.2
Debit securities
issued by foreign
governments. . . . . 13.9 0.8 0.1 14.6
Corporate securities 964.9 13.0 59.4 918.5
Mortgage-backed
securities . . . . . 229.4 0.5 7.8 222.1
-------- ----- ------ --------
Total bonds . . . . .
======== ===== ====== ========
December 31, 1998
U.S. Treasury
securities and
obligations of U.S.
government
corporations and
agencies . . . . . . 5.1 0.1 0.0 5.2
Obligations of states
and political
subdivisions . . . . 3.2 0.3 0.0 3.5
Corporate securities 925.2 50.4 15.0 960.6
Mortgage-backed
securities . . . . . 252.3 10.0 0.1 262.2
-------- ----- ------ --------
Total bonds . . . . . 15.1
======== ===== ====== ========
</TABLE>
54
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
The statement value and fair value of bonds at December 31, 1999, by
contractual maturity, are shown below. Maturities will differ from contractual
maturities because eligible borrowers may exercise their right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
<S> <C> <C>
FAIR
VALUE VALUE
-------- ---------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Due in one year or less. . . . . . . . . . . . . . $ 58.5 58.2
Due after one year through five years. . . . . . . 286.8 282.0
Due after five years through ten years . . . . . . 425.4 405.6
Due after ten years. . . . . . . . . . . . . . . . 216.2 195.3
-------- ---------
986.9 941.1
Mortgage-backed securities . . . . . . . . . . . . 229.4 222.1
-------- ---------
$1,216.3
======== =========
</TABLE>
Gross gains of $0.3 million in 1999 and $3.4 million in 1998 and gross losses
of $4.0 million in 1999 and $0.7 million in 1998 were realized from the sale of
bonds.
At December 31, 1999, bonds with an admitted asset value of $9.1 million were
on deposit with state insurance departments to satisfy regulatory requirements.
The cost of common stocks was $3.1 million and $2.1 million at December 31,
1999 and 1998, respectively. At December 31, 1999, gross unrealized
appreciation on common stocks totaled $1.2 million, and gross unrealized
depreciation totaled $1.1 million. The fair value of preferred stock totaled
$35.9 million at December 31, 1999 and $36.5 million at December 31, 1998.
Bonds with amortized cost of $0.4 million were non-income producing for the
twelve months ended December 31, 1999.
At December 31, 1999, the mortgage loan portfolio was diversified by
geographic region and specific collateral property type as displayed below. The
Company controls credit risk through credit approvals, limits and monitoring
procedures.
55
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GEOGRAPHIC
PROPERTY TYPE CONCENTRATION
Apartments. . . . . . . . $112.1 East North Central $ 71.3
Hotels. . . . . . . . . . 11.3 East South Central 7.4
Industrial. . . . . . . . 66.0 Middle Atlantic 28.5
Office buildings. . . . . 86.4 Mountain 21.0
Retail. . . . . . . . . . 25.5 New England 37.5
Agricultural. . . . . . . 99.6 Pacific 111.1
Other . . . . . . . . . . 32.2 South Atlantic 87.6
West North Central 16.6
West South Central 48.6
Other 3.5
------
$433.1 $433.1
======
</TABLE>
At December 31, 1999, the fair values of the commercial and agricultural
mortgage loans portfolios were $323.5 million and $98.2 million, respectively.
The corresponding amounts as of December 31, 1998 were approximately $331.3
million and $70.0 million, respectively.
The maximum and minimum lending rates for mortgage loans during 1999 were
14.24% and 6.84% for agricultural loans, 7.45% and 7.00% for other properties.
Generally, the maximum percentage of any loan to the value of security at the
time of the loan, exclusive of insured, guaranteed or purchase money mortgages,
is 75%. For city mortgages, fire insurance is carried on all commercial and
residential properties at least equal to the excess of the loan over the maximum
loan which would be permitted by law on the land without the building, except as
permitted by regulations of the Federal Housing Commission on loans fully
insured under the provisions of the National Housing Act. For agricultural
mortgage loans, fire insurance is not normally required on land based loans
except in those instances where a building is critical to the farming operation.
Fire insurance is required on all agri-business facilities in an aggregate
amount equal to the loan balance.
56
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
7. REINSURANCE
The Company cedes business to reinsurers to share risks under variable life,
universal life and flexible variable life insurance policies for the purpose of
reducing exposure to large losses. Premiums, benefits and reserves ceded to
reinsurers in 1999 were $594.9 million, $132.8 million, and $13.6 million,
respectively. The corresponding amounts in 1998 were $590.2 million, $63.2
million, and $8.2 million, respectively.
Reinsurance ceded contracts do not relieve the Company from its obligations to
policyholders. The Company remains liable to its policyholders for the portion
reinsured to the extent that any reinsurer does not meet its obligations for
reinsurance ceded to it under the reinsurance agreements. Failure of the
reinsurers to honor their obligations could result in losses to the Company;
consequently, estimates are established for amounts deemed or estimated to be
uncollectible. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentration of credit risk arising from similar characteristics
of the reinsurer.
Neither the Company, nor any of its related parties, control, either directly
or indirectly, any external reinsurers with which the Company conducts business.
No policies issued by the Company have been reinsured with a foreign company
which is controlled, either directly or indirectly, by a party not primarily
engaged in the business of insurance.
The Company has not entered into any reinsurance agreement in which the
reinsurer may unilaterally cancel any reinsurance for reasons other than
nonpayment of premiums or other similar credits. The Company does not have any
reinsurance agreements in effect in which the amount of losses paid or accrued
through December 31, 1999 would result in a payment to the reinsurer of amounts
which, in the aggregate and allowing for offset of mutual credits from other
reinsurance agreements with the same reinsurer, exceed the total direct premiums
collected under the reinsured policies.
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The notional amounts, carrying values and estimated fail values of the
Company's derivative instruments were as follows at December 31:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <S> <C> <C>
NUMBER OF CONTRACTS/ ASSETS (LIABILITIES)
------------------
NOTIONAL AMOUNTS 1999 1998
FAIR VALUE
---------
------- ------- --------- --------- ---------
(IN MILLIONS)
Futures contracts to $ (0.5)
sell securities 362.0 947.0 $0.6 $0.6 $(0.5)
Interest rate swap (17.7)
agreements $965.0 $365.0 -- 11.5 --
Interest rate cap
agreements 239.4 89.4 5.6 5.6 3.1
Currency rate swap (3.3)
agreements 15.8 15.8 -- (1.6) --
</TABLE>
57
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
The Company uses futures contracts, interest rate swap, cap agreements, and
currency rate swap agreements for other than trading purposes to hedge and
manage its exposure to changes in interest rate levels, foreign exchange rate
fluctuations and to manage duration mismatch of assets and liabilities.
The futures contracts expire in 2000. The interest rate swap agreements
expire in 2000 to 2011. The interest rate cap agreements expire in 2006 to
2008. The currency rate swap agreements expire in 2006 to 2009.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform to the terms of the contract. The Company continually
monitors its position and the credit ratings of the counterparties to these
derivative instruments. To limit exposure associated with counterparty
nonperformance on interest rate and currency swap agreements, the Company enters
into master netting agreements with its counterparties. The Company believes the
risk of incurring losses due to nonperformance by its counterparties is remote
and that such losses, if any, would be immaterial. Futures contracts trade on
organized exchanges and, therefore, have minimal credit risk.
9. POLICY RESERVES POLICYHOLDERS' AND BENIFICIARIES' FUNDS AND OBLIGATIONS
RELATED TO SEPARATE ACCOUNTS
The Company' annuity reserves and deposit fund liabilities that are subject to
discretionary withdrawal, with and without adjustment, are summarized as
follows.
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1999 PERCENT
---------------- ------
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Subject to discretionary withdrawal (with
adjustment)
With market value adjustment . . . . . . . . . $3.8 0.1%
At book value less surrender charge 40.5 1.5
At market value . . . . . . . . . . . . . . . . 2,326.6 87.1
--------
Total with adjustment. . . . . . . . . . . 2,370.9 88.7
Subject to discretionary withdrawal 287.1 10.7
at book value (without adjustment) . . . . .
Not subject to discretionary withdrawal--general
account. . . . . . . . . . . . . . . . . . . . 15.4 0.6
--------
Total annuity reserves and deposit liabilities $2,673.4 100.0%
========
</TABLE>
58
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
The Company has extended commitments to purchase long-term bonds and issue
real estate mortgages totaling $15.4 million and $3.5 million, respectively, at
December 31, 1999. The Company monitors the creditworthiness of borrowers under
long-term bonds commitments and requires collateral as deemed necessary. If
funded, loans related to real estate mortgages would be fully collateralized by
the related properties. The estimated fair value of the commitments described
above is $19.4 million at December 31, 1999. The majority of these commitments
expire in 2000.
In the normal course of its business operations, the Company is involved with
litigation from time to time with claimants, beneficiaries and others, and a
number of litigation matters were pending as of December 31, 1999. It is the
opinion of management, after consultation with counsel, that the ultimate
liability with respect to these claims, if any, will not materially affect the
financial position or results of operations of the Company.
During 1997, John Hancock entered into a court-approved settlement relating to
a class action lawsuit involving certain individual life insurance policies sold
from 1979 through 1996. In entering into the settlement, John Hancock
specifically denied any wrongdoing. During 1999, the Company recorded a $194.9
million reserve, through a direct charge to its unassigned deficit, representing
the Company's share of the settlement and John Hancock contributed $194.9
million of capital to the Company. The reserve held at December 31, 1999
amounted to $136.5 million and is based on a number of factors, including the
estimated number of claims, the expected type of relief to be sought by class
members (general relief or alternative dispute resolution), the estimated cost
per claim and the estimated costs to administer the claims.
Given the uncertainties associated with estimating the reserve, it is
reasonably possible that the final cost of the settlement could differ
materially from the amounts presently provided for by the Company. John Hancock
and the Company will continue to update their estimate of the final cost of the
settlement as claims are processed and more specific information is developed,
particularly as the actual cost of the claims subject to alternative dispute
resolution becomes available. However, based on information available at this
time, and the uncertainties associated with the final claim processing and
alternative dispute resolution, the range of any additional costs related to the
settlement cannot be reasonably estimated. If the Company's share of the
settlement increases, John Hancock will contribute additional capital to the
Company so that the Company's total stockholder's equity would not be impacted.
59
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments:
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31,
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
--------------- ---------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
ASSETS
Bonds--Note 6. . . . .
Preferred stocks--Note
6. . . . . . . . . . . . 35.9 35.9 36.5 36.5
Common stocks--Note 6. 3.2 3.2 3.1 3.1
Mortgage loans on real
estate--Note 6. . . . . 433.1 421.7 388.1 401.3
Policy loans--Note 1. 172.1 172.1 137.7 137.7
Cash items--Note 1. . 250.1 250.1 19.9 19.9
Derivatives assets
(liabilities) relating
to: --Note 8. . . . .
Futures contracts. . . 0.6 0.6 (0.5) (0.5)
Interest rate swaps. . -- 11.5 -- (17.7)
Currency rate swaps. . -- (1.6) -- (3.3)
Interest rate caps. . 5.6 5.6 3.1 3.1
LIABILITIES
Commitments--Note 10. -- 19.4 -- 32.1
</TABLE>
The carrying amounts in the table are included in the statutory-basis
statements of financial position. The method and assumptions utilized by the
Company in estimating its fair value disclosures are described in Note 1.
12. SUBSEQUENT EVENTS
REORGANIZATION AND INITIAL PUBLIC OFFERING
Pursuant to a Plan of Reorganization approved by the policyholders of John
Hancock and the Commonwealth of Massachusetts Division of Insurance, effective
February 1, 2000, John Hancock converted from a mutual life insurance company to
a stock life insurance company (i.e., demutualized) and became a wholly owned
subsidiary of John Hancock Financial Services, Inc., which is a holding company.
In connection with the reorganization, John Hancock changed its name to John
Hancock Life Insurance Company. In addition, on February 1, 2000, John Hancock
Financial Services, Inc. completed its initial public offering and 102 million
shares of common stock were issued at an initial public offering price of $17
per share.
60
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENT--(CONTINUED)
13. IMPACT OF YEAR 2000 (UNAUDITED)
The Company participated in the Year 2000 remediation project of its parent,
John Hancock. By late 1999, John Hancock and the Company completed their Year
2000 readiness plan to address issues that could result from computer programs
written using two digits to define the applicable year rather than four to
define the applicable year and century. As a result, John Hancock and the
Company were prepared for the transition to the Year 2000 and did not experience
any significant Year 2000 problems with respect to mission critical information
technology ("IT") or non-IT systems, applications or infrastructure. During the
date rollover to the year 2000, John Hancock and the Company implemented and
monitored their millennium rollover plan and conducted business as usual on
Monday, January 3, 2000.
Since January 3, 2000, the information systems, including mission critical
systems, which in the event of a Year 2000 failure would have the greatest
impact on operations, have functioned properly. In addition, neither John
Hancock nor the Company have experienced any significant Year 2000 issues
related to interactions with material business partners. No disruptions have
occurred which impact John Hancock or the Company's ability to process claims,
update customer accounts, process financial transactions, or report accurate
data to management and no business interruptions due to Year 2000 issues have
been experienced. While John Hancock and the Company continue to monitor their
systems, and those of material business partners, closely to ensure that no
unexpected Year 2000 issues develop, neither John Hancock nor the Company have
reason to expect any such issues.
The costs of the Year 2000 project consist of internal IT personnel and
external costs such as consultants, programmers, replacement software, and
hardware. The costs of the Year 2000 project are expensed as incurred. The
project is funded partially through a reallocation of resources from
discretionary projects. Through December 31, 1999, John Hancock has incurred
and expensed approximately $20.8 million in related payroll costs for internal
IT personnel on the project. The estimated remaining IT personnel costs of the
project are approximately $1.0 million. Through December 31, 1999, John Hancock
has incurred and expensed approximately $47.0 million in external costs for the
project. John Hancock's estimated remaining external cost of the project is
approximately $2.0 million. The total costs of the Year 2000 project to John
Hancock, based on management's best estimates, include approximately $21.7
million in internal IT personnel, $14.6 million in the external modification of
software, $18.3 million for external solution providers, $9.1 million in
replacement costs of non-compliant IT systems and $6.9 million in oversight,
test facilities and other expenses. Accordingly, the estimated range of total
costs of the Year 2000 project to John Hancock, internal and external, is
approximately $70 to $72.5 million. John Hancock's total Year 2000 project
costs include the estimated impact of external solution providers based on
presently available information.
61
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Policyholders of 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, Small Cap Growth,
International Balanced, Mid Cap Growth, Large Cap Value, Money Market, Mid Cap
Value, Small/Mid Cap Growth (formerly, Diversified Mid Cap Growth), Real Estate
Equity, Growth & Income, Managed, Short-Term Bond, Small Cap Value,
International Opportunities, Equity Index, Global Bond (formerly, Strategic
Bond), Turner Core Growth, Brandes International Equity, Frontier Capital
Appreciation, Enhanced U.S. Equity, Emerging Markets Equity, Global Equity, Bond
Index, Small/Mid Cap CORE and High Yield Bond Subaccounts) as of December 31,
1999, and the related statements of operations and changes in net assets for
each of the periods indicated therein. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting John Hancock Variable Life Account S at December 31,
1999, the results of their operations and the changes in their net assets for
each of the periods indicated, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Boston, Massachusetts
February 11, 2000
62
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
INTERNATIONAL
LARGE CAP SOVEREIGN EQUITY SMALL CAP
GROWTH BOND INDEX GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ----------- ------------- -------------
-------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . $ 8,016 $ 2,380 $ 2,435 $ 2,357
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . 115,521,551 38,321,474 33,198,674 31,022,828
Investments in shares
of portfolios of M
Fund Inc., at value -- -- -- --
Receivable from:
John Hancock Variable
Series Trust I . . 21,617 12,536 419 208,513
M Fund Inc. . . . . -- -- -- --
------------ ----------- ----------- -----------
Total assets . . . . 115,551,184 38,336,390 33,201,528 31,233,698
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company . . . . . . 20,467 12,194 75 208,172
M Fund Inc. . . . . -- -- -- --
Asset charges payable 9,166 2,723 2,779 2,698
------------ ----------- ----------- -----------
Total liabilities . . 29,633 14,917 2,854 210,870
------------ ----------- ----------- -----------
Net assets . . . . . $115,521,551 $38,321,473 $33,198,674 $31,022,828
============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL MID CAP LARGE CAP MONEY
BALANCED GROWTH VALUE MARKET
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ----------- ----------- -------------
------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . . $ 304 $ 4,698 $ 1,803 $ 3,061
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value . . . . . . . . 4,591,857 63,499,616 27,106,918 61,006,769
Investments in shares
of portfolios of M
Fund Inc., at value . -- -- -- --
Receivable from:
John Hancock Varidable
Series Trust I . . . 52 27,659 12,738 1,396,082
M Fund Inc. . . . . . -- -- -- --
---------- ----------- ----------- -----------
Total assets . . . . . 4,592,213 63,531,973 27,121,459 62,405,912
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company. . . . . . . 9 26,980 12,479 1,395,329
M Fund Inc. . . . . . -- -- -- --
Asset charges payable 348 5,377 2,063 3,814
---------- ----------- ----------- -----------
Total liabilities . . 357 32,357 14,542 1,399,143
---------- ----------- ----------- -----------
Net assets . . . . . . $4,591,856 $63,499,616 $27,106,917 $61,006,769
========== =========== =========== ===========
</TABLE>
See accompanying notes.
63
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MID CAP SMALL/MID CAP REAL ESTATE GROWTH&
VALUE GROWTH EQUITY INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . $ 1,422 $ 701 $ 611 $ 17,877
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . 19,138,533 9,925,831 9,238,646 209,525,898
Investments in shares
of portfolios of M
Fund Inc., at value -- -- -- --
Receivable from:
John Hancock Variable
Series Trust I . . 38,609 580,155 88 330,982
M Fund Inc. . . . . -- -- -- --
------------ -------------- ------------ ------------
Total assets . . . . 19,178,564 10,506,687 9,239,345 209,874,757
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company . . . . . . 38,404 580,049 -- 328,424
M Fund Inc. . . . . -- -- -- --
Asset charges payable 1,627 807 699 20,434
------------ -------------- ------------ ------------
Total liabilities . . 40,031 580,856 699 348,858
------------ -------------- ------------ ------------
Net assets . . . . . $ 19,138,533 $ 9,925,831 $ 9,238,646 $209,525,899
============ ============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM SMALL CAP INTERNATIONAL
MANAGED BOND VALUE OPPORTUNITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- -------------
-------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . $ 13,307 $ 731 $ 1,430 $ 2,454
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . 125,710,809 11,728,988 18,783,397 31,535,050
Investments in shares
of portfolios of M
Fund Inc., at value -- -- -- --
Receivable from:
John Hancock Variable
Series Trust I . . 34,311 215 189,514 1,308
M Fund Inc. . . . . -- -- -- --
------------ ----------- ----------- -----------
Total assets . . . . 125,758,427 11,729,934 18,974,341 31,538,812
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company . . . . . . 32,402 114 189,306 955
M Fund Inc. . . . . -- -- -- --
Asset charges payable 15,216 832 1,639 2,808
------------ ----------- ----------- -----------
Total liabilities . . 47,618 946 190,945 3,763
------------ ----------- ----------- -----------
Net assets . . . . . $125,710,809 $11,728,988 $18,783,396 $31,535,049
============ =========== =========== ===========
</TABLE>
See accompanying notes.
64
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
TURNER BRANDES
EQUITY GLOBAL CORE INTERNATIONAL
INDEX BOND GROWTH EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------- ---------------
------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . . $ 10,574 $ 734 $ 1,535 $ 1,016
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value . . . . . . . . 149,913,130 8,838,516 -- --
Investments in shares
of portfolios of M
Fund Inc., at value . -- -- 22,671,006 17,415,296
Receivable from:
John Hancock Variable
Series Trust I . . . 126,680 766,077 222 271
M Fund Inc. . . . . . -- -- -- --
------------ ---------- ----------- -----------
Total assets . . . . . 150,050,384 9,605,327 22,672,763 17,416,583
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company. . . . . . . 125,115 765,972 -- 122
M Fund Inc. . . . . . -- -- -- --
Asset charges payable 12,138 839 1,758 1,165
------------ ---------- ----------- -----------
Total liabilities . . 137,253 766,811 1,758 1,287
------------ ---------- ----------- -----------
Net assets . . . . . . $149,913,131 $8,838,516 $22,671,005 $17,415,296
============ ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FRONTIER EMERGING
CAPITAL ENHANCED MARKETS GLOBAL
APPRECIATION U.S. EQUITY EQUITY EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ----------- ---------- ------------
---------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . . . $ 1,031 $ 437 $ 370 $ 71
Investments in shares of
portfolios of John
Hancock Variable Series
Trust I, at value . . . -- -- 3,723,380 836,878
Investments in shares of
portfolios of M Fund
Inc., at value . . . . . 16,985,022 6,738,214 -- --
Receivable from:
John Hancock Variable
Series Trust I . . . . 771 63 254 24
M Fund Inc. . . . . . . -- -- -- --
----------- ---------- ---------- --------
Total assets . . . . . . 16,986,824 6,738,714 3,724,004 836,973
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance Company 620 -- 204 13
M Fund Inc. . . . . . . -- -- -- --
Asset charges payable . . 1,182 500 420 82
----------- ---------- ---------- --------
Total liabilities . . . . 1,802 500 624 95
----------- ---------- ---------- --------
Net assets . . . . . . . $16,985,022 $6,738,214 $3,723,380 $836,878
=========== ========== ========== ========
</TABLE>
See accompanying notes.
65
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SMALL/ MID
CAP CORE HIGH
BOND SUBACCOUNT YIELD
INDEX ---------- BOND
SUBACCOUNT SUBACCOUNT
---------- ------------
------------------------------------
<S> <C> <C> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . $ 374 $ 56 $ 310
Investments in shares of portfolios of
John Hancock Variable Series Trust I, at
value . . . . . . . . . . . . . . . . . 5,126,051 616,813 4,273,214
Investments in shares of portfolios of M
Fund Inc., at value . . . . . . . . . . -- -- --
Receivable from:
John Hancock Variable Series Trust I . 87 7 906,251
M Fund Inc. . . . . . . . . . . . . . . -- -- --
---------- -------- ----------
Total assets . . . . . . . . . . . . . . 5,126,512 616,876 5,179,775
LIABILITIES
Payable to:
John Hancock Variable Life Insurance
Company. . . . . . . . . . . . . . . . 20 -- 906,193
M Fund Inc. . . . . . . . . . . . . . . -- -- --
Asset charges payable . . . . . . . . . 441 63 368
---------- -------- ----------
Total liabilities . . . . . . . . . . . 461 63 906,561
---------- -------- ----------
Net assets . . . . . . . . . . . . . . . $5,126,051 $616,813 $4,273,214
========== ======== ==========
</TABLE>
See accompanying notes.
66
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
LARGE CAP GROWTH SUBACCOUNT SOVEREIGN BOND SUBACCOUNT
-------------------------------------- -----------------------------------
1999 1998 1997 1999 1998 1997
------------ ----------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $17,558,034 $ 6,312,073 $ 2,884,498 $ 2,851,613 $2,190,901 $855,742
M Fund Inc. . . . . -- -- -- -- -- --
----------- ----------- ----------- ----------- ---------- --------
Total investment
income . . . . . . . 17,558,034 6,312,073 2,884,498 2,851,613 2,190,901 855,742
Expenses:
Mortality and expense
risks . . . . . . . 324,595 168,652 91,256 126,407 93,556 39,184
----------- ----------- ----------- ----------- ---------- --------
Net investment income 17,233,439 6,143,421 2,793,242 2,725,206 2,097,345 816,558
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 5,003,007 1,750,881 619,721 (1,391,910) 185,230 80,538
Net unrealized
appreciation
(depreciation)
during the period . (2,053,672) 8,041,022 2,301,920 (1,837,190) (378,058) 63,687
----------- ----------- ----------- ----------- ---------- --------
Net realized and
unrealized gain
(loss) on investments 2,949,335 9,791,903 2,921,641 (3,229,100) (192,828) 144,225
----------- ----------- ----------- ----------- ---------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $20,182,774 $15,935,324 $ 5,714,883 $ (503,894) $1,904,517 $960,783
=========== =========== =========== =========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY INDEX SUBACCOUNT SMALL CAP GROWTH SUBACCOUNT
-------------------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 936,475 $1,930,710 $ 422,913 $ 3,697,955 $ -- $ 473
M Fund Inc. . . . . -- -- -- -- -- --
---------- ---------- ----------- ----------- ---------- --------
Total investment
income . . . . . . . 936,475 1,930,710 422,913 3,697,955 -- 473
Expenses:
Mortality and expense
risks . . . . . . . 81,058 45,651 33,893 60,221 22,593 6,547
---------- ---------- ----------- ----------- ---------- --------
Net investment income
(loss) . . . . . . . 855,417 1,885,059 389,020 3,637,734 (22,593) (6,074)
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains . 753,750 152,030 244,810 2,548,944 58,729 21,707
Net unrealized
appreciation
(depreciation)
during the period . 4,871,167 78,480 (1,219,540) 3,920,455 1,070,805 126,699
---------- ---------- ----------- ----------- ---------- --------
Net realized and
unrealized gain
(loss) on investments 5,624,917 230,510 (974,730) 6,469,399 1,129,534 148,406
---------- ---------- ----------- ----------- ---------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $6,480,334 $2,115,569 $ (585,710) $10,107,133 $1,106,941 $142,332
========== ========== =========== =========== ========== ========
</TABLE>
See accompanying notes.
67
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED SUBACCOUNT MID CAP GROWTH SUBACCOUNT
---------------------------------- ---------------------------------
1999 1998 1997 1999 1998 1997
----------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 372,766 $ 185,760 $ 61,249 $ 6,491,783 $1,114,374 $ --
M Fund Inc. . . . . -- -- -- -- -- --
---------- ---------- --------- ----------- ---------- --------
Total investment
income . . . . . . . 372,766 185,760 61,249 6,491,783 1,114,374 --
Expenses:
Mortality and expense
risks . . . . . . . 13,792 9,687 4,443 102,248 26,123 8,287
---------- ---------- --------- ----------- ---------- --------
Net investment income
(loss) . . . . . . . 358,974 176,073 56,806 6,389,535 1,088,251 (8,287)
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains . 15,640 24,206 8,667 5,188,018 599,619 1,235
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . (173,912) 147,461 (67,714) 15,078,681 1,184,263 486,186
---------- ---------- --------- ----------- ---------- --------
Net realized and
unrealized gain
(loss) on investments (158,272) 171,667 (59,047) 20,266,699 1,783,882 487,421
---------- ---------- --------- ----------- ---------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $ 200,702 $ 347,740 $ (2,241) $26,656,234 $2,872,133 $479,134
========== ========== ========= =========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
LARGE CAP VALUE SUBACCOUNT MONEY MARKET 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 . . $ 1,809,072 $ 797,874 $194,199 $3,279,928 $1,854,829 $758,434
M Fund Inc. . . . . -- -- -- -- -- --
----------- ---------- -------- ---------- ---------- --------
Total investment
income . . . . . . . 1,809,072 797,874 194,199 3,279,928 1,854,829 758,434
Expenses:
Mortality and expense
risks . . . . . . . 88,877 41,415 11,163 291,398 167,813 66,882
----------- ---------- -------- ---------- ---------- --------
Net investment income 1,720,195 756,459 183,036 2,988,530 1,687,016 691,552
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains . 705,454 330,827 164,821 -- -- --
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . (2,181,112) 145,355 279,449 -- -- --
----------- ---------- -------- ---------- ---------- --------
Net realized and
unrealized gain
(loss) on investments (1,475,658) 476,182 444,270 -- -- --
----------- ---------- -------- ---------- ---------- --------
Net increase in net
assets resulting from
operations . . . . . $ 244,537 $1,232,641 $627,306 $2,988,530 $1,687,016 $691,552
=========== ========== ======== ========== ========== ========
</TABLE>
See accompanying notes.
68
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MID CAP VALUE SUBACCOUNT SMALL/MID CAP GROWTH SUBACCOUNT
----------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
----------- ------------ --------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I . . . . . $ 110,190 $ 120,469 $446,081 $ 1,421,656 $ 142,469 $ 878,600
M Fund Inc. . . . . . . . . . . . . . . . . . -- -- -- -- -- --
---------- ----------- -------- ----------- ------------- -----------
Total investment income . . . . . . . . . . . . 110,190 120,469 446,081 1,421,656 142,469 878,600
Expenses:
Mortality and expense risks. . . . . . . . . . 68,611 45,020 11,421 32,995 34,432 35,934
---------- ----------- -------- ----------- ------------- -----------
Net investment income . . . . . . . . . . . . . 41,579 75,449 434,660 1,388,661 108,037 842,666
Net realized and unrealized gain (loss) on
investments:
Net realized gains (losses) . . . . . . . . . (860,332) (538,516) 101,787 13,375 232,246 297,666
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . . . 1,757,919 (830,390) (39,717) (1,001,208) 236,333 (730,748)
---------- ----------- -------- ----------- ------------- -----------
Net realized and unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . 897,587 (1,368,906) 62,070 (987,833) 468,579 (433,082)
---------- ----------- -------- ----------- ------------- -----------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . $ 939,166 $(1,293,457) $496,730 $ 400,828 $ 576,616 $ 409,584
========== =========== ======== =========== ============= ===========
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE EQUITY SUBACCOUNT GROWTH & INCOME SUBACCOUNT
---------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997
---------- ------------ --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 544,845 $ 305,783 $246,677 $23,565,679 $ 9,266,175 $5,917,063
M Fund Inc. . . . . -- -- -- -- -- --
--------- ----------- -------- ----------- ----------- ----------
Total investment
income . . . . . . . 544,845 305,783 246,677 23,565,679 9,266,175 5,917,063
Expenses:
Mortality and expense
risks . . . . . . . 29,468 22,716 13,879 715,377 290,361 169,135
--------- ----------- -------- ----------- ----------- ----------
Net investment income 515,377 283,067 232,798 22,850,302 8,975,814 5,747,928
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . (735,504) (454,979) 252,095 6,207,253 2,061,212 2,390,414
Net unrealized
appreciation
(depreciation)
during the period . 80,925 (698,676) (13,488) (5,814,839) 7,759,307 435,778
--------- ----------- -------- ----------- ----------- ----------
Net realized and
unrealized gain
(loss) on investments (654,579) (1,153,655) 238,607 392,414 9,820,519 2,826,192
--------- ----------- -------- ----------- ----------- ----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $(139,202) $ (870,588) $471,405 $23,242,716 $18,796,333 $8,574,120
========= =========== ======== =========== =========== ==========
</TABLE>
See accompanying notes.
69
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MANAGED SUBACCOUNT SHORT-TERM BOND SUBACCOUNT
------------------------------------ ------------------------------------
1999 1998 1997 1999 1998 1997
------------ ---------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $11,251,980 $3,606,186 $1,879,954 $ 957,614 $ 977,164 $ 415,542
M Fund Inc. . . . . -- -- -- -- -- --
----------- ---------- ---------- ---------- ----------- ---------
Total investment
income . . . . . . . 11,251,980 3,606,186 1,879,954 957,614 977,164 415,542
Expenses:
Mortality and expense
risks . . . . . . . 495,544 121,905 65,383 50,128 50,947 20,551
----------- ---------- ---------- ---------- ----------- ---------
Net investment income 10,756,436 3,484,281 1,814,571 907,486 926,217 394,991
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 2,233,258 278,186 171,318 (441,667) 24,740 35,294
Net unrealized
appreciation
(depreciation)
during the period . (6,419,069) 1,791,231 715,231 (85,754) (136,999) (25,976)
----------- ---------- ---------- ---------- ----------- ---------
Net realized and
unrealized gain
(loss) on investments (4,185,811) 2,069,417 886,549 (527,421) (112,259) 9,318
----------- ---------- ---------- ---------- ----------- ---------
Net increase in net
assets resulting from
operations . . . . . $ 6,570,625 $5,553,698 $2,701,120 $ 380,065 $ 813,958 $ 404,309
=========== ========== ========== ========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL OPPORTUNITIES
SMALL CAP VALUE 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 . . $ 409,324 $ 47,350 $299,278 $2,096,195 $ 103,399 $ 69,078
M Fund Inc. . . . . -- -- -- -- -- --
--------- --------- -------- ---------- ---------- ---------
Total investment
income . . . . . . . 409,324 47,350 299,278 2,096,195 103,399 69,078
Expenses:
Mortality and expense
risks . . . . . . . 64,613 33,335 8,494 90,191 50,003 13,177
--------- --------- -------- ---------- ---------- ---------
Net investment income 344,711 14,015 290,784 2,006,004 53,396 55,901
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . (979,002) (9,919) 75,149 1,907,809 191,495 80,782
Net unrealized
appreciation
(depreciation)
during the period . 325,684 (523,693) (18,626) 3,818,953 1,108,416 (260,664)
--------- --------- -------- ---------- ---------- ---------
Net realized and
unrealized gain
(loss) on investments (653,318) (533,612) 56,523 5,726,762 1,299,911 (179,882)
--------- --------- -------- ---------- ---------- ---------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $(308,607) $(519,597) $347,307 $7,732,766 $1,353,307 $(123,981)
========= ========= ======== ========== ========== =========
</TABLE>
See accompanying notes.
70
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY INDEX SUBACCOUNT GLOBAL BOND SUBACCOUNT
----------------------------------- --------------------------------
1999 1998 1997 1999 1998 1997
----------- ---------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 5,839,023 $1,337,750 $ 409,920 $ 460,088 $303,545 $ 74,850
M Fund Inc. . . . . -- -- -- -- -- --
----------- ---------- ---------- ----------- -------- --------
Total investment
income . . . . . . . 5,839,023 1,337,750 409,920 460,088 303,545 74,850
Expenses:
Mortality and expense
risks . . . . . . . 335,573 126,021 31,223 35,321 19,894 3,820
----------- ---------- ---------- ----------- -------- --------
Net investment income 5,503,450 1,211,729 378,697 424,767 283,651 71,030
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 7,681,081 691,270 901,978 (204,675) 81,659 8,335
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . 4,678,509 6,098,919 392,256 (433,526) 43,608 (11,727)
----------- ---------- ---------- ----------- -------- --------
Net realized and
unrealized gain
(loss) on investments 12,359,590 6,790,189 1,294,234 (638,201) 125,267 (3,392)
----------- ---------- ---------- ----------- -------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $17,863,040 $8,001,918 $1,672,931 $ (213,434) $408,918 $ 67,638
=========== ========== ========== =========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
BRANDES INTERNATIONAL
TURNER CORE GROWTH SUBACCOUNT EQUITY SUBACCOUNT
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
---------- -------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series
Trust I . . . . . . $1,349,358 $ -- $ -- $ 549,978 $ -- $ --
M Fund Inc. . . . . -- 84,940 91,360 -- 358,080 32,677
---------- -------- -------- ---------- -------- --------
Total investment
income . . . . . . . 1,349,358 84,940 91,360 549,978 358,080 32,677
Expenses:
Mortality and expense
risks . . . . . . . 33,920 7,737 4,071 34,297 14,434 7,502
---------- -------- -------- ---------- -------- --------
Net investment income 1,315,438 77,203 87,289 515,681 343,646 25,175
Net realized and
unrealized gain
(loss) on
investments: . . . .
Net realized gains . 1,038,462 156,278 76,711 507,727 89,337 12,541
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . 1,626,646 562,620 32,626 3,486,097 91,915 (26,022)
---------- -------- -------- ---------- -------- --------
Net realized and
unrealized gain
(loss) on investments 2,665,108 718,898 109,337 3,993,824 181,252 (13,481)
---------- -------- -------- ---------- -------- --------
Net increase in net
assets resulting from
operations . . . . . $3,980,546 $796,101 $196,626 $4,509,505 $524,898 $ 11,694
========== ======== ======== ========== ======== ========
</TABLE>
See accompanying notes.
71
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FRONTIER CAPITAL APPRECIATION
SUBACCOUNT ENHANCED U.S. EQUITY SUBACCOUNT
--------------------------------- --------------------------------
1999 1998 1997 1999 1998 1997*
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 487,465 $ -- $ -- $532,067 $ -- $ --
M Fund Inc. . . . . -- 34,738 128,190 -- 72,302 15,335
---------- --------- --------- -------- -------- -------
Total investment
income . . . . . . . 487,465 34,738 128,190 532,067 72,302 15,335
Expenses:
Mortality and expense
risks . . . . . . . 37,471 24,841 10,040 13,930 4,069 478
---------- --------- --------- -------- -------- -------
Net investment income 449,994 9,897 118,150 518,137 68,233 14,857
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 624,068 (445,752) 614,358 264,436 87,723 4,177
Net unrealized
appreciation
(depreciation)
during the period . 3,431,408 432,064 (368,570) 151,562 89,677 6,844
---------- --------- --------- -------- -------- -------
Net realized and
unrealized gain
(loss) on investments 4,055,476 (13,688) 245,788 415,998 177,400 11,021
---------- --------- --------- -------- -------- -------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $4,505,470 $ (3,791) $ 363,938 $934,135 $245,633 $25,878
========== ========= ========= ======== ======== =======
</TABLE>
<TABLE>
<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 . . $ 137,724 $ 522 $ 6,063 $ 491 $ 140,772 $ 23,842
M Fund Inc. . . . . -- -- -- -- -- --
---------- -------- -------- -------- --------- --------
Total investment
income . . . . . . . 137,724 522 6,063 491 140,772 23,842
Expenses:
Mortality and expense
risks . . . . . . . 5,465 387 1,859 339 10,636 937
---------- -------- -------- -------- --------- --------
Net investment income 132,259 135 4,204 152 130,136 22,905
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 663,998 (45,975) 82,873 (21,835) (104,174) 1,002
Net unrealized
appreciation
(depreciation)
during the period . 432,248 2,289 47,295 4,812 (78,192) (10,217)
---------- -------- -------- -------- --------- --------
Net realized and
unrealized gain
(loss) on investments 1,096,246 (43,686) 130,168 (17,023) (182,366) (9,215)
---------- -------- -------- -------- --------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $1,228,505 $(43,551) $134,372 $(16,871) $ (52,230) $ 13,690
========== ======== ======== ======== ========= ========
</TABLE>
- ---------
* From July 1, 1997 (commencement of operations).
** From May 1, 1998 (commencement of operations).
72
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<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 . . . . . . . . . . . $ 54,784 $ -- $ 352,641 $ 88,721
M Fund Inc. . . . . . . . . . . -- -- -- --
-------- -------- --------- --------
Total investment income . . . . 54,784 -- 352,641 88,721
Expenses:
Mortality and expense risks . . 2,073 535 12,206 1,962
-------- -------- --------- --------
Net investment income (loss) . . 52,711 (535) 340,435 86,759
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses) . . 65,733 (25,196) 42,365 64,824
Net unrealized appreciation
(depreciation) during the
period . . . . . . . . . . . . (10,735) 18,718 (139,659) 149,416
-------- -------- --------- --------
Net realized and unrealized gain
(loss) on investments . . . . . 54,998 (6,478) (97,294) 214,240
-------- -------- --------- --------
Net increase (decrease) in net
assets resulting from operations $107,709 $ (7,013) $ 243,141 $300,999
======== ======== ========= ========
</TABLE>
- ---------
** From May 1, 1998 (commencement of operations).
See accompanying notes.
73
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
LARGE CAP GROWTH SUBACCOUNT SOVEREIGN BOND SUBACCOUNT
------------------------------------------ -----------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income . . . . . . . . $ 17,233,439 $ 6,143,421 $ 2,793,242 $ 2,725,206 $ 2,097,345 $ 816,558
Net realized gains (losses) . . . . . 5,003,007 1,750,881 619,721 (1,391,910) 185,230 80,538
Net unrealized appreciation
(depreciation) during the period . . (2,053,672) 8,041,022 2,301,920 (1,837,190) (378,058) 63,687
------------ ------------ ------------ ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . 20,182,774 15,935,324 5,714,883 (503,894) 1,904,517 960,783
From policyholder transactions:
Net premiums from policyholders . . . 75,667,981 29,859,648 20,264,849 74,595,720 38,567,292 21,324,560
Net benefits to policyholders . . . . (45,347,424) (13,281,028) (10,390,849) (68,312,320) (27,391,317) (8,009,615)
------------ ------------ ------------ ------------ ------------ -----------
Net increase in net assets resulting
from policyholder
transactions . . . . . . . . . . . . . 30,320,557 16,578,620 9,874,000 6,283,400 11,175,975 13,314,945
------------ ------------ ------------ ------------ ------------ -----------
Net increase in net assets . . . . . . 50,503,331 32,513,944 15,588,883 5,779,506 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 . . . . . . $115,521,551 $ 65,018,220 $ 32,504,276 $ 38,321,473 $ 32,541,967 $19,461,475
============ ============ ============ ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY SMALL CAP
INDEX SUBACCOUNT GROWTH SUBACCOUNT
---------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) . . . . . . $ 855,417 $ 1,885,059 $ 389,020 $ 3,637,734 $ (22,593) $ (6,074)
Net realized gains . . . . . . . . . . . 753,750 152,030 244,810 2,548,944 58,729 21,707
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . 4,871,167 78,480 (1,219,540) 3,920,455 1,070,805 126,699
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . 6,480,334 2,115,569 (585,710) 10,107,133 1,106,941 142,332
From policyholder transactions:
Net premiums from policyholders . . . . . 53,332,374 10,034,119 8,150,400 52,637,861 12,088,047 2,870,481
Net benefits to policyholders . . . . . . (39,209,664) (8,344,107) (4,505,840) (40,800,272) (6,621,834) (1,005,386)
------------ ----------- ----------- ------------ ----------- -----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . 14,122,710 1,690,012 3,644,560 11,837,589 5,466,213 1,865,095
------------ ----------- ----------- ------------ ----------- -----------
Net increase in net assets . . . . . . . . 20,603,044 3,805,581 3,058,850 21,944,722 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 . . . . . . . $ 33,198,674 $12,595,630 $ 8,790,049 $ 31,022,828 $ 9,078,106 $ 2,504,952
============ =========== =========== ============ =========== ===========
</TABLE>
See accompanying notes.
74
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED
SUBACCOUNT MID CAP GROWTH SUBACCOUNT
-------------------------------------- ---------------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------ ----------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) . . . . . $ 358,974 $ 176,073 $ 56,806 $ 6,389,535 $ 1,088,251 $ (8,287)
Net realized gains . . . . . . . . . . 15,640 24,206 8,667 5,188,018 599,619 1,235
Net unrealized appreciation
(depreciation) during the period . . (173,912) 147,461 (67,714) 15,078,681 1,184,263 486,186
----------- ----------- ---------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations . . . . . . 200,702 347,740 (2,241) 26,656,234 2,872,133 479,134
From policyholder transactions:
Net premiums from policyholders . . . 6,295,052 3,163,316 1,608,069 65,183,285 11,323,614 3,212,754
Net benefits to policyholders . . . . (5,007,225) (1,882,974) (282,878) (41,018,347) (5,132,055) (915,459)
----------- ----------- ---------- ------------- ------------- -------------
Net increase in net assets resulting
from policyholder transactions . . . . 1,287,827 1,280,342 1,325,191 24,164,938 6,191,559 2,297,295
----------- ----------- ---------- ------------- ------------- -------------
Net increase in net assets . . . . . . 1,488,529 1,628,082 1,322,950 50,821,172 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 . . . . . . $ 4,591,856 $ 3,103,327 $1,475,245 $ 63,499,616 $ 12,678,444 $ 3,614,752
=========== =========== ========== ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
LARGE CAP VALUE SUBACCOUNT MONEY MARKET SUBACCOUNT
---------------------------------------- ---------------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income . . . . . . . $ 1,720,195 $ 756,459 $ 183,036 $ 2,988,530 $ 1,687,016 $ 691,552
Net realized gains . . . . . . . . . 705,454 330,827 164,821 -- -- --
Net unrealized appreciation
(depreciation) during the period . (2,181,112) 145,355 279,449 -- -- --
------------ ----------- ----------- ------------- ------------- -------------
Net increase in net assets resulting
from operations . . . . . . . . . . 244,537 1,232,641 627,306 2,988,530 1,687,016 691,552
From policyholder transactions:
Net premiums from policyholders . . 37,432,039 15,144,316 5,421,062 890,376,545 340,377,358 103,737,470
Net benefits to policyholders . . . (27,199,179) (4,937,583) (1,620,578) (918,869,964) (269,723,839) (100,296,756)
------------ ----------- ----------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from policyholder
transactions . . . . . . . . . . . . 10,232,860 10,206,733 3,800,484 (28,493,419) 70,653,519 3,440,714
------------ ----------- ----------- ------------- ------------- -------------
Net increase (decrease) in net assets 10,477,397 11,439,374 4,427,790 (25,504,889) 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 . . . . . $ 27,106,917 $16,629,520 $ 5,190,146 $ 61,006,769 $ 86,511,658 $ 14,171,123
============ =========== =========== ============= ============= =============
</TABLE>
See accompanying notes.
75
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SMALL/MID CAP
MID CAP VALUE SUBACCOUNT GROWTH SUBACCOUNT
---------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income . . . . . . . . . . $ 41,579 $ 75,449 $ 434,660 $ 1,388,661 $ 108,037 $ 842,666
Net realized gains (losses) . . . . . . . (860,332) (538,516) 101,787 13,375 232,246 297,666
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . 1,757,919 (830,390) (39,717) (1,001,208) 236,333 (730,748)
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from
operations . . . . . . . . . . . . . . . 939,166 (1,293,457) 496,730 400,828 576,616 409,584
From policyholder transactions:
Net premiums from policyholders . . . . . 32,024,751 18,837,112 6,323,061 11,809,133 4,563,154 8,511,081
Net benefits to policyholders . . . . . . (29,579,995) (7,855,945) (1,089,206) (9,775,543) (6,481,542) (6,274,668)
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from policyholder transactions 2,444,756 10,981,167 5,233,855 2,033,590 (1,918,388) 2,236,413
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets . . 3,383,922 9,687,710 5,730,585 2,434,418 (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 . . . . . . . $ 19,138,533 $15,754,611 $ 6,066,901 $ 9,925,831 $ 7,491,413 $ 8,833,185
============ =========== =========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE EQUITY SUBACCOUNT GROWTH & INCOME SUBACCOUNT
---------------------------------------- -------------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income . . . . . . . . $ 515,377 $ 283,067 $ 232,798 $ 22,850,302 $ 8,975,814 $ 5,747,928
Net realized gains (losses) . . . . . (735,504) (454,979) 252,095 6,207,253 2,061,212 2,390,414
Net unrealized appreciation
(depreciation) during the period . . 80,925 (698,676) (13,488) (5,814,839) 7,759,307 435,778
------------ ----------- ----------- ------------- ------------ ------------
Net increase (decrease) in net assets
resulting from
operations . . . . . . . . . . . . . . (139,202) (870,588) 471,405 23,242,716 18,796,333 8,574,120
From policyholder transactions:
Net premiums from policyholders . . . 22,699,314 6,964,604 4,833,914 196,639,863 60,975,616 35,535,599
Net benefits to policyholders . . . . (18,093,640) (5,513,221) (2,393,463) (106,763,955) (31,360,866) (21,776,809)
------------ ----------- ----------- ------------- ------------ ------------
Net increase in net assets resulting
from policyholder
transactions . . . . . . . . . . . . . 4,605,674 1,451,383 2,440,451 89,875,908 29,614,750 13,758,790
------------ ----------- ----------- ------------- ------------ ------------
Net increase in net assets . . . . . . 4,466,472 580,795 2,911,856 113,118,624 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 . . . . . . $ 9,238,646 $ 4,772,174 $ 4,191,379 $ 209,525,899 $ 96,407,275 $ 47,996,192
============ =========== =========== ============= ============ ============
</TABLE>
See accompanying notes.
76
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SHORT-TERM BOND
MANAGED 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 . . . . . . . . . $ 10,756,436 $ 3,484,281 $ 1,814,571 $ 907,486 $ 926,217 $ 394,991
Net realized gains (losses) . . . . . . 2,233,258 278,186 171,318 (441,667) 24,740 35,294
Net unrealized appreciation
(depreciation) during the period . . . (6,419,069) 1,791,231 715,231 (85,754) (136,999) (25,976)
------------ ----------- ----------- ------------ ------------ -----------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . 6,570,625 5,553,698 2,701,120 380,065 813,958 404,309
From policyholder transactions:
Net premiums from policyholders . . . . 113,292,872 21,019,273 16,914,475 41,259,110 27,490,588 12,911,228
Net benefits to policyholders . . . . . (34,219,380) (8,281,600) (9,357,535) (49,156,693) (21,534,195) (4,234,624)
------------ ----------- ----------- ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from policyholder transactions 79,073,492 12,737,673 7,556,940 (7,897,583) 5,956,393 8,676,604
------------ ----------- ----------- ------------ ------------ -----------
Net increase (decrease) in net assets . . 85,644,117 18,291,371 10,258,060 (7,517,518) 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 . . . . . . . $125,710,809 $40,066,692 $21,775,321 $ 11,728,988 $ 19,246,506 $12,476,155
============ =========== =========== ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL OPPORTUNITIES
SMALL CAP VALUE 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 . . . . . . . . . . $ 344,711 $ 14,015 $ 290,784 $ 2,006,004 $ 53,396 $ 55,901
Net realized gains (losses) . . . . . . . (979,002) (9,919) 75,149 1,907,809 191,495 80,782
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . 325,684 (523,693) (18,626) 3,818,953 1,108,416 (260,664)
------------ ----------- ---------- ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . (308,607) (519,597) 347,307 7,732,766 1,353,307 (123,981)
From policyholder transactions:
Net premiums from policyholders . . . . . 39,172,672 11,420,833 4,182,527 43,216,216 23,844,756 8,906,153
Net benefits to policyholders . . . . . . (30,591,417) (4,363,378) (897,951) (38,372,463) (12,275,087) (3,655,731)
------------ ----------- ---------- ------------ ------------ -----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . 8,581,255 7,057,455 3,284,576 4,843,753 11,569,669 5,250,422
------------ ----------- ---------- ------------ ------------ -----------
Net increase in net assets . . . . . . . . 8,272,648 6,537,858 3,631,883 12,576,519 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 . . . . . . . $ 18,783,396 $10,510,748 $3,972,890 $ 31,535,049 $ 18,958,530 $ 6,035,554
============ =========== ========== ============ ============ ===========
</TABLE>
See accompanying notes.
77
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY INDEX SUBACCOUNT
-----------------------------------------------------
1999 1998 1997
------------------------- ------------- ------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 5,503,450 $ 1,211,729 $ 378,697
Net realized gains
(losses). . . . . . 7,681,081 691,270 901,978
Net unrealized
appreciation
(depreciation)
during the period . 4,678,509 6,098,919 392,256
------------------------ ------------ -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 17,863,040 8,001,918 1,672,931
From policyholder
transactions:
Net premiums from
policyholders . . . 225,994,914 60,690,933 23,412,687
Net benefits to
policyholders . . . (147,909,470) (31,166,123) (9,622,006)
------------------------ ------------ -----------
Net increase in net
assets resulting from
policyholder
transactions . . . . 78,085,444 29,524,810 13,790,681
------------------------ ------------ -----------
Net increase in net
assets . . . . . . . 95,948,484 37,526,728 15,463,612
Net assets at
beginning of period 53,964,647 16,437,919 974,307
------------------------ ------------ -----------
Net assets at end of
period . . . . . . . $ 149,913,131 $ 53,964,647 $16,437,919
======================== ============ ===========
<CAPTION>
GLOBAL BOND SUBACCOUNT
--------------------------------------------------
1999 1998 1997
------------------------ ------------ -------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 424,767 $ 283,651 $ 71,030
Net realized gains (204,675) 81,659 8,335
(losses). . . . . .
Net unrealized
appreciation (433,526) 43,608 (11,727)
(depreciation) ----------------------- ----------- ----------
during the period .
Net increase (213,434) 408,918 67,638
(decrease) in net
assets resulting from
operations . . . . .
From policyholder
transactions:
Net premiums from 11,387,398 9,258,713 1,828,179
policyholders . . .
Net benefits to
policyholders . . . (10,615,019) (3,008,341) (534,164)
----------------------- ----------- ----------
Net increase in net
assets resulting from 772,379 6,250,372 1,294,015
policyholder ----------------------- ----------- ----------
transactions . . . .
Net increase in net 558,945 6,659,290 1,361,653
assets . . . . . . .
Net assets at
beginning of period 8,279,571 1,620,281 258,628
----------------------- ----------- ----------
Net assets at end of
period . . . . . . . $ 8,838,516 $ 8,279,571 $1,620,281
======================= =========== ==========
</TABLE>
<TABLE>
<CAPTION>
BRANDES INTERNATIONAL
TURNER CORE GROWTH 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 . . . . . . . . . . . $ 1,315,438 $ 77,203 $ 87,289 $ 515,681 $ 343,646 $ 25,175
Net realized gains . . . . . . . . . . . . . 1,038,462 156,278 76,711 507,727 89,337 12,541
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . . 1,626,646 562,620 32,626 3,486,097 91,915 (26,022)
----------- ----------- ---------- ----------- ------------ -----------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . . 3,980,546 796,101 196,626 4,509,505 524,898 11,694
From policyholder transactions:
Net premiums from policyholders . . . . . . 23,098,524 4,779,974 743,622 12,134,533 5,520,633 2,484,010
Net benefits to policyholders . . . . . . . (9,308,254) (1,690,860) (580,027) (5,569,496) (2,041,375) (1,088,249)
----------- ----------- ---------- ----------- ------------ -----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . . 13,790,270 3,089,114 163,595 6,565,037 3,479,258 1,395,761
----------- ----------- ---------- ----------- ------------ -----------
Net increase in net assets . . . . . . . . . 17,770,816 3,885,215 360,221 11,074,542 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 . . . . . . . . . $22,671,005 $ 4,900,189 $1,014,974 $17,415,296 $ 6,340,754 $ 2,336,598
=========== =========== ========== =========== ============ ===========
</TABLE>
See accompanying notes.
78
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FRONTIER CAPITAL APPRECIATION
SUBACCOUNT
--------------------------------------------------------------------
1999 1998 1997
----------------------------------------- ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 449,994 $ 9,897 $ 118,150
Net realized gains
(losses). . . . . . 624,068 (445,752) 614,358
Net unrealized
appreciation
(depreciation)
during the period . 3,431,408 432,064 (368,570)
---------------------------------------- ----------- -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 4,505,470 (3,791) 363,938
From policyholder
transactions:
Net premiums from
policyholders . . . 25,135,447 13,982,031 10,030,418
Net benefits to
policyholders . . . (22,331,613) (9,695,520) (5,969,436)
---------------------------------------- ----------- -----------
Net increase in net
assets resulting from
policyholder
transactions . . . . 2,803,834 4,286,511 4,060,982
---------------------------------------- ----------- -----------
Net increase in net
assets . . . . . . . 7,309,304 4,282,720 4,424,920
Net assets at
beginning of period 9,675,718 5,392,998 968,078
---------------------------------------- ----------- -----------
Net assets at end of
period . . . . . . . $ 16,985,022 $ 9,675,718 $ 5,392,998
======================================== =========== ===========
<CAPTION>
ENHANCED U.S.
EQUITY SUBACCOUNT
---------------------------------------------------------
1999 1998 1997*
-------------------------------- ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 518,137 $ 68,233 $ 14,857
Net realized gains 264,436 87,723 4,177
(losses). . . . . .
Net unrealized
appreciation 151,562 89,677 6,844
(depreciation) ------------------------------- ----------- ---------
during the period .
Net increase 934,135 245,633 25,878
(decrease) in net
assets resulting from
operations . . . . .
From policyholder
transactions:
Net premiums from 6,480,741 3,031,309 475,503
policyholders . . .
Net benefits to
policyholders . . . (3,151,279) (1,299,530) (4,176)
------------------------------- ----------- ---------
Net increase in net
assets resulting from 3,329,462 1,731,779 471,327
policyholder ------------------------------- ----------- ---------
transactions . . . .
Net increase in net 4,263,597 1,977,412 497,205
assets . . . . . . .
Net assets at
beginning of period 2,474,617 497,205 0
------------------------------- ----------- ---------
Net assets at end of
period . . . . . . . $ 6,738,214 $ 2,474,617 $ 497,205
=============================== =========== =========
</TABLE>
<TABLE>
<CAPTION>
EMERGING MARKETS GLOBAL EQUITY BOND INDEX
EQUITY 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 . . . . . . . . . . . $ 132,259 $ 135 $ 4,204 $ 152 $ 130,136 $ 22,905
Net realized gains (losses) . . . . . . . . 663,998 (45,975) 82,873 (21,835) (104,174) 1,002
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . 432,248 2,289 47,295 4,812 (78,192) (10,217)
------------ ----------- ----------- ----------- ----------- ----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . 1,228,505 (43,551) 134,372 (16,871) (52,230) 13,690
From policyholder transactions:
Net premiums from policyholders . . . . . . 18,579,194 2,434,226 3,151,983 2,372,034 6,471,518 1,176,234
Net benefits to policyholders . . . . . . . (16,271,324) (2,203,670) (2,613,505) (2,191,135) (2,358,694) (124,467)
------------ ----------- ----------- ----------- ----------- ----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . . 2,307,870 230,556 538,478 180,899 4,112,824 1,051,767
------------ ----------- ----------- ----------- ----------- ----------
Net increase in net assets . . . . . . . . . 3,536,375 187,005 672,850 164,028 4,060,594 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 . . . . . . . . $ 3,723,380 $ 187,005 $ 836,878 $ 164,028 $ 5,126,051 $1,065,457
============ =========== =========== =========== =========== ==========
</TABLE>
- ---------
* From July 1, 1997 (commencement of operations).
** From May 1, 1998 (commencement of operations).
See accompanying notes.
79
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SMALL/MID CAP CORE HIGH YIELD BOND
SUBACCOUNT SUBACCOUNT
------------------------ ----------------------------------------
1999 1998** 1999 1998**
------------ ----------- --------------------------- --------------
<S> <C> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income
(loss). . . . . . . $ 52,711 $ (535) $ 340,435 $ 86,759
Net realized gains
(losses). . . . . . 65,733 (25,196) 42,365 64,824
Net unrealized
appreciation
(depreciation)
during the period . (10,735) 18,718 (139,659) 149,416
----------- ---------- -------------------------- -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 107,709 (7,013) 243,141 300,999
From policyholder
transactions:
Net premiums from
policyholders . . . 5,817,483 1,089,030 19,870,990 6,683,673
Net benefits to
policyholders . . . (5,611,532) (778,864) (20,368,501) (2,457,088)
----------- ---------- -------------------------- -----------
Net increase
(decrease) in net
assets resulting from
policyholder
transactions . . . . 205,951 310,166 (497,511) 4,226,585
----------- ---------- -------------------------- -----------
Net increase
(decrease) in net
assets . . . . . . . 313,660 303,153 (254,370) 4,527,584
Net assets at
beginning of period 303,153 0 4,527,584 0
----------- ---------- -------------------------- -----------
Net assets at end of
period . . . . . . . $ 616,813 $ 303,153 $ 4,273,214 $ 4,527,584
=========== ========== ========================== ===========
</TABLE>
- ---------
** From May 1, 1998 (commencement of operations).
See accompanying notes.
80
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 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, Small Cap
Growth, International Balanced, Mid Cap Growth, Large Cap Value, Money Market,
Mid Cap Value, Small/Mid Cap Growth (formerly, Diversified Mid Cap Growth), Real
Estate Equity, Growth & Income, Managed, Short-Term Bond, Small Cap Value,
International Opportunities, Equity Index, Global Bond (formerly, Strategic
Bond), Turner Core Growth, Brandes International Equity, Frontier Capital
Appreciation, 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.
81
<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, 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.
82
<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, 1999 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO SHARES OWNED COST VALUE
--------- ------------ ------------ --------------
<S> <C> <C> <C>
Large Cap Growth . . . . . . 4,226,550 $108,181,136 $115,521,551
Sovereign Bond . . . . . . . 4,200,440 40,512,273 38,321,473
International Equity Index . 1,689,937 29,224,059 33,198,674
Small Cap Growth . . . . . . 1,622,919 25,907,535 31,022,828
International Balanced . . . 428,930 4,680,715 4,591,856
Mid Cap Growth . . . . . . . 2,172,468 46,744,046 63,499,616
Large Cap Value . . . . . . . 2,009,306 28,839,671 27,106,917
Money Market . . . . . . . . 6,100,677 61,006,768 61,006,769
Mid Cap Value . . . . . . . . 1,497,913 18,236,811 19,138,533
Small/Mid Cap Growth . . . . 707,222 10,888,164 9,925,831
Real Estate Equity . . . . . 805,182 9,643,804 9,238,646
Growth & Income . . . . . . . 10,470,370 207,387,033 209,525,899
Managed . . . . . . . . . . . 8,137,552 130,087,567 125,710,809
Short-Term Bond . . . . . . . 1,206,452 11,963,663 11,728,988
Small Cap Value . . . . . . . 1,720,546 18,985,985 18,783,396
International Opportunities . 2,078,452 26,831,679 31,535,049
Equity Index . . . . . . . . 7,327,855 138,687,664 149,913,131
Global Bond . . . . . . . . . 900,154 9,240,752 8,838,516
Turner Core Growth . . . . . 988,705 20,433,059 22,671,005
Brandes International Equity 1,122,129 13,875,593 17,415,296
Frontier Capital Appreciation 804,225 13,485,020 16,985,022
Enhanced U.S. Equity . . . . 321,327 6,490,133 6,738,214
Emerging Markets Equity . . . 303,646 3,288,843 3,723,380
Global Equity . . . . . . . . 68,965 784,773 836,878
Bond Index . . . . . . . . . 550,115 5,214,459 5,126,051
Small/Mid Cap CORE . . . . . 62,841 608,830 616,813
High Yield Bond . . . . . . . 475,514 4,263,457 4,273,214
</TABLE>
83
<PAGE>
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 during 1999 were as
follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
--------- ------------ --------------
<S> <C> <C>
Large Cap Growth . . . . . . . . . $ 62,265,535 $ 14,711,539
Sovereign Bond . . . . . . . . . . 38,288,617 29,280,010
International Equity Index . . . . 32,519,440 17,541,313
Small Cap Growth . . . . . . . . . 27,757,302 12,281,978
International Balanced . . . . . . 3,415,587 1,768,784
Mid Cap Growth . . . . . . . . . . 45,338,211 14,783,738
Large Cap Value . . . . . . . . . . 22,257,609 10,304,554
Money Market . . . . . . . . . . . 304,141,849 329,646,739
Mid Cap Value . . . . . . . . . . . 15,413,952 12,927,617
Small/Mid Cap Growth . . . . . . . 8,759,614 5,337,363
Real Estate Equity . . . . . . . . 13,375,520 8,254,469
Growth & Income . . . . . . . . . . 144,949,345 32,223,136
Managed . . . . . . . . . . . . . . 111,633,323 21,803,394
Short-Term Bond . . . . . . . . . . 17,352,671 24,342,768
Small Cap Value . . . . . . . . . . 16,062,747 7,136,780
International Opportunities . . . . 24,767,973 17,918,215
Equity Index . . . . . . . . . . . 124,086,502 40,497,607
Global Bond . . . . . . . . . . . . 10,322,531 9,125,384
Turner Core Growth . . . . . . . . 20,980,047 5,874,338
Brandes International Equity . . . 10,664,333 3,583,615
Frontier Capital Appreciation . . . 13,387,462 10,133,633
Enhanced U.S. Equity . . . . . . . 5,925,334 2,077,734
Emerging Markets Equity . . . . . . 9,682,573 7,242,444
Global Equity . . . . . . . . . . . 2,167,637 1,624,954
Bond Index . . . . . . . . . . . . 5,900,997 1,658,038
Small/Mid Cap CORE . . . . . . . . 3,312,578 3,053,916
High Yield Bond . . . . . . . . . . 11,898,171 12,055,248
</TABLE>
84
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. NET ASSETS
Accumulation shares attributable to net assets of policyholders and
accumulation share values for each subaccount at December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
VEP CLASS #1 VEP CLASS #2 VEP CLASS #3
-------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . . 432,627 $34.19 442,008 $34.29 156,934 $34.39
Sovereign Bond . . . . . . . 226,496 13.80 170,995 13.84 28,389 13.88
International Equity Index . 205,346 17.52 163,712 17.58 4,631 17.63
Small Cap Growth . . . . . . 151,029 21.68 131,551 21.71 42,832 21.76
International Balanced . . . 21,487 13.28 25,817 13.30 12,453 13.33
Mid Cap Growth . . . . . . . 202,405 35.56 145,034 35.62 45,513 35.69
Large Cap Value . . . . . . . 191,629 16.15 140,376 16.18 4,476 16.21
Money Market . . . . . . . . 613,611 13.08 1,102,161 13.12 347,735 13.15
Mid Cap Value . . . . . . . . 106,938 14.05 45,955 14.08 2,990 14.10
Small/Mid Cap Growth . . . . 83,852 19.77 90,674 19.83 41,701 19.88
Real Estate Equity . . . . . 94,768 14.40 68,355 14.44 2,732 14.49
Growth & Income . . . . . . . 945,411 30.90 579,234 31.00 212,540 31.09
Managed . . . . . . . . . . . 554,374 20.88 279,936 20.94 23,988 21.00
Short-Term Bond . . . . . . . 94,078 12.97 84,892 13.00 7,712 13.04
Small Cap Value . . . . . . . 114,641 12.30 82,461 12.33 55,278 12.35
International Opportunities . 115,902 16.52 159,219 16.55 2,521 16.58
Equity Index . . . . . . . . 442,683 23.06 565,394 23.10 189,577 23.14
Global Bond . . . . . . . . . 55,090 12.15 48,036 12.17 16,751 12.19
Turner Core Growth . . . . . 31,697 28.29 15,337 28.36 -- --
Brandes International Equity 18,319 16.91 33,342 16.94 -- --
Frontier Capital Appreciation 20,409 22.75 13,182 22.80 -- --
Enhanced U.S. Equity . . . . 3,102 17.47 -- 17.50 -- --
Emerging Markets Equity . . . 31,332 12.77 114,481 12.78 4,803 12.79
Global Equity . . . . . . . . 11,223 12.22 15,873 12.23 777 12.24
Bond Index . . . . . . . . . 99,617 10.34 99,264 10.34 64,039 10.35
Small/Mid Cap CORE . . . . . 12,833 10.76 3,271 10.77 4,416 10.78
High Yield Bond . . . . . . . 51,021 10.09 40,169 10.10 -- --
</TABLE>
85
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
V COLI CLASS #4 V COLI CLASS #5 V COLI CLASS #6
-------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ------------ ------------ ------------ ------------ ------------ --------------
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . . 646,018 $34.50 282,553 $34.49 252,596 $34.52
Sovereign Bond . . . . . . . 17,426 14.64 538,047 14.66 335,449 14.67
International Equity Index . 63,956 16.24 130,903 16.26 235,165 16.28
Small Cap Growth . . . . . . 90,088 22.04 39,929 22.05 38,804 22.07
International Balanced . . . 68,220 13.50 6,065 13.51 54,964 13.52
Mid Cap Growth . . . . . . . 146,264 36.15 124,116 36.18 5,992 36.19
Large Cap Value . . . . . . . 151,753 16.42 133,066 16.43 416,273 16.44
Money Market . . . . . . . . 218,714 13.01 5,906 13.02 136,140 13.04
Mid Cap Value . . . . . . . . 69,726 14.29 24,485 14.30 281,375 14.30
Small/Mid Cap Growth . . . . 27,983 19.77 958 19.79 42,902 19.81
Real Estate Equity . . . . . 58,475 14.92 4,323 14.93 203,728 14.95
Growth & Income . . . . . . . 641,268 30.84 447,326 30.87 16,723 30.91
Managed . . . . . . . . . . . 162,478 21.64 83,071 21.66 150,514 21.68
Short-Term Bond . . . . . . . 99,163 13.21 351,710 13.22 -- --
Small Cap Value . . . . . . . 32,245 12.51 49,419 12.52 281,896 12.53
International Opportunities . 203,225 16.80 157,727 16.80 74,340 16.81
Equity Index . . . . . . . . 324,024 23.44 37,253 23.46 533,298 23.47
Global Bond . . . . . . . . . 54,500 12.35 9,809 12.36 -- --
Turner Core Growth . . . . . 7,772 28.80 12,496 28.83 -- --
Brandes International Equity 104,626 17.21 81,372 17.23 42,458 17.25
Frontier Capital Appreciation 74,553 23.16 62,806 23.18 -- --
Enhanced U.S. Equity . . . . 13,962 17.68 1 17.68 -- --
Emerging Markets Equity . . . -- -- 24,692 12.87 -- --
Global Equity . . . . . . . . -- -- -- 12.32 -- --
Bond Index . . . . . . . . . 2,519 10.42 10,132 10.42 -- --
Small/Mid Cap CORE . . . . . -- -- -- 10.84 -- --
High Yield Bond . . . . . . . 1,998 10.18 310 10.18 85,180 10.18
</TABLE>
86
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MEDALLION EXECUTIVE VLI CLASS #7 MVEP CLASS #8 MVUL CLASS #9
--------------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ---------------- ---------------- ------------ ------------ ------------ --------------
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . 92,840 $79.68 781,223 $24.82 213,207 $22.10
Sovereign Bond . . . . . . 57,389 23.69 765,173 12.44 500,049 11.71
International Equity Index 113,572 27.55 780,218 15.05 200,089 15.54
Small Cap Growth . . . . . 193,672 21.70 298,417 21.90 197,401 24.61
International Balanced . . 52,288 13.29 41,158 13.41 36,634 12.85
Mid Cap Growth . . . . . . 168,579 35.59 383,762 35.92 103,210 39.83
Large Cap Value . . . . . . 269,931 16.17 125,284 16.31 115,052 13.95
Money Market . . . . . . . 280,073 18.10 339,940 11.94 435,648 11.42
Mid Cap Value . . . . . . . 412,439 14.06 242,213 14.19 70,954 12.00
Small/Mid Cap Growth . . . 3,416 19.80 257,950 12.63 33,652 12.85
Real Estate Equity . . . . 39,901 22.14 116,040 12.27 38,147 9.54
Growth & Income . . . . . . 828,857 68.13 1,383,220 21.88 552,475 19.13
Managed . . . . . . . . . . 2,321,332 39.65 236,592 16.81 102,294 15.37
Short-Term Bond . . . . . . 63,598 12.99 63,326 11.93 95,428 11.43
Small Cap Value . . . . . . 473,526 12.32 281,097 12.43 87,362 11.80
International Opportunities 559,454 16.54 227,841 16.68 335,763 15.97
Equity Index . . . . . . . 477,728 23.08 1,251,427 23.29 598,377 19.87
Global Bond . . . . . . . . 146,786 12.16 62,185 12.27 258,673 11.58
Turner Core Growth . . . . -- -- 229,705 25.66 76,087 24.67
Brandes International
Equity . . . . . . . . . . -- -- 495,542 16.53 58,572 17.67
Frontier Capital
Appreciation . . . . . . . -- -- 405,890 19.23 119,967 18.62
Enhanced U.S. Equity . . . -- -- 145,784 17.59 139,459 17.59
Emerging Markets Equity . . 45,954 12.77 18,062 12.82 40,257 12.82
Global Equity . . . . . . . 2,967 12.23 4,588 12.28 29,228 12.28
Bond Index . . . . . . . . 18,855 10.34 12,439 10.38 185 10.38
Small/Mid Cap CORE . . . . -- -- 16,742 10.81 477 10.81
High Yield Bond . . . . . . 34,470 10.10 82,547 10.14 72,026 10.14
</TABLE>
87
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MVUL 98 CLASS #10 MVEP 98 CLASS #11 MEVL II CLASS #12
-------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ------------ ------------ ------------ ------------ ------------ --------------
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . . 221,057 $22.10 133,186 $24.82 -- --
Sovereign Bond . . . . . . . 122,492 11.71 96,742 12.44 -- --
International Equity Index . 40,197 15.54 68,833 15.05 -- --
Small Cap Growth . . . . . . 158,068 24.61 34,357 21.90 -- --
International Balanced . . . 22,819 12.85 3,040 13.41 -- --
Mid Cap Growth . . . . . . . 291,628 39.83 111,636 35.92 -- --
Large Cap Value . . . . . . . 66,485 13.95 73,993 16.31 -- --
Money Market . . . . . . . . 575,670 11.42 718,107 11.94 -- --
Mid Cap Value . . . . . . . . 62,352 11.99 52,021 14.19 -- --
Small/Mid Cap Growth . . . . 15,710 12.85 20,460 12.63 -- --
Real Estate Equity . . . . . 10,691 9.54 7,405 12.27 -- --
Growth & Income . . . . . . . 1,047,922 19.13 196,321 21.88 -- --
Managed . . . . . . . . . . . 55,779 15.37 43,618 16.81 -- --
Short-Term Bond . . . . . . . 26,887 11.43 31,697 11.93 -- --
Small Cap Value . . . . . . . 22,247 11.80 40,374 12.43 -- --
International Opportunities . 39,238 15.97 35,379 16.68 -- --
Equity Index . . . . . . . . 1,960,860 19.87 440,030 23.29 -- --
Global Bond . . . . . . . . . 35,346 11.58 51,458 12.27 -- --
Turner Core Growth . . . . . 377,311 24.67 142,883 25.66 -- --
Brandes International Equity 82,135 17.67 116,504 16.53 -- --
Frontier Capital Appreciation 90,807 18.62 69,320 20.00 -- --
Enhanced U.S. Equity . . . . 48,887 17.59 30,852 17.59 -- --
Emerging Markets Equity . . . 7,584 12.82 3,832 12.82 -- --
Global Equity . . . . . . . . 1,070 12.28 2,561 12.28 -- --
Bond Index . . . . . . . . . 137,733 10.38 46,924 10.38 -- --
Small/Mid Cap CORE . . . . . 10,536 10.81 8,881 10.81 -- --
High Yield Bond . . . . . . . 15,036 10.14 38,875 10.14 -- --
</TABLE>
88
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
VEP CLASS #13
--------------------------
ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES
--------- ------------ --------------
----------------------------
<S> <C> <C>
Large Cap Growth . . . . . . -- --
Sovereign Bond . . . . . . . -- --
International Equity Index . -- --
Small Cap Growth . . . . . . -- --
International Balanced . . . -- --
Mid Cap Growth . . . . . . . -- --
Large Cap Value . . . . . . . -- --
Money Market . . . . . . . . -- --
Mid Cap Value . . . . . . . . -- --
Small/Mid Cap Growth . . . . -- --
Real Estate Equity . . . . . -- --
Growth & Income . . . . . . . -- --
Managed . . . . . . . . . . . -- --
Short-Term Bond . . . . . . . -- --
Small Cap Value . . . . . . . -- --
International Opportunities . -- --
Equity Index . . . . . . . . -- --
Global Bond . . . . . . . . . -- --
Turner Core Growth . . . . . -- --
Brandes International Equity -- --
Frontier Capital Appreciation -- --
Enhanced U.S. Equity . . . . -- --
Emerging Markets Equity . . . -- --
Global Equity . . . . . . . . -- --
Bond Index . . . . . . . . . -- --
Small/Mid Cap CORE . . . . . -- --
High Yield Bond . . . . . . . -- --
</TABLE>
89
<PAGE>
ALPHABETICAL INDEX OF KEY WORDS AND PHRASES
This index should help you locate more information about many of the important
concepts in this prospectus.
<TABLE>
<CAPTION>
KEY WORD OR PHRASE PAGE KEY WORD OR PHRASE PAGE
<S> <C> <C> <C> <C>
Account . . . . . . . 28 monthly deduction date. . . . . . . 30
account value . . . . 9 mortality and expense risk charge . 10
Additional Sum Insured 15 optional benefits . . . . . . . . . 10
annual processing date 16 options for death benefit . . . . . 14
attained age. . . . . 10 owner . . . . . . . . . . . . . . . 5
Basic Sum Insured . . 15 partial withdrawal. . . . . . . . . 13
beneficiary . . . . . 39 partial withdrawal charge . . . . . 10
business day. . . . . 29 payment options . . . . . . . . . . 16
changing Option A or B 17 Planned Premium . . . . . . . . . . 6
changing the Total Sum policy anniversary. . . . . . . . . 30
Insured . . . . . . 17 policy year . . . . . . . . . . . . 30
charges . . . . . . . 9 premium; premium payment. . . . . . 5
Code. . . . . . . . . 35 prospectus. . . . . . . . . . . . . 3
cost of insurance receive; receipt. . . . . . . . . . 19
rates. . . . . . . . 10 reinstate; reinstatement. . . . . . 7
date of issue . . . . 30 sales charges . . . . . . . . . . . 9
death benefit . . . . 5 SEC . . . . . . . . . . . . . . . . 2
deductions. . . . . . 9 Separate Account. . . . . . . . . . 28
dollar cost averaging 14 Servicing Office. . . . . . . . . . 2
expenses of the Trusts 11 special loan account. . . . . . . . 14
fixed investment subaccount. . . . . . . . . . . . . 28
option . . . . . . . 29 surrender . . . . . . . . . . . . . 13
full surrender. . . . 14 surrender value . . . . . . . . . . 13
fund. . . . . . . . . 2 Target Premium. . . . . . . . . . . 9
grace period. . . . . 7 tax considerations. . . . . . . . . 35
guaranteed minimum telephone transfers . . . . . . . . 19
death benefit . . . 7 Total Sum Insured . . . . . . . . . 14
Guaranteed Minimum transfers of account value. . . . . 12
Death Benefit Premium 8 Trust . . . . . . . . . . . . . . . 2
insurance charge. . . 10 variable investment options . . . . 1
insured person. . . . 5 we; us. . . . . . . . . . . . . . . 28
investment options. . 1 withdrawal. . . . . . . . . . . . . 13
JHVLICO . . . . . . . 28 withdrawal charges. . . . . . . . . 10
lapse . . . . . . . . 7 you; your . . . . . . . . . . . . . 5
loan. . . . . . . . . 15
loan interest . . . . 15
maximum premiums. . . 6
Minimum Initial
Premium. . . . . . . 29
minimum insurance
amount . . . . . . . 16
minimum premiums. . . 6
modified endowment
contract . . . . . . 36
</TABLE>
90
<PAGE>
PROSPECTUS DATED MAY 1, 2000
MAJESTIC VARIABLE ESTATE PROTECTION 98
a flexible premium variable life survivorship insurance policy
issued by
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY ("JHVLICO")
The policy provides an investment option with fixed rates of return
declared by JHVLICO and the following variable investment options:
<TABLE>
<CAPTION>
VARIABLE INVESTMENT OPTION MANAGED BY
- -------------------------- ----------
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Managed................................................... Independence Investment Associates, Inc.
Growth & Income........................................... Independence Investment Associates, Inc.
Fidelity VIP Contrafund(R)................................ Fidelity Management and Research Company
Equity Index.............................................. State Street Global Advisors
Large Cap Value........................................... T. Rowe Price Associates, Inc.
Large Cap Growth.......................................... Independence Investment Associates, Inc.
Large Cap Aggressive Growth............................... Alliance Capital Management L.P.
Fidelity VIP Growth....................................... Fidelity Management and Research Company
AIM V.I. Value............................................ A I M Advisors, Inc.
Mid Cap Value............................................. Neuberger Berman, LLC
Fundamental Mid Cap Growth................................ OppenheimerFunds, Inc.
Mid Cap Growth............................................ Janus Capital Corporation
Real Estate Equity........................................ Independence Investment Associates, Inc.
Small/Mid Cap CORE........................................ Goldman Sachs Asset Management
Small/Mid Cap Growth...................................... Wellington Management Company, LLP
Small Cap Value........................................... INVESCO Management & Research, Inc.
Small Cap Growth.......................................... John Hancock Advisers, Inc.
MFS New Discovery......................................... MFS Investment Management(R)
Global Balanced........................................... Brinson Partners, Inc.
Templeton International Securities........................ Templeton Investment Counsel, Inc.
International Equity Index................................ Independence International Associates, Inc.
International Opportunities............................... Rowe Price-Fleming International, Inc.
Morgan Stanley Dean Witter Investment
Emerging Markets Equity................................... Management, Inc.
Short-Term Bond........................................... Independence Investment Associates, Inc.
Bond Index................................................ Mellon Bond Associates, LLP
Active Bond............................................... John Hancock Advisers, Inc.
Global Bond............................................... J.P. Morgan Investment Management, Inc.
High Yield Bond........................................... Wellington Management Company, LLP
Money Market.............................................. John Hancock Life Insurance Company
Brandes International Equity.............................. Brandes Investment Partners, L.P.
Turner Core Growth........................................ Turner Investment Partners, Inc.
Frontier Capital Appreciation............................. Frontier Capital Management Company, LLC
Clifton Enhanced U.S. Equity.............................. The Clifton Group
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The variable investment options shown on page 1 are those available as of the
date of this prospectus. We may add, modify or delete variable investment
options in the future.
When you select one or more of these variable investment options, we invest
your money in the corresponding investment option(s) of one or more of the
following: the John Hancock Variable Series Trust I, the AIM Variable Insurance
Funds, Inc., the Templeton Variable Products Series Fund, Fidelity's Variable
Insurance Products Fund and Variable Insurance Products Fund II, the MFS
Variable Insurance Trust, and the M Fund, Inc. (together, "the Trusts"). In this
prospectus, the investment options of the Trusts are referred to as "funds".
In the prospectuses for the Trusts, the investment options may be referred to
as "funds", "portfolios" or "series".
Each Trust is a so-called "series" type mutual fund registered with the
Securities and Exchange Commission ("SEC"). The investment results of each
variable investment option you select will depend on those of the corresponding
fund of one of the Trusts. Each of the funds is separately managed and has its
own investment objective and strategies. Attached at the end of this prospectus
is a prospectus for each Trust. The Trust prospectuses contain detailed
information about each available fund. Be sure to read those prospectuses before
selecting any of the variable investment options shown on page 1.
* * * * * * * * * * * *
Please note that the SEC has not approved or disapproved these securities, or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
* * * * * * * * * * * *
JHVLICO LIFE SERVICING OFFICE
-----------------------------
Express Delivery U.S. Mail
---------------- ---------
529 Main Street (X-4) P.O. Box 111
Charlestown, MA 02129 Boston, MA 02117
Phone: 1-800-521-1234
Fax: 1-617-572-6956
2
<PAGE>
GUIDE TO THIS PROSPECTUS
This prospectus contains information that you should know before you buy a
policy or exercise any of your rights under the policy. However, please keep in
mind that this is a prospectus - - it is not the policy. The prospectus
---
simplifies many policy provisions to better communicate the policy's essential
features. Your rights and obligations under the policy will be determined by the
language of the policy itself. When you receive your policy, read it carefully.
This prospectus is arranged in the following way:
. The section which follows is called "Basic Information". It is in a
question and answer format. We suggest you read the Basic Information
section before reading any other section of the prospectus.
. Behind the Basic Information section are illustrations of hypothetical
policy benefits that help clarify how the policy works. These start on
page 22.
. Behind the illustrations is a section called "Additional Information"
that gives more details about the policy. It generally does not
---
repeat information that is in the Basic Information section. A table of
contents for the Additional Information section appears on page 31.
. Behind the Additional Information section are the financial statements
for JHVLICO and Separate Account S. These start on page 45.
. Finally, there is an Alphabetical Index of Key Words and Phrases at the
back of the prospectus on page 93.
After the Alphabetical Index of Key Words and Phrases, this prospectus ends and
the prospectuses for the Trusts begin.
* * * * * * * * * * * *
3
<PAGE>
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:
<TABLE>
<S> <C>
Question Beginning on page
- --------
.What is the policy?............................................. 5
.Who owns the policy?............................................ 5
.How can I invest money in the policy?........................... 5
.Is there a minimum amount I must invest?........................ 7
.How will the value of my investment in the policy change
over time?....................................................... 8
.What charges will JHVLICO deduct from my investment in
the policy?...................................................... 9
.What charges will the Trusts deduct from my investment in
the policy?...................................................... 11
.What other charges could JHVLICO impose in the future?.......... 13
.How can I change my policy's investment allocations?............ 13
.How can I access my investment in the policy?................... 14
.How much will JHVLICO pay when the last insured person
dies?............................................................ 16
.How can I change my policy's insurance coverage?................ 17
.Can I cancel my policy after it's issued?....................... 18
.Can I choose the form in which JHVLICO pays out policy
proceeds?........................................................ 19
.To what extent can JHVLICO vary the terms and conditions
of its policies in particular cases?............................ 19
.How will my policy be treated for income tax purposes?.......... 20
.How do I communicate with JHVLICO?.............................. 20
</TABLE>
4
<PAGE>
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
-----
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.
5
<PAGE>
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
39. Also, we may refuse to accept any amount of an additional premium if:
. that amount of premium would increase our insurance risk exposure,
and
. the insured 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 7 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 2 of this prospectus.
We will also accept premiums:
. by wire or by exchange from another insurance company,
. via an electronic funds transfer program (any owner interested in making
monthly premium payments must use this method), or
-------
. 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.
6
<PAGE>
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,
---
if the policy's surrender value is not sufficient to pay the charges on a
monthly deduction date, 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 1 year 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 and only if you've elected death benefit Option B (see
"How much will JHVLICO pay when the last insured person dies?" on page 16). The
feature guarantees that your Basic Sum Insured will not lapse during the first
10 policy years, 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 16), and
. on each monthly deduction date during that 10 year period 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
7
<PAGE>
Guaranteed Minimum Death Benefit Premiums due to date accumulated at 4%.
The Guaranteed Minimum Death Benefit Premium (or "GMDB Premium) is defined in
the policy and one-twelfth of it is "due" on each monthly deduction date. 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 16).
If the guaranteed minimum death benefit test is not satisfied on any monthly
deduction 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 monthly
deduction date on which default occurred. If it is reinstated more than 1 year
after such monthly deduction 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
---
much will JHVLICO pay when the last insured person dies?" on page 16).
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" beginning on page 35.)
Over time, the amount you've invested in any variable investment option will
increase or decrease the same as if you had invested the same amount directly in
the corresponding fund of one of the Trusts 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.
8
<PAGE>
The amount you've invested in the fixed investment option will earn interest
at a rate we declare from time to time. We guarantee that this rate will be at
least 4%. If you want to know what the current declared rate is, just call or
write to us. The current declared rate will also appear in the annual statement
we will send you. Amounts you invest in the fixed investment option will not be
---
subject to the mortality and expense risk charge described on page 10.
Otherwise, the charges applicable to the fixed investment option are the same as
those applicable to the variable investment options.
At any time, the "account value" of your policy is equal to:
. the amount you invested,
. plus or minus the investment experience of the investment options
you've chosen,
. minus all charges we deduct, and
. minus all withdrawals you have made.
If you take a loan on the policy, however, your account value will be computed
somewhat differently. This is discussed beginning on page 15.
WHAT CHARGES WILL JHVLICO DEDUCT FROM MY INVESTMENT IN THE POLICY?
Deductions from premium payments
. Premium tax charge - A charge to cover state premium taxes we currently
--------------------
expect to pay, on average. This charge is currently 2.35% of each premium.
. DAC tax charge - A charge to cover the increased Federal income tax
----------------
burden that we currently expect will result from receipt of premiums. This
charge is currently 1.25% of each premium.
. Premium 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
--------------
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 premium received in
the first policy year is less than the Target Premium, then premium received
in the second policy year will be treated as if received in the first policy
year until first year premiums equal the Target Premium. 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
9
<PAGE>
premiums paid after the eleventh policy year. Because policies of this type
were first offered in 1998, the foregoing waiver and the lower current rates
after policy year 10 are not yet applicable to any policy. The "Target
Premium" is 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 imposed if you elect
-------------------------------------------
this rider. It is deducted only from premiums received in the first two policy
years. The charge is 2% of premiums paid in the first two policy years until
the total charges deducted equal 2% of one year's Target Premium.
. Optional benefits charge - A charge imposed for certain other optional
--------------------------
insurance benefits added to the policy by means of a rider.
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 first 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 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
------------------------
additional mortality risk if either of the insured persons is subject to
certain types of special insurance risk.
. M &E charge - A daily charge for mortality and expense risks we assume.
-------------
This charge is deducted from the variable investment options. It does not
apply to the fixed investment option. The current charge is at an effective
annual rate of .35% of the value of the assets in each variable investment
option. We guarantee that this charge will never exceed an effective annual
rate of .60%.
10
<PAGE>
. Guaranteed minimum death benefit charge - A monthly charge beginning in
-----------------------------------------
the 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 at issue and is guaranteed not to exceed 3c
per $1,000 of Basic Sum Insured at issue. Because policies of this type were
first offered in 1998, 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.
. Optional benefits charge - Monthly charges for certain other optional
--------------------------
insurance benefits added to the policy by means of a rider.
. Partial withdrawal charge - A charge for each partial withdrawal of
-------------------------
account value to compensate us for the administrative expenses of processing
the withdrawal. The charge is equal to the lesser of $20 or 2% of the
withdrawal amount.
WHAT CHARGES WILL THE TRUSTS DEDUCT FROM MY INVESTMENT IN THE POLICY?
The Trusts must pay investment management fees and other operating expenses.
These fees and expenses are different for each fund and reduce the investment
return of each fund. Therefore, they also indirectly reduce the return you will
earn on any variable investment options you select.
The following figures for the funds are based on historical fund expenses, as
a percentage (rounded to two decimal places) of each fund's average daily net
assets for 1999, except as indicated in the Notes appearing at the end of this
table. Expenses of the funds are not fixed or specified under the terms of the
policy, and those expenses may vary from year to year.
<TABLE>
<CAPTION>
Investment Distribution and Other Operating Total Fund Other Operating
Management Service Expenses With Operating Expenses Absent
Fund Name Fee (12b-1) Fees Reimbursement Expenses Reimbursement
- --------- ---------- ---------------- --------------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
JOHN HANCOCK VARIABLE SERIES TRUST I
(NOTE 1):
Managed................................ 0.32% N/A 0.03% 0.35% 0.03%
Growth & Income........................ 0.25% N/A 0.03% 0.28% 0.03%
Equity Index........................... 0.14% N/A 0.00% 0.14% 0.08%
Large Cap Value........................ 0.74% N/A 0.10% 0.84% 0.11%
Large Cap Growth....................... 0.36% N/A 0.03% 0.39% 0.03%
Large Cap Aggressive Growth............ 0.98% N/A 0.10% 1.08% 0.19%
Mid Cap Value.......................... 0.80% N/A 0.10% 0.90% 0.12%
Mid Cap Growth......................... 0.82% N/A 0.10% 0.92% 0.11%
Fundamental Mid Cap Growth............. 0.85% N/A 0.10% 0.95% 0.24%
Real Estate Equity..................... 0.60% N/A 0.10% 0.70% 0.10%
Small/Mid Cap CORE..................... 0.80% N/A 0.10% 0.90% 0.66%
Small/Mid Cap Growth................... 0.75% N/A 0.10% 0.85% 0.10%
Small Cap Value........................ 0.80% N/A 0.10% 0.90% 0.16%
Small Cap Growth....................... 0.75% N/A 0.10% 0.85% 0.14%
Global Balanced *...................... 0.85% N/A 0.10% 0.95% 0.46%
International Equity Index............. 0.16% N/A 0.10% 0.26% 0.22%
International Opportunities............ 0.87% N/A 0.10% 0.97% 0.29%
Emerging Markets Equity................ 1.27% N/A 0.10% 1.37% 2.17%
Short-Term Bond........................ 0.30% N/A 0.10% 0.40% 0.13%
Bond Index............................. 0.15% N/A 0.10% 0.25% 0.20%
Active Bond *.......................... 0.25% N/A 0.03% 0.28% 0.03%
Global Bond............................ 0.69% N/A 0.10% 0.79% 0.15%
High Yield Bond........................ 0.65% N/A 0.10% 0.75% 0.39%
Money Market........................... 0.25% N/A 0.06% 0.31% 0.06%
AIM VARIABLE INSURANCE FUNDS, INC.:
AIM V.I. Value......................... 0.61% N/A 0.15% 0.76% 0.15%
VARIABLE INSURANCE PRODUCTS FUND -
SERVICE CLASS (NOTE 2):
Fidelity VIP Growth.................... 0.58% 0.10% 0.07% 0.75% 0.09%
VARIABLE INSURANCE PRODUCTS FUND II -
SERVICE CLASS (NOTE 2):
Fidelity VIP Contrafund(R)............. 0.58% 0.10% 0.07% 0.75% 0.10%
FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST - CLASS 2 SHARES (NOTE 3):
Templeton International Securities..... 0.69% 0.25% 0.19% 1.13% 0.19%
MFS VARIABLE INSURANCE TRUST
(NOTE 4):
MFS New Discovery...................... 0.90% N/A 0.17% 1.07% 1.59%
M FUND, INC. (NOTE 5):
Brandes International Equity........... 0.96% N/A 0.25% 1.21% 0.97%
Turner Core Growth..................... 0.45% N/A 0.25% 0.70% 0.95%
Frontier Capital Appreciation.......... 0.90% N/A 0.25% 1.15% 0.57%
Clifton Enhanced U.S. Equity**......... 0.55% N/A 0.25% 0.80% 1.08%
</TABLE>
11
<PAGE>
NOTES TO FUND EXPENSE TABLE
(1) John Hancock Variable Series Trust I funds' percentages reflect management
fees and other fund expenses based on the allocation methodology and expense
reimbursement policy adopted April 23, 1999. the policy, John Hancock Life
Insurance Company voluntarily reimburses a fund when the fund's "other fund
expenses" exceed 0.10% of the fund's average daily net assets (0.00% for
Equity Index).
* Global Balanced was formerly "International Balanced" and Active Bond was
formerly "Sovereign Bond".
(2) A portion of the brokerage commissions that certain of the Fidelity VIP
funds pay was used to reduce fund expenses. In addition, through
arrangements with certain funds' custodian, credits realized as a result of
uninvested cash balances were used to reduce a portion of each applicable
fund's expenses. Without these reductions, the operating expenses of the
funds would have been higher, as shown in the last column of this table.
(3) On February 8, 2000, shareholders of each fund approved a merger and
reorganization that combined the Templeton International Equity Fund with
the Templeton International Securities Fund, effective May 1, 2000.
Shareholders of the Templeton International Securities Fund had approved new
management fees, which apply to the combined funds effective May 1, 2000.
The table shows restated total expenses for the fund based on the new fees
and the assets, as of December 31, 1999, of the Templeton International
Securities Fund. However, if the table reflected both the new fees and the
12
<PAGE>
combined assets of the Templeton International Equity Fund and the Templeton
International Securities Fund, the estimated expenses for the two funds
combined after May 1, 2000 would be: Management Fees 0.65%, Distribution and
Service Fees 0.25%, Other Expenses 0.20%, and Total Fund Operating Expenses
1.10%.
(4) MFS Variable Insurance Trust funds have an expense offset arrangement
which reduces each fund's custodian fee based upon the amount of cash
maintained by the fund with its custodian and dividend disbursing agent.
Each fund may enter into other such arrangements and directed brokerage
arrangements, which would also have the effect of reducing the fund's
expenses. Expenses do not take into account these expense reductions, and
are therefore higher than the actual expenses of the fund. MFS Investment
Management(R) (also doing business as Massachusetts Financial Services
Company) has contractually agreed to bear expense for the New Discovery
Fund, subject to reimbursement by the fund, such that such fund's "other
fund expenses" shall not exceed 0.15% of the average daily net assets of the
fund during the current fiscal year.
(5) M Fund, Inc. funds' percentages reflect the investment management fees
currently payable and other fund expenses allocated in 1999. M Financial
Advisers, Inc. reimburses a fund when the fund's other operating expenses
exceed 0.25% of that fund's average daily net assets.
** Clifton Enhanced U.S. Equity was formerly "Enhanced U.S. Equity".
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.
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.
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.
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%.
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.
13
<PAGE>
Under our current rules, you can make transfers out of any variable investment
option anytime you wish. However, transfers out of the fixed investment option
are currently subject to the following restrictions:
.You can only make such a transfer once a year and only during the 31 day
period following your policy anniversary.
.We must receive the request for such a transfer during the period beginning
60 days prior to the policy anniversary and ending 30 days after it.
.The most you can transfer at any one time is the greater of $500 or 20% of
the assets in your fixed investment option.
We reserve the right to impose a minimum amount limit on transfers out of the
fixed investment option. We also reserve the right to impose limits on the
number and frequency of transfers out of the variable investment options.
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 plus, if surrender occurs in the second
policy year, a refund of a certain portion of sales charges equal to 5% of
premiums paid in the second policy year up to the Target premium. This is called
your "surrender value." You must return your policy when you request a full
surrender.
Partial withdrawals
You may make a partial withdrawal of your surrender value at any time. Each
partial withdrawal must be at least $1,000. There is a charge (usually $20) for
each partial withdrawal. We will automatically reduce the account value of your
policy by the amount of the withdrawal and the related charge. Each investment
option will be reduced in the same proportion as the account value is then
allocated among them. We will not permit a partial withdrawal if it would cause
your account value to fall below 3 months' worth of monthly charges (see
"Deductions from account value" on page 10). We also reserve the right to refuse
any partial withdrawal that would cause the policy's Total Sum Insured to fall
below $1,000,000. 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
14
<PAGE>
insured person dies?" on page 16) and under the guaranteed death benefit feature
(see page 7). 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 7. 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 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 7). The maximum amount you can borrow is
determined as follows:
. We first determine the account value of your policy.
. We then subtract an amount equal to 12 times the monthly charges then
being deducted from account value.
. We then multiply the resulting amount by 1.00% in policy years 1 through
20 and .50% thereafter.
. We then subtract the third item above from the second item above.
The minimum amount of each loan is $1,000. The interest charged on any loan is
an effective annual rate of 5% in the first 20 policy years and 4.5% 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.
15
<PAGE>
If you want a payment to be used as a loan repayment, you must include
instructions to that effect. Otherwise, all payments will be assumed to be
premium payments.
HOW MUCH WILL JHVLICO PAY WHEN THE 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. The only limitation on how much Additional Sum
Insured you can have is that it 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 34.
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. 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
16
<PAGE>
application for the policy. You may revoke that election at any time, but there
may be adverse tax consequences if you do. An "annual processing date" is the
first business day of a policy year.
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. For
policies of this type, we will apply the "cash value accumulation test" as
described in Federal tax law. Under the cash value accumulation test, we compute
the minimum insurance amount on each monthly deduction date by multiplying the
account value on that date by the 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 for each year the policy remains in
effect. A table showing the factor for each policy year will appear in the
policy.
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.
Enhanced cash value rider
In the application for the policy, you may elect to purchase the enhanced cash
value rider. This rider provides an enhanced cash value benefit (in addition to
the surrender value) if you surrender the policy within the first nine policy
years. The amount of the benefit will be shown in the "Policy Specifications"
section of the policy. The benefit is also included in the account value when
calculating the death benefit. Election of this rider could increase your
insurance charge since it affects our amount at risk under the policy. The
amount available for partial withdrawals and loans are based on the surrender
value and will in no way be increased due to this 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. However, you will have to provide us with evidence that the surviving
insured persons still meet our requirements for issuing insurance coverage. As
to when an approved increase would take effect, see "Effective date of other
policy transactions" on page 36.
17
<PAGE>
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:
. the remaining Total Sum Insured will be at least $1,000,000, 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. As to when an approved decrease would take effect, see
"Effective date of other policy transactions" on page 36.
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 39 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 the latest of the following
periods:
. 10 days after you receive it (this period may be longer in some
states);
. 10 days after mailing by JHVLICO of the Notice of Withdrawal Right;
or
. 45 days after the date Part A of the application has been completed.
This is often referred to as the "free look" period. To cancel your policy,
simply deliver or mail the policy to JHVLICO at one of the addresses shown on
page 2, 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 Trusts prior to that date. The date of
cancellation will be the date of such mailing or delivery.
18
<PAGE>
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
. Option 3 - Equal monthly payments for life, but with payments guaranteed
for a specific number of years
. Option 4 - Equal monthly payments for life with no refund
. Option 5 - Equal monthly payments for life with a refund if all of the
proceeds haven't been paid out
You cannot choose an option if the monthly payments under the option would be
less than $50. We will issue a supplementary agreement when the proceeds are
applied to any alternative payment option. That agreement will spell out the
terms of the option in full. We will credit interest on each of the above
options. For Options 1 and 2A, the interest will be at least an effective annual
rate of 3 1/2%.
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.
19
<PAGE>
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 of your insurance
coverage may vary from the terms and conditions described in this prospectus,
depending upon where you reside. These variations will be reflected in your
policy or in endorsements attached to your policy.
Variations in expenses or risks
We may vary the charges and other terms of our policies where special
circumstances result in sales or administrative expenses, mortality risks or
other risks that are different from those normally associated with the policies.
These include the type of variations discussed under "Reduced charges for
eligible classes" on page 38. No variation in any charge will exceed any maximum
stated in this prospectus with respect to that charge.
HOW WILL 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 on page 39.
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 2.
Certain requests must be made in writing and be signed and dated by you. They
include the following:
. loans, surrenders or partial withdrawals
. transfers of account value among investment options
. change of allocation among investment options for new premium
payments
. change of death benefit option
20
<PAGE>
. 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 2. 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 "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 1-800-521-1234 or by faxing us at 1-617-572-6956.
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.
21
<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 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 -.79%, 5.16% and 11.12%. 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
preferred underwriting risk when the policy is issued and for a female insured
person who is 50 years old and a preferred 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 .66%, and (2) an assumed average asset charge for all
other Trust operating expenses equivalent to an effective annual rate of .13%.
These rates are the arithmetic average for all funds of the Trusts. In other
words, they are based on the hypothetical assumption that policy account values
are allocated equally among the variable investment options. The actual rates
associated with any policy will vary depending upon the actual allocation of
policy values among the investment options. The charge shown above for all other
Trust operating expenses reflects reimbursements to certain funds as described
in the footnotes to the table beginning on page 11. We currently expect those
reimbursement arrangements to continue indefinitely, but that is not guaranteed.
The second column of each table shows the amount you would have at the end of
each policy year if an amount equal to the assumed Planned Premiums were
invested to earn interest, after taxes, at 5% compounded annually. This is not a
policy value. It is included for comparison purposes only.
Because your circumstances will no doubt differ from those in the
illustrations that follow, values under your policy will differ, in most cases
substantially. Upon request, we will furnish you with a comparable illustration
reflecting your proposed insured persons' issue ages, sex and underwriting risk
classification, and the Total Sum Insured and annual Planned Premium amount
requested.
22
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $1,000,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION A DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT AFTER TENTH POLICY YEAR PLANNED PREMIUM: $15,969* USING
CURRENT CHARGES AND CVAT TEST
<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 $ 16,768 $1,000,000 $1,000,000 $1,000,000 $ 9,144 $ 9,725 $ 10,306
2 34,374 1,000,000 1,000,000 1,000,000 21,276 23,150 25,091
3 52,861 1,000,000 1,000,000 1,000,000 31,593 35,492 39,684
4 72,271 1,000,000 1,000,000 1,000,000 42,709 49,396 56,867
5 92,653 1,000,000 1,000,000 1,000,000 53,567 63,834 75,758
6 114,053 1,000,000 1,000,000 1,000,000 65,595 80,326 98,107
7 136,524 1,000,000 1,000,000 1,000,000 77,300 97,426 122,672
8 160,118 1,000,000 1,000,000 1,000,000 88,651 115,130 149,665
9 184,891 1,000,000 1,000,000 1,000,000 99,619 133,437 179,326
10 210,904 1,000,000 1,000,000 1,000,000 110,264 152,442 212,014
11 238,217 1,000,000 1,000,000 1,000,000 122,153 173,806 249,747
12 266,895 1,000,000 1,000,000 1,000,000 133,979 196,282 291,642
13 297,008 1,000,000 1,000,000 1,000,000 145,736 219,918 338,140
14 328,626 1,000,000 1,000,000 1,000,000 157,406 244,752 389,724
15 361,825 1,000,000 1,000,000 1,000,000 168,983 270,835 446,938
16 396,684 1,000,000 1,000,000 1,000,000 180,446 298,210 510,377
17 433,286 1,000,000 1,000,000 1,079,882 191,782 326,926 580,624
18 471,718 1,000,000 1,000,000 1,185,919 202,972 357,034 658,345
19 512,072 1,000,000 1,000,000 1,299,672 213,995 388,587 744,322
20 554,444 1,000,000 1,000,000 1,421,955 224,827 421,638 839,414
25 800,279 1,000,000 1,000,000 2,200,596 276,302 613,634 1,490,197
30 1,114,034 1,000,000 1,127,687 3,377,716 311,603 851,635 2,550,868
35 1,514,473 1,000,000 1,386,459 5,180,202 307,480 1,136,191 4,245,131
</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.
23
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $1,000,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION B DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT AFTER TENTH POLICY YEAR PLANNED PREMIUM: $15,969* USING
CURRENT CHARGES AND CVAT TEST
<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 $ 16,768 $1,009,144 $1,009,725 $1,010,306 $ 9,144 $ 9,725 $ 10,306
2 34,374 1,020,475 1,022,348 1,024,289 21,274 23,147 25,087
3 52,861 1,031,584 1,035,481 1,039,673 31,584 35,481 39,673
4 72,271 1,042,686 1,049,369 1,056,836 42,686 49,369 56,836
5 92,653 1,053,519 1,063,775 1,075,687 53,519 63,775 75,687
6 114,053 1,065,505 1,080,213 1,097,965 65,505 80,213 97,965
7 136,524 1,077,145 1,097,223 1,122,410 77,145 97,223 122,410
8 160,118 1,088,398 1,114,789 1,149,208 88,398 114,789 149,208
9 184,891 1,099,227 1,132,891 1,178,566 99,227 132,891 178,566
10 210,904 1,109,693 1,151,615 1,210,819 109,693 151,615 210,819
11 238,217 1,121,402 1,172,675 1,248,045 121,402 172,675 248,045
12 266,895 1,133,042 1,194,813 1,289,334 133,042 194,813 289,334
13 297,008 1,144,606 1,218,071 1,335,113 144,606 218,071 335,113
14 328,626 1,156,075 1,242,484 1,385,844 156,075 242,484 385,844
15 361,825 1,167,442 1,268,099 1,442,049 167,442 268,099 442,049
16 396,684 1,178,684 1,294,947 1,504,289 178,684 294,947 504,289
17 433,286 1,189,782 1,323,069 1,573,191 189,782 323,069 573,191
18 471,718 1,200,715 1,352,500 1,649,445 200,715 352,500 649,445
19 512,072 1,211,454 1,383,272 1,733,807 211,454 383,272 733,807
20 554,444 1,221,965 1,415,413 1,827,110 221,965 415,413 827,110
25 800,279 1,270,388 1,598,375 2,464,633 270,388 598,375 1,464,633
30 1,114,034 1,296,116 1,807,048 3,500,322 296,116 807,048 2,500,322
35 1,514,473 1,264,424 2,007,192 5,152,092 264,424 1,007,192 4,152,092
</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.
24
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $1,000,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION A DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT AFTER TENTH POLICY YEAR PLANNED PREMIUM: $15,969* USING
MAXIMUM CHARGES AND CVAT TEST
<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 $ 16,768 $1,000,000 $1,000,000 $1,000,000 $ 8,853 $ 9,422 $ 9,994
2 34,374 1,000,000 1,000,000 1,000,000 20,670 22,497 24,397
3 52,861 1,000,000 1,000,000 1,000,000 30,648 34,440 38,532
4 72,271 1,000,000 1,000,000 1,000,000 41,405 47,891 55,163
5 92,653 1,000,000 1,000,000 1,000,000 51,880 61,817 73,397
6 114,053 1,000,000 1,000,000 1,000,000 63,502 77,732 94,963
7 136,524 1,000,000 1,000,000 1,000,000 74,777 94,183 118,600
8 160,118 1,000,000 1,000,000 1,000,000 85,676 111,161 144,497
9 184,891 1,000,000 1,000,000 1,000,000 96,168 128,661 172,870
10 210,904 1,000,000 1,000,000 1,000,000 106,215 146,667 203,948
11 238,217 1,000,000 1,000,000 1,000,000 116,715 166,160 239,048
12 266,895 1,000,000 1,000,000 1,000,000 126,654 186,158 277,508
13 297,008 1,000,000 1,000,000 1,000,000 135,961 206,619 319,654
14 328,626 1,000,000 1,000,000 1,000,000 144,539 227,486 365,846
15 361,825 1,000,000 1,000,000 1,000,000 152,282 248,694 416,503
16 396,684 1,000,000 1,000,000 1,000,000 159,070 270,171 472,113
17 433,286 1,000,000 1,000,000 1,000,000 164,715 291,794 533,197
18 471,718 1,000,000 1,000,000 1,080,718 169,164 313,564 599,944
19 512,072 1,000,000 1,000,000 1,174,341 172,210 335,361 672,544
20 554,444 1,000,000 1,000,000 1,272,864 173,654 357,091 751,402
25 800,279 1,000,000 1,000,000 1,852,998 146,734 460,814 1,254,811
30 1,114,034 1,000,000 1,000,000 2,615,322 6,310 535,184 1,975,104
35 1,514,473 ** 1,000,000 3,626,184 ** 533,569 2,971,627
</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 $1,000,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION B DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT AFTER TENTH POLICY YEAR PLANNED PREMIUM: $15,969* USING
MAXIMUM CHARGES AND CVAT TEST
<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 $ 16,768 $1,008,852 $1,009,422 $1,009,993 $ 8,852 $ 9,422 $ 9,993
2 34,374 1,019,869 1,021,696 1,023,596 20,667 22,495 24,394
3 52,861 1,030,639 1,034,430 1,038,520 30,639 34,430 38,520
4 72,271 1,041,382 1,047,865 1,055,133 41,382 47,865 55,133
5 92,653 1,051,833 1,061,760 1,073,328 51,833 61,760 73,328
6 114,053 1,063,415 1,077,623 1,094,826 63,415 77,623 94,826
7 136,524 1,074,627 1,093,987 1,118,346 74,627 93,987 118,346
8 160,118 1,085,431 1,110,832 1,144,056 85,431 110,832 144,056
9 184,891 1,095,790 1,128,134 1,172,137 95,790 128,134 172,137
10 210,904 1,105,652 1,145,855 1,202,776 105,652 145,855 202,776
11 238,217 1,115,901 1,164,944 1,237,226 115,901 164,944 237,226
12 266,895 1,125,506 1,184,379 1,274,741 125,506 184,379 274,741
13 297,008 1,134,371 1,204,069 1,315,532 134,371 204,069 315,532
14 328,626 1,142,377 1,223,889 1,359,801 142,377 223,889 359,801
15 361,825 1,149,383 1,243,689 1,407,750 149,383 243,689 407,750
16 396,684 1,155,236 1,263,296 1,459,586 155,236 263,296 459,586
17 433,286 1,159,700 1,282,442 1,515,447 159,700 282,442 515,447
18 471,718 1,162,704 1,301,011 1,575,658 162,704 301,011 575,658
19 512,072 1,163,993 1,318,693 1,640,381 163,993 318,693 640,381
20 554,444 1,163,334 1,335,185 1,709,815 163,334 335,185 709,815
25 800,279 1,119,839 1,384,900 2,132,822 119,839 384,900 1,132,822
30 1,114,034 ** 1,312,986 2,674,947 ** 312,986 1,674,947
35 1,514,473 ** ** 3,300,001 ** ** 2,300,001
</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.
26
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $1,000,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION A DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT AFTER TENTH POLICY YEAR PLANNED PREMIUM: $15,969* USING
CURRENT CHARGES AND GPT TEST
<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 $ 16,768 $1,000,000 $1,000,000 $1,000,000 $ 9,144 $ 9,725 $ 10,306
2 34,374 1,000,000 1,000,000 1,000,000 21,276 23,150 25,091
3 52,861 1,000,000 1,000,000 1,000,000 31,593 35,492 39,684
4 72,271 1,000,000 1,000,000 1,000,000 42,709 49,396 56,867
5 92,653 1,000,000 1,000,000 1,000,000 53,567 63,834 75,758
6 114,053 1,000,000 1,000,000 1,000,000 65,595 80,326 98,107
7 136,524 1,000,000 1,000,000 1,000,000 77,300 97,426 122,672
8 160,118 1,000,000 1,000,000 1,000,000 88,651 115,130 149,665
9 184,891 1,000,000 1,000,000 1,000,000 99,619 133,437 179,326
10 210,904 1,000,000 1,000,000 1,000,000 110,264 152,442 212,014
11 238,217 1,000,000 1,000,000 1,000,000 122,153 173,806 249,747
12 266,895 1,000,000 1,000,000 1,000,000 133,979 196,282 291,642
13 297,008 1,000,000 1,000,000 1,000,000 145,736 219,918 338,140
14 328,626 1,000,000 1,000,000 1,000,000 157,406 244,752 389,724
15 361,825 1,000,000 1,000,000 1,000,000 168,983 270,835 446,938
16 396,684 1,000,000 1,000,000 1,000,000 180,446 298,210 510,378
17 433,286 1,000,000 1,000,000 1,000,000 191,782 326,926 580,710
18 471,718 1,000,000 1,000,000 1,000,000 202,972 357,034 658,678
19 512,072 1,000,000 1,000,000 1,000,000 213,995 388,587 745,109
20 554,444 1,000,000 1,000,000 1,000,000 224,827 421,638 840,929
25 800,279 1,000,000 1,000,000 1,576,668 276,302 613,634 1,501,588
30 1,114,034 1,000,000 1,000,000 2,728,966 311,603 853,857 2,599,015
35 1,514,473 1,000,000 1,218,339 4,630,712 307,480 1,160,323 4,410,202
</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 $1,000,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION B DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT AFTER TENTH POLICY YEAR PLANNED PREMIUM: $15,969* USING
CURRENT CHARGES AND GPT TEST
<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 $ 16,768 $1,009,144 $1,009,725 $1,010,306 $ 9,144 $ 9,725 $ 10,306
2 34,374 1,020,475 1,022,348 1,024,289 21,274 23,147 25,087
3 52,861 1,031,584 1,035,481 1,039,673 31,584 35,481 39,673
4 72,271 1,042,686 1,049,369 1,056,836 42,686 49,369 56,836
5 92,653 1,053,519 1,063,775 1,075,687 53,519 63,775 75,687
6 114,053 1,065,505 1,080,213 1,097,965 65,505 80,213 97,965
7 136,524 1,077,145 1,097,223 1,122,410 77,145 97,223 122,410
8 160,118 1,088,398 1,114,789 1,149,208 88,398 114,789 149,208
9 184,891 1,099,227 1,132,891 1,178,566 99,227 132,891 178,566
10 210,904 1,109,693 1,151,615 1,210,819 109,693 151,615 210,819
11 238,217 1,121,402 1,172,675 1,248,045 121,402 172,675 248,045
12 266,895 1,133,042 1,194,813 1,289,334 133,042 194,813 289,334
13 297,008 1,144,606 1,218,071 1,335,113 144,606 218,071 335,113
14 328,626 1,156,075 1,242,484 1,385,844 156,075 242,484 385,844
15 361,825 1,167,442 1,268,099 1,442,049 167,442 268,099 442,049
16 396,684 1,178,684 1,294,947 1,504,289 178,684 294,947 504,289
17 433,286 1,189,782 1,323,069 1,573,191 189,782 323,069 573,191
18 471,718 1,200,715 1,352,500 1,649,445 200,715 352,500 649,445
19 512,072 1,211,454 1,383,272 1,733,807 211,454 383,272 733,807
20 554,444 1,221,965 1,415,413 1,827,110 221,965 415,413 827,110
25 800,279 1,270,388 1,598,375 2,464,633 270,388 598,375 1,464,633
30 1,114,034 1,296,116 1,807,048 3,500,322 296,116 807,048 2,500,322
35 1,514,473 1,264,424 2,007,192 5,152,092 264,424 1,007,192 4,152,092
</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.
28
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $1,000,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION A DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT AFTER TENTH POLICY YEAR PLANNED PREMIUM: $15,969* USING
MAXIMUM CHARGES AND GPT TEST
<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 $ 16,768 $1,000,000 $1,000,000 $1,000,000 $ 8,853 $ 9,422 $ 9,994
2 34,374 1,000,000 1,000,000 1,000,000 20,670 22,497 24,397
3 52,861 1,000,000 1,000,000 1,000,000 30,648 34,440 38,532
4 72,271 1,000,000 1,000,000 1,000,000 41,405 47,891 55,163
5 92,653 1,000,000 1,000,000 1,000,000 51,880 61,817 73,397
6 114,053 1,000,000 1,000,000 1,000,000 63,502 77,732 94,963
7 136,524 1,000,000 1,000,000 1,000,000 74,777 94,183 118,600
8 160,118 1,000,000 1,000,000 1,000,000 85,676 111,161 144,497
9 184,891 1,000,000 1,000,000 1,000,000 96,168 128,661 172,870
10 210,904 1,000,000 1,000,000 1,000,000 106,215 146,667 203,948
11 238,217 1,000,000 1,000,000 1,000,000 116,715 166,160 239,048
12 266,895 1,000,000 1,000,000 1,000,000 126,654 186,158 277,508
13 297,008 1,000,000 1,000,000 1,000,000 135,961 206,619 319,654
14 328,626 1,000,000 1,000,000 1,000,000 144,539 227,486 365,846
15 361,825 1,000,000 1,000,000 1,000,000 152,282 248,694 416,503
16 396,684 1,000,000 1,000,000 1,000,000 159,070 270,171 472,113
17 433,286 1,000,000 1,000,000 1,000,000 164,715 291,794 533,220
18 471,718 1,000,000 1,000,000 1,000,000 169,164 313,564 600,574
19 512,072 1,000,000 1,000,000 1,000,000 172,210 335,361 674,985
20 554,444 1,000,000 1,000,000 1,000,000 173,654 357,091 757,463
25 800,279 1,000,000 1,000,000 1,392,680 146,734 460,814 1,326,362
30 1,114,034 1,000,000 1,000,000 2,364,552 6,310 535,184 2,251,955
35 1,514,473 ** 1,000,000 3,903,377 ** 533,569 3,717,502
</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>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $1,000,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION B DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT AFTER TENTH POLICY YEAR PLANNED PREMIUM: $15,969* USING
MAXIMUM CHARGES AND GPT TEST
<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 $ 16,768 $1,008,852 $1,009,422 $1,009,993 $ 8,852 $ 9,422 $ 9,993
2 34,374 1,019,869 1,021,696 1,023,596 20,667 22,495 24,394
3 52,861 1,030,639 1,034,430 1,038,520 30,639 34,430 38,520
4 72,271 1,041,382 1,047,865 1,055,133 41,382 47,865 55,133
5 92,653 1,051,833 1,061,760 1,073,328 51,833 61,760 73,328
6 114,053 1,063,415 1,077,623 1,094,826 63,415 77,623 94,826
7 136,524 1,074,627 1,093,987 1,118,346 74,627 93,987 118,346
8 160,118 1,085,431 1,110,832 1,144,056 85,431 110,832 144,056
9 184,891 1,095,790 1,128,134 1,172,137 95,790 128,134 172,137
10 210,904 1,105,652 1,145,855 1,202,776 105,652 145,855 202,776
11 238,217 1,115,901 1,164,944 1,237,226 115,901 164,944 237,226
12 266,895 1,125,506 1,184,379 1,274,741 125,506 184,379 274,741
13 297,008 1,134,371 1,204,069 1,315,532 134,371 204,069 315,532
14 328,626 1,142,377 1,223,889 1,359,801 142,377 223,889 359,801
15 361,825 1,149,383 1,243,689 1,407,750 149,383 243,689 407,750
16 396,684 1,155,236 1,263,296 1,459,586 155,236 263,296 459,586
17 433,286 1,159,700 1,282,442 1,515,447 159,700 282,442 515,447
18 471,718 1,162,704 1,301,011 1,575,658 162,704 301,011 575,658
19 512,072 1,163,993 1,318,693 1,640,381 163,993 318,693 640,381
20 554,444 1,163,334 1,335,185 1,709,815 163,334 335,185 709,815
25 800,279 1,119,839 1,384,900 2,132,822 119,839 384,900 1,132,822
30 1,114,034 ** 1,312,986 2,674,947 ** 312,986 1,674,947
35 1,514,473 ** ** 3,300,001 ** ** 2,300,001
</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.
30
<PAGE>
ADDITIONAL INFORMATION
This section of the prospectus provides additional detailed information that
is not contained in the Basic Information section on pages 4 through 21.
<TABLE>
<CAPTION>
CONTENTS OF THIS SECTION BEGINNING ON PAGE
- ------------------------ -----------------
<S> <C>
Description of JHVLICO ....................................... 32
How we support the policy and investment options.............. 32
Procedures for issuance of a policy........................... 33
Basic Sum Insured vs. Additional Sum Insured.................. 34
Commencement of investment performance........................ 35
How we process certain policy transactions.................... 35
Effects of policy loans....................................... 37
Additional information about how certain policy charges 37
work..........................................................
How we market the policies.................................... 38
Tax considerations............................................ 39
Reports that you will receive................................. 41
Voting privileges that you will have.......................... 41
Changes that JHVLICO can make as to your policy............... 41
Adjustments we make to death benefits......................... 42
When we pay policy proceeds................................... 42
Other details about exercising rights and paying benefits..... 43
Legal matters................................................. 43
Registration statement filed with the SEC..................... 43
Accounting and actuarial experts.............................. 43
Financial statements of JHVLICO and the Account............... 43
List of Directors and Executive Officers of JHVLICO........... 44
</TABLE>
31
<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. As of December 31, 1999, John
Hancock's assets were approximately $71 billion and it had invested
approximately $575 million in JHVLICO in connection with JHVLICO's organization
and operation. It is anticipated that John Hancock will from time to time make
additional capital contributions to JHVLICO to enable us to meet our reserve
requirements and expenses in connection with our business. John Hancock is
committed to make additional capital contributions if necessary to ensure that
we maintain a positive net worth.
HOW WE SUPPORT THE POLICY AND INVESTMENT OPTIONS
Separate Account 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 one of
the Trusts. New subaccounts may be added as new funds are added to the Trusts
and made available to policy owners. Existing subaccounts may be deleted if
existing funds are deleted from the Trusts.
We will purchase and redeem Trust shares for the Account at their net asset
value without any sales or redemption charges. Shares of a Trust represent an
interest in one of the funds of the Trust which corresponds to a subaccount of
the Account. Any dividend or capital gains distributions received by the Account
will be reinvested in shares of that same fund at their net asset value as of
the dates paid.
On each business day, shares of each fund are purchased or redeemed by us for
each subaccount based on, among other things, the amount of net premiums
allocated to the subaccount, distributions reinvested, and transfers to, from
and among subaccounts, all to be effected as of that date. Such
32
<PAGE>
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 $1,000,000 and a minimum Basic Sum Insured at issue of $500,000. At the time
of issue, each insured person must have an attained age of at least 20 and no
more than 80. All insured persons must meet certain health and other insurance
risk criteria called "underwriting standards".
Policies issued in Montana or in connection with certain employee plans will
not directly reflect the sex of the insured 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
insurance coverage prior to policy delivery" on page 34).
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.
33
<PAGE>
. 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 from account value and
the amount of compensation paid to the selling insurance agent will be less if
coverage is included as Additional Sum Insured, rather than as Basic Sum
Insured. 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.
34
<PAGE>
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 39).
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.
35
<PAGE>
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 a variable investment option will be effective at the end of the business
day in which we receive at our Life Servicing Office notice satisfactory to us.
If received on or before the policy anniversary, requests for transfer out of
the fixed investment option will be processed on the policy anniversary (or the
next business day if the policy anniversary does not occur on a business day).
If received after the policy anniversary, such a request will be processed at
the end of the business day in which we receive the request at our Life
Servicing Office. If you request a transfer out of the fixed investment option
61 days or more prior to the policy anniversary, we will not process that
portion of the reallocation, and your confirmation statement will not reflect a
transfer out of the fixed investment option as to such request. Currently, there
is no minimum amount limit on transfers into the fixed investment option, but we
reserve the right to impose such a limit in the future. 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-
521-1234.
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 18)
Reinstatements of lapsed policies take effect on the monthly deduction date on
or next following the date we approve the request for reinstatement.
36
<PAGE>
We process loans, surrenders, partial withdrawals and loan repayments as of
the day we receive such request or repayment.
EFFECTS OF POLICY LOANS
The account value, the surrender value, and any death benefit above the Total
Sum Insured are permanently affected by any loan, whether or not it is repaid in
whole or in part. This is because the amount of the loan is deducted from the
investment options and placed in a special loan account. The investment options
and the special loan account will generally have different rates of investment
return.
The amount of the outstanding loan (which includes accrued and unpaid
interest) is subtracted from the amount otherwise payable when the policy
proceeds become payable.
Whenever the outstanding loan equals or exceeds your account value, the policy
will terminate 31 days after we have mailed notice of termination to you (and to
any assignee of record at such assignee's last known address) specifying the
amount you must pay 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 charge
for mortality and expense risks and other gains with respect to the policies, or
from our general assets. (See "How we market the policies" on page 38.)
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 39.)
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.
37
<PAGE>
Reduced charges for eligible classes
The charges otherwise applicable (including the M&E charge) 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; 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 65% of the Target Premium paid in the first policy year, 12% of the
Target Premium paid in each of the second through fifth policy years, 7.5% of
the Target Premium paid in each of the sixth through tenth 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
38
<PAGE>
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, 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.
39
<PAGE>
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 a Trust failed to meet certain investment
diversification or other requirements of the Code. If this were to occur, you
would be subject to income tax on the income and gains under the policy for the
period of the disqualification and for subsequent periods.
In the past, the United States Treasury Department has stated that it
anticipated issuing guidelines prescribing circumstances in which the ability of
a policy owner to direct his or her investment to particular funds may cause the
policy owner, rather than the insurance company, to be treated as the owner of
the shares of those funds. In that case, any income and gains attributable to
those shares would be included in your current gross income for federal income
tax purposes. Under current law, however, we believe that we, and not the owner
of a policy, would be considered the owner of the fund's shares for tax
purposes.
Tax consequences of ownership or receipt of policy proceeds under federal,
state and local estate, inheritance, gift and other tax laws depend on the
circumstances of each owner or beneficiary.
Because there may be unfavorable tax consequences (including recognition of
taxable income and the loss of income tax-free treatment for any death benefit
payable to the beneficiary), you should consult a qualified tax adviser prior to
changing the policy's ownership or making any assignment of ownership interests.
7-pay premium limit
At the time of policy issuance, we will determine whether the Planned Premium
schedule will exceed the 7-pay limit discussed below. If so, our standard
procedures prohibit issuance of the policy unless you sign a form acknowledging
that fact.
The 7-pay limit is the total of net level premiums that would have been
payable at any time for a comparable fixed policy to be fully "paid-up" after
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
40
<PAGE>
for the purpose of applying the modified endowment rules. A policy received in
exchange for a modified endowment will itself also be a modified endowment. You
should consult your tax advisor if you have questions regarding the possible
impact of the 7-pay limit on your policy.
Corporate and H.R. 10 plans
The policy may be acquired in connection with the funding of retirement plans
satisfying the qualification requirements of Section 401 of the Code. If so, the
Code provisions relating to such plans and life insurance benefits thereunder
should be carefully scrutinized. We are not responsible for compliance with the
terms of any such plan or with the requirements of applicable provisions of the
Code.
REPORTS THAT YOU WILL RECEIVE
At least annually, we will send you a statement setting forth the following
information as of the end of the most recent reporting period: the amount of the
death benefit, the Basic Sum Insured and the Additional Sum Insured, the account
value, the portion of the account value in each investment option, the surrender
value, premiums received and charges deducted from premiums since the last
report, and any outstanding policy loan (and interest charged for the preceding
policy year). Moreover, you also will receive confirmations of premium payments,
transfers among investment options, policy loans, partial withdrawals and
certain other policy transactions.
Semiannually we will send you a report containing the financial statements of
each 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 Trusts. We will vote the shares of each of the
funds of the Trusts which are deemed attributable to variable life insurance
policies at regular and special meetings of the Trusts' shareholders in
accordance with instructions received from owners of such policies. Shares of
the Trusts 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
or Board of Directors of the Trust, ratification of the selection of independent
auditors, approval of Trust investment advisory agreements and other matters
requiring a shareholder vote. We will furnish owners with information and forms
to enable owners to give voting instructions.
However, we may, in certain limited circumstances permitted by the SEC's
rules, disregard voting instructions. If we do disregard voting instructions,
you will receive a summary of that action and the reasons for it in the next
semi-annual report to owners.
CHANGES THAT JHVLICO CAN MAKE AS TO YOUR POLICY
Changes relating to a Trust or the Account
The voting privileges described in this prospectus reflect our understanding
of applicable Federal securities law requirements. To the extent that applicable
law, regulations or interpretations change to eliminate or restrict the need for
such voting privileges, we reserve the right to proceed in accordance with any
such revised requirements. We
41
<PAGE>
also reserve the right, subject to compliance with applicable law, including
approval of owners if so required, (1) to transfer assets determined by JHVLICO
to be associated with the class of policies to which your policy belongs from
the Account to another separate account or subaccount, (2) to operate the
Account as a "management-type investment company" under the 1940 Act, or in any
other form permitted by law, the investment adviser of which would be JHVLICO,
John Hancock or an affiliate of either, (3) to deregister the Account under the
1940 Act, (4) to substitute for the fund shares held by a subaccount any other
investment permitted by law, and (5) to take any action necessary to comply with
or obtain any exemptions from the 1940 Act. We would notify owners of any of the
foregoing changes and, to the extent legally required, obtain approval of owners
and any regulatory body prior thereto. Such notice and approval, however, may
not be legally required in all cases.
Other permissible changes
We reserve the right to make any changes in the policy necessary to ensure the
policy is within the definition of life insurance under the Federal tax laws and
is in compliance with any changes in Federal or state tax laws.
In our policies, we reserve the right to make certain changes if they would
serve the best interests of policy owners or would be appropriate in carrying
out the purposes of the policies. Such changes include the following:
. Changes necessary to comply with or obtain or continue exemptions under the
federal securities laws
. Combining or removing investment options
. Changes in the form of organization of any separate account
Any such changes will be made only to the extent permitted by applicable laws
and only in the manner permitted by such laws. When required by law, we will
obtain your approval of the changes and the approval of any appropriate
regulatory authority.
ADJUSTMENTS WE MAKE TO DEATH BENEFITS
If 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
42
<PAGE>
Stock Exchange is closed (other than customary weekend and holiday closings) or
trading on the New York Stock Exchange is restricted; (b) an emergency exists,
as a result of which disposal of securities is not reasonably practicable or it
is not reasonably practicable to fairly determine the account value; or (c) the
SEC by order permits the delay for the protection of owners. Transfers and
allocations of account value among the investment options may also be postponed
under these circumstances. If we need to defer calculation of separate account
values for any of the foregoing reasons, all delayed transactions will be
processed at the next values that we do compute.
OTHER DETAILS ABOUT EXERCISING RIGHTS AND PAYING BENEFITS
Joint ownership
If more than one person owns a policy, all owners must join in most requests
to exercise rights under the policy.
Assigning your policy
You may assign your rights in the policy to someone else as collateral for a
loan or for some other reason. Assignments do not require the consent of any
revocable beneficiary. A copy of the assignment must be forwarded to us. We are
not responsible for any payment we make or any action we take before we receive
notice of the assignment in good order. Nor are we responsible for the validity
of the assignment. An absolute assignment is a change of ownership. All
collateral assignees of record must consent to any full surrender, partial
withdrawal or loan from the policy.
Your beneficiary
You name your beneficiary when you apply for the policy. The beneficiary is
entitled to the proceeds we pay following the 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
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 Deborah A. Poppel, 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.
43
<PAGE>
LIST OF DIRECTORS AND EXECUTIVE OFFICERS OF JHVLICO
The Directors and Executive Officers of JHVLICO and their principal
occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Directors and Executive Principal Occupations
- ----------------------- ---------------------
Officers
- --------
<S> <C>
David F. D'Alessandro.... Chairman of the Board and Chief Executive
Officer of JHVLICO; President, Chief Operations
Officer and Chief Executive Officer-Elect, John
Hancock Life Insurance Company.
Michele G. Van Leer...... Vice Chairman of the Board and President of
JHVLICO; Senior Vice President, John Hancock
Life Insurance Company.
Ronald J. Bocage ........ Director, Vice President and Counsel of JHVLICO;
Vice President and Counsel, John Hancock Life
Insurance Company.
Bruce M. Jones........... Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Thomas J. Lee............ Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Barbara L. Luddy......... Director, Vice President and Actuary of JHVLICO;
Senior Vice President, John Hancock Life
Insurance Company.
Robert S. Paster......... Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Robert R. Reitano........ Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Paul Strong ............. Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Daniel L. Ouellette...... Vice President, Marketing, of JHVLICO; Senior
Vice President, John Hancock Life Insurance
Company.
Edward P. Dowd........... Vice President, Investments, of JHVLICO; Senior
Vice President, John Hancock Life Insurance
Company
Roger G. Nastou.......... Vice President, Investments, of JHVLICO; Vice
President, John Hancock Life Insurance Company
Todd G. Engelsen......... Vice President and Illustration Actuary of
JHVLICO; Second Vice President, John Hancock
Life Insurance Company
Julie H. Indge........... Treasurer of JHVLICO; Financial Officer, John
Hancock Life Insurance Company
Patrick F. Smith......... Controller of JHVLICO; Senior Associate
Controller, John Hancock Life Insurance Company.
Peter H. Scavongelli..... Secretary of JHVLICO; State Compliance Officer,
John Hancock Life Insurance Company
</TABLE>
The business address of all Directors and officers of JHVLICO is John Hancock
Place, Boston, Massachusetts 02117.
44
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Directors and Policyholders
John Hancock Variable Life Insurance Company
We have audited the accompanying statutory-basis statements of financial
position of John Hancock Variable Life Insurance Company as of December 31, 1999
and 1998, and the related statutory-basis statements of operations and
unassigned deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Commonwealth of Massachusetts Division of Insurance, which
practices differ from accounting principles generally accepted in the United
States. The variances between such practices and accounting principles generally
accepted in the United States also are described in Note 1. The effects on the
financial statements of these variances are not reasonably determinable but are
presumed to be material.
In our opinion, because of the effects of the matter described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with accounting principles generally accepted in the
United States, the financial position of John Hancock Variable Life Insurance
Company at December 31, 1999 and 1998, or the results of its operations or its
cash flows for the years then ended.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of John Hancock
Variable Life Insurance Company at December 31, 1999 and 1998, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance.
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 2000
45
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
---------- -----------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Bonds--Note 6........................................ $ 1,216.3 $1,185.8
Preferred stocks .................................... 35.9 36.5
Common stocks........................................ 3.2 3.1
Investment in affiliates............................. 80.7 81.7
Mortgage loans on real estate--Note 6................ 433.1 388.1
Real estate.......................................... 25.0 41.0
Policy loans......................................... 172.1 137.7
Cash items:
Cash in banks..................................... 27.2 11.4
Temporary cash investments........................ 222.9 8.5
--------- --------
250.1 19.9
Premiums due and deferred............................ 29.9 32.7
Investment income due and accrued.................... 33.2 29.8
Other general account assets......................... 65.3 47.5
Assets held in separate accounts..................... 8,268.2 6,595.2
--------- --------
TOTAL ASSETS........................................ $10,613.0 $8,599.0
========= ========
OBLIGATIONS AND STOCKHOLDER'S EQUITY
OBLIGATIONS
Policy reserves.................................... $ 1,866.6 $1,652.0
Federal income and other taxes payable--Note 1..... 67.3 44.3
Other general account obligations.................. 219.0 150.9
Transfers from separate accounts, net.............. (221.6) (190.3)
Asset valuation reserve--Note 1.................... 23.1 21.9
Obligations related to separate accounts........... 8,261.6 6,589.4
--------- --------
TOTAL OBLIGATIONS...................................
10,216.0 8,268.2
STOCKHOLDER'S EQUITY
Common Stock, $50 par value; authorized 50,000
shares;
issued and outstanding 50,000 shares............ 2.5 2.5
Paid-in capital.................................... 572.4 377.5
Unassigned deficit--Note 10........................ (177.9) (49.2)
--------- --------
TOTAL STOCKHOLDER'S EQUITY......................... 397.0 330.8
--------- --------
TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY.......... $10,613.0 $8,599.0
========= ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
46
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
--------- ---------
(IN MILLIONS)
<S> <C>
INCOME
Premiums.................................................... $1,272.3
Net investment income--Note 3............................... 136.0 122.8
Other, net.................................................. 605.4 618.1
-------- --------
1,692.2 2,013.2
BENEFITS AND EXPENSES
Payments to policyholders and beneficiaries................. 349.9 301.4
Additions to reserves to provide for future payments to
policyholders and beneficiaries.......................... 888.8 1,360.2
Expenses of providing service to policyholders and
obtaining new insurance--Note 5............................ 314.4 274.2
State and miscellaneous taxes............................... 20.5 28.1
---------- --------
1,573.6 1,963.9
---------- --------
Gain from operations before federal income
taxes and net realized capital losses 118.6 49.3
Federal income taxes--Note 1................................ 42.9 33.1
---------- --------
GAIN FROM OPERATIONS BEFORE NET REALIZED CAPITAL LOSSES 75.7 16.2
Net realized capital losses--Note 4......................... (1.7) (0.6)
---------- --------
NET INCOME................................................ 74.0 15.6
Unassigned deficit at beginning of year..................... (49.2) (58.3)
Net unrealized capital losses and other adjustments--Note 4 (3.8) (6.0)
Other reserves and adjustments--Note 10..................... (198.9) (0.5)
---------- --------
UNASSIGNED DEFICIT AT END OF YEAR....................... $ (177.9) $ (49.2)
========== ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
47
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998
--------- ----------
(IN MILLIONS)
<S> <C> <C>
Cash flows from operating activities:
Insurance premiums............................ 134.2 118.2
Net investment income......................... (321.6) (275.5)
Benefits to policyholders and beneficiaries... (25.6) (22.3)
Dividends paid to policyholders.................. (344.8) (296.9)
Insurance expenses and taxes..................... (705.3) (874.4)
Net transfers to separate accounts............... 540.6 551.3
Other, net.................................... --------- ----------
236.0 475.7
NET CASH PROVIDED FROM OPERATIONS.............. --------- ----------
Cash flows used in investing activities:
(240.7) (618.8)
Bond purchases................................ 108.3 340.7
Bond sales.................................... 78.4 111.8
Bond maturities and scheduled redemptions..... 18.7 76.5
Bond prepayments.............................. (3.9) (23.4)
Stock purchases............................... 3.6 1.9
Proceeds from stock sales..................... (2.2) (4.2)
Real estate purchases......................... 17.8 2.1
Real estate sales............................. (4.5) 0.0
Other invested assets purchases............... (70.7) (145.5)
Mortgage loans issued......................... 25.3 33.2
Mortgage loan repayments...................... (68.9) (435.2)
Other, net.................................... --------- ----------
(138.8) (660.9)
NET CASH USED IN INVESTING ACTIVITIES........... --------- ----------
Cash flows from financing activities:
194.9
Capital contribution..........................
Net (decrease) increase in short-term note (61.9) 61.9
payable......................................... --------- ----------
133.0 61.9
NET CASH PROVIDED FROM FINANCING ACTIVITIES..... --------- ----------
INCREASE (DECREASE) IN CASH AND TEMPORARY CASH 230.2
INVESTMENTS
Cash and temporary cash investments at beginning 19.9 143.2
of year......................................... --------- ----------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF 250.1 $19.9
YEAR............................................ ========= ==========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
48
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES
John Hancock Variable Life Insurance Company (the Company) is a wholly-owned
subsidiary of John Hancock Life Insurance Company (formerly John Hancock Mutual
Life Insurance Company) (John Hancock). The Company, domiciled in the
Commonwealth of Massachusetts, principally writes variable and universal life
insurance policies. Those policies primarily are marketed through John Hancock's
sales organization, Signator Insurance Agency, which includes a career agency
system composed of Company-supported independent general agencies and a direct
brokerage system that markets directly to external independent brokers.
Policies also are sold through various unaffiliated securities broker-dealers
and certain other financial institutions. Currently, the Company writes business
in all states except New York.
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes known, which could impact the amounts reported and
disclosed herein.
Basis of Presentation
The financial statements have been prepared using accounting practices
prescribed or permitted by the Commonwealth of Massachusetts Division of
Insurance and in conformity with the practices of the National Association of
Insurance Commissioners (NAIC), which practices differ from generally accepted
accounting principles (GAAP).
The significant differences from GAAP include: (1) policy acquisition costs
are charged to expense as incurred rather than deferred and amortized in
relation to future estimated gross profits; (2) policy reserves are based on
statutory mortality, morbidity, and interest requirements without consideration
of withdrawals and Company experience; (3) certain assets designated as
"nonadmitted assets" are excluded from the balance sheet by direct charges to
surplus; (4) reinsurance recoverables are netted against reserves and claim
liabilities rather than reflected as an asset; (5) bonds held as available for
sale are recorded at amortized cost or market value as determined by the NAIC
rather than at fair value; (6) an Asset Valuation Reserve and Interest
Maintenance Reserve as prescribed by the NAIC are not calculated under GAAP.
Under GAAP, realized capital gains and losses are reported in the income
statement on a pretax basis as incurred and investment valuation allowances are
provided when there has been a decline in value deemed other than temporary; (7)
investments in affiliates are carried at their net equity value with changes in
value being recorded directly to unassigned deficit rather than consolidated in
the financial statements; (8) no provision is made for the deferred income tax
effects of temporary differences between book and tax basis reporting; and (9)
certain items, including modifications to required policy reserves resulting
from changes in actuarial assumptions, are recorded directly to unassigned
deficit rather than being reflected in income. The effects of the foregoing
variances from GAAP have not been determined but are presumed to be material.
The significant accounting practices of the Company are as follows:
Pending Statutory Standards
During March 1998, the NAIC adopted codified statutory accounting principles
("Codification") effective January 1, 2001. Codification will likely change, to
some extent, prescribed statutory accounting practices and may result in changes
to the accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification will require adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Accordingly, before Codification
becomes effective for the Company, the Commonwealth of Massachusetts must adopt
Codification as the prescribed basis of accounting on which domestic insurers
must report their statutory-basis results to the Division
49
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
of Insurance. At this time, it is anticipated that the Commonwealth of
Massachusetts will adopt Codification effective January 1, 2001. The impact of
any such changes on the Company's unassigned deficit is not expected to be
material.
Revenues and Expenses
Premium revenues are recognized over the premium-paying period of the policies
whereas expenses, including the acquisition costs of new business, are charged
to operations as incurred and policyholder dividends are provided as paid or
accrued.
Cash and Temporary Cash Investments
Cash includes currency on hand and demand deposits with financial
institutions. Temporary cash investments are short-term, highly-liquid
investments both readily convertible to known amounts of cash and so near
maturity that there is insignificant risk of changes in value because of changes
in interest rates.
Valuation of Assets
General account investments are carried at amounts determined on the following
bases:
Bond and stock values are carried as prescribed by the NAIC; bonds generally
at amortized amounts or cost, preferred stocks generally at cost and common
stocks at fair value. The discount or premium on bonds is amortized using the
interest method.
Investments in affiliates are included on the statutory equity method.
Loan-backed bonds and structured securities are valued at amortized cost using
the interest method including anticipated prepayments. Prepayment assumptions
are obtained from broker dealer surveys or internal estimates and are based on
the current interest rate and economic environment. The retrospective adjustment
method is used to value all such securities except for interest-only securities,
which are valued using the prospective method.
The net interest effect of interest rate and currency rate swap transactions
is recorded as an adjustment of interest income as incurred. The initial cost of
interest rate cap agreements is amortized to net investment income over the life
of the related agreement. Gains and losses on financial futures contracts used
as hedges against interest rate fluctuations are deferred and recognized in
income over the period being hedged.
Mortgage loans are carried at outstanding principal balance or amortized cost.
Investment real estate is carried at depreciated cost, less encumbrances.
Depreciation on investment real estate is recorded on a straight-line basis.
Accumulated depreciation amounted to $1.9 million in 1999 and $3.0 million in
1998.
Real estate acquired in satisfaction of debt and real estate held for sale are
carried at the lower of cost or fair value.
Policy loans are carried at outstanding principal balance, not in excess of
policy cash surrender value.
50
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Asset Valuation and Interest Maintenance Reserves
The Asset Valuation Reserve (AVR) is computed in accordance with the
prescribed NAIC formula and represents a provision for possible fluctuations in
the value of bonds, equity securities, mortgage loans, real estate and other
invested assets. Changes to the AVR are charged or credited directly to the
unassigned deficit.
The Company also records the NAIC prescribed Interest Maintenance Reserve
(IMR) that represents that portion of the after tax net accumulated unamortized
realized capital gains and losses on sales of fixed income securities,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates. Such gains and losses are deferred and amortized into
income over the remaining expected lives of the investments sold. At December
31, 1999, the IMR, net of 1999 amortization of $2.3 million, amounted to $7.4
million, which is included in policy reserves. The corresponding 1998 amounts
were $2.4 million and $10.7 million, respectively.
Goodwill
The excess of cost over the statutory book value of the net assets of life
insurance business acquired was $8.9 million and $11.4 million at December 31,
1999 and 1998, respectively, and generally is amortized over a ten-year period
using a straight-line method.
Separate Accounts
Separate account assets and liabilities reported in the accompanying
statements of financial position represent funds that are separately
administered, principally for variable life insurance policies, and for which
the contractholder, rather than the Company, generally bears the investment
risk. Separate account obligations are intended to be satisfied from separate
account assets and not from assets of the general account. Separate accounts
generally are reported at fair value. The operations of the separate accounts
are not included in the statement of operations; however, income earned on
amounts initially invested by the Company in the formation of new separate
accounts is included in other income.
Fair Value Disclosure of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair value
information about certain financial instruments, whether or not recognized in
the statement of financial position, for which it is practicable to estimate the
value. In situations where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. SFAS
No. 107 excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements. Therefore, the aggregate fair value amounts
presented do not represent the underlying value of the Company. See Note 11.
The methods and assumptions utilized by the Company in estimating its fair
value disclosures for financial instruments are as follows:
The carrying amounts reported in the statement of financial position for cash
and temporary cash investments approximate their fair values.
Fair values for public bonds are obtained from an independent pricing service.
Fair values for private placement securities and publicly traded bonds not
provided by the independent pricing service are estimated by the
51
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Company by discounting expected future cash flows using current market rates
applicable to the yield, credit quality and maturity of the investments.
The fair values for common and preferred stocks, other than its subsidiary
investments, which are carried at equity values, are based on quoted market
prices.
Fair values for futures contracts are based on quoted market prices. Fair
values for interest rate swap, cap agreements, and currency swap agreements are
based on current settlement values. The current settlement values are based on
brokerage quotes that utilize pricing models or formulas using current
assumptions.
The fair value for mortgage loan is estimated using discounted cash flow
analyses using interest rates adjusted to reflect the credit characteristics of
the underlying loans. Mortgage loans with similar characteristics and credit
risks are engaged into qualitative categories for purposes of the fair value
calculations.
The carrying amount in the statement of financial position for policy loans
approximates their fair value.
The fair value for outstanding commitments to purchase long-term bonds and
issue real estate mortgages is estimated using a discounted cash flow method
incorporating adjustments for the difference in the level of interest rates
between the dates the commitments were made and December 31, 1999.
Capital Gains and Losses
Realized capital gains and losses are determined using the specific
identification method. Realized capital gains and losses, net of taxes and
amounts transferred to the IMR, are included in net gain or loss. Unrealized
gains and losses, which consist of market value and book value adjustments, are
shown as adjustments to the unassigned deficit.
Policy Reserves
Life reserves are developed by actuarial methods and are determined based on
published tables using statutorily specified interest rates and valuation
methods that will provide, in the aggregate, reserves that are greater than or
equal to the minimum or guaranteed policy cash values or the amounts required by
the Commonwealth of Massachusetts Division of Insurance. Reserves for variable
life insurance policies are maintained principally on the modified preliminary
term method using the 1958 and 1980 Commissioner's Standard Ordinary (CSO)
mortality tables, with an assumed interest rate of 4% for policies issued prior
to May 1, 1983 and 41/2% for policies issued on or thereafter. Reserves for
single premium policies are determined by the net single premium method using
the 1958 CSO mortality table, with an assumed interest rate of 4%. Reserves for
universal life policies issued prior to 1985 are equal to the gross account
value which at all times exceeds minimum statutory requirements. Reserves for
universal life policies issued from 1985 through 1988 are maintained at the
greater of the Commissioner's Reserve Valuation Method (CRVM) using the 1958 CSO
mortality table, with 41/2% interest or the cash surrender value. Reserves for
universal life policies issued after 1988 and for flexible variable policies are
maintained using the greater of the cash surrender value or the CRVM method with
the 1980 CSO mortality table and 51/2% interest for policies issued from 1988
through 1992; 5% interest for policies issued in 1993 and 1994; and 41/2%
interest for policies issued in 1995 through 1999.
Federal Income Taxes
Federal income taxes are reported in the financial statements based on amounts
determined to be payable as a result of operations within the current accounting
period. The operations of the Company are consolidated with John Hancock in
filing a consolidated federal income tax return basis for the affiliated group.
The federal income
52
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
taxes of the Company are allocated on a separate return basis with certain
adjustments. The Company made federal income tax payments of $10.6 million in
1999 and $38.2 million in 1998.
Income before taxes differs from taxable income principally due to tax-exempt
investment income, the limitation placed on the tax deductibility of
policyholder dividends, accelerated depreciation, differences in policy reserves
for tax return and financial statement purposes, capitalization of policy
acquisition expenses for tax purposes and other adjustments prescribed by the
Internal Revenue Code.
Amounts for disputed tax issues relating to the prior years are charged or
credited directly to policyholders' contingency reserve.
Adjustments to Policy Reserves
From time to time, the Company finds it appropriate to modify certain required
policy reserves because of changes in actuarial assumptions. Reserve
modifications resulting from such determinations are recorded directly to
stockholder's equity. No such refinements were made during 1999 or 1998.
Reinsurance
Premiums, commissions, expense reimbursements, benefits and reserves related
to reinsured business are accounted for on bases consistent with those used in
accounting for the original policies issued and the terms of the reinsurance
contracts. Premiums ceded to other companies have been reported as a reduction
of premium income. Amounts applicable to reinsurance ceded for future policy
benefits, unearned premium reserves and claim liabilities have been reported as
reductions of these items.
2. ACQUISITION
On June 23, 1993, the Company acquired all of the outstanding shares of stock
of Colonial Penn Annuity and Life Insurance Company (CPAL) from Colonial Penn
Life Insurance Company for an aggregate purchase price of approximately $42.5
million. At the date of acquisition, assets of CPAL were approximately $648.5
million, consisting principally of cash and temporary cash investments and
liabilities were approximately $635.2 million, consisting principally of
reserves related to a block of interest sensitive single-premium whole life
insurance business assumed by CPAL from Charter National Life Insurance Company
(Charter). The purchase price includes contingent payments of up to
approximately $7.3 million payable between 1994 and 1998 based on the actual
lapse experience of the business in force on June 23, 1993. The Company made the
final contingent payment to CPAL of $1.5 million during 1998.
53
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
On June 24, 1993, the Company contributed $24.6 million in additional capital
to CPAL. CPAL was renamed John Hancock Life Insurance Company of America
(JHLICOA) on July 7, 1993. JHLICOA was subsequently renamed Investors Partner
Life Insurance Company (IPL) on March 5, 1998. IPL manages the business assumed
from Charter and began marketing term life and variable universal life products
through brokers in 1999. Summarized financial information for IPL for 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(IN MILLIONS)
<S> <C> <C>
Total assets. . . . . . . . . . . . . . . . 570.7 587.8
Total liabilities. . . . . . . . . . . . . . 498.9 517.5
Total revenue. . . . . . . . . . . . . . . . 35.6 38.8
Net income. . . . . . . . . . . . . . . . . 3.5 3.8
</TABLE>
3. NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
Investment expenses . . . . . . . . . . . . . $ 9.5 $ 8.3
Interest expense. . . . . . . . . . . . . . 1.7 2.4
Depreciation expense. . . . . . . . . . . . 0.6 0.8
Investment taxes. . . . . . . . . . . . . . 0.3 0.7
------ ------
$12.1 $12.2
====== ======
</TABLE>
54
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
4. NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital gains (losses) consist of the following items:
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
Net gains from asset sales . . . . . . . . . . . (2.8) 7.6
Capital gains tax . . . . . . . . . . . . . . . . 0.2 (2.9)
Net capital gains transferred to IMR . . . . . . 0.9 (5.3)
------ ------
Net REALIZED CAPITAL LOSSES . . . . . . . . . . . (1.7) (0.6)
====== ======
</TABLE>
Net unrealized capital gains (losses) and other adjustments consist of the
following items:
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
Net losses from changes in security values and book
value adjustments. . . . . . . . . . . . . . . (2.6) (2.7)
Increase in asset valuation reserve . . . . . . . . (1.2) (3.3)
------ ------
Net UNREALIZED CAPITAL LOSSES AND OTHER ADJUSTMENTS (3.8) (6.0)
====== ======
</TABLE>
55
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
5. TRANSACTIONS WITH PARENT
The Company's Parent provides the Company with personnel, property and
facilities in carrying out certain of its corporate functions. The Parent
annually determines a fee for these services and facilities based on a number of
criteria which were revised in 1999 and 1998 to reflect continuing changes in
the Company's operations. The amount of the service fee charged to the Company
was $188.3 million and $157.5 million in 1999 and 1998, respectively, which has
been included in insurance and investment expenses. The Parent has guaranteed
that, if necessary, it will make additional capital contributions to prevent the
Company's stockholder's equity from declining below $1.0 million.
The service fee charged to the Company by the Parent includes $0.2 million and
$0.7 million in 1999 and 1998, respectively, representing the portion of the
provision for retiree benefit plans determined under the accrual method,
including a provision for the 1993 transition liability which is being amortized
over twenty years, that was allocated to the Company.
The Company has a modified coinsurance agreement with John Hancock to reinsure
50% of 1994 through 1999 issues of flexible premium variable life insurance and
scheduled premium variable life insurance policies. In connection with this
agreement, John Hancock transferred $44.5 million and $4.9 million of cash for
tax, commission, and expense allowances to the Company, which increased the
Company's net gain from operations by $20.6 million and $22.2 million in 1999
and 1998, respectively.
Effective January 1, 1996, the Company entered into a modified coinsurance
agreement with John Hancock to reinsure 50% of the 1995 inforce block and 50% of
1996 and all future issue years of certain variable annuity contracts
(Independence Preferred, Declaration, Independence 2000, MarketPlace, and
Revolution). In connection with this agreement, the Company received a net cash
payment of $40.0 million and $12.7 million in 1999 and 1998, respectively, for
surrender benefits, tax, reserve increase, commission, expense allowances and
premium, This agreement increased the Company's net gain from operations by
$26.9 million and $8.4 million in 1999 and 1998, respectively.
Effective January 1, 1997, the Company entered into a stop-loss agreement with
John Hancock to reinsure mortality claims in excess of 110% of expected
mortality claims in 1999 and 1998 for all policies that are not reinsured under
any other indemnity agreement. In connection with the agreement, John Hancock
received $0.8 million and 1.0 million in 1999 and 1998, respectively, for
mortality claims to the Company. This agreement decreased the Company's net
gain from operations in both 1999 and 1998 by $0.5 million.
At December 31, 1998 the Company had outstanding a short-term note of $61.9
million payable to an affiliate at a variable rate of interest. The note was
part of a revolving line of credit and was repaid in 1999. Interest paid in
1999 and 1998 was $1.7 million and $2.9 million, respectively. The note is
included in other general account obligations at December 31, 1998.
56
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
6. INVESTMENTS
The statement value and fair value of bonds are shown below:
<TABLE>
<CAPTION>
-------------- -------------- --------------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
December 31, 1999 . .
U.S. Treasury
securities and
obligations of U.S.
government
corporations and
agencies . . . . . . 5.9 0.0 0.1 5.8
Obligations of states
and political
subdivisions . . . . 2.2 0.1 0.1 2.2
Debit securities
issued by foreign
governments. . . . . 13.9 0.8 0.1 14.6
Corporate securities 964.9 13.0 59.4 918.5
Mortgage-backed
securities . . . . . 229.4 0.5 7.8 222.1
-------- ----- ------ --------
Total bonds . . . . .
======== ===== ====== ========
December 31, 1998
U.S. Treasury
securities and
obligations of U.S.
government
corporations and
agencies . . . . . . 5.1 0.1 0.0 5.2
Obligations of states
and political
subdivisions . . . . 3.2 0.3 0.0 3.5
Corporate securities 925.2 50.4 15.0 960.6
Mortgage-backed
securities . . . . . 252.3 10.0 0.1 262.2
-------- ----- ------ --------
Total bonds . . . . . 15.1
======== ===== ====== ========
</TABLE>
57
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
The statement value and fair value of bonds at December 31, 1999, by
contractual maturity, are shown below. Maturities will differ from contractual
maturities because eligible borrowers may exercise their right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
FAIR
VALUE VALUE
-------- ---------
(IN MILLIONS)
<S> <C> <C>
Due in one year or less. . . . . . . . . . . . . . $ 58.5 58.2
Due after one year through five years. . . . . . . 286.8 282.0
Due after five years through ten years . . . . . . 425.4 405.6
Due after ten years. . . . . . . . . . . . . . . . 216.2 195.3
-------- ---------
986.9 941.1
Mortgage-backed securities . . . . . . . . . . . . 229.4 222.1
-------- ---------
$1,216.3
======== =========
</TABLE>
Gross gains of $0.3 million in 1999 and $3.4 million in 1998 and gross losses
of $4.0 million in 1999 and $0.7 million in 1998 were realized from the sale of
bonds.
At December 31, 1999, bonds with an admitted asset value of $9.1 million were
on deposit with state insurance departments to satisfy regulatory requirements.
The cost of common stocks was $3.1 million and $2.1 million at December 31,
1999 and 1998, respectively. At December 31, 1999, gross unrealized
appreciation on common stocks totaled $1.2 million, and gross unrealized
depreciation totaled $1.1 million. The fair value of preferred stock totaled
$35.9 million at December 31, 1999 and $36.5 million at December 31, 1998.
Bonds with amortized cost of $0.4 million were non-income producing for the
twelve months ended December 31, 1999.
At December 31, 1999, the mortgage loan portfolio was diversified by
geographic region and specific collateral property type as displayed below. The
Company controls credit risk through credit approvals, limits and monitoring
procedures.
58
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GEOGRAPHIC
PROPERTY TYPE CONCENTRATION
Apartments. . . . . . . . $112.1 East North Central $ 71.3
Hotels. . . . . . . . . . 11.3 East South Central 7.4
Industrial. . . . . . . . 66.0 Middle Atlantic 28.5
Office buildings. . . . . 86.4 Mountain 21.0
Retail. . . . . . . . . . 25.5 New England 37.5
Agricultural. . . . . . . 99.6 Pacific 111.1
Other . . . . . . . . . . 32.2 South Atlantic 87.6
West North Central 16.6
West South Central 48.6
Other 3.5
------
$433.1 $433.1
======
</TABLE>
At December 31, 1999, the fair values of the commercial and agricultural
mortgage loans portfolios were $323.5 million and $98.2 million, respectively.
The corresponding amounts as of December 31, 1998 were approximately $331.3
million and $70.0 million, respectively.
The maximum and minimum lending rates for mortgage loans during 1999 were
14.24% and 6.84% for agricultural loans, 7.45% and 7.00% for other properties.
Generally, the maximum percentage of any loan to the value of security at the
time of the loan, exclusive of insured, guaranteed or purchase money mortgages,
is 75%. For city mortgages, fire insurance is carried on all commercial and
residential properties at least equal to the excess of the loan over the maximum
loan which would be permitted by law on the land without the building, except as
permitted by regulations of the Federal Housing Commission on loans fully
insured under the provisions of the National Housing Act. For agricultural
mortgage loans, fire insurance is not normally required on land based loans
except in those instances where a building is critical to the farming operation.
Fire insurance is required on all agri-business facilities in an aggregate
amount equal to the loan balance.
59
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
7. REINSURANCE
The Company cedes business to reinsurers to share risks under variable life,
universal life and flexible variable life insurance policies for the purpose of
reducing exposure to large losses. Premiums, benefits and reserves ceded to
reinsurers in 1999 were $594.9 million, $132.8 million, and $13.6 million,
respectively. The corresponding amounts in 1998 were $590.2 million, $63.2
million, and $8.2 million, respectively.
Reinsurance ceded contracts do not relieve the Company from its obligations to
policyholders. The Company remains liable to its policyholders for the portion
reinsured to the extent that any reinsurer does not meet its obligations for
reinsurance ceded to it under the reinsurance agreements. Failure of the
reinsurers to honor their obligations could result in losses to the Company;
consequently, estimates are established for amounts deemed or estimated to be
uncollectible. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentration of credit risk arising from similar characteristics
of the reinsurer.
Neither the Company, nor any of its related parties, control, either directly
or indirectly, any external reinsurers with which the Company conducts business.
No policies issued by the Company have been reinsured with a foreign company
which is controlled, either directly or indirectly, by a party not primarily
engaged in the business of insurance.
The Company has not entered into any reinsurance agreement in which the
reinsurer may unilaterally cancel any reinsurance for reasons other than
nonpayment of premiums or other similar credits. The Company does not have any
reinsurance agreements in effect in which the amount of losses paid or accrued
through December 31, 1999 would result in a payment to the reinsurer of amounts
which, in the aggregate and allowing for offset of mutual credits from other
reinsurance agreements with the same reinsurer, exceed the total direct premiums
collected under the reinsured policies.
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The notional amounts, carrying values and estimated fail values of the
Company's derivative instruments were as follows at December 31:
<TABLE>
<CAPTION>
NUMBER OF CONTRACTS/ ASSETS (LIABILITIES)
------------------
NOTIONAL AMOUNTS 1999 1998
FAIR VALUE
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Futures contracts to $ (0.5)
sell securities 362.0 947.0 $0.6 $0.6 $(0.5)
Interest rate swap (17.7)
agreements $965.0 $365.0 -- 11.5 --
Interest rate cap
agreements 239.4 89.4 5.6 5.6 3.1
Currency rate swap (3.3)
agreements 15.8 15.8 -- (1.6) --
</TABLE>
60
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
The Company uses futures contracts, interest rate swap, cap agreements, and
currency rate swap agreements for other than trading purposes to hedge and
manage its exposure to changes in interest rate levels, foreign exchange rate
fluctuations and to manage duration mismatch of assets and liabilities.
The futures contracts expire in 2000. The interest rate swap agreements
expire in 2000 to 2011. The interest rate cap agreements expire in 2006 to
2008. The currency rate swap agreements expire in 2006 to 2009.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform to the terms of the contract. The Company continually
monitors its position and the credit ratings of the counterparties to these
derivative instruments. To limit exposure associated with counterparty
nonperformance on interest rate and currency swap agreements, the Company enters
into master netting agreements with its counterparties. The Company believes the
risk of incurring losses due to nonperformance by its counterparties is remote
and that such losses, if any, would be immaterial. Futures contracts trade on
organized exchanges and, therefore, have minimal credit risk.
9. POLICY RESERVES POLICYHOLDERS' AND BENIFICIARIES' FUNDS AND OBLIGATIONS
RELATED TO SEPARATE ACCOUNTS
The Company' annuity reserves and deposit fund liabilities that are subject to
discretionary withdrawal, with and without adjustment, are summarized as
follows.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 PERCENT
---------------- ------
<S> <C> <C>
Subject to discretionary withdrawal (with
adjustment)
With market value adjustment . . . . . . . . . $3.8 0.1%
At book value less surrender charge 40.5 1.5
At market value . . . . . . . . . . . . . . . . 2,326.6 87.1
--------
Total with adjustment. . . . . . . . . . . 2,370.9 88.7
Subject to discretionary withdrawal 287.1 10.7
at book value (without adjustment) . . . . .
Not subject to discretionary withdrawal--general
account. . . . . . . . . . . . . . . . . . . . 15.4 0.6
--------
Total annuity reserves and deposit liabilities $2,673.4 100.0%
========
</TABLE>
61
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
The Company has extended commitments to purchase long-term bonds and issue
real estate mortgages totaling $15.4 million and $3.5 million, respectively, at
December 31, 1999. The Company monitors the creditworthiness of borrowers under
long-term bonds commitments and requires collateral as deemed necessary. If
funded, loans related to real estate mortgages would be fully collateralized by
the related properties. The estimated fair value of the commitments described
above is $19.4 million at December 31, 1999. The majority of these commitments
expire in 2000.
In the normal course of its business operations, the Company is involved with
litigation from time to time with claimants, beneficiaries and others, and a
number of litigation matters were pending as of December 31, 1999. It is the
opinion of management, after consultation with counsel, that the ultimate
liability with respect to these claims, if any, will not materially affect the
financial position or results of operations of the Company.
During 1997, John Hancock entered into a court-approved settlement relating to
a class action lawsuit involving certain individual life insurance policies sold
from 1979 through 1996. In entering into the settlement, John Hancock
specifically denied any wrongdoing. During 1999, the Company recorded a $194.9
million reserve, through a direct charge to its unassigned deficit, representing
the Company's share of the settlement and John Hancock contributed $194.9
million of capital to the Company. The reserve held at December 31, 1999
amounted to $136.5 million and is based on a number of factors, including the
estimated number of claims, the expected type of relief to be sought by class
members (general relief or alternative dispute resolution), the estimated cost
per claim and the estimated costs to administer the claims.
Given the uncertainties associated with estimating the reserve, it is
reasonably possible that the final cost of the settlement could differ
materially from the amounts presently provided for by the Company. John Hancock
and the Company will continue to update their estimate of the final cost of the
settlement as claims are processed and more specific information is developed,
particularly as the actual cost of the claims subject to alternative dispute
resolution becomes available. However, based on information available at this
time, and the uncertainties associated with the final claim processing and
alternative dispute resolution, the range of any additional costs related to the
settlement cannot be reasonably estimated. If the Company's share of the
settlement increases, John Hancock will contribute additional capital to the
Company so that the Company's total stockholder's equity would not be impacted.
62
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- -------- ---------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Bonds--Note 6. . . . .
Preferred stocks--Note
6. . . . . . . . . . . . 35.9 35.9 36.5 36.5
Common stocks--Note 6. 3.2 3.2 3.1 3.1
Mortgage loans on real
estate--Note 6. . . . . 433.1 421.7 388.1 401.3
Policy loans--Note 1. 172.1 172.1 137.7 137.7
Cash items--Note 1. . 250.1 250.1 19.9 19.9
Derivatives assets
(liabilities) relating
to: --Note 8. . . . .
Futures contracts. . . 0.6 0.6 (0.5) (0.5)
Interest rate swaps. . -- 11.5 -- (17.7)
Currency rate swaps. . -- (1.6) -- (3.3)
Interest rate caps. . 5.6 5.6 3.1 3.1
LIABILITIES
Commitments--Note 10. -- 19.4 -- 32.1
</TABLE>
The carrying amounts in the table are included in the statutory-basis
statements of financial position. The method and assumptions utilized by the
Company in estimating its fair value disclosures are described in Note 1.
12. SUBSEQUENT EVENTS
REORGANIZATION AND INITIAL PUBLIC OFFERING
Pursuant to a Plan of Reorganization approved by the policyholders of John
Hancock and the Commonwealth of Massachusetts Division of Insurance, effective
February 1, 2000, John Hancock converted from a mutual life insurance company to
a stock life insurance company (i.e., demutualized) and became a wholly owned
subsidiary of John Hancock Financial Services, Inc., which is a holding company.
In connection with the reorganization, John Hancock changed its name to John
Hancock Life Insurance Company. In addition, on February 1, 2000, John Hancock
Financial Services, Inc. completed its initial public offering and 102 million
shares of common stock were issued at an initial public offering price of $17
per share.
63
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENT--(CONTINUED)
13. IMPACT OF YEAR 2000 (UNAUDITED)
The Company participated in the Year 2000 remediation project of its parent,
John Hancock. By late 1999, John Hancock and the Company completed their Year
2000 readiness plan to address issues that could result from computer programs
written using two digits to define the applicable year rather than four to
define the applicable year and century. As a result, John Hancock and the
Company were prepared for the transition to the Year 2000 and did not experience
any significant Year 2000 problems with respect to mission critical information
technology ("IT") or non-IT systems, applications or infrastructure. During the
date rollover to the year 2000, John Hancock and the Company implemented and
monitored their millennium rollover plan and conducted business as usual on
Monday, January 3, 2000.
Since January 3, 2000, the information systems, including mission critical
systems, which in the event of a Year 2000 failure would have the greatest
impact on operations, have functioned properly. In addition, neither John
Hancock nor the Company have experienced any significant Year 2000 issues
related to interactions with material business partners. No disruptions have
occurred which impact John Hancock or the Company's ability to process claims,
update customer accounts, process financial transactions, or report accurate
data to management and no business interruptions due to Year 2000 issues have
been experienced. While John Hancock and the Company continue to monitor their
systems, and those of material business partners, closely to ensure that no
unexpected Year 2000 issues develop, neither John Hancock nor the Company have
reason to expect any such issues.
The costs of the Year 2000 project consist of internal IT personnel and
external costs such as consultants, programmers, replacement software, and
hardware. The costs of the Year 2000 project are expensed as incurred. The
project is funded partially through a reallocation of resources from
discretionary projects. Through December 31, 1999, John Hancock has incurred
and expensed approximately $20.8 million in related payroll costs for internal
IT personnel on the project. The estimated remaining IT personnel costs of the
project are approximately $1.0 million. Through December 31, 1999, John Hancock
has incurred and expensed approximately $47.0 million in external costs for the
project. John Hancock's estimated remaining external cost of the project is
approximately $2.0 million. The total costs of the Year 2000 project to John
Hancock, based on management's best estimates, include approximately $21.7
million in internal IT personnel, $14.6 million in the external modification of
software, $18.3 million for external solution providers, $9.1 million in
replacement costs of non-compliant IT systems and $6.9 million in oversight,
test facilities and other expenses. Accordingly, the estimated range of total
costs of the Year 2000 project to John Hancock, internal and external, is
approximately $70 to $72.5 million. John Hancock's total Year 2000 project
costs include the estimated impact of external solution providers based on
presently available information.
64
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Policyholders of 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, Small Cap Growth,
International Balanced, Mid Cap Growth, Large Cap Value, Money Market, Mid Cap
Value, Small/Mid Cap Growth (formerly, Diversified Mid Cap Growth), Real Estate
Equity, Growth & Income, Managed, Short-Term Bond, Small Cap Value,
International Opportunities, Equity Index, Global Bond (formerly, Strategic
Bond), Turner Core Growth, Brandes International Equity, Frontier Capital
Appreciation, Enhanced U.S. Equity, Emerging Markets Equity, Global Equity, Bond
Index, Small/Mid Cap CORE and High Yield Bond Subaccounts) as of December 31,
1999, and the related statements of operations and changes in net assets for
each of the periods indicated therein. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting John Hancock Variable Life Account S at December 31,
1999, the results of their operations and the changes in their net assets for
each of the periods indicated, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Boston, Massachusetts
February 11, 2000
65
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
INTERNATIONAL
LARGE CAP SOVEREIGN EQUITY SMALL CAP
GROWTH BOND INDEX GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ----------- ------------- -------------
-------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . $ 8,016 $ 2,380 $ 2,435 $ 2,357
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . 115,521,551 38,321,474 33,198,674 31,022,828
Investments in shares
of portfolios of M
Fund Inc., at value -- -- -- --
Receivable from:
John Hancock Variable
Series Trust I . . 21,617 12,536 419 208,513
M Fund Inc. . . . . -- -- -- --
------------ ----------- ----------- -----------
Total assets . . . . 115,551,184 38,336,390 33,201,528 31,233,698
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company . . . . . . 20,467 12,194 75 208,172
M Fund Inc. . . . . -- -- -- --
Asset charges payable 9,166 2,723 2,779 2,698
------------ ----------- ----------- -----------
Total liabilities . . 29,633 14,917 2,854 210,870
------------ ----------- ----------- -----------
Net assets . . . . . $115,521,551 $38,321,473 $33,198,674 $31,022,828
============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL MID CAP LARGE CAP MONEY
BALANCED GROWTH VALUE MARKET
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ----------- ----------- -------------
------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . . $ 304 $ 4,698 $ 1,803 $ 3,061
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value . . . . . . . . 4,591,857 63,499,616 27,106,918 61,006,769
Investments in shares
of portfolios of M
Fund Inc., at value . -- -- -- --
Receivable from:
John Hancock Varidable
Series Trust I . . . 52 27,659 12,738 1,396,082
M Fund Inc. . . . . . -- -- -- --
---------- ----------- ----------- -----------
Total assets . . . . . 4,592,213 63,531,973 27,121,459 62,405,912
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company. . . . . . . 9 26,980 12,479 1,395,329
M Fund Inc. . . . . . -- -- -- --
Asset charges payable 348 5,377 2,063 3,814
---------- ----------- ----------- -----------
Total liabilities . . 357 32,357 14,542 1,399,143
---------- ----------- ----------- -----------
Net assets . . . . . . $4,591,856 $63,499,616 $27,106,917 $61,006,769
========== =========== =========== ===========
</TABLE>
See accompanying notes.
66
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MID CAP SMALL/MID CAP REAL ESTATE GROWTH&
VALUE GROWTH EQUITY INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . $ 1,422 $ 701 $ 611 $ 17,877
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . 19,138,533 9,925,831 9,238,646 209,525,898
Investments in shares
of portfolios of M
Fund Inc., at value -- -- -- --
Receivable from:
John Hancock Variable
Series Trust I . . 38,609 580,155 88 330,982
M Fund Inc. . . . . -- -- -- --
------------ -------------- ------------ ------------
Total assets . . . . 19,178,564 10,506,687 9,239,345 209,874,757
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company . . . . . . 38,404 580,049 -- 328,424
M Fund Inc. . . . . -- -- -- --
Asset charges payable 1,627 807 699 20,434
------------ -------------- ------------ ------------
Total liabilities . . 40,031 580,856 699 348,858
------------ -------------- ------------ ------------
Net assets . . . . . $ 19,138,533 $ 9,925,831 $ 9,238,646 $209,525,899
============ ============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM SMALL CAP INTERNATIONAL
MANAGED BOND VALUE OPPORTUNITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- -------------
-------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . $ 13,307 $ 731 $ 1,430 $ 2,454
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . 125,710,809 11,728,988 18,783,397 31,535,050
Investments in shares
of portfolios of M
Fund Inc., at value -- -- -- --
Receivable from:
John Hancock Variable
Series Trust I . . 34,311 215 189,514 1,308
M Fund Inc. . . . . -- -- -- --
------------ ----------- ----------- -----------
Total assets . . . . 125,758,427 11,729,934 18,974,341 31,538,812
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company . . . . . . 32,402 114 189,306 955
M Fund Inc. . . . . -- -- -- --
Asset charges payable 15,216 832 1,639 2,808
------------ ----------- ----------- -----------
Total liabilities . . 47,618 946 190,945 3,763
------------ ----------- ----------- -----------
Net assets . . . . . $125,710,809 $11,728,988 $18,783,396 $31,535,049
============ =========== =========== ===========
</TABLE>
See accompanying notes.
67
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
TURNER BRANDES
EQUITY GLOBAL CORE INTERNATIONAL
INDEX BOND GROWTH EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------- ---------------
------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . . $ 10,574 $ 734 $ 1,535 $ 1,016
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value . . . . . . . . 149,913,130 8,838,516 -- --
Investments in shares
of portfolios of M
Fund Inc., at value . -- -- 22,671,006 17,415,296
Receivable from:
John Hancock Variable
Series Trust I . . . 126,680 766,077 222 271
M Fund Inc. . . . . . -- -- -- --
------------ ---------- ----------- -----------
Total assets . . . . . 150,050,384 9,605,327 22,672,763 17,416,583
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company. . . . . . . 125,115 765,972 -- 122
M Fund Inc. . . . . . -- -- -- --
Asset charges payable 12,138 839 1,758 1,165
------------ ---------- ----------- -----------
Total liabilities . . 137,253 766,811 1,758 1,287
------------ ---------- ----------- -----------
Net assets . . . . . . $149,913,131 $8,838,516 $22,671,005 $17,415,296
============ ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FRONTIER EMERGING
CAPITAL ENHANCED MARKETS GLOBAL
APPRECIATION U.S. EQUITY EQUITY EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ----------- ---------- ------------
---------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . . . $ 1,031 $ 437 $ 370 $ 71
Investments in shares of
portfolios of John
Hancock Variable Series
Trust I, at value . . . -- -- 3,723,380 836,878
Investments in shares of
portfolios of M Fund
Inc., at value . . . . . 16,985,022 6,738,214 -- --
Receivable from:
John Hancock Variable
Series Trust I . . . . 771 63 254 24
M Fund Inc. . . . . . . -- -- -- --
----------- ---------- ---------- --------
Total assets . . . . . . 16,986,824 6,738,714 3,724,004 836,973
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance Company 620 -- 204 13
M Fund Inc. . . . . . . -- -- -- --
Asset charges payable . . 1,182 500 420 82
----------- ---------- ---------- --------
Total liabilities . . . . 1,802 500 624 95
----------- ---------- ---------- --------
Net assets . . . . . . . $16,985,022 $6,738,214 $3,723,380 $836,878
=========== ========== ========== ========
</TABLE>
See accompanying notes.
68
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
HIGH
BOND SMALL/ MID YIELD
INDEX CAP CORE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ------------
------------------------------------
<S> <C> <C> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . $ 374 $ 56 $ 310
Investments in shares of portfolios of
John Hancock Variable Series Trust I, at
value . . . . . . . . . . . . . . . . . 5,126,051 616,813 4,273,214
Investments in shares of portfolios of M
Fund Inc., at value . . . . . . . . . . -- -- --
Receivable from:
John Hancock Variable Series Trust I . 87 7 906,251
M Fund Inc. . . . . . . . . . . . . . . -- -- --
---------- -------- ----------
Total assets . . . . . . . . . . . . . . 5,126,512 616,876 5,179,775
LIABILITIES
Payable to:
John Hancock Variable Life Insurance
Company. . . . . . . . . . . . . . . . 20 -- 906,193
M Fund Inc. . . . . . . . . . . . . . . -- -- --
Asset charges payable . . . . . . . . . 441 63 368
---------- -------- ----------
Total liabilities . . . . . . . . . . . 461 63 906,561
---------- -------- ----------
Net assets . . . . . . . . . . . . . . . $5,126,051 $616,813 $4,273,214
========== ======== ==========
</TABLE>
See accompanying notes.
69
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
LARGE CAP GROWTH SUBACCOUNT SOVEREIGN BOND SUBACCOUNT
-------------------------------------- -----------------------------------
1999 1998 1997 1999 1998 1997
------------ ----------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $17,558,034 $ 6,312,073 $ 2,884,498 $ 2,851,613 $2,190,901 $855,742
M Fund Inc. . . . . -- -- -- -- -- --
----------- ----------- ----------- ----------- ---------- --------
Total investment
income . . . . . . . 17,558,034 6,312,073 2,884,498 2,851,613 2,190,901 855,742
Expenses:
Mortality and expense
risks . . . . . . . 324,595 168,652 91,256 126,407 93,556 39,184
----------- ----------- ----------- ----------- ---------- --------
Net investment income 17,233,439 6,143,421 2,793,242 2,725,206 2,097,345 816,558
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 5,003,007 1,750,881 619,721 (1,391,910) 185,230 80,538
Net unrealized
appreciation
(depreciation)
during the period . (2,053,672) 8,041,022 2,301,920 (1,837,190) (378,058) 63,687
----------- ----------- ----------- ----------- ---------- --------
Net realized and
unrealized gain
(loss) on investments 2,949,335 9,791,903 2,921,641 (3,229,100) (192,828) 144,225
----------- ----------- ----------- ----------- ---------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $20,182,774 $15,935,324 $ 5,714,883 $ (503,894) $1,904,517 $960,783
=========== =========== =========== =========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY INDEX SUBACCOUNT SMALL CAP GROWTH SUBACCOUNT
-------------------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 936,475 $1,930,710 $ 422,913 $ 3,697,955 $ -- $ 473
M Fund Inc. . . . . -- -- -- -- -- --
---------- ---------- ----------- ----------- ---------- --------
Total investment
income . . . . . . . 936,475 1,930,710 422,913 3,697,955 -- 473
Expenses:
Mortality and expense
risks . . . . . . . 81,058 45,651 33,893 60,221 22,593 6,547
---------- ---------- ----------- ----------- ---------- --------
Net investment income
(loss) . . . . . . . 855,417 1,885,059 389,020 3,637,734 (22,593) (6,074)
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains . 753,750 152,030 244,810 2,548,944 58,729 21,707
Net unrealized
appreciation
(depreciation)
during the period . 4,871,167 78,480 (1,219,540) 3,920,455 1,070,805 126,699
---------- ---------- ----------- ----------- ---------- --------
Net realized and
unrealized gain
(loss) on investments 5,624,917 230,510 (974,730) 6,469,399 1,129,534 148,406
---------- ---------- ----------- ----------- ---------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $6,480,334 $2,115,569 $ (585,710) $10,107,133 $1,106,941 $142,332
========== ========== =========== =========== ========== ========
</TABLE>
See accompanying notes.
70
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED SUBACCOUNT MID CAP GROWTH SUBACCOUNT
---------------------------------- ---------------------------------
1999 1998 1997 1999 1998 1997
----------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 372,766 $ 185,760 $ 61,249 $ 6,491,783 $1,114,374 $ --
M Fund Inc. . . . . -- -- -- -- -- --
---------- ---------- --------- ----------- ---------- --------
Total investment
income . . . . . . . 372,766 185,760 61,249 6,491,783 1,114,374 --
Expenses:
Mortality and expense
risks . . . . . . . 13,792 9,687 4,443 102,248 26,123 8,287
---------- ---------- --------- ----------- ---------- --------
Net investment income
(loss) . . . . . . . 358,974 176,073 56,806 6,389,535 1,088,251 (8,287)
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains . 15,640 24,206 8,667 5,188,018 599,619 1,235
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . (173,912) 147,461 (67,714) 15,078,681 1,184,263 486,186
---------- ---------- --------- ----------- ---------- --------
Net realized and
unrealized gain
(loss) on investments (158,272) 171,667 (59,047) 20,266,699 1,783,882 487,421
---------- ---------- --------- ----------- ---------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $ 200,702 $ 347,740 $ (2,241) $26,656,234 $2,872,133 $479,134
========== ========== ========= =========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
LARGE CAP VALUE SUBACCOUNT MONEY MARKET 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 . . $ 1,809,072 $ 797,874 $194,199 $3,279,928 $1,854,829 $758,434
M Fund Inc. . . . . -- -- -- -- -- --
----------- ---------- -------- ---------- ---------- --------
Total investment
income . . . . . . . 1,809,072 797,874 194,199 3,279,928 1,854,829 758,434
Expenses:
Mortality and expense
risks . . . . . . . 88,877 41,415 11,163 291,398 167,813 66,882
----------- ---------- -------- ---------- ---------- --------
Net investment income 1,720,195 756,459 183,036 2,988,530 1,687,016 691,552
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains . 705,454 330,827 164,821 -- -- --
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . (2,181,112) 145,355 279,449 -- -- --
----------- ---------- -------- ---------- ---------- --------
Net realized and
unrealized gain
(loss) on investments (1,475,658) 476,182 444,270 -- -- --
----------- ---------- -------- ---------- ---------- --------
Net increase in net
assets resulting from
operations . . . . . $ 244,537 $1,232,641 $627,306 $2,988,530 $1,687,016 $691,552
=========== ========== ======== ========== ========== ========
</TABLE>
See accompanying notes.
71
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MID CAP VALUE SUBACCOUNT SMALL/MID CAP GROWTH SUBACCOUNT
----------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
----------- ------------ --------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I . . . . . $ 110,190 $ 120,469 $446,081 $ 1,421,656 $ 142,469 $ 878,600
M Fund Inc. . . . . . . . . . . . . . . . . . -- -- -- -- -- --
---------- ----------- -------- ----------- ------------- -----------
Total investment income . . . . . . . . . . . . 110,190 120,469 446,081 1,421,656 142,469 878,600
Expenses:
Mortality and expense risks. . . . . . . . . . 68,611 45,020 11,421 32,995 34,432 35,934
---------- ----------- -------- ----------- ------------- -----------
Net investment income . . . . . . . . . . . . . 41,579 75,449 434,660 1,388,661 108,037 842,666
Net realized and unrealized gain (loss) on
investments:
Net realized gains (losses) . . . . . . . . . (860,332) (538,516) 101,787 13,375 232,246 297,666
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . . . 1,757,919 (830,390) (39,717) (1,001,208) 236,333 (730,748)
---------- ----------- -------- ----------- ------------- -----------
Net realized and unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . 897,587 (1,368,906) 62,070 (987,833) 468,579 (433,082)
---------- ----------- -------- ----------- ------------- -----------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . $ 939,166 $(1,293,457) $496,730 $ 400,828 $ 576,616 $ 409,584
========== =========== ======== =========== ============= ===========
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE EQUITY SUBACCOUNT GROWTH & INCOME SUBACCOUNT
---------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997
---------- ------------ --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 544,845 $ 305,783 $246,677 $23,565,679 $ 9,266,175 $5,917,063
M Fund Inc. . . . . -- -- -- -- -- --
--------- ----------- -------- ----------- ----------- ----------
Total investment
income . . . . . . . 544,845 305,783 246,677 23,565,679 9,266,175 5,917,063
Expenses:
Mortality and expense
risks . . . . . . . 29,468 22,716 13,879 715,377 290,361 169,135
--------- ----------- -------- ----------- ----------- ----------
Net investment income 515,377 283,067 232,798 22,850,302 8,975,814 5,747,928
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . (735,504) (454,979) 252,095 6,207,253 2,061,212 2,390,414
Net unrealized
appreciation
(depreciation)
during the period . 80,925 (698,676) (13,488) (5,814,839) 7,759,307 435,778
--------- ----------- -------- ----------- ----------- ----------
Net realized and
unrealized gain
(loss) on investments (654,579) (1,153,655) 238,607 392,414 9,820,519 2,826,192
--------- ----------- -------- ----------- ----------- ----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $(139,202) $ (870,588) $471,405 $23,242,716 $18,796,333 $8,574,120
========= =========== ======== =========== =========== ==========
</TABLE>
See accompanying notes.
72
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MANAGED SUBACCOUNT SHORT-TERM BOND SUBACCOUNT
------------------------------------ ------------------------------------
1999 1998 1997 1999 1998 1997
------------ ---------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $11,251,980 $3,606,186 $1,879,954 $ 957,614 $ 977,164 $ 415,542
M Fund Inc. . . . . -- -- -- -- -- --
----------- ---------- ---------- ---------- ----------- ---------
Total investment
income . . . . . . . 11,251,980 3,606,186 1,879,954 957,614 977,164 415,542
Expenses:
Mortality and expense
risks . . . . . . . 495,544 121,905 65,383 50,128 50,947 20,551
----------- ---------- ---------- ---------- ----------- ---------
Net investment income 10,756,436 3,484,281 1,814,571 907,486 926,217 394,991
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 2,233,258 278,186 171,318 (441,667) 24,740 35,294
Net unrealized
appreciation
(depreciation)
during the period . (6,419,069) 1,791,231 715,231 (85,754) (136,999) (25,976)
----------- ---------- ---------- ---------- ----------- ---------
Net realized and
unrealized gain
(loss) on investments (4,185,811) 2,069,417 886,549 (527,421) (112,259) 9,318
----------- ---------- ---------- ---------- ----------- ---------
Net increase in net
assets resulting from
operations . . . . . $ 6,570,625 $5,553,698 $2,701,120 $ 380,065 $ 813,958 $ 404,309
=========== ========== ========== ========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL OPPORTUNITIES
SMALL CAP VALUE 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 . . $ 409,324 $ 47,350 $299,278 $2,096,195 $ 103,399 $ 69,078
M Fund Inc. . . . . -- -- -- -- -- --
--------- --------- -------- ---------- ---------- ---------
Total investment
income . . . . . . . 409,324 47,350 299,278 2,096,195 103,399 69,078
Expenses:
Mortality and expense
risks . . . . . . . 64,613 33,335 8,494 90,191 50,003 13,177
--------- --------- -------- ---------- ---------- ---------
Net investment income 344,711 14,015 290,784 2,006,004 53,396 55,901
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . (979,002) (9,919) 75,149 1,907,809 191,495 80,782
Net unrealized
appreciation
(depreciation)
during the period . 325,684 (523,693) (18,626) 3,818,953 1,108,416 (260,664)
--------- --------- -------- ---------- ---------- ---------
Net realized and
unrealized gain
(loss) on investments (653,318) (533,612) 56,523 5,726,762 1,299,911 (179,882)
--------- --------- -------- ---------- ---------- ---------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $(308,607) $(519,597) $347,307 $7,732,766 $1,353,307 $(123,981)
========= ========= ======== ========== ========== =========
</TABLE>
See accompanying notes.
73
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY INDEX SUBACCOUNT GLOBAL BOND SUBACCOUNT
----------------------------------- --------------------------------
1999 1998 1997 1999 1998 1997
----------- ---------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 5,839,023 $1,337,750 $ 409,920 $ 460,088 $303,545 $ 74,850
M Fund Inc. . . . . -- -- -- -- -- --
----------- ---------- ---------- ----------- -------- --------
Total investment
income . . . . . . . 5,839,023 1,337,750 409,920 460,088 303,545 74,850
Expenses:
Mortality and expense
risks . . . . . . . 335,573 126,021 31,223 35,321 19,894 3,820
----------- ---------- ---------- ----------- -------- --------
Net investment income 5,503,450 1,211,729 378,697 424,767 283,651 71,030
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 7,681,081 691,270 901,978 (204,675) 81,659 8,335
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . 4,678,509 6,098,919 392,256 (433,526) 43,608 (11,727)
----------- ---------- ---------- ----------- -------- --------
Net realized and
unrealized gain
(loss) on investments 12,359,590 6,790,189 1,294,234 (638,201) 125,267 (3,392)
----------- ---------- ---------- ----------- -------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $17,863,040 $8,001,918 $1,672,931 $ (213,434) $408,918 $ 67,638
=========== ========== ========== =========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
BRANDES INTERNATIONAL
TURNER CORE GROWTH SUBACCOUNT EQUITY SUBACCOUNT
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
---------- -------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series
Trust I . . . . . . $1,349,358 $ -- $ -- $ 549,978 $ -- $ --
M Fund Inc. . . . . -- 84,940 91,360 -- 358,080 32,677
---------- -------- -------- ---------- -------- --------
Total investment
income . . . . . . . 1,349,358 84,940 91,360 549,978 358,080 32,677
Expenses:
Mortality and expense
risks . . . . . . . 33,920 7,737 4,071 34,297 14,434 7,502
---------- -------- -------- ---------- -------- --------
Net investment income 1,315,438 77,203 87,289 515,681 343,646 25,175
Net realized and
unrealized gain
(loss) on
investments: . . . .
Net realized gains . 1,038,462 156,278 76,711 507,727 89,337 12,541
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . 1,626,646 562,620 32,626 3,486,097 91,915 (26,022)
---------- -------- -------- ---------- -------- --------
Net realized and
unrealized gain
(loss) on investments 2,665,108 718,898 109,337 3,993,824 181,252 (13,481)
---------- -------- -------- ---------- -------- --------
Net increase in net
assets resulting from
operations . . . . . $3,980,546 $796,101 $196,626 $4,509,505 $524,898 $ 11,694
========== ======== ======== ========== ======== ========
</TABLE>
See accompanying notes.
74
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FRONTIER CAPITAL APPRECIATION
SUBACCOUNT ENHANCED U.S. EQUITY SUBACCOUNT
--------------------------------- --------------------------------
1999 1998 1997 1999 1998 1997*
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 487,465 $ -- $ -- $532,067 $ -- $ --
M Fund Inc. . . . . -- 34,738 128,190 -- 72,302 15,335
---------- --------- --------- -------- -------- -------
Total investment
income . . . . . . . 487,465 34,738 128,190 532,067 72,302 15,335
Expenses:
Mortality and expense
risks . . . . . . . 37,471 24,841 10,040 13,930 4,069 478
---------- --------- --------- -------- -------- -------
Net investment income 449,994 9,897 118,150 518,137 68,233 14,857
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 624,068 (445,752) 614,358 264,436 87,723 4,177
Net unrealized
appreciation
(depreciation)
during the period . 3,431,408 432,064 (368,570) 151,562 89,677 6,844
---------- --------- --------- -------- -------- -------
Net realized and
unrealized gain
(loss) on investments 4,055,476 (13,688) 245,788 415,998 177,400 11,021
---------- --------- --------- -------- -------- -------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $4,505,470 $ (3,791) $ 363,938 $934,135 $245,633 $25,878
========== ========= ========= ======== ======== =======
</TABLE>
<TABLE>
<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 . . $ 137,724 $ 522 $ 6,063 $ 491 $ 140,772 $ 23,842
M Fund Inc. . . . . -- -- -- -- -- --
---------- -------- -------- -------- --------- --------
Total investment
income . . . . . . . 137,724 522 6,063 491 140,772 23,842
Expenses:
Mortality and expense
risks . . . . . . . 5,465 387 1,859 339 10,636 937
---------- -------- -------- -------- --------- --------
Net investment income 132,259 135 4,204 152 130,136 22,905
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 663,998 (45,975) 82,873 (21,835) (104,174) 1,002
Net unrealized
appreciation
(depreciation)
during the period . 432,248 2,289 47,295 4,812 (78,192) (10,217)
---------- -------- -------- -------- --------- --------
Net realized and
unrealized gain
(loss) on investments 1,096,246 (43,686) 130,168 (17,023) (182,366) (9,215)
---------- -------- -------- -------- --------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $1,228,505 $(43,551) $134,372 $(16,871) $ (52,230) $ 13,690
========== ======== ======== ======== ========= ========
</TABLE>
- ---------
* From July 1, 1997 (commencement of operations).
** From May 1, 1998 (commencement of operations).
75
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<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 . . . . . . . . . . . $ 54,784 $ -- $ 352,641 $ 88,721
M Fund Inc. . . . . . . . . . . -- -- -- --
-------- -------- --------- --------
Total investment income . . . . 54,784 -- 352,641 88,721
Expenses:
Mortality and expense risks . . 2,073 535 12,206 1,962
-------- -------- --------- --------
Net investment income (loss) . . 52,711 (535) 340,435 86,759
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses) . . 65,733 (25,196) 42,365 64,824
Net unrealized appreciation
(depreciation) during the
period . . . . . . . . . . . . (10,735) 18,718 (139,659) 149,416
-------- -------- --------- --------
Net realized and unrealized gain
(loss) on investments . . . . . 54,998 (6,478) (97,294) 214,240
-------- -------- --------- --------
Net increase (decrease) in net
assets resulting from operations $107,709 $ (7,013) $ 243,141 $300,999
======== ======== ========= ========
</TABLE>
- ---------
** From May 1, 1998 (commencement of operations).
See accompanying notes.
76
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
LARGE CAP GROWTH SUBACCOUNT SOVEREIGN BOND SUBACCOUNT
------------------------------------------ -----------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income . . . . . . . . $ 17,233,439 $ 6,143,421 $ 2,793,242 $ 2,725,206 $ 2,097,345 $ 816,558
Net realized gains (losses) . . . . . 5,003,007 1,750,881 619,721 (1,391,910) 185,230 80,538
Net unrealized appreciation
(depreciation) during the period . . (2,053,672) 8,041,022 2,301,920 (1,837,190) (378,058) 63,687
------------ ------------ ------------ ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . 20,182,774 15,935,324 5,714,883 (503,894) 1,904,517 960,783
From policyholder transactions:
Net premiums from policyholders . . . 75,667,981 29,859,648 20,264,849 74,595,720 38,567,292 21,324,560
Net benefits to policyholders . . . . (45,347,424) (13,281,028) (10,390,849) (68,312,320) (27,391,317) (8,009,615)
------------ ------------ ------------ ------------ ------------ -----------
Net increase in net assets resulting
from policyholder
transactions . . . . . . . . . . . . . 30,320,557 16,578,620 9,874,000 6,283,400 11,175,975 13,314,945
------------ ------------ ------------ ------------ ------------ -----------
Net increase in net assets . . . . . . 50,503,331 32,513,944 15,588,883 5,779,506 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 . . . . . . $115,521,551 $ 65,018,220 $ 32,504,276 $ 38,321,473 $ 32,541,967 $19,461,475
============ ============ ============ ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY SMALL CAP
INDEX SUBACCOUNT GROWTH SUBACCOUNT
---------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) . . . . . . $ 855,417 $ 1,885,059 $ 389,020 $ 3,637,734 $ (22,593) $ (6,074)
Net realized gains . . . . . . . . . . . 753,750 152,030 244,810 2,548,944 58,729 21,707
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . 4,871,167 78,480 (1,219,540) 3,920,455 1,070,805 126,699
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . 6,480,334 2,115,569 (585,710) 10,107,133 1,106,941 142,332
From policyholder transactions:
Net premiums from policyholders . . . . . 53,332,374 10,034,119 8,150,400 52,637,861 12,088,047 2,870,481
Net benefits to policyholders . . . . . . (39,209,664) (8,344,107) (4,505,840) (40,800,272) (6,621,834) (1,005,386)
------------ ----------- ----------- ------------ ----------- -----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . 14,122,710 1,690,012 3,644,560 11,837,589 5,466,213 1,865,095
------------ ----------- ----------- ------------ ----------- -----------
Net increase in net assets . . . . . . . . 20,603,044 3,805,581 3,058,850 21,944,722 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 . . . . . . . $ 33,198,674 $12,595,630 $ 8,790,049 $ 31,022,828 $ 9,078,106 $ 2,504,952
============ =========== =========== ============ =========== ===========
</TABLE>
See accompanying notes.
77
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED
SUBACCOUNT MID CAP GROWTH SUBACCOUNT
-------------------------------------- ---------------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------ ----------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) . . . . . $ 358,974 $ 176,073 $ 56,806 $ 6,389,535 $ 1,088,251 $ (8,287)
Net realized gains . . . . . . . . . . 15,640 24,206 8,667 5,188,018 599,619 1,235
Net unrealized appreciation
(depreciation) during the period . . (173,912) 147,461 (67,714) 15,078,681 1,184,263 486,186
----------- ----------- ---------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations . . . . . . 200,702 347,740 (2,241) 26,656,234 2,872,133 479,134
From policyholder transactions:
Net premiums from policyholders . . . 6,295,052 3,163,316 1,608,069 65,183,285 11,323,614 3,212,754
Net benefits to policyholders . . . . (5,007,225) (1,882,974) (282,878) (41,018,347) (5,132,055) (915,459)
----------- ----------- ---------- ------------- ------------- -------------
Net increase in net assets resulting
from policyholder transactions . . . . 1,287,827 1,280,342 1,325,191 24,164,938 6,191,559 2,297,295
----------- ----------- ---------- ------------- ------------- -------------
Net increase in net assets . . . . . . 1,488,529 1,628,082 1,322,950 50,821,172 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 . . . . . . $ 4,591,856 $ 3,103,327 $1,475,245 $ 63,499,616 $ 12,678,444 $ 3,614,752
=========== =========== ========== ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
LARGE CAP VALUE SUBACCOUNT MONEY MARKET SUBACCOUNT
---------------------------------------- ---------------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income . . . . . . . $ 1,720,195 $ 756,459 $ 183,036 $ 2,988,530 $ 1,687,016 $ 691,552
Net realized gains . . . . . . . . . 705,454 330,827 164,821 -- -- --
Net unrealized appreciation
(depreciation) during the period . (2,181,112) 145,355 279,449 -- -- --
------------ ----------- ----------- ------------- ------------- -------------
Net increase in net assets resulting
from operations . . . . . . . . . . 244,537 1,232,641 627,306 2,988,530 1,687,016 691,552
From policyholder transactions:
Net premiums from policyholders . . 37,432,039 15,144,316 5,421,062 890,376,545 340,377,358 103,737,470
Net benefits to policyholders . . . (27,199,179) (4,937,583) (1,620,578) (918,869,964) (269,723,839) (100,296,756)
------------ ----------- ----------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from policyholder
transactions . . . . . . . . . . . . 10,232,860 10,206,733 3,800,484 (28,493,419) 70,653,519 3,440,714
------------ ----------- ----------- ------------- ------------- -------------
Net increase (decrease) in net assets 10,477,397 11,439,374 4,427,790 (25,504,889) 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 . . . . . $ 27,106,917 $16,629,520 $ 5,190,146 $ 61,006,769 $ 86,511,658 $ 14,171,123
============ =========== =========== ============= ============= =============
</TABLE>
See accompanying notes.
78
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SMALL/MID CAP
MID CAP VALUE SUBACCOUNT GROWTH SUBACCOUNT
---------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income . . . . . . . . . . $ 41,579 $ 75,449 $ 434,660 $ 1,388,661 $ 108,037 $ 842,666
Net realized gains (losses) . . . . . . . (860,332) (538,516) 101,787 13,375 232,246 297,666
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . 1,757,919 (830,390) (39,717) (1,001,208) 236,333 (730,748)
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from
operations . . . . . . . . . . . . . . . 939,166 (1,293,457) 496,730 400,828 576,616 409,584
From policyholder transactions:
Net premiums from policyholders . . . . . 32,024,751 18,837,112 6,323,061 11,809,133 4,563,154 8,511,081
Net benefits to policyholders . . . . . . (29,579,995) (7,855,945) (1,089,206) (9,775,543) (6,481,542) (6,274,668)
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from policyholder transactions 2,444,756 10,981,167 5,233,855 2,033,590 (1,918,388) 2,236,413
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets . . 3,383,922 9,687,710 5,730,585 2,434,418 (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 . . . . . . . $ 19,138,533 $15,754,611 $ 6,066,901 $ 9,925,831 $ 7,491,413 $ 8,833,185
============ =========== =========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE EQUITY SUBACCOUNT GROWTH & INCOME SUBACCOUNT
---------------------------------------- -------------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income . . . . . . . . $ 515,377 $ 283,067 $ 232,798 $ 22,850,302 $ 8,975,814 $ 5,747,928
Net realized gains (losses) . . . . . (735,504) (454,979) 252,095 6,207,253 2,061,212 2,390,414
Net unrealized appreciation
(depreciation) during the period . . 80,925 (698,676) (13,488) (5,814,839) 7,759,307 435,778
------------ ----------- ----------- ------------- ------------ ------------
Net increase (decrease) in net assets
resulting from
operations . . . . . . . . . . . . . . (139,202) (870,588) 471,405 23,242,716 18,796,333 8,574,120
From policyholder transactions:
Net premiums from policyholders . . . 22,699,314 6,964,604 4,833,914 196,639,863 60,975,616 35,535,599
Net benefits to policyholders . . . . (18,093,640) (5,513,221) (2,393,463) (106,763,955) (31,360,866) (21,776,809)
------------ ----------- ----------- ------------- ------------ ------------
Net increase in net assets resulting
from policyholder
transactions . . . . . . . . . . . . . 4,605,674 1,451,383 2,440,451 89,875,908 29,614,750 13,758,790
------------ ----------- ----------- ------------- ------------ ------------
Net increase in net assets . . . . . . 4,466,472 580,795 2,911,856 113,118,624 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 . . . . . . $ 9,238,646 $ 4,772,174 $ 4,191,379 $ 209,525,899 $ 96,407,275 $ 47,996,192
============ =========== =========== ============= ============ ============
</TABLE>
See accompanying notes.
79
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SHORT-TERM BOND
MANAGED 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 . . . . . . . . . $ 10,756,436 $ 3,484,281 $ 1,814,571 $ 907,486 $ 926,217 $ 394,991
Net realized gains (losses) . . . . . . 2,233,258 278,186 171,318 (441,667) 24,740 35,294
Net unrealized appreciation
(depreciation) during the period . . . (6,419,069) 1,791,231 715,231 (85,754) (136,999) (25,976)
------------ ----------- ----------- ------------ ------------ -----------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . 6,570,625 5,553,698 2,701,120 380,065 813,958 404,309
From policyholder transactions:
Net premiums from policyholders . . . . 113,292,872 21,019,273 16,914,475 41,259,110 27,490,588 12,911,228
Net benefits to policyholders . . . . . (34,219,380) (8,281,600) (9,357,535) (49,156,693) (21,534,195) (4,234,624)
------------ ----------- ----------- ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from policyholder transactions 79,073,492 12,737,673 7,556,940 (7,897,583) 5,956,393 8,676,604
------------ ----------- ----------- ------------ ------------ -----------
Net increase (decrease) in net assets . . 85,644,117 18,291,371 10,258,060 (7,517,518) 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 . . . . . . . $125,710,809 $40,066,692 $21,775,321 $ 11,728,988 $ 19,246,506 $12,476,155
============ =========== =========== ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL OPPORTUNITIES
SMALL CAP VALUE 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 . . . . . . . . . . $ 344,711 $ 14,015 $ 290,784 $ 2,006,004 $ 53,396 $ 55,901
Net realized gains (losses) . . . . . . . (979,002) (9,919) 75,149 1,907,809 191,495 80,782
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . 325,684 (523,693) (18,626) 3,818,953 1,108,416 (260,664)
------------ ----------- ---------- ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . (308,607) (519,597) 347,307 7,732,766 1,353,307 (123,981)
From policyholder transactions:
Net premiums from policyholders . . . . . 39,172,672 11,420,833 4,182,527 43,216,216 23,844,756 8,906,153
Net benefits to policyholders . . . . . . (30,591,417) (4,363,378) (897,951) (38,372,463) (12,275,087) (3,655,731)
------------ ----------- ---------- ------------ ------------ -----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . 8,581,255 7,057,455 3,284,576 4,843,753 11,569,669 5,250,422
------------ ----------- ---------- ------------ ------------ -----------
Net increase in net assets . . . . . . . . 8,272,648 6,537,858 3,631,883 12,576,519 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 . . . . . . . $ 18,783,396 $10,510,748 $3,972,890 $ 31,535,049 $ 18,958,530 $ 6,035,554
============ =========== ========== ============ ============ ===========
</TABLE>
See accompanying notes.
80
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY INDEX SUBACCOUNT
-----------------------------------------------------
1999 1998 1997
------------------------- ------------- ------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 5,503,450 $ 1,211,729 $ 378,697
Net realized gains
(losses). . . . . . 7,681,081 691,270 901,978
Net unrealized
appreciation
(depreciation)
during the period . 4,678,509 6,098,919 392,256
------------------------ ------------ -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 17,863,040 8,001,918 1,672,931
From policyholder
transactions:
Net premiums from
policyholders . . . 225,994,914 60,690,933 23,412,687
Net benefits to
policyholders . . . (147,909,470) (31,166,123) (9,622,006)
------------------------ ------------ -----------
Net increase in net
assets resulting from
policyholder
transactions . . . . 78,085,444 29,524,810 13,790,681
------------------------ ------------ -----------
Net increase in net
assets . . . . . . . 95,948,484 37,526,728 15,463,612
Net assets at
beginning of period 53,964,647 16,437,919 974,307
------------------------ ------------ -----------
Net assets at end of
period . . . . . . . $ 149,913,131 $ 53,964,647 $16,437,919
======================== ============ ===========
<CAPTION>
GLOBAL BOND SUBACCOUNT
--------------------------------------------------
1999 1998 1997
------------------------ ------------ -------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 424,767 $ 283,651 $ 71,030
Net realized gains (204,675) 81,659 8,335
(losses). . . . . .
Net unrealized
appreciation (433,526) 43,608 (11,727)
(depreciation) ----------------------- ----------- ----------
during the period .
Net increase (213,434) 408,918 67,638
(decrease) in net
assets resulting from
operations . . . . .
From policyholder
transactions:
Net premiums from 11,387,398 9,258,713 1,828,179
policyholders . . .
Net benefits to
policyholders . . . (10,615,019) (3,008,341) (534,164)
----------------------- ----------- ----------
Net increase in net
assets resulting from 772,379 6,250,372 1,294,015
policyholder ----------------------- ----------- ----------
transactions . . . .
Net increase in net 558,945 6,659,290 1,361,653
assets . . . . . . .
Net assets at
beginning of period 8,279,571 1,620,281 258,628
----------------------- ----------- ----------
Net assets at end of
period . . . . . . . $ 8,838,516 $ 8,279,571 $1,620,281
======================= =========== ==========
</TABLE>
<TABLE>
<CAPTION>
BRANDES INTERNATIONAL
TURNER CORE GROWTH 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 . . . . . . . . . . . $ 1,315,438 $ 77,203 $ 87,289 $ 515,681 $ 343,646 $ 25,175
Net realized gains . . . . . . . . . . . . . 1,038,462 156,278 76,711 507,727 89,337 12,541
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . . 1,626,646 562,620 32,626 3,486,097 91,915 (26,022)
----------- ----------- ---------- ----------- ------------ -----------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . . 3,980,546 796,101 196,626 4,509,505 524,898 11,694
From policyholder transactions:
Net premiums from policyholders . . . . . . 23,098,524 4,779,974 743,622 12,134,533 5,520,633 2,484,010
Net benefits to policyholders . . . . . . . (9,308,254) (1,690,860) (580,027) (5,569,496) (2,041,375) (1,088,249)
----------- ----------- ---------- ----------- ------------ -----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . . 13,790,270 3,089,114 163,595 6,565,037 3,479,258 1,395,761
----------- ----------- ---------- ----------- ------------ -----------
Net increase in net assets . . . . . . . . . 17,770,816 3,885,215 360,221 11,074,542 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 . . . . . . . . . $22,671,005 $ 4,900,189 $1,014,974 $17,415,296 $ 6,340,754 $ 2,336,598
=========== =========== ========== =========== ============ ===========
</TABLE>
See accompanying notes.
81
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FRONTIER CAPITAL APPRECIATION
SUBACCOUNT
--------------------------------------------------------------------
1999 1998 1997
----------------------------------------- ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 449,994 $ 9,897 $ 118,150
Net realized gains
(losses). . . . . . 624,068 (445,752) 614,358
Net unrealized
appreciation
(depreciation)
during the period . 3,431,408 432,064 (368,570)
---------------------------------------- ----------- -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 4,505,470 (3,791) 363,938
From policyholder
transactions:
Net premiums from
policyholders . . . 25,135,447 13,982,031 10,030,418
Net benefits to
policyholders . . . (22,331,613) (9,695,520) (5,969,436)
---------------------------------------- ----------- -----------
Net increase in net
assets resulting from
policyholder
transactions . . . . 2,803,834 4,286,511 4,060,982
---------------------------------------- ----------- -----------
Net increase in net
assets . . . . . . . 7,309,304 4,282,720 4,424,920
Net assets at
beginning of period 9,675,718 5,392,998 968,078
---------------------------------------- ----------- -----------
Net assets at end of
period . . . . . . . $ 16,985,022 $ 9,675,718 $ 5,392,998
======================================== =========== ===========
<CAPTION>
ENHANCED U.S.
EQUITY SUBACCOUNT
---------------------------------------------------------
1999 1998 1997*
-------------------------------- ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 518,137 $ 68,233 $ 14,857
Net realized gains 264,436 87,723 4,177
(losses). . . . . .
Net unrealized
appreciation 151,562 89,677 6,844
(depreciation) ------------------------------- ----------- ---------
during the period .
Net increase 934,135 245,633 25,878
(decrease) in net
assets resulting from
operations . . . . .
From policyholder
transactions:
Net premiums from 6,480,741 3,031,309 475,503
policyholders . . .
Net benefits to
policyholders . . . (3,151,279) (1,299,530) (4,176)
------------------------------- ----------- ---------
Net increase in net
assets resulting from 3,329,462 1,731,779 471,327
policyholder ------------------------------- ----------- ---------
transactions . . . .
Net increase in net 4,263,597 1,977,412 497,205
assets . . . . . . .
Net assets at
beginning of period 2,474,617 497,205 0
------------------------------- ----------- ---------
Net assets at end of
period . . . . . . . $ 6,738,214 $ 2,474,617 $ 497,205
=============================== =========== =========
</TABLE>
<TABLE>
<CAPTION>
EMERGING MARKETS GLOBAL EQUITY BOND INDEX
EQUITY 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 . . . . . . . . . . . $ 132,259 $ 135 $ 4,204 $ 152 $ 130,136 $ 22,905
Net realized gains (losses) . . . . . . . . 663,998 (45,975) 82,873 (21,835) (104,174) 1,002
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . 432,248 2,289 47,295 4,812 (78,192) (10,217)
------------ ----------- ----------- ----------- ----------- ----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . 1,228,505 (43,551) 134,372 (16,871) (52,230) 13,690
From policyholder transactions:
Net premiums from policyholders . . . . . . 18,579,194 2,434,226 3,151,983 2,372,034 6,471,518 1,176,234
Net benefits to policyholders . . . . . . . (16,271,324) (2,203,670) (2,613,505) (2,191,135) (2,358,694) (124,467)
------------ ----------- ----------- ----------- ----------- ----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . . 2,307,870 230,556 538,478 180,899 4,112,824 1,051,767
------------ ----------- ----------- ----------- ----------- ----------
Net increase in net assets . . . . . . . . . 3,536,375 187,005 672,850 164,028 4,060,594 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 . . . . . . . . $ 3,723,380 $ 187,005 $ 836,878 $ 164,028 $ 5,126,051 $1,065,457
============ =========== =========== =========== =========== ==========
</TABLE>
- ---------
* From July 1, 1997 (commencement of operations).
** From May 1, 1998 (commencement of operations).
See accompanying notes.
82
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SMALL/MID CAP CORE HIGH YIELD BOND
SUBACCOUNT SUBACCOUNT
------------------------ ----------------------------------------
1999 1998** 1999 1998**
------------ ----------- --------------------------- --------------
<S> <C> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income
(loss). . . . . . . $ 52,711 $ (535) $ 340,435 $ 86,759
Net realized gains
(losses). . . . . . 65,733 (25,196) 42,365 64,824
Net unrealized
appreciation
(depreciation)
during the period . (10,735) 18,718 (139,659) 149,416
----------- ---------- -------------------------- -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 107,709 (7,013) 243,141 300,999
From policyholder
transactions:
Net premiums from
policyholders . . . 5,817,483 1,089,030 19,870,990 6,683,673
Net benefits to
policyholders . . . (5,611,532) (778,864) (20,368,501) (2,457,088)
----------- ---------- -------------------------- -----------
Net increase
(decrease) in net
assets resulting from
policyholder
transactions . . . . 205,951 310,166 (497,511) 4,226,585
----------- ---------- -------------------------- -----------
Net increase
(decrease) in net
assets . . . . . . . 313,660 303,153 (254,370) 4,527,584
Net assets at
beginning of period 303,153 0 4,527,584 0
----------- ---------- -------------------------- -----------
Net assets at end of
period . . . . . . . $ 616,813 $ 303,153 $ 4,273,214 $ 4,527,584
=========== ========== ========================== ===========
</TABLE>
- ---------
** From May 1, 1998 (commencement of operations).
See accompanying notes.
83
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 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, Small Cap
Growth, International Balanced, Mid Cap Growth, Large Cap Value, Money Market,
Mid Cap Value, Small/Mid Cap Growth (formerly, Diversified Mid Cap Growth), Real
Estate Equity, Growth & Income, Managed, Short-Term Bond, Small Cap Value,
International Opportunities, Equity Index, Global Bond (formerly, Strategic
Bond), Turner Core Growth, Brandes International Equity, Frontier Capital
Appreciation, 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.
84
<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, 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.
85
<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, 1999 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO SHARES OWNED COST VALUE
--------- ------------ ------------ --------------
<S> <C> <C> <C>
Large Cap Growth . . . . . . 4,226,550 $108,181,136 $115,521,551
Sovereign Bond . . . . . . . 4,200,440 40,512,273 38,321,473
International Equity Index . 1,689,937 29,224,059 33,198,674
Small Cap Growth . . . . . . 1,622,919 25,907,535 31,022,828
International Balanced . . . 428,930 4,680,715 4,591,856
Mid Cap Growth . . . . . . . 2,172,468 46,744,046 63,499,616
Large Cap Value . . . . . . . 2,009,306 28,839,671 27,106,917
Money Market . . . . . . . . 6,100,677 61,006,768 61,006,769
Mid Cap Value . . . . . . . . 1,497,913 18,236,811 19,138,533
Small/Mid Cap Growth . . . . 707,222 10,888,164 9,925,831
Real Estate Equity . . . . . 805,182 9,643,804 9,238,646
Growth & Income . . . . . . . 10,470,370 207,387,033 209,525,899
Managed . . . . . . . . . . . 8,137,552 130,087,567 125,710,809
Short-Term Bond . . . . . . . 1,206,452 11,963,663 11,728,988
Small Cap Value . . . . . . . 1,720,546 18,985,985 18,783,396
International Opportunities . 2,078,452 26,831,679 31,535,049
Equity Index . . . . . . . . 7,327,855 138,687,664 149,913,131
Global Bond . . . . . . . . . 900,154 9,240,752 8,838,516
Turner Core Growth . . . . . 988,705 20,433,059 22,671,005
Brandes International Equity 1,122,129 13,875,593 17,415,296
Frontier Capital Appreciation 804,225 13,485,020 16,985,022
Enhanced U.S. Equity . . . . 321,327 6,490,133 6,738,214
Emerging Markets Equity . . . 303,646 3,288,843 3,723,380
Global Equity . . . . . . . . 68,965 784,773 836,878
Bond Index . . . . . . . . . 550,115 5,214,459 5,126,051
Small/Mid Cap CORE . . . . . 62,841 608,830 616,813
High Yield Bond . . . . . . . 475,514 4,263,457 4,273,214
</TABLE>
86
<PAGE>
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 during 1999 were as
follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
--------- ------------ --------------
<S> <C> <C>
Large Cap Growth . . . . . . . . . $ 62,265,535 $ 14,711,539
Sovereign Bond . . . . . . . . . . 38,288,617 29,280,010
International Equity Index . . . . 32,519,440 17,541,313
Small Cap Growth . . . . . . . . . 27,757,302 12,281,978
International Balanced . . . . . . 3,415,587 1,768,784
Mid Cap Growth . . . . . . . . . . 45,338,211 14,783,738
Large Cap Value . . . . . . . . . . 22,257,609 10,304,554
Money Market . . . . . . . . . . . 304,141,849 329,646,739
Mid Cap Value . . . . . . . . . . . 15,413,952 12,927,617
Small/Mid Cap Growth . . . . . . . 8,759,614 5,337,363
Real Estate Equity . . . . . . . . 13,375,520 8,254,469
Growth & Income . . . . . . . . . . 144,949,345 32,223,136
Managed . . . . . . . . . . . . . . 111,633,323 21,803,394
Short-Term Bond . . . . . . . . . . 17,352,671 24,342,768
Small Cap Value . . . . . . . . . . 16,062,747 7,136,780
International Opportunities . . . . 24,767,973 17,918,215
Equity Index . . . . . . . . . . . 124,086,502 40,497,607
Global Bond . . . . . . . . . . . . 10,322,531 9,125,384
Turner Core Growth . . . . . . . . 20,980,047 5,874,338
Brandes International Equity . . . 10,664,333 3,583,615
Frontier Capital Appreciation . . . 13,387,462 10,133,633
Enhanced U.S. Equity . . . . . . . 5,925,334 2,077,734
Emerging Markets Equity . . . . . . 9,682,573 7,242,444
Global Equity . . . . . . . . . . . 2,167,637 1,624,954
Bond Index . . . . . . . . . . . . 5,900,997 1,658,038
Small/Mid Cap CORE . . . . . . . . 3,312,578 3,053,916
High Yield Bond . . . . . . . . . . 11,898,171 12,055,248
</TABLE>
87
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. NET ASSETS
Accumulation shares attributable to net assets of policyholders and
accumulation share values for each subaccount at December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
VEP CLASS #1 VEP CLASS #2 VEP CLASS #3
-------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . . 432,627 $34.19 442,008 $34.29 156,934 $34.39
Sovereign Bond . . . . . . . 226,496 13.80 170,995 13.84 28,389 13.88
International Equity Index . 205,346 17.52 163,712 17.58 4,631 17.63
Small Cap Growth . . . . . . 151,029 21.68 131,551 21.71 42,832 21.76
International Balanced . . . 21,487 13.28 25,817 13.30 12,453 13.33
Mid Cap Growth . . . . . . . 202,405 35.56 145,034 35.62 45,513 35.69
Large Cap Value . . . . . . . 191,629 16.15 140,376 16.18 4,476 16.21
Money Market . . . . . . . . 613,611 13.08 1,102,161 13.12 347,735 13.15
Mid Cap Value . . . . . . . . 106,938 14.05 45,955 14.08 2,990 14.10
Small/Mid Cap Growth . . . . 83,852 19.77 90,674 19.83 41,701 19.88
Real Estate Equity . . . . . 94,768 14.40 68,355 14.44 2,732 14.49
Growth & Income . . . . . . . 945,411 30.90 579,234 31.00 212,540 31.09
Managed . . . . . . . . . . . 554,374 20.88 279,936 20.94 23,988 21.00
Short-Term Bond . . . . . . . 94,078 12.97 84,892 13.00 7,712 13.04
Small Cap Value . . . . . . . 114,641 12.30 82,461 12.33 55,278 12.35
International Opportunities . 115,902 16.52 159,219 16.55 2,521 16.58
Equity Index . . . . . . . . 442,683 23.06 565,394 23.10 189,577 23.14
Global Bond . . . . . . . . . 55,090 12.15 48,036 12.17 16,751 12.19
Turner Core Growth . . . . . 31,697 28.29 15,337 28.36 -- --
Brandes International Equity 18,319 16.91 33,342 16.94 -- --
Frontier Capital Appreciation 20,409 22.75 13,182 22.80 -- --
Enhanced U.S. Equity . . . . 3,102 17.47 -- 17.50 -- --
Emerging Markets Equity . . . 31,332 12.77 114,481 12.78 4,803 12.79
Global Equity . . . . . . . . 11,223 12.22 15,873 12.23 777 12.24
Bond Index . . . . . . . . . 99,617 10.34 99,264 10.34 64,039 10.35
Small/Mid Cap CORE . . . . . 12,833 10.76 3,271 10.77 4,416 10.78
High Yield Bond . . . . . . . 51,021 10.09 40,169 10.10 -- --
</TABLE>
88
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
V COLI CLASS #4 V COLI CLASS #5 V COLI CLASS #6
-------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ------------ ------------ ------------ ------------ ------------ --------------
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . . 646,018 $34.50 282,553 $34.49 252,596 $34.52
Sovereign Bond . . . . . . . 17,426 14.64 538,047 14.66 335,449 14.67
International Equity Index . 63,956 16.24 130,903 16.26 235,165 16.28
Small Cap Growth . . . . . . 90,088 22.04 39,929 22.05 38,804 22.07
International Balanced . . . 68,220 13.50 6,065 13.51 54,964 13.52
Mid Cap Growth . . . . . . . 146,264 36.15 124,116 36.18 5,992 36.19
Large Cap Value . . . . . . . 151,753 16.42 133,066 16.43 416,273 16.44
Money Market . . . . . . . . 218,714 13.01 5,906 13.02 136,140 13.04
Mid Cap Value . . . . . . . . 69,726 14.29 24,485 14.30 281,375 14.30
Small/Mid Cap Growth . . . . 27,983 19.77 958 19.79 42,902 19.81
Real Estate Equity . . . . . 58,475 14.92 4,323 14.93 203,728 14.95
Growth & Income . . . . . . . 641,268 30.84 447,326 30.87 16,723 30.91
Managed . . . . . . . . . . . 162,478 21.64 83,071 21.66 150,514 21.68
Short-Term Bond . . . . . . . 99,163 13.21 351,710 13.22 -- --
Small Cap Value . . . . . . . 32,245 12.51 49,419 12.52 281,896 12.53
International Opportunities . 203,225 16.80 157,727 16.80 74,340 16.81
Equity Index . . . . . . . . 324,024 23.44 37,253 23.46 533,298 23.47
Global Bond . . . . . . . . . 54,500 12.35 9,809 12.36 -- --
Turner Core Growth . . . . . 7,772 28.80 12,496 28.83 -- --
Brandes International Equity 104,626 17.21 81,372 17.23 42,458 17.25
Frontier Capital Appreciation 74,553 23.16 62,806 23.18 -- --
Enhanced U.S. Equity . . . . 13,962 17.68 1 17.68 -- --
Emerging Markets Equity . . . -- -- 24,692 12.87 -- --
Global Equity . . . . . . . . -- -- -- 12.32 -- --
Bond Index . . . . . . . . . 2,519 10.42 10,132 10.42 -- --
Small/Mid Cap CORE . . . . . -- -- -- 10.84 -- --
High Yield Bond . . . . . . . 1,998 10.18 310 10.18 85,180 10.18
</TABLE>
89
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MEDALLION EXECUTIVE VLI CLASS #7 MVEP CLASS #8 MVUL CLASS #9
--------------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ---------------- ---------------- ------------ ------------ ------------ --------------
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . 92,840 $79.68 781,223 $24.82 213,207 $22.10
Sovereign Bond . . . . . . 57,389 23.69 765,173 12.44 500,049 11.71
International Equity Index 113,572 27.55 780,218 15.05 200,089 15.54
Small Cap Growth . . . . . 193,672 21.70 298,417 21.90 197,401 24.61
International Balanced . . 52,288 13.29 41,158 13.41 36,634 12.85
Mid Cap Growth . . . . . . 168,579 35.59 383,762 35.92 103,210 39.83
Large Cap Value . . . . . . 269,931 16.17 125,284 16.31 115,052 13.95
Money Market . . . . . . . 280,073 18.10 339,940 11.94 435,648 11.42
Mid Cap Value . . . . . . . 412,439 14.06 242,213 14.19 70,954 12.00
Small/Mid Cap Growth . . . 3,416 19.80 257,950 12.63 33,652 12.85
Real Estate Equity . . . . 39,901 22.14 116,040 12.27 38,147 9.54
Growth & Income . . . . . . 828,857 68.13 1,383,220 21.88 552,475 19.13
Managed . . . . . . . . . . 2,321,332 39.65 236,592 16.81 102,294 15.37
Short-Term Bond . . . . . . 63,598 12.99 63,326 11.93 95,428 11.43
Small Cap Value . . . . . . 473,526 12.32 281,097 12.43 87,362 11.80
International Opportunities 559,454 16.54 227,841 16.68 335,763 15.97
Equity Index . . . . . . . 477,728 23.08 1,251,427 23.29 598,377 19.87
Global Bond . . . . . . . . 146,786 12.16 62,185 12.27 258,673 11.58
Turner Core Growth . . . . -- -- 229,705 25.66 76,087 24.67
Brandes International
Equity . . . . . . . . . . -- -- 495,542 16.53 58,572 17.67
Frontier Capital
Appreciation . . . . . . . -- -- 405,890 19.23 119,967 18.62
Enhanced U.S. Equity . . . -- -- 145,784 17.59 139,459 17.59
Emerging Markets Equity . . 45,954 12.77 18,062 12.82 40,257 12.82
Global Equity . . . . . . . 2,967 12.23 4,588 12.28 29,228 12.28
Bond Index . . . . . . . . 18,855 10.34 12,439 10.38 185 10.38
Small/Mid Cap CORE . . . . -- -- 16,742 10.81 477 10.81
High Yield Bond . . . . . . 34,470 10.10 82,547 10.14 72,026 10.14
</TABLE>
90
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MVUL 98 CLASS #10 MVEP 98 CLASS #11 MEVL II CLASS #12
-------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ------------ ------------ ------------ ------------ ------------ --------------
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . . 221,057 $22.10 133,186 $24.82 -- --
Sovereign Bond . . . . . . . 122,492 11.71 96,742 12.44 -- --
International Equity Index . 40,197 15.54 68,833 15.05 -- --
Small Cap Growth . . . . . . 158,068 24.61 34,357 21.90 -- --
International Balanced . . . 22,819 12.85 3,040 13.41 -- --
Mid Cap Growth . . . . . . . 291,628 39.83 111,636 35.92 -- --
Large Cap Value . . . . . . . 66,485 13.95 73,993 16.31 -- --
Money Market . . . . . . . . 575,670 11.42 718,107 11.94 -- --
Mid Cap Value . . . . . . . . 62,352 11.99 52,021 14.19 -- --
Small/Mid Cap Growth . . . . 15,710 12.85 20,460 12.63 -- --
Real Estate Equity . . . . . 10,691 9.54 7,405 12.27 -- --
Growth & Income . . . . . . . 1,047,922 19.13 196,321 21.88 -- --
Managed . . . . . . . . . . . 55,779 15.37 43,618 16.81 -- --
Short-Term Bond . . . . . . . 26,887 11.43 31,697 11.93 -- --
Small Cap Value . . . . . . . 22,247 11.80 40,374 12.43 -- --
International Opportunities . 39,238 15.97 35,379 16.68 -- --
Equity Index . . . . . . . . 1,960,860 19.87 440,030 23.29 -- --
Global Bond . . . . . . . . . 35,346 11.58 51,458 12.27 -- --
Turner Core Growth . . . . . 377,311 24.67 142,883 25.66 -- --
Brandes International Equity 82,135 17.67 116,504 16.53 -- --
Frontier Capital Appreciation 90,807 18.62 69,320 20.00 -- --
Enhanced U.S. Equity . . . . 48,887 17.59 30,852 17.59 -- --
Emerging Markets Equity . . . 7,584 12.82 3,832 12.82 -- --
Global Equity . . . . . . . . 1,070 12.28 2,561 12.28 -- --
Bond Index . . . . . . . . . 137,733 10.38 46,924 10.38 -- --
Small/Mid Cap CORE . . . . . 10,536 10.81 8,881 10.81 -- --
High Yield Bond . . . . . . . 15,036 10.14 38,875 10.14 -- --
</TABLE>
91
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
VEP CLASS #13
--------------------------
ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES
--------- ------------ --------------
----------------------------
<S> <C> <C>
Large Cap Growth . . . . . . -- --
Sovereign Bond . . . . . . . -- --
International Equity Index . -- --
Small Cap Growth . . . . . . -- --
International Balanced . . . -- --
Mid Cap Growth . . . . . . . -- --
Large Cap Value . . . . . . . -- --
Money Market . . . . . . . . -- --
Mid Cap Value . . . . . . . . -- --
Small/Mid Cap Growth . . . . -- --
Real Estate Equity . . . . . -- --
Growth & Income . . . . . . . -- --
Managed . . . . . . . . . . . -- --
Short-Term Bond . . . . . . . -- --
Small Cap Value . . . . . . . -- --
International Opportunities . -- --
Equity Index . . . . . . . . -- --
Global Bond . . . . . . . . . -- --
Turner Core Growth . . . . . -- --
Brandes International Equity -- --
Frontier Capital Appreciation -- --
Enhanced U.S. Equity . . . . -- --
Emerging Markets Equity . . . -- --
Global Equity . . . . . . . . -- --
Bond Index . . . . . . . . . -- --
Small/Mid Cap CORE . . . . . -- --
High Yield Bond . . . . . . . -- --
</TABLE>
92
<PAGE>
ALPHABETICAL INDEX OF KEY WORDS AND PHRASES
This index should help you locate more information about many of the important
concepts in this prospectus.
<TABLE>
<CAPTION>
KEY WORD OR PHRASE PAGE KEY WORD OR PHRASE PAGE
<S> <C> <C> <C>
Account . . . . . . . 32 34
account value . . . . 9 10
Additional Sum Insured 16 16
annual processing date 17 16
attained age. . . . . 10 16
Basic Sum Insured . . 16 5
beneficiary . . . . . 43 14
business day. . . . . 33 11
changing Option A or B 18 19
changing the Total Sum
Insured . . . . . . 17 7
charges . . . . . . . 9 34
Code. . . . . . . . . 39 17
cost of insurance
rates. . . . . . . . 10 34
date of issue . . . . 34 5
death benefit . . . . 5 3
deductions. . . . . . 9 21
dollar cost averaging 14 7
enhanced cash value
rider. . . . . . . . 17 9
expenses of the Trusts 11 2
fixed investment
option . . . . . . . 33 32
full surrender. . . . 14 2
fund. . . . . . . . . 2 15
grace period. . . . . 7 32
guaranteed minimum
death benefit . . . 7 14
Guaranteed Minimum
Death Benefit Premium 8 14
insurance charge. . . 10 10
insured person. . . . 5 39
investment options. . 1 21
JHVLICO . . . . . . . 32 16
lapse . . . . . . . . 7 13
loan. . . . . . . . . 15 2
loan interest . . . . 15 1
maximum premiums. . . 6 32
Minimum Initial
Premium. . . . . . . 33 14
minimum insurance
amount . . . . . . . 17 11
minimum premiums. . . 6 5
modified endowment
contract . . . . . . 40
</TABLE>
93
<PAGE>
PROSPECTUS DATED MAY 1, 2000
MAJESTIC VARIABLE ESTATE PROTECTION
a flexible premium variable life survivorship insurance policy
issued by
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY ("JHVLICO")
The policy provides an investment option with fixed rates of return
declared by JHVLICO and the following variable investment options:
<TABLE>
<CAPTION>
VARIABLE INVESTMENT OPTION MANAGED BY
- -------------------------- ----------
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Managed. . . . . . . . . . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Growth & Income . . . . . Independence Investment Associates, Inc.
Fidelity VIP Contrafund(R). . . . . . . . . . . . . . . . Fidelity Management and Research Company
Equity Index . . . . . . . State Street Global Advisors
Large Cap Value . . . . . T. Rowe Price Associates, Inc.
Large Cap Growth . . . . . Independence Investment Associates, Inc.
Large Cap Aggressive Growth. . . . . . . . . . . . . . . . Alliance Capital Management L.P.
Fidelity VIP Growth. . . Fidelity Management and Research Company
AIM V.I. Value. . . . . . A I M Advisors, Inc.
Mid Cap Value . . . . . . Neuberger Berman, LLC
Fundamental Mid Cap Growth. . . . . . . . . . . . . . . . OppenheimerFunds, Inc.
Mid Cap Growth . . . . . . Janus Capital Corporation
Real Estate Equity . . . . Independence Investment Associates, Inc.
Small/Mid Cap CORE . . . . Goldman Sachs Asset Management
Small/Mid Cap Growth. . . Wellington Management Company, LLP
Small Cap Value . . . . . INVESCO Management & Research, Inc.
Small Cap Growth . . . . . . . . . . . . . . . . . . . . . John Hancock Advisers, Inc.
MFS New Discovery. . . . MFS Investment Management(R)
Global Balanced . . . . . Brinson Partners, Inc.
Templeton International Securities. . . . . . . . . . . . Templeton Investment Counsel, Inc.
International Equity Index . . . . . . . . . . . . . . . . Independence International Associates, Inc.
International Opportunities . . . . . . . . . . . . . . . . Rowe Price-Fleming International, Inc.
Morgan Stanley Dean Witter Investment
Emerging Markets Equity . . . . . . . . . . . . . . . . . Management, Inc.
Short-Term Bond . . . . . Independence Investment Associates, Inc.
Bond Index . . . . . . . . Mellon Bond Associates, LLP
Active Bond . . . . . . . . . . . . . . . . . . . . . . . John Hancock Advisers, Inc.
Global Bond . . . . . . . . . . . . . . . . . . . . . . . J.P. Morgan Investment Management, Inc.
High Yield Bond . . . . . Wellington Management Company, LLP
Money Market. . . . . . . John Hancock Life Insurance Company
Brandes International Equity. . . . . . . . . . . . . . . Brandes Investment Partners, L.P.
Turner Core Growth. . . . Turner Investment Partners, Inc.
Frontier Capital Appreciation. . . . . . . . . . . . . . . Frontier Capital Management Company, LLC
Clifton Enhanced U.S. Equity. . . . . . . . . . . . . . . The Clifton Group
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The variable investment options shown on page 1 are those available as of the
date of this prospectus. We may add, modify or delete variable investment
options in the future.
When you select one or more of these variable investment options, we invest
your money in the corresponding investment option(s) of one or more of the
following: the John Hancock Variable Series Trust I, the AIM Variable Insurance
Funds, Inc., the Templeton Variable Products Series Fund, Fidelity's Variable
Insurance Products Fund and Variable Insurance Products Fund II, the MFS
Variable Insurance Trust, and the M Fund, Inc. (together, "the Trusts"). In this
prospectus, the investment options of the Trusts are referred to as "funds".
In the prospectuses for the Trusts, the investment options may be referred to
as "funds", "portfolios" or "series".
Each Trust is a so-called "series" type mutual fund registered with the
Securities and Exchange Commission ("SEC"). The investment results of each
variable investment option you select will depend on those of the corresponding
fund of one of the Trusts. Each of the funds is separately managed and has its
own investment objective and strategies. Attached at the end of this prospectus
is a prospectus for each Trust. The Trust prospectuses contain detailed
information about each available fund. Be sure to read those prospectuses
before selecting any of the variable investment options shown on page 1.
* * * * * * * * * * * *
Please note that the SEC has not approved or disapproved these securities, or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
* * * * * * * * * * * *
JHVLICO LIFE SERVICING OFFICE
-----------------------------
Express Delivery U.S. Mail
---------------- ---------
529 Main Street P.O. Box 111
Charlestown, MA 02129 Boston, MA 02117
Phone:1-800-521-1234
Fax: 1-617-572-6956
2
<PAGE>
GUIDE TO THIS PROSPECTUS
This prospectus contains information that you should know before you buy a
policy or exercise any of your rights under the policy. However, please keep in
mind that this is a prospectus - - it is not the policy. The prospectus
---
simplifies many policy provisions to better communicate the policy's essential
features. Your rights and obligations under the policy will be determined by the
language of the policy itself. When you receive your policy, read it carefully.
This prospectus is arranged in the following way:
. The section which follows is called "Basic Information". It is in a
question and answer format. We suggest you read the Basic Information
section before reading any other section of the prospectus.
. Behind the Basic Information section are illustrations of
hypothetical policy benefits that help clarify how the policy works.
These start on page 22.
. Behind the illustrations is a section called "Additional Information"
that gives more details about the policy. It generally does not
---
repeat information that is in the Basic Information section. A table
of contents for the Additional Information section appears on page
27.
. Behind the Additional Information section are the financial
statements for JHVLICO and Separate Account S. These start on page
42.
. Finally, there is an Alphabetical Index of Key Words and Phrases at
the back of the prospectus on page 90.
After the Alphabetical Index of Key Words and Phrases, this prospectus ends and
the prospectuses for the Trusts begin.
* * * * * * * * * * * *
3
<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C>
Question Beginning on page
- --------
.What is the policy?. . . . . . . . . . . . . . . 5
.Who owns the policy?. . . . . . . . . . . . . . 5
.How can I invest money in the policy?. . . . . . 5
.Is there a minimum amount I must invest?. . . . 7
.How will the value of my investment in the policy change 8
over time?. . . . . . . . . . . . . . . . . . . .
.What charges will JHVLICO deduct from my investment in 9
the policy?. . . . . . . . . . . . . . . . . . .
.What charges will the Trusts deduct from my investment in 11
the policy?. . . . . . . . . . . . . . . . . . .
.What other charges could JHVLICO impose in the future? 13
.How can I change my policy's investment allocations? 13
.How can I access my investment in the policy?. . 14
.How much will JHVLICO pay when the last insured person 16
dies?. . . . . . . . . . . . . . . . . . . . . .
.How can I change my policy's insurance coverage? 17
.Can I cancel my policy after it's issued?. . . . 18
.Can I choose the form in which JHVLICO pays out policy 18
proceeds?. . . . . . . . . . . . . . . . . . . .
.To what extent can JHVLICO vary the terms and conditions
of its policies in particular cases?. . . . . . 19
.How will my policy be treated for income tax purposes? 20
.How do I communicate with JHVLICO?. . . . . . . 20
</TABLE>
4
<PAGE>
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
-----
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.
5
<PAGE>
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
35. 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 7 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 2 of this prospectus.
We will also accept premiums:
. by wire or by exchange from another insurance company,
. via an electronic funds transfer program (any owner interested in
making monthly premium payments must use this method), or
-------
. 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.
6
<PAGE>
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,
---
if the policy's surrender value is not sufficient to pay the charges on a
monthly deduction date, 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 1 year 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 and only if you've elected death benefit Option B (see
"How much will JHVLICO pay when the last insured person dies?" on page 16). The
feature guarantees that your Basic Sum Insured will not lapse during the first
10 policy years, 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 16), and
. on each monthly deduction date during that 10 year period 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
7
<PAGE>
Guaranteed Minimum Death Benefit Premiums due to date accumulated at
4%.
The Guaranteed Minimum Death Benefit Premium (or "GMDB Premium) is defined in
the policy and one-twelfth of it is "due" on each monthly deduction date. 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 16).
If the guaranteed minimum death benefit test is not satisfied on any monthly
deduction 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 monthly
deduction date on which default occurred. If it is reinstated more than 1 year
after such monthly deduction 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
---
much will JHVLICO pay when the last insured person dies?" on page 16).
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" beginning on page 31.)
Over time, the amount you've invested in any variable investment option will
increase or decrease the same as if you had invested the same amount directly in
the corresponding fund of one of the Trusts 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.
8
<PAGE>
The amount you've invested in the fixed investment option will earn interest
at a rate we declare from time to time. We guarantee that this rate will be at
least 4%. If you want to know what the current declared rate is, just call or
write to us. The current declared rate will also appear in the annual statement
we will send you. Amounts you invest in the fixed investment option will not be
---
subject to the mortality and expense risk charge described on page 10.
Otherwise, the charges applicable to the fixed investment option are the same as
those applicable to the variable investment options.
At any time, the "account value" of your policy is equal to:
. the amount you invested,
. plus or minus the investment experience of the investment options
you've chosen,
. minus all charges we deduct, and
. minus all withdrawals you have made.
If you take a loan on the policy, however, your account value will be computed
somewhat differently. This is discussed beginning on page 15.
WHAT CHARGES WILL JHVLICO DEDUCT FROM MY INVESTMENT IN THE POLICY?
Deductions from premium payments
. Premium tax charge - A charge to cover state premium taxes we currently
--------------------
expect to pay, on average. This charge is currently 2.35% of each premium.
. DAC tax charge - A charge to cover the increased Federal income tax
----------------
burden that we currently expect will result from receipt of premiums. This
charge is currently 1.25% of each premium.
. Premium 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
--------------
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
9
<PAGE>
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 imposed if you elect
-------------------------------------------
this rider. It is deducted only from premiums received in the first policy
year. The charge is 2% of premiums paid in the first policy year up to the
Target Premium.
. Optional benefits charge - A charge imposed for certain other optional
--------------------------
insurance benefits added to the policy by means of a rider.
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 first part of this charge is currently zero.
. Insurance charge - A monthly charge for the cost of insurance. To
------------------
determine the charge, we multiply the amount of insurance for which we are
at risk by a cost of insurance rate. The rate is derived from an actuarial
table. The table in your policy will show the maximum cost of insurance
-------
rates. The cost of insurance rates that we currently apply are generally
less than the maximum rates. We will review the cost of insurance rates at
least every 5 years and may change them from time to time. However, those
rates will never be more than the maximum rates shown in the policy. The
table of rates we use will depend on the insurance risk characteristics
and (usually) gender of 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
------------------------
additional mortality risk if either of the insured persons is subject to
certain types of special insurance risk.
. M &E charge - A daily charge for mortality and expense risks we assume.
-------------
This charge is deducted from the variable investment options. It does not
apply to the fixed investment option. The current charge is at an
effective annual rate of .35% of the value of the assets in each variable
investment option. We guarantee that this charge will never exceed an
effective annual rate of .60%.
. Guaranteed minimum death benefit charge - A monthly charge beginning in
-----------------------------------------
the eleventh policy year if the guaranteed minimum death benefit feature
is elected to
10
<PAGE>
extend beyond the first ten policy years. This charge is currently 1c per
$1,000 of Basic Sum Insured at issue and is guaranteed not to exceed 3c
per $1,000 of Basic Sum Insured at issue. 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.
. Optional benefits charge - Monthly charges for certain other optional
--------------------------
insurance benefits added to the policy by means of a rider.
. Partial withdrawal charge - A charge for each partial withdrawal of
-------------------------
account value to compensate us for the administrative expenses of
processing the withdrawal. The charge is equal to the lesser of $20 or 2%
of the withdrawal amount.
WHAT CHARGES WILL THE TRUSTS DEDUCT FROM MY INVESTMENT IN THE POLICY?
The Trusts must pay investment management fees and other operating expenses.
These fees and expenses are different for each fund and reduce the investment
return of each fund. Therefore, they also indirectly reduce the return you will
earn on any variable investment options you select.
The following figures for the funds are based on historical fund expenses, as
a percentage (rounded to two decimal places) of each fund's average daily net
assets for 1999, except as indicated in the Notes appearing at the end of this
table. Expenses of the funds are not fixed or specified under the terms of the
policy, and those expenses may vary from year to year.
<TABLE>
<CAPTION>
Investment Distribution and Other Operating Total Fund Other Operating
Management Service Expenses With Operating Expenses Absent
Fund Name Fee (12b-1) Fees Reimbursement Expenses Reimbursement
- --------- ---------- ---------------- --------------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
JOHN HANCOCK VARIABLE SERIES TRUST I
(NOTE 1):
Managed . . . . . . . . . . . . . . . . 0.32% N/A 0.03% 0.35% 0.03%
Growth & Income . . . . . . . . . . . . 0.25% N/A 0.03% 0.28% 0.03%
Equity Index . . . . . . . . . . . . . 0.14% N/A 0.00% 0.14% 0.08%
Large Cap Value . . . . . . . . . . . . 0.74% N/A 0.10% 0.84% 0.11%
Large Cap Growth . . . . . . . . . . . 0.36% N/A 0.03% 0.39% 0.03%
Large Cap Aggressive Growth . . . . . . 0.98% N/A 0.10% 1.08% 0.19%
Mid Cap Value . . . . . . . . . . . . . 0.80% N/A 0.10% 0.90% 0.12%
Mid Cap Growth . . . . . . . . . . . . 0.82% N/A 0.10% 0.92% 0.11%
Fundamental Mid Cap Growth . . . . . . 0.85% N/A 0.10% 0.95% 0.24%
Real Estate Equity . . . . . . . . . . 0.60% N/A 0.10% 0.70% 0.10%
Small/Mid Cap CORE . . . . . . . . . . 0.80% N/A 0.10% 0.90% 0.66%
Small/Mid Cap Growth . . . . . . . . . 0.75% N/A 0.10% 0.85% 0.10%
Small Cap Value . . . . . . . . . . . . 0.80% N/A 0.10% 0.90% 0.16%
Small Cap Growth . . . . . . . . . . . 0.75% N/A 0.10% 0.85% 0.14%
Global Balanced * . . . . . . . . . . . 0.85% N/A 0.10% 0.95% 0.46%
International Equity Index . . . . . . 0.16% N/A 0.10% 0.26% 0.22%
International Opportunities . . . . . . 0.87% N/A 0.10% 0.97% 0.29%
Emerging Markets Equity . . . . . . . . 1.27% N/A 0.10% 1.37% 2.17%
Short-Term Bond . . . . . . . . . . . . 0.30% N/A 0.10% 0.40% 0.13%
Bond Index . . . . . . . . . . . . . . 0.15% N/A 0.10% 0.25% 0.20%
Active Bond * . . . . . . . . . . . . . 0.25% N/A 0.03% 0.28% 0.03%
Global Bond . . . . . . . . . . . . . . 0.69% N/A 0.10% 0.79% 0.15%
High Yield Bond . . . . . . . . . . . . 0.65% N/A 0.10% 0.75% 0.39%
Money Market . . . . . . . . . . . . . 0.25% N/A 0.06% 0.31% 0.06%
AIM VARIABLE INSURANCE FUNDS, INC.:
AIM V.I. Value . . . . . . . . . . . . 0.61% N/A 0.15% 0.76% 0.15%
VARIABLE INSURANCE PRODUCTS FUND -
SERVICE CLASS (NOTE 2):
Fidelity VIP Growth . . . . . . . . . . 0.58% 0.10% 0.07% 0.75% 0.09%
VARIABLE INSURANCE PRODUCTS FUND II -
SERVICE CLASS (NOTE 2):
Fidelity VIP Contrafund(R) . . . . . . 0.58% 0.10% 0.07% 0.75% 0.10%
FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST - CLASS 2 SHARES (NOTE
3):
Templeton International Securities . . 0.69% 0.25% 0.19% 1.13% 0.19%
MFS VARIABLE INSURANCE TRUST
(NOTE 4):
MFS New Discovery . . . . . . . . . . . 0.90% N/A 0.17% 1.07% 1.59%
M FUND, INC. (NOTE 5):
Brandes International Equity . . . . . 0.96% N/A 0.25% 1.21% 0.97%
Turner Core Growth . . . . . . . . . . 0.45% N/A 0.25% 0.70% 0.95%
Frontier Capital Appreciation . . . . . 0.90% N/A 0.25% 1.15% 0.57%
Clifton Enhanced U.S. Equity** . . . . 0.55% N/A 0.25% 0.80% 1.08%
</TABLE>
11
<PAGE>
NOTES TO FUND EXPENSE TABLE
(1) John Hancock Variable Series Trust I funds' percentages reflect
management fees and other fund expenses based on the allocation
methodology and expense reimbursement policy adopted April 23, 1999.
Under the policy, John Hancock Life Insurance Company voluntarily
reimburses a fund when the fund's "other fund expenses" exceed 0.10% of
the fund's average daily net assets (0.00% for Equity Index).
* Global Balanced was formerly "International Balanced" and Active Bond
was formerly "Sovereign Bond".
(2) A portion of the brokerage commissions that certain of the Fidelity VIP
funds pay was used to reduce fund expenses. In addition, through
arrangements with certain funds' custodian, credits realized as a result
of uninvested cash balances were used to reduce a portion of each
applicable fund's expenses. Without these reductions, the operating
expenses of the funds would have been higher, as shown in the last column
of this table.
(3) On February 8, 2000, shareholders of each fund approved a merger and
reorganization that combined the Templeton International Equity Fund with
the Templeton International Securities Fund, effective May 1, 2000.
Shareholders of the Templeton International Securities Fund had approved
new management fees, which apply to the combined funds effective May 1,
2000. The table shows restated total expenses for the fund based on the
new fees and the assets, as of December 31, 1999, of the Templeton
International Securities Fund. However, if the table reflected both the
new fees and the combined assets of the Templeton International Equity
Fund and the Templeton International Securities Fund, the estimated
expenses for the two funds combined after May 1, 2000 would be:
Management Fees 0.65%, Distribution and Service Fees 0.25%, Other Expenses
0.20%, and Total Fund
12
<PAGE>
Operating Expenses 1.10%.
(4) MFS Variable Insurance Trust funds have an expense offset arrangement
which reduces each fund's custodian fee based upon the amount of cash
maintained by the fund with its custodian and dividend disbursing agent.
Each fund may enter into other such arrangements and directed brokerage
arrangements, which would also have the effect of reducing the fund's
expenses. Expenses do not take into account these expense reductions, and
are therefore higher than the actual expenses of the fund. MFS Investment
Management(R) (also doing business as Massachusetts Financial Services
Company) has contractually agreed to bear expense for the New Discovery
Fund, subject to reimbursement by the fund, such that such fund's "other
fund expenses" shall not exceed 0.15% of the average daily net assets of
the fund during the current fiscal year.
(5) M Fund, Inc. funds' percentages reflect the investment management fees
currently payable and other fund expenses allocated in 1999. M Financial
Advisers, Inc. reimburses a fund when the fund's other operating expenses
exceed 0.25% of that fund's average daily net assets.
** Clifton Enhanced U.S. Equity was formerly "Enhanced U.S. Equity".
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.
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.
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.
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%.
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.
13
<PAGE>
Under our current rules, you can make transfers out of any variable investment
option anytime you wish. However, transfers out of the fixed investment option
are currently subject to the following restrictions:
. You can only make such a transfer once a year and only during the 31 day
period following your policy anniversary.
. We must receive the request for such a transfer during the period
beginning 60 days prior to the policy anniversary and ending 30 days after
it.
. The most you can transfer at any one time is the greater of $500 or 20%
of the assets in your fixed investment option.
We reserve the right to impose a minimum amount limit on transfers out of the
fixed investment option. We also reserve the right to impose limits on the
number and frequency of transfers out of the variable investment options.
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 plus, if surrender occurs in the second
policy year, a refund of a certain portion of sales charges equal to 5% of
premiums paid in the second policy year up to the Target premium. This is called
your "surrender value." You must return your policy when you request a full
surrender.
Partial withdrawals
You may make a partial withdrawal of your surrender value at any time. Each
partial withdrawal must be at least $1,000. There is a charge (usually $20) for
each partial withdrawal. We will automatically reduce the account value of your
policy by the amount of the withdrawal and the related charge. Each investment
option will be reduced in the same proportion as the account value is then
allocated among them. We will not permit a partial withdrawal if it would cause
your account value to fall below 3 months' worth of monthly charges (see
"Deductions from account value" on page 10). We also reserve the right to refuse
any partial withdrawal that would cause the policy's Total Sum Insured to fall
below $1,000,000. 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
14
<PAGE>
insured person dies?" on page 16) and under the guaranteed death benefit feature
(see page 7). 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 7. 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 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 7). 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 5% in the first 20 policy years and 4.5% 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.
15
<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. The only limitation on how much Additional Sum
Insured you can have is that it 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 30.
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. 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. You may revoke that election at any time, but there may be adverse tax
consequences if you do. An "annual processing date" is the first business day of
a policy year.
16
<PAGE>
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. For
policies of this type, we will apply the "cash value accumulation test" as
described in Federal tax law. Under the cash value accumulation test, we compute
the minimum insurance amount on each monthly deduction date by multiplying the
account value on that date by the 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 for each year the policy remains in
effect. A table showing the factor for each policy year will appear in the
policy.
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.
Enhanced cash value rider
In the application for the policy, you may elect to purchase the enhanced cash
value rider. This rider provides an enhanced cash value benefit (in addition to
the surrender value) if you surrender the policy within the first nine policy
years. The amount of the benefit will be shown in the "Policy Specifications"
section of the policy. The benefit is also included in the account value when
calculating the death benefit. Election of this rider could increase your
insurance charge since it affects our amount at risk under the policy. The
amount available for partial withdrawals and loans are based on the surrender
value and will in no way be increased due to this 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. However, you will have to provide us with evidence that the surviving
insured persons still meet our requirements for issuing insurance coverage. As
to when an approved increase would take effect, see "Effective date of other
policy transactions" on page 32.
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:
. the remaining Total Sum Insured will be at least $1,000,000, and
17
<PAGE>
. 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. As to when an approved decrease would take effect, see
"Effective date of other policy transactions" on page 32.
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 35 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 the latest of the following
periods:
. 10 days after you receive it (this period may be longer in some
states);
. 10 days after mailing by JHVLICO of the Notice of Withdrawal Right;
or
. 45 days after the date Part A of the application has been completed.
This is often referred to as the "free look" period. To cancel your policy,
simply deliver or mail the policy to JHVLICO at one of the addresses shown on
page 2, 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 Trusts 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
18
<PAGE>
. Option 2A - Equal monthly payments of a specified amount until all
proceeds are paid out
. Option 2B - Equal monthly payments for a specified period of time
. Option 3 - Equal monthly payments for life, but with payments
guaranteed for a specific number of years
. Option 4 - Equal monthly payments for life with no refund
. Option 5 - Equal monthly payments for life with a refund if all of
the proceeds haven't been paid out
You cannot choose an option if the monthly payments under the option would be
less than $50. We will issue a supplementary agreement when the proceeds are
applied to any alternative payment option. That agreement will spell out the
terms of the option in full. We will credit interest on each of the above
options. For Options 1 and 2A, the interest will be at least an effective annual
rate of 3 1/2%.
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 of your insurance
coverage may vary from the terms and conditions described in this prospectus,
depending upon where you reside. These variations will be reflected in your
policy or in endorsements attached to your policy.
Variations in expenses or risks
We may vary the charges and other terms of our policies where special
circumstances result in sales or administrative expenses, mortality risks or
other risks that are different from those normally associated with the policies.
These include the type of variations discussed under
19
<PAGE>
"Reduced charges for eligible classes" on page 34. No variation in any charge
will exceed any maximum stated in this prospectus with respect to that charge.
HOW WILL MY POLICY BE TREATED FOR INCOME TAX PURPOSES?
Generally, death benefits paid under policies such as yours are not subject to
income tax. Earnings on your account value are not subject to income tax as long
as we don't pay them out to you. If we do pay out any amount of your account
value upon surrender or partial withdrawal, all or part of that distribution
should generally be treated as a return of the premiums you've paid and should
not be subject to income tax. Amounts you borrow are generally not taxable to
you.
However, some of the tax rules change if your policy is found to be a
"modified endowment contract." This can happen if you've paid more than a
certain amount of premiums that is prescribed by the tax laws. Additional taxes
and penalties may be payable for policy distributions of any kind.
For further information about the tax consequences of owning a policy, please
read "Tax considerations" beginning on page 35.
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 2.
Certain requests must be made in writing and be signed and dated by you. They
include the following:
. loans, surrenders or partial withdrawals
. transfers of account value among investment options
. change of allocation among investment options for new premium
payments
. change of death benefit option
. increase or decrease in Total Sum Insured
. change of beneficiary
. election of payment option for policy proceeds
. tax withholding elections
. election of telephone transaction privilege
20
<PAGE>
You should mail or express these requests to the JHVLICO Life Servicing Office
at the appropriate address shown on page 2. 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 "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 1-800-521-1234 or by faxing us at 1-617-572-6956.
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.
21
<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 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 -.79%, 5.16% and 11.12%. 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 .66%, and (2) an assumed average asset charge for all
other Trust operating expenses equivalent to an effective annual rate of .13%.
These rates are the arithmetic average for all funds of the Trusts. In other
words, they are based on the hypothetical assumption that policy account values
are allocated equally among the variable investment options. The actual rates
associated with any policy will vary depending upon the actual allocation of
policy values among the investment options. The charge shown above for all other
Trust operating expenses reflects reimbursements to certain funds as described
in the footnotes to the table beginning on page 11. We currently expect those
reimbursement arrangements to continue indefinitely, but that is not guaranteed.
The second column of each table shows the amount you would have at the end of
each policy year if an amount equal to the assumed Planned Premiums were
invested to earn interest, after taxes, at 5% compounded annually. This is not a
policy value. It is included for comparison purposes only.
Because your circumstances will no doubt differ from those in the
illustrations that follow, values under your policy will differ, in most cases
substantially. Upon request, we will furnish you with a comparable illustration
reflecting your proposed insured persons' issue ages, sex and underwriting risk
classification, and the Total Sum Insured and annual Planned Premium amount
requested.
22
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $1,000,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, NONSMOKER UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
NONSMOKER UNDERWRITING CLASS OPTION A DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT AFTER TENTH POLICY YEAR PLANNED PREMIUM: $15,969* USING
CURRENT CHARGES AND CVAT TEST
<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 $ 16,768 $1,000,000 $1,000,000 $1,000,000 $ 9,144 $ 9,725 $ 10,306
2 34,374 1,000,000 1,000,000 1,000,000 21,276 23,150 25,091
3 52,861 1,000,000 1,000,000 1,000,000 31,593 35,492 39,684
4 72,271 1,000,000 1,000,000 1,000,000 42,709 49,396 56,867
5 92,653 1,000,000 1,000,000 1,000,000 53,567 63,834 75,758
6 114,053 1,000,000 1,000,000 1,000,000 65,595 80,326 98,107
7 136,524 1,000,000 1,000,000 1,000,000 77,300 97,426 122,672
8 160,118 1,000,000 1,000,000 1,000,000 88,651 115,130 149,665
9 184,891 1,000,000 1,000,000 1,000,000 99,619 133,437 179,326
10 210,904 1,000,000 1,000,000 1,000,000 110,232 152,410 211,983
11 238,217 1,000,000 1,000,000 1,000,000 122,081 173,733 249,676
12 266,895 1,000,000 1,000,000 1,000,000 133,858 196,159 291,519
13 297,008 1,000,000 1,000,000 1,000,000 145,556 219,731 337,952
14 328,626 1,000,000 1,000,000 1,000,000 157,151 244,484 389,455
15 361,825 1,000,000 1,000,000 1,000,000 168,636 270,468 446,570
16 396,684 1,000,000 1,000,000 1,000,000 179,991 297,724 509,893
17 433,286 1,000,000 1,000,000 1,078,718 191,195 326,297 579,998
18 471,718 1,000,000 1,000,000 1,184,467 202,231 356,239 657,538
19 512,072 1,000,000 1,000,000 1,297,862 213,074 387,599 743,285
20 554,444 1,000,000 1,000,000 1,419,712 223,697 420,429 838,090
25 800,279 1,000,000 1,000,000 2,194,432 273,541 610,866 1,486,023
30 1,114,034 1,000,000 1,120,753 3,361,813 305,382 846,398 2,538,858
35 1,514,473 1,000,000 1,375,029 5,142,857 294,294 1,126,825 4,214,527
</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.
23
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $1,000,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, NONSMOKER UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
NONSMOKER UNDERWRITING CLASS OPTION B DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT AFTER TENTH POLICY YEAR PLANNED PREMIUM: $15,969* USING
CURRENT CHARGES AND CVAT TEST
<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 $ 16,768 $1,009,144 $1,009,725 $1,010,306 $ 9,144 $ 9,725 $ 10,306
2 34,374 1,020,475 1,022,348 1,024,289 21,274 23,147 25,087
3 52,861 1,031,584 1,035,481 1,039,673 31,584 35,481 39,673
4 72,271 1,042,686 1,049,369 1,056,836 42,686 49,369 56,836
5 92,653 1,053,519 1,063,775 1,075,687 53,519 63,775 75,687
6 114,053 1,065,505 1,080,213 1,097,965 65,505 80,213 97,965
7 136,524 1,077,145 1,097,223 1,122,410 77,145 97,223 122,410
8 160,118 1,088,398 1,114,789 1,149,208 88,398 114,789 149,208
9 184,891 1,099,227 1,132,891 1,178,566 99,227 132,891 178,566
10 210,904 1,109,657 1,151,578 1,210,782 109,657 151,579 210,782
11 238,217 1,121,321 1,172,589 1,247,954 121,321 172,589 247,954
12 266,895 1,132,904 1,194,663 1,289,172 132,904 194,663 289,172
13 297,008 1,144,399 1,217,841 1,334,859 144,399 217,841 334,859
14 328,626 1,155,779 1,242,149 1,385,465 155,779 242,149 385,465
15 361,825 1,167,036 1,267,631 1,441,508 167,036 267,631 441,508
16 396,684 1,178,145 1,294,315 1,503,544 178,145 294,315 503,544
17 433,286 1,189,081 1,322,232 1,572,187 189,081 322,232 572,187
18 471,718 1,199,821 1,351,415 1,648,120 199,821 351,415 648,120
19 512,072 1,210,330 1,381,888 1,732,085 210,330 381,888 732,085
20 554,444 1,220,573 1,413,671 1,824,902 220,573 413,671 824,903
25 800,279 1,266,812 1,593,595 2,458,021 266,812 593,595 1,458,021
30 1,114,034 1,287,775 1,795,333 3,482,840 287,775 795,333 2,482,840
35 1,514,473 1,247,191 1,981,632 5,110,660 247,191 981,632 4,110,660
</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.
24
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $1,000,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, NONSMOKER UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
NONSMOKER UNDERWRITING CLASS OPTION A DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT AFTER TENTH POLICY YEAR PLANNED PREMIUM: $15,969* USING
MAXIMUM CHARGES AND CVAT TEST
<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 $ 16,768 $1,000,000 $1,000,000 $1,000,000 $ 8,853 $ 9,422 $ 9,994
2 34,374 1,000,000 1,000,000 1,000,000 20,670 22,497 24,397
3 52,861 1,000,000 1,000,000 1,000,000 30,648 34,440 38,532
4 72,271 1,000,000 1,000,000 1,000,000 41,405 47,891 55,163
5 92,653 1,000,000 1,000,000 1,000,000 51,880 61,817 73,397
6 114,053 1,000,000 1,000,000 1,000,000 63,502 77,732 94,963
7 136,524 1,000,000 1,000,000 1,000,000 74,777 94,183 118,600
8 160,118 1,000,000 1,000,000 1,000,000 85,676 111,161 144,497
9 184,891 1,000,000 1,000,000 1,000,000 96,168 128,661 172,870
10 210,904 1,000,000 1,000,000 1,000,000 106,215 146,667 203,948
11 238,217 1,000,000 1,000,000 1,000,000 116,715 166,160 239,048
12 266,895 1,000,000 1,000,000 1,000,000 126,654 186,158 277,508
13 297,008 1,000,000 1,000,000 1,000,000 135,961 206,619 319,654
14 328,626 1,000,000 1,000,000 1,000,000 144,539 227,486 365,846
15 361,825 1,000,000 1,000,000 1,000,000 152,282 248,694 416,503
16 396,684 1,000,000 1,000,000 1,000,000 159,070 270,171 472,113
17 433,286 1,000,000 1,000,000 1,000,000 164,715 291,794 533,197
18 471,718 1,000,000 1,000,000 1,080,718 169,164 313,564 599,944
19 512,072 1,000,000 1,000,000 1,174,341 172,210 335,361 672,544
20 554,444 1,000,000 1,000,000 1,272,864 173,654 357,091 751,402
25 800,279 1,000,000 1,000,000 1,852,998 146,734 460,814 1,254,811
30 1,114,034 1,000,000 1,000,000 2,615,322 6,310 535,184 1,975,104
35 1,514,473 ** 1,000,000 3,626,184 ** 533,569 2,971,627
</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 $1,000,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, NONSMOKER UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
NONSMOKER UNDERWRITING CLASS OPTION B DEATH BENEFIT NO GUARANTEED MINIMUM
DEATH BENEFIT AFTER TENTH POLICY YEAR PLANNED PREMIUM: $15,969* USING
MAXIMUM CHARGES AND CVAT TEST
<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 $ 16,768 $1,008,852 $1,009,422 $1,009,993 $ 8,852 $ 9,422 $ 9,993
2 34,374 1,019,869 1,021,696 1,023,596 20,667 22,495 24,394
3 52,861 1,030,639 1,034,430 1,038,520 30,639 34,430 38,520
4 72,271 1,041,382 1,047,865 1,055,133 41,382 47,865 55,133
5 92,653 1,051,833 1,061,760 1,073,328 51,833 61,760 73,328
6 114,053 1,063,415 1,077,623 1,094,826 63,415 77,623 94,826
7 136,524 1,074,627 1,093,987 1,118,346 74,627 93,987 118,346
8 160,118 1,085,431 1,110,832 1,144,056 85,431 110,832 144,056
9 184,891 1,095,790 1,128,134 1,172,137 95,790 128,134 172,137
10 210,904 1,105,652 1,145,855 1,202,776 105,652 145,855 202,776
11 238,217 1,115,901 1,164,944 1,237,226 115,901 164,944 237,226
12 266,895 1,125,506 1,184,379 1,274,741 125,506 184,379 274,741
13 297,008 1,134,371 1,204,069 1,315,532 134,371 204,069 315,532
14 328,626 1,142,377 1,223,889 1,359,801 142,377 223,889 359,801
15 361,825 1,149,383 1,243,689 1,407,750 149,383 243,689 407,750
16 396,684 1,155,236 1,263,296 1,459,586 155,236 263,296 459,586
17 433,286 1,159,700 1,282,442 1,515,447 159,700 282,442 515,447
18 471,718 1,162,704 1,301,011 1,575,658 162,704 301,011 575,658
19 512,072 1,163,993 1,318,693 1,640,381 163,993 318,693 640,381
20 554,444 1,163,334 1,335,185 1,709,815 163,334 335,185 709,815
25 800,279 1,119,839 1,384,900 2,132,822 119,839 384,900 1,132,822
30 1,114,034 ** 1,312,986 2,674,947 ** 312,986 1,674,947
35 1,514,473 ** ** 3,300,001 ** ** 2,300,001
</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.
26
<PAGE>
ADDITIONAL INFORMATION
This section of the prospectus provides additional detailed information that
is not contained in the Basic Information section on pages 4 through 21.
<TABLE>
<CAPTION>
CONTENTS OF THIS SECTION BEGINNING ON PAGE
- ------------------------ -----------------
<S> <C>
Description of JHVLICO ...................... 28
How we support the policy and investment options 28
Procedures for issuance of a policy......... 29
Basic Sum Insured vs. Additional Sum Insured 30
Commencement of investment performance...... 31
How we process certain policy transactions.. 31
Effects of policy loans..................... 33
Additional information about how certain policy charges 33
work........................................
How we market the policies.................. 34
Tax considerations.......................... 35
Reports that you will receive............... 37
Voting privileges that you will have........ 37
Changes that JHVLICO can make as to your policy 38
Adjustments we make to death benefits....... 38
When we pay policy proceeds................. 38
Other details about exercising rights and paying benefits 39
Legal matters............................... 39
Registration statement filed with the SEC... 39
Accounting and actuarial experts............ 39
Financial statements of JHVLICO and the Account 40
List of Directors and Executive Officers of JHVLICO 41
</TABLE>
27
<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. As of December 31, 1999, John
Hancock's assets were approximately $71 billion and it had invested
approximately $575 million in JHVLICO in connection with JHVLICO's organization
and operation. It is anticipated that John Hancock will from time to time make
additional capital contributions to JHVLICO to enable us to meet our reserve
requirements and expenses in connection with our business. John Hancock is
committed to make additional capital contributions if necessary to ensure that
we maintain a positive net worth.
HOW WE SUPPORT THE POLICY AND INVESTMENT OPTIONS
Separate Account 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 one of
the Trusts. New subaccounts may be added as new funds are added to the Trusts
and made available to policy owners. Existing subaccounts may be deleted if
existing funds are deleted from the Trusts.
We will purchase and redeem Trust shares for the Account at their net asset
value without any sales or redemption charges. Shares of a Trust represent an
interest in one of the funds of the Trust which corresponds to a subaccount of
the Account. Any dividend or capital gains distributions received by the Account
will be reinvested in shares of that same fund at their net asset value as of
the dates paid.
On each business day, shares of each fund are purchased or redeemed by us for
each subaccount based on, among other things, the amount of net premiums
allocated to the subaccount, distributions reinvested, and transfers to, from
and among subaccounts, all to be effected as of that date. Such
28
<PAGE>
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 $1,000,000 and a minimum Basic Sum Insured at issue of $500,000. At the time
of issue, each insured person must have an attained age of at least 20 and no
more than 80. All insured persons must meet certain health and other insurance
risk criteria called "underwriting standards".
Policies issued in Montana or in connection with certain employee plans will
not directly reflect the sex of the insured 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
insurance coverage prior to policy delivery" on page 30).
The policy will take effect only if all of the following conditions are
satisfied:
. The policy is delivered to and received by the applicant.
29
<PAGE>
. The Minimum Initial Premium is received by us.
. 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 from account value and
the amount of compensation paid to the selling insurance agent will be less if
coverage is included as Additional Sum Insured, rather than as Basic Sum
Insured. 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
30
<PAGE>
wish to maximize the proportion of the Additional Sum Insured.
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 35).
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.
31
<PAGE>
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 a variable investment option will be effective at the end of the business
day in which we receive at our Life Servicing Office notice satisfactory to us.
If received on or before the policy anniversary, requests for transfer out of
the fixed investment option will be processed on the policy anniversary (or the
next business day if the policy anniversary does not occur on a business day).
If received after the policy anniversary, such a request will be processed at
the end of the business day in which we receive the request at our Life
Servicing Office. If you request a transfer out of the fixed investment option
61 days or more prior to the policy anniversary, we will not process that
portion of the reallocation, and your confirmation statement will not reflect a
transfer out of the fixed investment option as to such request. Currently, there
is no minimum amount limit on transfers into the fixed investment option, but we
reserve the right to impose such a limit in the future. 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
1-800-521-1234.
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 18)
Reinstatements of lapsed policies take effect on the monthly deduction date on
or next following the date we approve the request for reinstatement.
32
<PAGE>
We process loans, surrenders, partial withdrawals and loan repayments as of
the day we receive such request or repayment.
EFFECTS OF POLICY LOANS
The account value, the surrender value, and any death benefit above the Total
Sum Insured are permanently affected by any loan, whether or not it is repaid in
whole or in part. This is because the amount of the loan is deducted from the
investment options and placed in a special loan account. The investment options
and the special loan account will generally have different rates of investment
return.
The amount of the outstanding loan (which includes accrued and unpaid
interest) is subtracted 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 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 charge
for mortality and expense risks and other gains with respect to the policies, or
from our general assets. (See "How we market the policies" on page 34.)
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 35.)
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
33
<PAGE>
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 (including the M&E charge) 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; 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 65% of the Target Premium paid in the first policy year, 12% of the
Target Premium paid in each of the second through fifth policy years, 7.5% of
the Target Premium paid in each of the sixth through tenth policy years, and 3%
of the Target Premium paid in each policy year thereafter. The maximum
34
<PAGE>
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, 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
35
<PAGE>
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 a Trust failed to meet certain investment
diversification or other requirements of the Code. If this were to occur, you
would be subject to income tax on the income and gains under the policy for the
period of the disqualification and for subsequent periods.
In the past, the United States Treasury Department has stated that it
anticipated issuing guidelines prescribing circumstances in which the ability of
a policy owner to direct his or her investment to particular funds may cause the
policy owner, rather than the insurance company, to be treated as the owner of
the shares of those funds. In that case, any income and gains attributable to
those shares would be included in your current gross income for federal income
tax purposes. Under current law, however, we believe that we, and not the owner
of a policy, would be considered the owner of the fund's shares for tax
purposes.
Tax consequences of ownership or receipt of policy proceeds under federal,
state and local estate, inheritance, gift and other tax laws depend on the
circumstances of each owner or beneficiary.
Because there may be unfavorable tax consequences (including recognition of
taxable income and the loss of income tax-free treatment for any death benefit
payable to the beneficiary), you should consult a qualified tax adviser prior to
changing the policy's ownership or making any assignment of ownership interests.
7-pay premium limit
At the time of policy issuance, we will determine whether the Planned Premium
schedule will exceed the 7-pay limit discussed below. If so, our standard
procedures prohibit issuance of the policy unless you sign a form acknowledging
that fact.
The 7-pay limit is the total of net level premiums that would have been
payable at any time for a comparable fixed policy to be fully "paid-up" after
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
36
<PAGE>
is being applied, the 7-pay limit will be recalculated based on the reduced
benefits. If the premiums paid to date are greater than the recalculated 7-pay
limit, the policy will become a modified endowment.
All modified endowments issued by the same insurer (or its affiliates) to the
owner during any calendar year generally will be treated as one contract for the
purpose of applying the modified endowment rules. A policy received in exchange
for a modified endowment will itself also be a modified endowment. You should
consult your tax advisor if you have questions regarding the possible impact of
the 7-pay limit on your policy.
Corporate and H.R. 10 plans
The policy may be acquired in connection with the funding of retirement plans
satisfying the qualification requirements of Section 401 of the Code. If so, the
Code provisions relating to such plans and life insurance benefits thereunder
should be carefully scrutinized. We are not responsible for compliance with the
terms of any such plan or with the requirements of applicable provisions of the
Code.
REPORTS THAT YOU WILL RECEIVE
At least annually, we will send you a statement setting forth the following
information as of the end of the most recent reporting period: the amount of the
death benefit, the Basic Sum Insured and the Additional Sum Insured, the account
value, the portion of the account value in each investment option, the surrender
value, premiums received and charges deducted from premiums since the last
report, and any outstanding policy loan (and interest charged for the preceding
policy year). Moreover, you also will receive confirmations of premium payments,
transfers among investment options, policy loans, partial withdrawals and
certain other policy transactions.
Semiannually we will send you a report containing the financial statements of
each 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 Trusts. We will vote the shares of each of the
funds of the Trusts which are deemed attributable to variable life insurance
policies at regular and special meetings of the Trusts' shareholders in
accordance with instructions received from owners of such policies. Shares of
the Trusts 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
or Board of Directors of the Trust, ratification of the selection of independent
auditors, approval of Trust investment advisory agreements and other matters
requiring a shareholder vote. We will furnish owners with information and forms
to enable owners to give voting instructions.
However, we may, in certain limited circumstances permitted by the SEC's
rules, disregard voting instructions. If we do disregard voting instructions,
you will receive a summary of that action and the reasons for it in the next
semi-annual report to owners.
37
<PAGE>
CHANGES THAT JHVLICO CAN MAKE AS TO YOUR POLICY
Changes relating to a Trust or the Account
The voting privileges described in this prospectus reflect our understanding
of applicable Federal securities law requirements. To the extent that applicable
law, regulations or interpretations change to eliminate or restrict the need for
such voting privileges, we reserve the right to proceed in accordance with any
such revised requirements. We also reserve the right, subject to compliance with
applicable law, including approval of owners if so required, (1) to transfer
assets determined by JHVLICO to be associated with the class of policies to
which your policy belongs from the Account to another separate account or
subaccount, (2) to operate the Account as a "management-type investment company"
under the 1940 Act, or in any other form permitted by law, the investment
adviser of which would be JHVLICO, John Hancock or an affiliate of either, (3)
to deregister the Account under the 1940 Act, (4) to substitute for the fund
shares held by a subaccount any other investment permitted by law, and (5) to
take any action necessary to comply with or obtain any exemptions from the 1940
Act. We would notify owners of any of the foregoing changes and, to the extent
legally required, obtain approval of owners and any regulatory body prior
thereto. Such notice and approval, however, may not be legally required in all
cases.
Other permissible changes
We reserve the right to make any changes in the policy necessary to ensure the
policy is within the definition of life insurance under the Federal tax laws and
is in compliance with any changes in Federal or state tax laws.
In our policies, we reserve the right to make certain changes if they would
serve the best interests of policy owners or would be appropriate in carrying
out the purposes of the policies. Such changes include the following:
. Changes necessary to comply with or obtain or continue exemptions under
the federal securities laws
. Combining or removing investment options
. Changes in the form of organization of any separate account
Any such changes will be made only to the extent permitted by applicable laws
and only in the manner permitted by such laws. When required by law, we will
obtain your approval of the changes and the approval of any appropriate
regulatory authority.
ADJUSTMENTS WE MAKE TO DEATH BENEFITS
If 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.
38
<PAGE>
Delay for check clearance
We reserve the right to defer payment of that portion of your account value
that is attributable to a premium payment made by check for a reasonable period
of time (not to exceed 15 days) to allow the check to clear the banking system.
Delay of separate account proceeds
We reserve the right to defer payment of any death benefit, loan or other
distribution that is derived from a variable investment option if (a) the New
York Stock Exchange is closed (other than customary weekend and holiday
closings) or trading on the New York Stock Exchange is restricted; (b) an
emergency exists, as a result of which disposal of securities is not reasonably
practicable or it is not reasonably practicable to fairly determine the account
value; or (c) the SEC by order permits the delay for the protection of owners.
Transfers and allocations of account value among the investment options may also
be postponed under these circumstances. If we need to defer calculation of
separate account values for any of the foregoing reasons, all delayed
transactions will be processed at the next values that we do compute.
OTHER DETAILS ABOUT EXERCISING RIGHTS AND PAYING BENEFITS
Joint ownership
If more than one person owns a policy, all owners must join in most requests
to exercise rights under the policy.
Assigning your policy
You may assign your rights in the policy to someone else as collateral for a
loan or for some other reason. Assignments do not require the consent of any
revocable beneficiary. A copy of the assignment must be forwarded to us. We are
not responsible for any payment we make or any action we take before we receive
notice of the assignment in good order. Nor are we responsible for the validity
of the assignment. An absolute assignment is a change of ownership. All
collateral assignees of record must consent to any full surrender, partial
withdrawal or loan from the policy.
Your beneficiary
You name your beneficiary when you apply for the policy. The beneficiary is
entitled to the proceeds we pay following the 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
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
39
<PAGE>
been examined by Deborah A. Poppel, 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.
40
<PAGE>
LIST OF DIRECTORS AND EXECUTIVE OFFICERS OF JHVLICO
The Directors and Executive Officers of JHVLICO and their principal
occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Directors and Executive Principal Occupations
- ----------------------- ---------------------
Officers
- --------
<S> <C>
David F. D'Alessandro Chairman of the Board and Chief Executive
Officer of JHVLICO; President, Chief Operations
Officer and Chief Executive Officer-Elect, John
Hancock Life Insurance Company.
Michele G. Van Leer. Vice Chairman of the Board and President of
JHVLICO; Senior Vice President, John Hancock
Life Insurance Company.
Ronald J. Bocage . . . Director, Vice President and Counsel of JHVLICO;
Vice President and Counsel, John Hancock Life
Insurance Company.
Bruce M. Jones. . . . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Thomas J. Lee. . . . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Barbara L. Luddy. . . Director, Vice President and Actuary of JHVLICO;
Senior Vice President, John Hancock Life
Insurance Company.
Robert S. Paster. . . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Robert R. Reitano. . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Paul Strong . . . . . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Daniel L. Ouellette. Vice President, Marketing, of JHVLICO; Senior
Vice President, John Hancock Life Insurance
Company.
Edward P. Dowd. . . . Vice President, Investments, of JHVLICO; Senior
Vice President, John Hancock Life Insurance
Company
Roger G. Nastou. . . Vice President, Investments, of JHVLICO; Vice
President, John Hancock Life Insurance Company
Todd G. Engelsen. . . Vice President and Illustration Actuary of
JHVLICO; Second Vice President, John Hancock
Life Insurance Company
Julie H. Indge. . . . Treasurer of JHVLICO; Financial Officer, John
Hancock Life Insurance Company
Patrick F. Smith. . . Controller of JHVLICO; Senior Associate
Controller, John Hancock Life Insurance Company.
Peter H. Scavongelli. Secretary of JHVLICO; State Compliance Officer,
John Hancock Life Insurance Company
</TABLE>
The business address of all Directors and officers of JHVLICO is John Hancock
Place, Boston, Massachusetts 02117.
41
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Directors and Policyholders
John Hancock Variable Life Insurance Company
We have audited the accompanying statutory-basis statements of financial
position of John Hancock Variable Life Insurance Company as of December 31, 1999
and 1998, and the related statutory-basis statements of operations and
unassigned deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Commonwealth of Massachusetts Division of Insurance, which
practices differ from accounting principles generally accepted in the United
States. The variances between such practices and accounting principles generally
accepted in the United States also are described in Note 1. The effects on the
financial statements of these variances are not reasonably determinable but are
presumed to be material.
In our opinion, because of the effects of the matter described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with accounting principles generally accepted in the
United States, the financial position of John Hancock Variable Life Insurance
Company at December 31, 1999 and 1998, or the results of its operations or its
cash flows for the years then ended.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of John Hancock
Variable Life Insurance Company at December 31, 1999 and 1998, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance.
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 2000
42
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
---------- -----------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Bonds--Note 6 . . . . . . . . . . . . . . . . . . . . $ 1,216.3 $1,185.8
Preferred stocks . . . . . . . . . . . . . . . . . . 35.9 36.5
Common stocks . . . . . . . . . . . . . . . . . . . . 3.2 3.1
Investment in affiliates . . . . . . . . . . . . . . 80.7 81.7
Mortgage loans on real estate--Note 6 . . . . . . . . 433.1 388.1
Real estate . . . . . . . . . . . . . . . . . . . . . 25.0 41.0
Policy loans . . . . . . . . . . . . . . . . . . . . 172.1 137.7
Cash items:
Cash in banks . . . . . . . . . . . . . . . . . . 27.2 11.4
Temporary cash investments . . . . . . . . . . . . 222.9 8.5
--------- --------
250.1 19.9
Premiums due and deferred . . . . . . . . . . . . . . 29.9 32.7
Investment income due and accrued . . . . . . . . . . 33.2 29.8
Other general account assets . . . . . . . . . . . . 65.3 47.5
Assets held in separate accounts . . . . . . . . . . 8,268.2 6,595.2
--------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . $10,613.0 $8,599.0
========= ========
OBLIGATIONS AND STOCKHOLDER'S EQUITY
OBLIGATIONS
Policy reserves . . . . . . . . . . . . . . . . . . $ 1,866.6 $1,652.0
Federal income and other taxes payable--Note 1 . . 67.3 44.3
Other general account obligations . . . . . . . . . 219.0 150.9
Transfers from separate accounts, net . . . . . . . (221.6) (190.3)
Asset valuation reserve--Note 1 . . . . . . . . . . 23.1 21.9
Obligations related to separate accounts . . . . . 8,261.6 6,589.4
--------- --------
TOTAL OBLIGATIONS . . . . . . . . . . . . . . . . .
10,216.0 8,268.2
STOCKHOLDER'S EQUITY
Common Stock, $50 par value; authorized 50,000
shares;
issued and outstanding 50,000 shares . . . . . . 2.5 2.5
Paid-in capital . . . . . . . . . . . . . . . . . . 572.4 377.5
Unassigned deficit--Note 10 . . . . . . . . . . . . (177.9) (49.2)
--------- --------
TOTAL STOCKHOLDER'S EQUITY . . . . . . . . . . . . 397.0 330.8
--------- --------
TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY . . . . . $10,613.0 $8,599.0
========= ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
43
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
--------- ---------
(IN MILLIONS)
<S> <C>
INCOME
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . $1,272.3
Net investment income--Note 3 . . . . . . . . . . . . . . . 136.0 122.8
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . 605.4 618.1
--------- --------
1,692.2 2,013.2
BENEFITS AND EXPENSES
Payments to policyholders and beneficiaries . . . . . . . . 349.9 301.4
Additions to reserves to provide for future payments to
policyholders and beneficiaries . . . . . . . . . . . . . 888.8 1,360.2
Expenses of providing service to policyholders and
obtaining new insurance--Note 5 . . . . . . . . . . . . . . 314.4 274.2
State and miscellaneous taxes. . . . . . . . . . . . . . . . 20.5 28.1
---------- --------
1,573.6 1,963.9
----------
Gain from operations before federal income
taxes and net realized capital losses 118.6 49.3
Federal income taxes--Note 1 . . . . . . . . . . . . . . . . 42.9 33.1
---------- --------
GAIN FROM OPERATIONS BEFORE NET REALIZED CAPITAL LOSSES 75.7 16.2
Net realized capital losses--Note 4 . . . . . . . . . . . . (1.7) (0.6)
---------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 74.0 15.6
Unassigned deficit at beginning of year . . . . . . . . . . (49.2) (58.3)
Net unrealized capital losses and other adjustments--Note 4 (3.8) (6.0)
Other reserves and adjustments--Note 10 . . . . . . . . . . (198.9) (0.5)
---------- --------
UNASSIGNED DEFICIT AT END OF YEAR . . . . . . . . . . . $(177.9) $ (49.2)
========== ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
44
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------
1999 1998
------- --------
(IN MILLIONS)
<S> <C>
Cash flows from operating activities:
Insurance premiums . . . . . . . . . . . . . .
Net investment income . . . . . . . . . . . 134.2 118.2
Benefits to policyholders and beneficiaries . (321.6) (275.5)
Dividends paid to policyholders . . . . . . . . . (25.6) (22.3)
Insurance expenses and taxes . . . . . . . . . (344.8) (296.9)
Net transfers to separate accounts . . . . . . . (705.3) (874.4)
Other, net . . . . . . . . . . . . . . . . . . 540.6 551.3
------- -----------
NET CASH PROVIDED FROM OPERATIONS . . . . . . 236.0 475.7
------- -----------
Cash flows used in investing activities:
Bond purchases . . . . . . . . . . . . . . . . (240.7) (618.8)
Bond sales . . . . . . . . . . . . . . . . . . 108.3 340.7
Bond maturities and scheduled redemptions . . 78.4 111.8
Bond prepayments . . . . . . . . . . . . . . . 18.7 76.5
Stock purchases . . . . . . . . . . . . . . . (3.9) (23.4)
Proceeds from stock sales . . . . . . . . . . 3.6 1.9
Real estate purchases . . . . . . . . . . . . (2.2) (4.2)
Real estate sales . . . . . . . . . . . . . . 17.8 2.1
Other invested assets purchases . . . . . . . (4.5) 0.0
Mortgage loans issued. . . . . . . . . . . . . (70.7) (145.5)
Mortgage loan repayments . . . . . . . . . . . 25.3 33.2
Other, net . . . . . . . . . . . . . . . . . . (68.9) (435.2)
------- -----------
NET CASH USED IN INVESTING ACTIVITIES . . . . (138.8) (660.9)
------- -----------
Cash flows from financing activities:
Capital contribution . . . . . . . . . . . . . 194.9
Net (decrease) increase in short-term note
payable. . . . . . . . . . . . . . . . . . . (61.9) 61.9
------- -----------
NET CASH PROVIDED FROM FINANCING ACTIVITIES . . 133.0 61.9
------- -----------
INCREASE (DECREASE) IN CASH AND TEMPORARY CASH
INVESTMENTS 230.2
Cash and temporary cash investments at beginning
of year. . . . . . . . . . . . . . . . . . . . . 19.9 143.2
------- -----------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF
YEAR. . . . . . . . . . . . . . . . . . . . . 250.1 $19.9
======= ===========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
45
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES
John Hancock Variable Life Insurance Company (the Company) is a wholly-owned
subsidiary of John Hancock Life Insurance Company (formerly John Hancock Mutual
Life Insurance Company) (John Hancock). The Company, domiciled in the
Commonwealth of Massachusetts, principally writes variable and universal life
insurance policies. Those policies primarily are marketed through John
Hancock's sales organization, Signator Insurance Agency, which includes a career
agency system composed of Company-supported independent general agencies and a
direct brokerage system that markets directly to external independent brokers.
Policies also are sold through various unaffiliated securities broker-dealers
and certain other financial institutions. Currently, the Company writes
business in all states except New York.
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future
as more information becomes known, which could impact the amounts reported and
disclosed herein.
Basis of Presentation
The financial statements have been prepared using accounting practices
prescribed or permitted by the Commonwealth of Massachusetts Division of
Insurance and in conformity with the practices of the National Association of
Insurance Commissioners (NAIC), which practices differ from generally accepted
accounting principles (GAAP).
The significant differences from GAAP include: (1) policy acquisition costs
are charged to expense as incurred rather than deferred and amortized in
relation to future estimated gross profits; (2) policy reserves are based on
statutory mortality, morbidity, and interest requirements without consideration
of withdrawals and Company experience; (3) certain assets designated as
"nonadmitted assets" are excluded from the balance sheet by direct charges to
surplus; (4) reinsurance recoverables are netted against reserves and claim
liabilities rather than reflected as an asset; (5) bonds held as available for
sale are recorded at amortized cost or market value as determined by the NAIC
rather than at fair value; (6) an Asset Valuation Reserve and Interest
Maintenance Reserve as prescribed by the NAIC are not calculated under GAAP.
Under GAAP, realized capital gains and losses are reported in the income
statement on a pretax basis as incurred and investment valuation allowances are
provided when there has been a decline in value deemed other than temporary; (7)
investments in affiliates are carried at their net equity value with changes in
value being recorded directly to unassigned deficit rather than consolidated in
the financial statements; (8) no provision is made for the deferred income tax
effects of temporary differences between book and tax basis reporting; and (9)
certain items, including modifications to required policy reserves resulting
from changes in actuarial assumptions, are recorded directly to unassigned
deficit rather than being reflected in income. The effects of the foregoing
variances from GAAP have not been determined but are presumed to be material.
The significant accounting practices of the Company are as follows:
Pending Statutory Standards
During March 1998, the NAIC adopted codified statutory accounting principles
("Codification") effective January 1, 2001. Codification will likely change, to
some extent, prescribed statutory accounting practices and may result in changes
to the accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification will require adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Accordingly, before Codification
becomes effective for the Company, the Commonwealth of Massachusetts must adopt
Codification as the prescribed basis of accounting on which domestic insurers
must report their statutory-basis results to the Division
46
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
of Insurance. At this time, it is anticipated that the Commonwealth of
Massachusetts will adopt Codification effective January 1, 2001. The impact of
any such changes on the Company's unassigned deficit is not expected to be
material.
Revenues and Expenses
Premium revenues are recognized over the premium-paying period of the policies
whereas expenses, including the acquisition costs of new business, are charged
to operations as incurred and policyholder dividends are provided as paid or
accrued.
Cash and Temporary Cash Investments
Cash includes currency on hand and demand deposits with financial
institutions. Temporary cash investments are short-term, highly-liquid
investments both readily convertible to known amounts of cash and so near
maturity that there is insignificant risk of changes in value because of changes
in interest rates.
Valuation of Assets
General account investments are carried at amounts determined on the following
bases:
Bond and stock values are carried as prescribed by the NAIC; bonds generally
at amortized amounts or cost, preferred stocks generally at cost and common
stocks at fair value. The discount or premium on bonds is amortized using the
interest method.
Investments in affiliates are included on the statutory equity method.
Loan-backed bonds and structured securities are valued at amortized cost using
the interest method including anticipated prepayments. Prepayment assumptions
are obtained from broker dealer surveys or internal estimates and are based on
the current interest rate and economic environment. The retrospective
adjustment method is used to value all such securities except for interest-only
securities, which are valued using the prospective method.
The net interest effect of interest rate and currency rate swap transactions
is recorded as an adjustment of interest income as incurred. The initial cost
of interest rate cap agreements is amortized to net investment income over the
life of the related agreement. Gains and losses on financial futures contracts
used as hedges against interest rate fluctuations are deferred and recognized in
income over the period being hedged.
Mortgage loans are carried at outstanding principal balance or amortized cost.
Investment real estate is carried at depreciated cost, less encumbrances.
Depreciation on investment real estate is recorded on a straight-line basis.
Accumulated depreciation amounted to $1.9 million in 1999 and $3.0 million in
1998.
Real estate acquired in satisfaction of debt and real estate held for sale are
carried at the lower of cost or fair value.
Policy loans are carried at outstanding principal balance, not in excess of
policy cash surrender value.
47
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Asset Valuation and Interest Maintenance Reserves
The Asset Valuation Reserve (AVR) is computed in accordance with the
prescribed NAIC formula and represents a provision for possible fluctuations in
the value of bonds, equity securities, mortgage loans, real estate and other
invested assets. Changes to the AVR are charged or credited directly to the
unassigned deficit.
The Company also records the NAIC prescribed Interest Maintenance Reserve
(IMR) that represents that portion of the after tax net accumulated unamortized
realized capital gains and losses on sales of fixed income securities,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates. Such gains and losses are deferred and amortized into
income over the remaining expected lives of the investments sold. At December
31, 1999, the IMR, net of 1999 amortization of $2.3 million, amounted to $7.4
million, which is included in policy reserves. The corresponding 1998 amounts
were $2.4 million and $10.7 million, respectively.
Goodwill
The excess of cost over the statutory book value of the net assets of life
insurance business acquired was $8.9 million and $11.4 million at December 31,
1999 and 1998, respectively, and generally is amortized over a ten-year period
using a straight-line method.
Separate Accounts
Separate account assets and liabilities reported in the accompanying
statements of financial position represent funds that are separately
administered, principally for variable life insurance policies, and for which
the contractholder, rather than the Company, generally bears the investment
risk. Separate account obligations are intended to be satisfied from separate
account assets and not from assets of the general account. Separate accounts
generally are reported at fair value. The operations of the separate accounts
are not included in the statement of operations; however, income earned on
amounts initially invested by the Company in the formation of new separate
accounts is included in other income.
Fair Value Disclosure of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair value
information about certain financial instruments, whether or not recognized in
the statement of financial position, for which it is practicable to estimate the
value. In situations where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. SFAS
No. 107 excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements. Therefore, the aggregate fair value amounts
presented do not represent the underlying value of the Company. See Note 11.
The methods and assumptions utilized by the Company in estimating its fair
value disclosures for financial instruments are as follows:
The carrying amounts reported in the statement of financial position for cash
and temporary cash investments approximate their fair values.
Fair values for public bonds are obtained from an independent pricing service.
Fair values for private placement securities and publicly traded bonds not
provided by the independent pricing service are estimated by the
48
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Company by discounting expected future cash flows using current market rates
applicable to the yield, credit quality and maturity of the investments.
The fair values for common and preferred stocks, other than its subsidiary
investments, which are carried at equity values, are based on quoted market
prices.
Fair values for futures contracts are based on quoted market prices. Fair
values for interest rate swap, cap agreements, and currency swap agreements are
based on current settlement values. The current settlement values are based on
brokerage quotes that utilize pricing models or formulas using current
assumptions.
The fair value for mortgage loan is estimated using discounted cash flow
analyses using interest rates adjusted to reflect the credit characteristics of
the underlying loans. Mortgage loans with similar characteristics and credit
risks are engaged into qualitative categories for purposes of the fair value
calculations.
The carrying amount in the statement of financial position for policy loans
approximates their fair value.
The fair value for outstanding commitments to purchase long-term bonds and
issue real estate mortgages is estimated using a discounted cash flow method
incorporating adjustments for the difference in the level of interest rates
between the dates the commitments were made and December 31, 1999.
Capital Gains and Losses
Realized capital gains and losses are determined using the specific
identification method. Realized capital gains and losses, net of taxes and
amounts transferred to the IMR, are included in net gain or loss. Unrealized
gains and losses, which consist of market value and book value adjustments, are
shown as adjustments to the unassigned deficit.
Policy Reserves
Life reserves are developed by actuarial methods and are determined based on
published tables using statutorily specified interest rates and valuation
methods that will provide, in the aggregate, reserves that are greater than or
equal to the minimum or guaranteed policy cash values or the amounts required by
the Commonwealth of Massachusetts Division of Insurance. Reserves for variable
life insurance policies are maintained principally on the modified preliminary
term method using the 1958 and 1980 Commissioner's Standard Ordinary (CSO)
mortality tables, with an assumed interest rate of 4% for policies issued prior
to May 1, 1983 and 41/2% for policies issued on or thereafter. Reserves for
single premium policies are determined by the net single premium method using
the 1958 CSO mortality table, with an assumed interest rate of 4%. Reserves for
universal life policies issued prior to 1985 are equal to the gross account
value which at all times exceeds minimum statutory requirements. Reserves for
universal life policies issued from 1985 through 1988 are maintained at the
greater of the Commissioner's Reserve Valuation Method (CRVM) using the 1958 CSO
mortality table, with 41/2% interest or the cash surrender value. Reserves for
universal life policies issued after 1988 and for flexible variable policies are
maintained using the greater of the cash surrender value or the CRVM method with
the 1980 CSO mortality table and 51/2% interest for policies issued from 1988
through 1992; 5% interest for policies issued in 1993 and 1994; and 41/2%
interest for policies issued in 1995 through 1999.
Federal Income Taxes
Federal income taxes are reported in the financial statements based on amounts
determined to be payable as a result of operations within the current accounting
period. The operations of the Company are consolidated with John Hancock in
filing a consolidated federal income tax return basis for the affiliated group.
The federal income
49
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
taxes of the Company are allocated on a separate return basis with certain
adjustments. The Company made federal income tax payments of $10.6 million in
1999 and $38.2 million in 1998.
Income before taxes differs from taxable income principally due to tax-exempt
investment income, the limitation placed on the tax deductibility of
policyholder dividends, accelerated depreciation, differences in policy reserves
for tax return and financial statement purposes, capitalization of policy
acquisition expenses for tax purposes and other adjustments prescribed by the
Internal Revenue Code.
Amounts for disputed tax issues relating to the prior years are charged or
credited directly to policyholders' contingency reserve.
Adjustments to Policy Reserves
From time to time, the Company finds it appropriate to modify certain required
policy reserves because of changes in actuarial assumptions. Reserve
modifications resulting from such determinations are recorded directly to
stockholder's equity. No such refinements were made during 1999 or 1998.
Reinsurance
Premiums, commissions, expense reimbursements, benefits and reserves related
to reinsured business are accounted for on bases consistent with those used in
accounting for the original policies issued and the terms of the reinsurance
contracts. Premiums ceded to other companies have been reported as a reduction
of premium income. Amounts applicable to reinsurance ceded for future policy
benefits, unearned premium reserves and claim liabilities have been reported as
reductions of these items.
2. ACQUISITION
On June 23, 1993, the Company acquired all of the outstanding shares of stock
of Colonial Penn Annuity and Life Insurance Company (CPAL) from Colonial Penn
Life Insurance Company for an aggregate purchase price of approximately $42.5
million. At the date of acquisition, assets of CPAL were approximately $648.5
million, consisting principally of cash and temporary cash investments and
liabilities were approximately $635.2 million, consisting principally of
reserves related to a block of interest sensitive single-premium whole life
insurance business assumed by CPAL from Charter National Life Insurance Company
(Charter). The purchase price includes contingent payments of up to
approximately $7.3 million payable between 1994 and 1998 based on the actual
lapse experience of the business in force on June 23, 1993. The Company made the
final contingent payment to CPAL of $1.5 million during 1998.
50
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
On June 24, 1993, the Company contributed $24.6 million in additional capital
to CPAL. CPAL was renamed John Hancock Life Insurance Company of America
(JHLICOA) on July 7, 1993. JHLICOA was subsequently renamed Investors Partner
Life Insurance Company (IPL) on March 5, 1998. IPL manages the business assumed
from Charter and began marketing term life and variable universal life products
through brokers in 1999. Summarized financial information for IPL for 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(IN MILLIONS)
<S> <C> <C>
Total assets. . . . . . . . . . . . . . . . 570.7 587.8
Total liabilities. . . . . . . . . . . . . . 498.9 517.5
Total revenue. . . . . . . . . . . . . . . . 35.6 38.8
Net income. . . . . . . . . . . . . . . . . 3.5 3.8
</TABLE>
3. NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
------ ------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Investment expenses . . . . . . . . . . . . . $ 9.5 $ 8.3
Interest expense. . . . . . . . . . . . . . 1.7 2.4
Depreciation expense. . . . . . . . . . . . 0.6 0.8
Investment taxes. . . . . . . . . . . . . . 0.3 0.7
------ ------
$12.1 $12.2
====== ======
</TABLE>
51
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
4. NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital gains (losses) consist of the following items:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
------ ------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net gains from asset sales . . . . . . . . . . . (2.8) 7.6
Capital gains tax . . . . . . . . . . . . . . . . 0.2 (2.9)
Net capital gains transferred to IMR . . . . . . 0.9 (5.3)
------ ------
Net REALIZED CAPITAL LOSSES . . . . . . . . . . . (1.7) (0.6)
====== ======
</TABLE>
Net unrealized capital gains (losses) and other adjustments consist of the
following items:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
------ ------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net losses from changes in security values and book
value adjustments. . . . . . . . . . . . . . . (2.6) (2.7)
Increase in asset valuation reserve . . . . . . . . (1.2) (3.3)
------ ------
Net UNREALIZED CAPITAL LOSSES AND OTHER ADJUSTMENTS (3.8) (6.0)
====== ======
</TABLE>
52
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
5. TRANSACTIONS WITH PARENT
The Company's Parent provides the Company with personnel, property and
facilities in carrying out certain of its corporate functions. The Parent
annually determines a fee for these services and facilities based on a number of
criteria which were revised in 1999 and 1998 to reflect continuing changes in
the Company's operations. The amount of the service fee charged to the Company
was $188.3 million and $157.5 million in 1999 and 1998, respectively, which has
been included in insurance and investment expenses. The Parent has guaranteed
that, if necessary, it will make additional capital contributions to prevent the
Company's stockholder's equity from declining below $1.0 million.
The service fee charged to the Company by the Parent includes $0.2 million and
$0.7 million in 1999 and 1998, respectively, representing the portion of the
provision for retiree benefit plans determined under the accrual method,
including a provision for the 1993 transition liability which is being amortized
over twenty years, that was allocated to the Company.
The Company has a modified coinsurance agreement with John Hancock to reinsure
50% of 1994 through 1999 issues of flexible premium variable life insurance and
scheduled premium variable life insurance policies. In connection with this
agreement, John Hancock transferred $44.5 million and $4.9 million of cash for
tax, commission, and expense allowances to the Company, which increased the
Company's net gain from operations by $20.6 million and $22.2 million in 1999
and 1998, respectively.
Effective January 1, 1996, the Company entered into a modified coinsurance
agreement with John Hancock to reinsure 50% of the 1995 inforce block and 50% of
1996 and all future issue years of certain variable annuity contracts
(Independence Preferred, Declaration, Independence 2000, MarketPlace, and
Revolution). In connection with this agreement, the Company received a net cash
payment of $40.0 million and $12.7 million in 1999 and 1998, respectively, for
surrender benefits, tax, reserve increase, commission, expense allowances and
premium, This agreement increased the Company's net gain from operations by
$26.9 million and $8.4 million in 1999 and 1998, respectively.
Effective January 1, 1997, the Company entered into a stop-loss agreement with
John Hancock to reinsure mortality claims in excess of 110% of expected
mortality claims in 1999 and 1998 for all policies that are not reinsured under
any other indemnity agreement. In connection with the agreement, John Hancock
received $0.8 million and 1.0 million in 1999 and 1998, respectively, for
mortality claims to the Company. This agreement decreased the Company's net
gain from operations in both 1999 and 1998 by $0.5 million.
At December 31, 1998 the Company had outstanding a short-term note of $61.9
million payable to an affiliate at a variable rate of interest. The note was
part of a revolving line of credit and was repaid in 1999. Interest paid in
1999 and 1998 was $1.7 million and $2.9 million, respectively. The note is
included in other general account obligations at December 31, 1998.
53
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
6. INVESTMENTS
The statement value and fair value of bonds are shown below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
-------------- -------------- --------------- ---------
(IN MILLIONS)
December 31, 1999 . .
U.S. Treasury
securities and
obligations of U.S.
government
corporations and
agencies . . . . . . 5.9 0.0 0.1 5.8
Obligations of states
and political
subdivisions . . . . 2.2 0.1 0.1 2.2
Debit securities
issued by foreign
governments. . . . . 13.9 0.8 0.1 14.6
Corporate securities 964.9 13.0 59.4 918.5
Mortgage-backed
securities . . . . . 229.4 0.5 7.8 222.1
-------- ----- ------ --------
Total bonds . . . . .
======== ===== ====== ========
December 31, 1998
U.S. Treasury
securities and
obligations of U.S.
government
corporations and
agencies . . . . . . 5.1 0.1 0.0 5.2
Obligations of states
and political
subdivisions . . . . 3.2 0.3 0.0 3.5
Corporate securities 925.2 50.4 15.0 960.6
Mortgage-backed
securities . . . . . 252.3 10.0 0.1 262.2
-------- ----- ------ --------
Total bonds . . . . . 15.1
======== ===== ====== ========
</TABLE>
54
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
The statement value and fair value of bonds at December 31, 1999, by
contractual maturity, are shown below. Maturities will differ from contractual
maturities because eligible borrowers may exercise their right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
<S> <C> <C>
FAIR
VALUE VALUE
-------- ---------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Due in one year or less. . . . . . . . . . . . . . $ 58.5 58.2
Due after one year through five years. . . . . . . 286.8 282.0
Due after five years through ten years . . . . . . 425.4 405.6
Due after ten years. . . . . . . . . . . . . . . . 216.2 195.3
-------- ---------
986.9 941.1
Mortgage-backed securities . . . . . . . . . . . . 229.4 222.1
-------- ---------
$1,216.3
======== =========
</TABLE>
Gross gains of $0.3 million in 1999 and $3.4 million in 1998 and gross losses
of $4.0 million in 1999 and $0.7 million in 1998 were realized from the sale of
bonds.
At December 31, 1999, bonds with an admitted asset value of $9.1 million were
on deposit with state insurance departments to satisfy regulatory requirements.
The cost of common stocks was $3.1 million and $2.1 million at December 31,
1999 and 1998, respectively. At December 31, 1999, gross unrealized
appreciation on common stocks totaled $1.2 million, and gross unrealized
depreciation totaled $1.1 million. The fair value of preferred stock totaled
$35.9 million at December 31, 1999 and $36.5 million at December 31, 1998.
Bonds with amortized cost of $0.4 million were non-income producing for the
twelve months ended December 31, 1999.
At December 31, 1999, the mortgage loan portfolio was diversified by
geographic region and specific collateral property type as displayed below. The
Company controls credit risk through credit approvals, limits and monitoring
procedures.
55
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GEOGRAPHIC
PROPERTY TYPE CONCENTRATION
Apartments. . . . . . . . $112.1 East North Central $ 71.3
Hotels. . . . . . . . . . 11.3 East South Central 7.4
Industrial. . . . . . . . 66.0 Middle Atlantic 28.5
Office buildings. . . . . 86.4 Mountain 21.0
Retail. . . . . . . . . . 25.5 New England 37.5
Agricultural. . . . . . . 99.6 Pacific 111.1
Other . . . . . . . . . . 32.2 South Atlantic 87.6
West North Central 16.6
West South Central 48.6
Other 3.5
------
$433.1 $433.1
======
</TABLE>
At December 31, 1999, the fair values of the commercial and agricultural
mortgage loans portfolios were $323.5 million and $98.2 million, respectively.
The corresponding amounts as of December 31, 1998 were approximately $331.3
million and $70.0 million, respectively.
The maximum and minimum lending rates for mortgage loans during 1999 were
14.24% and 6.84% for agricultural loans, 7.45% and 7.00% for other properties.
Generally, the maximum percentage of any loan to the value of security at the
time of the loan, exclusive of insured, guaranteed or purchase money mortgages,
is 75%. For city mortgages, fire insurance is carried on all commercial and
residential properties at least equal to the excess of the loan over the maximum
loan which would be permitted by law on the land without the building, except as
permitted by regulations of the Federal Housing Commission on loans fully
insured under the provisions of the National Housing Act. For agricultural
mortgage loans, fire insurance is not normally required on land based loans
except in those instances where a building is critical to the farming operation.
Fire insurance is required on all agri-business facilities in an aggregate
amount equal to the loan balance.
56
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
7. REINSURANCE
The Company cedes business to reinsurers to share risks under variable life,
universal life and flexible variable life insurance policies for the purpose of
reducing exposure to large losses. Premiums, benefits and reserves ceded to
reinsurers in 1999 were $594.9 million, $132.8 million, and $13.6 million,
respectively. The corresponding amounts in 1998 were $590.2 million, $63.2
million, and $8.2 million, respectively.
Reinsurance ceded contracts do not relieve the Company from its obligations to
policyholders. The Company remains liable to its policyholders for the portion
reinsured to the extent that any reinsurer does not meet its obligations for
reinsurance ceded to it under the reinsurance agreements. Failure of the
reinsurers to honor their obligations could result in losses to the Company;
consequently, estimates are established for amounts deemed or estimated to be
uncollectible. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentration of credit risk arising from similar characteristics
of the reinsurer.
Neither the Company, nor any of its related parties, control, either directly
or indirectly, any external reinsurers with which the Company conducts business.
No policies issued by the Company have been reinsured with a foreign company
which is controlled, either directly or indirectly, by a party not primarily
engaged in the business of insurance.
The Company has not entered into any reinsurance agreement in which the
reinsurer may unilaterally cancel any reinsurance for reasons other than
nonpayment of premiums or other similar credits. The Company does not have any
reinsurance agreements in effect in which the amount of losses paid or accrued
through December 31, 1999 would result in a payment to the reinsurer of amounts
which, in the aggregate and allowing for offset of mutual credits from other
reinsurance agreements with the same reinsurer, exceed the total direct premiums
collected under the reinsured policies.
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The notional amounts, carrying values and estimated fail values of the
Company's derivative instruments were as follows at December 31:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <S> <C> <C>
NUMBER OF CONTRACTS/ ASSETS (LIABILITIES)
------------------
NOTIONAL AMOUNTS 1999 1998
FAIR VALUE
---------
------- ------- --------- --------- ---------
(IN MILLIONS)
Futures contracts to $ (0.5)
sell securities 362.0 947.0 $0.6 $0.6 $(0.5)
Interest rate swap (17.7)
agreements $965.0 $365.0 -- 11.5 --
Interest rate cap
agreements 239.4 89.4 5.6 5.6 3.1
Currency rate swap (3.3)
agreements 15.8 15.8 -- (1.6) --
</TABLE>
57
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
The Company uses futures contracts, interest rate swap, cap agreements, and
currency rate swap agreements for other than trading purposes to hedge and
manage its exposure to changes in interest rate levels, foreign exchange rate
fluctuations and to manage duration mismatch of assets and liabilities.
The futures contracts expire in 2000. The interest rate swap agreements
expire in 2000 to 2011. The interest rate cap agreements expire in 2006 to
2008. The currency rate swap agreements expire in 2006 to 2009.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform to the terms of the contract. The Company continually
monitors its position and the credit ratings of the counterparties to these
derivative instruments. To limit exposure associated with counterparty
nonperformance on interest rate and currency swap agreements, the Company enters
into master netting agreements with its counterparties. The Company believes the
risk of incurring losses due to nonperformance by its counterparties is remote
and that such losses, if any, would be immaterial. Futures contracts trade on
organized exchanges and, therefore, have minimal credit risk.
9. POLICY RESERVES POLICYHOLDERS' AND BENIFICIARIES' FUNDS AND OBLIGATIONS
RELATED TO SEPARATE ACCOUNTS
The Company' annuity reserves and deposit fund liabilities that are subject to
discretionary withdrawal, with and without adjustment, are summarized as
follows.
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1999 PERCENT
---------------- ------
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Subject to discretionary withdrawal (with
adjustment)
With market value adjustment . . . . . . . . . $3.8 0.1%
At book value less surrender charge 40.5 1.5
At market value . . . . . . . . . . . . . . . . 2,326.6 87.1
--------
Total with adjustment. . . . . . . . . . . 2,370.9 88.7
Subject to discretionary withdrawal 287.1 10.7
at book value (without adjustment) . . . . .
Not subject to discretionary withdrawal--general
account. . . . . . . . . . . . . . . . . . . . 15.4 0.6
--------
Total annuity reserves and deposit liabilities $2,673.4 100.0%
========
</TABLE>
58
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
The Company has extended commitments to purchase long-term bonds and issue
real estate mortgages totaling $15.4 million and $3.5 million, respectively, at
December 31, 1999. The Company monitors the creditworthiness of borrowers under
long-term bonds commitments and requires collateral as deemed necessary. If
funded, loans related to real estate mortgages would be fully collateralized by
the related properties. The estimated fair value of the commitments described
above is $19.4 million at December 31, 1999. The majority of these commitments
expire in 2000.
In the normal course of its business operations, the Company is involved with
litigation from time to time with claimants, beneficiaries and others, and a
number of litigation matters were pending as of December 31, 1999. It is the
opinion of management, after consultation with counsel, that the ultimate
liability with respect to these claims, if any, will not materially affect the
financial position or results of operations of the Company.
During 1997, John Hancock entered into a court-approved settlement relating to
a class action lawsuit involving certain individual life insurance policies sold
from 1979 through 1996. In entering into the settlement, John Hancock
specifically denied any wrongdoing. During 1999, the Company recorded a $194.9
million reserve, through a direct charge to its unassigned deficit, representing
the Company's share of the settlement and John Hancock contributed $194.9
million of capital to the Company. The reserve held at December 31, 1999
amounted to $136.5 million and is based on a number of factors, including the
estimated number of claims, the expected type of relief to be sought by class
members (general relief or alternative dispute resolution), the estimated cost
per claim and the estimated costs to administer the claims.
Given the uncertainties associated with estimating the reserve, it is
reasonably possible that the final cost of the settlement could differ
materially from the amounts presently provided for by the Company. John Hancock
and the Company will continue to update their estimate of the final cost of the
settlement as claims are processed and more specific information is developed,
particularly as the actual cost of the claims subject to alternative dispute
resolution becomes available. However, based on information available at this
time, and the uncertainties associated with the final claim processing and
alternative dispute resolution, the range of any additional costs related to the
settlement cannot be reasonably estimated. If the Company's share of the
settlement increases, John Hancock will contribute additional capital to the
Company so that the Company's total stockholder's equity would not be impacted.
59
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments:
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31,
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
--------------- ---------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
ASSETS
Bonds--Note 6. . . . .
Preferred stocks--Note
6. . . . . . . . . . . . 35.9 35.9 36.5 36.5
Common stocks--Note 6. 3.2 3.2 3.1 3.1
Mortgage loans on real
estate--Note 6. . . . . 433.1 421.7 388.1 401.3
Policy loans--Note 1. 172.1 172.1 137.7 137.7
Cash items--Note 1. . 250.1 250.1 19.9 19.9
Derivatives assets
(liabilities) relating
to: --Note 8. . . . .
Futures contracts. . . 0.6 0.6 (0.5) (0.5)
Interest rate swaps. . -- 11.5 -- (17.7)
Currency rate swaps. . -- (1.6) -- (3.3)
Interest rate caps. . 5.6 5.6 3.1 3.1
LIABILITIES
Commitments--Note 10. -- 19.4 -- 32.1
</TABLE>
The carrying amounts in the table are included in the statutory-basis
statements of financial position. The method and assumptions utilized by the
Company in estimating its fair value disclosures are described in Note 1.
12. SUBSEQUENT EVENTS
REORGANIZATION AND INITIAL PUBLIC OFFERING
Pursuant to a Plan of Reorganization approved by the policyholders of John
Hancock and the Commonwealth of Massachusetts Division of Insurance, effective
February 1, 2000, John Hancock converted from a mutual life insurance company to
a stock life insurance company (i.e., demutualized) and became a wholly owned
subsidiary of John Hancock Financial Services, Inc., which is a holding company.
In connection with the reorganization, John Hancock changed its name to John
Hancock Life Insurance Company. In addition, on February 1, 2000, John Hancock
Financial Services, Inc. completed its initial public offering and 102 million
shares of common stock were issued at an initial public offering price of $17
per share.
60
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENT--(CONTINUED)
13. IMPACT OF YEAR 2000 (UNAUDITED)
The Company participated in the Year 2000 remediation project of its parent,
John Hancock. By late 1999, John Hancock and the Company completed their Year
2000 readiness plan to address issues that could result from computer programs
written using two digits to define the applicable year rather than four to
define the applicable year and century. As a result, John Hancock and the
Company were prepared for the transition to the Year 2000 and did not experience
any significant Year 2000 problems with respect to mission critical information
technology ("IT") or non-IT systems, applications or infrastructure. During the
date rollover to the year 2000, John Hancock and the Company implemented and
monitored their millennium rollover plan and conducted business as usual on
Monday, January 3, 2000.
Since January 3, 2000, the information systems, including mission critical
systems, which in the event of a Year 2000 failure would have the greatest
impact on operations, have functioned properly. In addition, neither John
Hancock nor the Company have experienced any significant Year 2000 issues
related to interactions with material business partners. No disruptions have
occurred which impact John Hancock or the Company's ability to process claims,
update customer accounts, process financial transactions, or report accurate
data to management and no business interruptions due to Year 2000 issues have
been experienced. While John Hancock and the Company continue to monitor their
systems, and those of material business partners, closely to ensure that no
unexpected Year 2000 issues develop, neither John Hancock nor the Company have
reason to expect any such issues.
The costs of the Year 2000 project consist of internal IT personnel and
external costs such as consultants, programmers, replacement software, and
hardware. The costs of the Year 2000 project are expensed as incurred. The
project is funded partially through a reallocation of resources from
discretionary projects. Through December 31, 1999, John Hancock has incurred
and expensed approximately $20.8 million in related payroll costs for internal
IT personnel on the project. The estimated remaining IT personnel costs of the
project are approximately $1.0 million. Through December 31, 1999, John Hancock
has incurred and expensed approximately $47.0 million in external costs for the
project. John Hancock's estimated remaining external cost of the project is
approximately $2.0 million. The total costs of the Year 2000 project to John
Hancock, based on management's best estimates, include approximately $21.7
million in internal IT personnel, $14.6 million in the external modification of
software, $18.3 million for external solution providers, $9.1 million in
replacement costs of non-compliant IT systems and $6.9 million in oversight,
test facilities and other expenses. Accordingly, the estimated range of total
costs of the Year 2000 project to John Hancock, internal and external, is
approximately $70 to $72.5 million. John Hancock's total Year 2000 project
costs include the estimated impact of external solution providers based on
presently available information.
61
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Policyholders of 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, Small Cap Growth,
International Balanced, Mid Cap Growth, Large Cap Value, Money Market, Mid Cap
Value, Small/Mid Cap Growth (formerly, Diversified Mid Cap Growth), Real Estate
Equity, Growth & Income, Managed, Short-Term Bond, Small Cap Value,
International Opportunities, Equity Index, Global Bond (formerly, Strategic
Bond), Turner Core Growth, Brandes International Equity, Frontier Capital
Appreciation, Enhanced U.S. Equity, Emerging Markets Equity, Global Equity, Bond
Index, Small/Mid Cap CORE and High Yield Bond Subaccounts) as of December 31,
1999, and the related statements of operations and changes in net assets for
each of the periods indicated therein. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting John Hancock Variable Life Account S at December 31,
1999, the results of their operations and the changes in their net assets for
each of the periods indicated, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Boston, Massachusetts
February 11, 2000
62
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
INTERNATIONAL
LARGE CAP SOVEREIGN EQUITY SMALL CAP
GROWTH BOND INDEX GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ----------- ------------- -------------
-------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . $ 8,016 $ 2,380 $ 2,435 $ 2,357
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . 115,521,551 38,321,474 33,198,674 31,022,828
Investments in shares
of portfolios of M
Fund Inc., at value -- -- -- --
Receivable from:
John Hancock Variable
Series Trust I . . 21,617 12,536 419 208,513
M Fund Inc. . . . . -- -- -- --
------------ ----------- ----------- -----------
Total assets . . . . 115,551,184 38,336,390 33,201,528 31,233,698
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company . . . . . . 20,467 12,194 75 208,172
M Fund Inc. . . . . -- -- -- --
Asset charges payable 9,166 2,723 2,779 2,698
------------ ----------- ----------- -----------
Total liabilities . . 29,633 14,917 2,854 210,870
------------ ----------- ----------- -----------
Net assets . . . . . $115,521,551 $38,321,473 $33,198,674 $31,022,828
============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL MID CAP LARGE CAP MONEY
BALANCED GROWTH VALUE MARKET
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ----------- ----------- -------------
------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . . $ 304 $ 4,698 $ 1,803 $ 3,061
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value . . . . . . . . 4,591,857 63,499,616 27,106,918 61,006,769
Investments in shares
of portfolios of M
Fund Inc., at value . -- -- -- --
Receivable from:
John Hancock Varidable
Series Trust I . . . 52 27,659 12,738 1,396,082
M Fund Inc. . . . . . -- -- -- --
---------- ----------- ----------- -----------
Total assets . . . . . 4,592,213 63,531,973 27,121,459 62,405,912
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company. . . . . . . 9 26,980 12,479 1,395,329
M Fund Inc. . . . . . -- -- -- --
Asset charges payable 348 5,377 2,063 3,814
---------- ----------- ----------- -----------
Total liabilities . . 357 32,357 14,542 1,399,143
---------- ----------- ----------- -----------
Net assets . . . . . . $4,591,856 $63,499,616 $27,106,917 $61,006,769
========== =========== =========== ===========
</TABLE>
See accompanying notes.
63
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MID CAP SMALL/MID CAP REAL ESTATE GROWTH&
VALUE GROWTH EQUITY INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . $ 1,422 $ 701 $ 611 $ 17,877
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . 19,138,533 9,925,831 9,238,646 209,525,898
Investments in shares
of portfolios of M
Fund Inc., at value -- -- -- --
Receivable from:
John Hancock Variable
Series Trust I . . 38,609 580,155 88 330,982
M Fund Inc. . . . . -- -- -- --
------------ -------------- ------------ ------------
Total assets . . . . 19,178,564 10,506,687 9,239,345 209,874,757
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company . . . . . . 38,404 580,049 -- 328,424
M Fund Inc. . . . . -- -- -- --
Asset charges payable 1,627 807 699 20,434
------------ -------------- ------------ ------------
Total liabilities . . 40,031 580,856 699 348,858
------------ -------------- ------------ ------------
Net assets . . . . . $ 19,138,533 $ 9,925,831 $ 9,238,646 $209,525,899
============ ============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM SMALL CAP INTERNATIONAL
MANAGED BOND VALUE OPPORTUNITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- -------------
-------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . $ 13,307 $ 731 $ 1,430 $ 2,454
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . 125,710,809 11,728,988 18,783,397 31,535,050
Investments in shares
of portfolios of M
Fund Inc., at value -- -- -- --
Receivable from:
John Hancock Variable
Series Trust I . . 34,311 215 189,514 1,308
M Fund Inc. . . . . -- -- -- --
------------ ----------- ----------- -----------
Total assets . . . . 125,758,427 11,729,934 18,974,341 31,538,812
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company . . . . . . 32,402 114 189,306 955
M Fund Inc. . . . . -- -- -- --
Asset charges payable 15,216 832 1,639 2,808
------------ ----------- ----------- -----------
Total liabilities . . 47,618 946 190,945 3,763
------------ ----------- ----------- -----------
Net assets . . . . . $125,710,809 $11,728,988 $18,783,396 $31,535,049
============ =========== =========== ===========
</TABLE>
See accompanying notes.
64
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
TURNER BRANDES
EQUITY GLOBAL CORE INTERNATIONAL
INDEX BOND GROWTH EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------- ---------------
------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . . $ 10,574 $ 734 $ 1,535 $ 1,016
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value . . . . . . . . 149,913,130 8,838,516 -- --
Investments in shares
of portfolios of M
Fund Inc., at value . -- -- 22,671,006 17,415,296
Receivable from:
John Hancock Variable
Series Trust I . . . 126,680 766,077 222 271
M Fund Inc. . . . . . -- -- -- --
------------ ---------- ----------- -----------
Total assets . . . . . 150,050,384 9,605,327 22,672,763 17,416,583
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company. . . . . . . 125,115 765,972 -- 122
M Fund Inc. . . . . . -- -- -- --
Asset charges payable 12,138 839 1,758 1,165
------------ ---------- ----------- -----------
Total liabilities . . 137,253 766,811 1,758 1,287
------------ ---------- ----------- -----------
Net assets . . . . . . $149,913,131 $8,838,516 $22,671,005 $17,415,296
============ ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FRONTIER EMERGING
CAPITAL ENHANCED MARKETS GLOBAL
APPRECIATION U.S. EQUITY EQUITY EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ----------- ---------- ------------
---------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . . . $ 1,031 $ 437 $ 370 $ 71
Investments in shares of
portfolios of John
Hancock Variable Series
Trust I, at value . . . -- -- 3,723,380 836,878
Investments in shares of
portfolios of M Fund
Inc., at value . . . . . 16,985,022 6,738,214 -- --
Receivable from:
John Hancock Variable
Series Trust I . . . . 771 63 254 24
M Fund Inc. . . . . . . -- -- -- --
----------- ---------- ---------- --------
Total assets . . . . . . 16,986,824 6,738,714 3,724,004 836,973
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance Company 620 -- 204 13
M Fund Inc. . . . . . . -- -- -- --
Asset charges payable . . 1,182 500 420 82
----------- ---------- ---------- --------
Total liabilities . . . . 1,802 500 624 95
----------- ---------- ---------- --------
Net assets . . . . . . . $16,985,022 $6,738,214 $3,723,380 $836,878
=========== ========== ========== ========
</TABLE>
See accompanying notes.
65
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SMALL/ MID
CAP CORE HIGH
BOND SUBACCOUNT YIELD
INDEX ---------- BOND
SUBACCOUNT SUBACCOUNT
---------- ------------
------------------------------------
<S> <C> <C> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . $ 374 $ 56 $ 310
Investments in shares of portfolios of
John Hancock Variable Series Trust I, at
value . . . . . . . . . . . . . . . . . 5,126,051 616,813 4,273,214
Investments in shares of portfolios of M
Fund Inc., at value . . . . . . . . . . -- -- --
Receivable from:
John Hancock Variable Series Trust I . 87 7 906,251
M Fund Inc. . . . . . . . . . . . . . . -- -- --
---------- -------- ----------
Total assets . . . . . . . . . . . . . . 5,126,512 616,876 5,179,775
LIABILITIES
Payable to:
John Hancock Variable Life Insurance
Company. . . . . . . . . . . . . . . . 20 -- 906,193
M Fund Inc. . . . . . . . . . . . . . . -- -- --
Asset charges payable . . . . . . . . . 441 63 368
---------- -------- ----------
Total liabilities . . . . . . . . . . . 461 63 906,561
---------- -------- ----------
Net assets . . . . . . . . . . . . . . . $5,126,051 $616,813 $4,273,214
========== ======== ==========
</TABLE>
See accompanying notes.
66
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
LARGE CAP GROWTH SUBACCOUNT SOVEREIGN BOND SUBACCOUNT
-------------------------------------- -----------------------------------
1999 1998 1997 1999 1998 1997
------------ ----------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $17,558,034 $ 6,312,073 $ 2,884,498 $ 2,851,613 $2,190,901 $855,742
M Fund Inc. . . . . -- -- -- -- -- --
----------- ----------- ----------- ----------- ---------- --------
Total investment
income . . . . . . . 17,558,034 6,312,073 2,884,498 2,851,613 2,190,901 855,742
Expenses:
Mortality and expense
risks . . . . . . . 324,595 168,652 91,256 126,407 93,556 39,184
----------- ----------- ----------- ----------- ---------- --------
Net investment income 17,233,439 6,143,421 2,793,242 2,725,206 2,097,345 816,558
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 5,003,007 1,750,881 619,721 (1,391,910) 185,230 80,538
Net unrealized
appreciation
(depreciation)
during the period . (2,053,672) 8,041,022 2,301,920 (1,837,190) (378,058) 63,687
----------- ----------- ----------- ----------- ---------- --------
Net realized and
unrealized gain
(loss) on investments 2,949,335 9,791,903 2,921,641 (3,229,100) (192,828) 144,225
----------- ----------- ----------- ----------- ---------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $20,182,774 $15,935,324 $ 5,714,883 $ (503,894) $1,904,517 $960,783
=========== =========== =========== =========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY INDEX SUBACCOUNT SMALL CAP GROWTH SUBACCOUNT
-------------------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 936,475 $1,930,710 $ 422,913 $ 3,697,955 $ -- $ 473
M Fund Inc. . . . . -- -- -- -- -- --
---------- ---------- ----------- ----------- ---------- --------
Total investment
income . . . . . . . 936,475 1,930,710 422,913 3,697,955 -- 473
Expenses:
Mortality and expense
risks . . . . . . . 81,058 45,651 33,893 60,221 22,593 6,547
---------- ---------- ----------- ----------- ---------- --------
Net investment income
(loss) . . . . . . . 855,417 1,885,059 389,020 3,637,734 (22,593) (6,074)
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains . 753,750 152,030 244,810 2,548,944 58,729 21,707
Net unrealized
appreciation
(depreciation)
during the period . 4,871,167 78,480 (1,219,540) 3,920,455 1,070,805 126,699
---------- ---------- ----------- ----------- ---------- --------
Net realized and
unrealized gain
(loss) on investments 5,624,917 230,510 (974,730) 6,469,399 1,129,534 148,406
---------- ---------- ----------- ----------- ---------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $6,480,334 $2,115,569 $ (585,710) $10,107,133 $1,106,941 $142,332
========== ========== =========== =========== ========== ========
</TABLE>
See accompanying notes.
67
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED SUBACCOUNT MID CAP GROWTH SUBACCOUNT
---------------------------------- ---------------------------------
1999 1998 1997 1999 1998 1997
----------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 372,766 $ 185,760 $ 61,249 $ 6,491,783 $1,114,374 $ --
M Fund Inc. . . . . -- -- -- -- -- --
---------- ---------- --------- ----------- ---------- --------
Total investment
income . . . . . . . 372,766 185,760 61,249 6,491,783 1,114,374 --
Expenses:
Mortality and expense
risks . . . . . . . 13,792 9,687 4,443 102,248 26,123 8,287
---------- ---------- --------- ----------- ---------- --------
Net investment income
(loss) . . . . . . . 358,974 176,073 56,806 6,389,535 1,088,251 (8,287)
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains . 15,640 24,206 8,667 5,188,018 599,619 1,235
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . (173,912) 147,461 (67,714) 15,078,681 1,184,263 486,186
---------- ---------- --------- ----------- ---------- --------
Net realized and
unrealized gain
(loss) on investments (158,272) 171,667 (59,047) 20,266,699 1,783,882 487,421
---------- ---------- --------- ----------- ---------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $ 200,702 $ 347,740 $ (2,241) $26,656,234 $2,872,133 $479,134
========== ========== ========= =========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
LARGE CAP VALUE SUBACCOUNT MONEY MARKET 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 . . $ 1,809,072 $ 797,874 $194,199 $3,279,928 $1,854,829 $758,434
M Fund Inc. . . . . -- -- -- -- -- --
----------- ---------- -------- ---------- ---------- --------
Total investment
income . . . . . . . 1,809,072 797,874 194,199 3,279,928 1,854,829 758,434
Expenses:
Mortality and expense
risks . . . . . . . 88,877 41,415 11,163 291,398 167,813 66,882
----------- ---------- -------- ---------- ---------- --------
Net investment income 1,720,195 756,459 183,036 2,988,530 1,687,016 691,552
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains . 705,454 330,827 164,821 -- -- --
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . (2,181,112) 145,355 279,449 -- -- --
----------- ---------- -------- ---------- ---------- --------
Net realized and
unrealized gain
(loss) on investments (1,475,658) 476,182 444,270 -- -- --
----------- ---------- -------- ---------- ---------- --------
Net increase in net
assets resulting from
operations . . . . . $ 244,537 $1,232,641 $627,306 $2,988,530 $1,687,016 $691,552
=========== ========== ======== ========== ========== ========
</TABLE>
See accompanying notes.
68
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MID CAP VALUE SUBACCOUNT SMALL/MID CAP GROWTH SUBACCOUNT
----------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
----------- ------------ --------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I . . . . . $ 110,190 $ 120,469 $446,081 $ 1,421,656 $ 142,469 $ 878,600
M Fund Inc. . . . . . . . . . . . . . . . . . -- -- -- -- -- --
---------- ----------- -------- ----------- ------------- -----------
Total investment income . . . . . . . . . . . . 110,190 120,469 446,081 1,421,656 142,469 878,600
Expenses:
Mortality and expense risks. . . . . . . . . . 68,611 45,020 11,421 32,995 34,432 35,934
---------- ----------- -------- ----------- ------------- -----------
Net investment income . . . . . . . . . . . . . 41,579 75,449 434,660 1,388,661 108,037 842,666
Net realized and unrealized gain (loss) on
investments:
Net realized gains (losses) . . . . . . . . . (860,332) (538,516) 101,787 13,375 232,246 297,666
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . . . 1,757,919 (830,390) (39,717) (1,001,208) 236,333 (730,748)
---------- ----------- -------- ----------- ------------- -----------
Net realized and unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . 897,587 (1,368,906) 62,070 (987,833) 468,579 (433,082)
---------- ----------- -------- ----------- ------------- -----------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . $ 939,166 $(1,293,457) $496,730 $ 400,828 $ 576,616 $ 409,584
========== =========== ======== =========== ============= ===========
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE EQUITY SUBACCOUNT GROWTH & INCOME SUBACCOUNT
---------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997
---------- ------------ --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 544,845 $ 305,783 $246,677 $23,565,679 $ 9,266,175 $5,917,063
M Fund Inc. . . . . -- -- -- -- -- --
--------- ----------- -------- ----------- ----------- ----------
Total investment
income . . . . . . . 544,845 305,783 246,677 23,565,679 9,266,175 5,917,063
Expenses:
Mortality and expense
risks . . . . . . . 29,468 22,716 13,879 715,377 290,361 169,135
--------- ----------- -------- ----------- ----------- ----------
Net investment income 515,377 283,067 232,798 22,850,302 8,975,814 5,747,928
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . (735,504) (454,979) 252,095 6,207,253 2,061,212 2,390,414
Net unrealized
appreciation
(depreciation)
during the period . 80,925 (698,676) (13,488) (5,814,839) 7,759,307 435,778
--------- ----------- -------- ----------- ----------- ----------
Net realized and
unrealized gain
(loss) on investments (654,579) (1,153,655) 238,607 392,414 9,820,519 2,826,192
--------- ----------- -------- ----------- ----------- ----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $(139,202) $ (870,588) $471,405 $23,242,716 $18,796,333 $8,574,120
========= =========== ======== =========== =========== ==========
</TABLE>
See accompanying notes.
69
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MANAGED SUBACCOUNT SHORT-TERM BOND SUBACCOUNT
------------------------------------ ------------------------------------
1999 1998 1997 1999 1998 1997
------------ ---------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $11,251,980 $3,606,186 $1,879,954 $ 957,614 $ 977,164 $ 415,542
M Fund Inc. . . . . -- -- -- -- -- --
----------- ---------- ---------- ---------- ----------- ---------
Total investment
income . . . . . . . 11,251,980 3,606,186 1,879,954 957,614 977,164 415,542
Expenses:
Mortality and expense
risks . . . . . . . 495,544 121,905 65,383 50,128 50,947 20,551
----------- ---------- ---------- ---------- ----------- ---------
Net investment income 10,756,436 3,484,281 1,814,571 907,486 926,217 394,991
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 2,233,258 278,186 171,318 (441,667) 24,740 35,294
Net unrealized
appreciation
(depreciation)
during the period . (6,419,069) 1,791,231 715,231 (85,754) (136,999) (25,976)
----------- ---------- ---------- ---------- ----------- ---------
Net realized and
unrealized gain
(loss) on investments (4,185,811) 2,069,417 886,549 (527,421) (112,259) 9,318
----------- ---------- ---------- ---------- ----------- ---------
Net increase in net
assets resulting from
operations . . . . . $ 6,570,625 $5,553,698 $2,701,120 $ 380,065 $ 813,958 $ 404,309
=========== ========== ========== ========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL OPPORTUNITIES
SMALL CAP VALUE 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 . . $ 409,324 $ 47,350 $299,278 $2,096,195 $ 103,399 $ 69,078
M Fund Inc. . . . . -- -- -- -- -- --
--------- --------- -------- ---------- ---------- ---------
Total investment
income . . . . . . . 409,324 47,350 299,278 2,096,195 103,399 69,078
Expenses:
Mortality and expense
risks . . . . . . . 64,613 33,335 8,494 90,191 50,003 13,177
--------- --------- -------- ---------- ---------- ---------
Net investment income 344,711 14,015 290,784 2,006,004 53,396 55,901
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . (979,002) (9,919) 75,149 1,907,809 191,495 80,782
Net unrealized
appreciation
(depreciation)
during the period . 325,684 (523,693) (18,626) 3,818,953 1,108,416 (260,664)
--------- --------- -------- ---------- ---------- ---------
Net realized and
unrealized gain
(loss) on investments (653,318) (533,612) 56,523 5,726,762 1,299,911 (179,882)
--------- --------- -------- ---------- ---------- ---------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $(308,607) $(519,597) $347,307 $7,732,766 $1,353,307 $(123,981)
========= ========= ======== ========== ========== =========
</TABLE>
See accompanying notes.
70
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY INDEX SUBACCOUNT GLOBAL BOND SUBACCOUNT
----------------------------------- --------------------------------
1999 1998 1997 1999 1998 1997
----------- ---------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 5,839,023 $1,337,750 $ 409,920 $ 460,088 $303,545 $ 74,850
M Fund Inc. . . . . -- -- -- -- -- --
----------- ---------- ---------- ----------- -------- --------
Total investment
income . . . . . . . 5,839,023 1,337,750 409,920 460,088 303,545 74,850
Expenses:
Mortality and expense
risks . . . . . . . 335,573 126,021 31,223 35,321 19,894 3,820
----------- ---------- ---------- ----------- -------- --------
Net investment income 5,503,450 1,211,729 378,697 424,767 283,651 71,030
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 7,681,081 691,270 901,978 (204,675) 81,659 8,335
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . 4,678,509 6,098,919 392,256 (433,526) 43,608 (11,727)
----------- ---------- ---------- ----------- -------- --------
Net realized and
unrealized gain
(loss) on investments 12,359,590 6,790,189 1,294,234 (638,201) 125,267 (3,392)
----------- ---------- ---------- ----------- -------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $17,863,040 $8,001,918 $1,672,931 $ (213,434) $408,918 $ 67,638
=========== ========== ========== =========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
BRANDES INTERNATIONAL
TURNER CORE GROWTH SUBACCOUNT EQUITY SUBACCOUNT
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
---------- -------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series
Trust I . . . . . . $1,349,358 $ -- $ -- $ 549,978 $ -- $ --
M Fund Inc. . . . . -- 84,940 91,360 -- 358,080 32,677
---------- -------- -------- ---------- -------- --------
Total investment
income . . . . . . . 1,349,358 84,940 91,360 549,978 358,080 32,677
Expenses:
Mortality and expense
risks . . . . . . . 33,920 7,737 4,071 34,297 14,434 7,502
---------- -------- -------- ---------- -------- --------
Net investment income 1,315,438 77,203 87,289 515,681 343,646 25,175
Net realized and
unrealized gain
(loss) on
investments: . . . .
Net realized gains . 1,038,462 156,278 76,711 507,727 89,337 12,541
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . 1,626,646 562,620 32,626 3,486,097 91,915 (26,022)
---------- -------- -------- ---------- -------- --------
Net realized and
unrealized gain
(loss) on investments 2,665,108 718,898 109,337 3,993,824 181,252 (13,481)
---------- -------- -------- ---------- -------- --------
Net increase in net
assets resulting from
operations . . . . . $3,980,546 $796,101 $196,626 $4,509,505 $524,898 $ 11,694
========== ======== ======== ========== ======== ========
</TABLE>
See accompanying notes.
71
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FRONTIER CAPITAL APPRECIATION
SUBACCOUNT ENHANCED U.S. EQUITY SUBACCOUNT
--------------------------------- --------------------------------
1999 1998 1997 1999 1998 1997*
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 487,465 $ -- $ -- $532,067 $ -- $ --
M Fund Inc. . . . . -- 34,738 128,190 -- 72,302 15,335
---------- --------- --------- -------- -------- -------
Total investment
income . . . . . . . 487,465 34,738 128,190 532,067 72,302 15,335
Expenses:
Mortality and expense
risks . . . . . . . 37,471 24,841 10,040 13,930 4,069 478
---------- --------- --------- -------- -------- -------
Net investment income 449,994 9,897 118,150 518,137 68,233 14,857
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 624,068 (445,752) 614,358 264,436 87,723 4,177
Net unrealized
appreciation
(depreciation)
during the period . 3,431,408 432,064 (368,570) 151,562 89,677 6,844
---------- --------- --------- -------- -------- -------
Net realized and
unrealized gain
(loss) on investments 4,055,476 (13,688) 245,788 415,998 177,400 11,021
---------- --------- --------- -------- -------- -------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $4,505,470 $ (3,791) $ 363,938 $934,135 $245,633 $25,878
========== ========= ========= ======== ======== =======
</TABLE>
<TABLE>
<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 . . $ 137,724 $ 522 $ 6,063 $ 491 $ 140,772 $ 23,842
M Fund Inc. . . . . -- -- -- -- -- --
---------- -------- -------- -------- --------- --------
Total investment
income . . . . . . . 137,724 522 6,063 491 140,772 23,842
Expenses:
Mortality and expense
risks . . . . . . . 5,465 387 1,859 339 10,636 937
---------- -------- -------- -------- --------- --------
Net investment income 132,259 135 4,204 152 130,136 22,905
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 663,998 (45,975) 82,873 (21,835) (104,174) 1,002
Net unrealized
appreciation
(depreciation)
during the period . 432,248 2,289 47,295 4,812 (78,192) (10,217)
---------- -------- -------- -------- --------- --------
Net realized and
unrealized gain
(loss) on investments 1,096,246 (43,686) 130,168 (17,023) (182,366) (9,215)
---------- -------- -------- -------- --------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $1,228,505 $(43,551) $134,372 $(16,871) $ (52,230) $ 13,690
========== ======== ======== ======== ========= ========
</TABLE>
- ---------
* From July 1, 1997 (commencement of operations).
** From May 1, 1998 (commencement of operations).
72
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<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 . . . . . . . . . . . $ 54,784 $ -- $ 352,641 $ 88,721
M Fund Inc. . . . . . . . . . . -- -- -- --
-------- -------- --------- --------
Total investment income . . . . 54,784 -- 352,641 88,721
Expenses:
Mortality and expense risks . . 2,073 535 12,206 1,962
-------- -------- --------- --------
Net investment income (loss) . . 52,711 (535) 340,435 86,759
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses) . . 65,733 (25,196) 42,365 64,824
Net unrealized appreciation
(depreciation) during the
period . . . . . . . . . . . . (10,735) 18,718 (139,659) 149,416
-------- -------- --------- --------
Net realized and unrealized gain
(loss) on investments . . . . . 54,998 (6,478) (97,294) 214,240
-------- -------- --------- --------
Net increase (decrease) in net
assets resulting from operations $107,709 $ (7,013) $ 243,141 $300,999
======== ======== ========= ========
</TABLE>
- ---------
** From May 1, 1998 (commencement of operations).
See accompanying notes.
73
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
LARGE CAP GROWTH SUBACCOUNT SOVEREIGN BOND SUBACCOUNT
------------------------------------------ -----------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income . . . . . . . . $ 17,233,439 $ 6,143,421 $ 2,793,242 $ 2,725,206 $ 2,097,345 $ 816,558
Net realized gains (losses) . . . . . 5,003,007 1,750,881 619,721 (1,391,910) 185,230 80,538
Net unrealized appreciation
(depreciation) during the period . . (2,053,672) 8,041,022 2,301,920 (1,837,190) (378,058) 63,687
------------ ------------ ------------ ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . 20,182,774 15,935,324 5,714,883 (503,894) 1,904,517 960,783
From policyholder transactions:
Net premiums from policyholders . . . 75,667,981 29,859,648 20,264,849 74,595,720 38,567,292 21,324,560
Net benefits to policyholders . . . . (45,347,424) (13,281,028) (10,390,849) (68,312,320) (27,391,317) (8,009,615)
------------ ------------ ------------ ------------ ------------ -----------
Net increase in net assets resulting
from policyholder
transactions . . . . . . . . . . . . . 30,320,557 16,578,620 9,874,000 6,283,400 11,175,975 13,314,945
------------ ------------ ------------ ------------ ------------ -----------
Net increase in net assets . . . . . . 50,503,331 32,513,944 15,588,883 5,779,506 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 . . . . . . $115,521,551 $ 65,018,220 $ 32,504,276 $ 38,321,473 $ 32,541,967 $19,461,475
============ ============ ============ ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY SMALL CAP
INDEX SUBACCOUNT GROWTH SUBACCOUNT
---------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) . . . . . . $ 855,417 $ 1,885,059 $ 389,020 $ 3,637,734 $ (22,593) $ (6,074)
Net realized gains . . . . . . . . . . . 753,750 152,030 244,810 2,548,944 58,729 21,707
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . 4,871,167 78,480 (1,219,540) 3,920,455 1,070,805 126,699
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . 6,480,334 2,115,569 (585,710) 10,107,133 1,106,941 142,332
From policyholder transactions:
Net premiums from policyholders . . . . . 53,332,374 10,034,119 8,150,400 52,637,861 12,088,047 2,870,481
Net benefits to policyholders . . . . . . (39,209,664) (8,344,107) (4,505,840) (40,800,272) (6,621,834) (1,005,386)
------------ ----------- ----------- ------------ ----------- -----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . 14,122,710 1,690,012 3,644,560 11,837,589 5,466,213 1,865,095
------------ ----------- ----------- ------------ ----------- -----------
Net increase in net assets . . . . . . . . 20,603,044 3,805,581 3,058,850 21,944,722 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 . . . . . . . $ 33,198,674 $12,595,630 $ 8,790,049 $ 31,022,828 $ 9,078,106 $ 2,504,952
============ =========== =========== ============ =========== ===========
</TABLE>
See accompanying notes.
74
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED
SUBACCOUNT MID CAP GROWTH SUBACCOUNT
-------------------------------------- ---------------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------ ----------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) . . . . . $ 358,974 $ 176,073 $ 56,806 $ 6,389,535 $ 1,088,251 $ (8,287)
Net realized gains . . . . . . . . . . 15,640 24,206 8,667 5,188,018 599,619 1,235
Net unrealized appreciation
(depreciation) during the period . . (173,912) 147,461 (67,714) 15,078,681 1,184,263 486,186
----------- ----------- ---------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations . . . . . . 200,702 347,740 (2,241) 26,656,234 2,872,133 479,134
From policyholder transactions:
Net premiums from policyholders . . . 6,295,052 3,163,316 1,608,069 65,183,285 11,323,614 3,212,754
Net benefits to policyholders . . . . (5,007,225) (1,882,974) (282,878) (41,018,347) (5,132,055) (915,459)
----------- ----------- ---------- ------------- ------------- -------------
Net increase in net assets resulting
from policyholder transactions . . . . 1,287,827 1,280,342 1,325,191 24,164,938 6,191,559 2,297,295
----------- ----------- ---------- ------------- ------------- -------------
Net increase in net assets . . . . . . 1,488,529 1,628,082 1,322,950 50,821,172 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 . . . . . . $ 4,591,856 $ 3,103,327 $1,475,245 $ 63,499,616 $ 12,678,444 $ 3,614,752
=========== =========== ========== ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
LARGE CAP VALUE SUBACCOUNT MONEY MARKET SUBACCOUNT
---------------------------------------- ---------------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income . . . . . . . $ 1,720,195 $ 756,459 $ 183,036 $ 2,988,530 $ 1,687,016 $ 691,552
Net realized gains . . . . . . . . . 705,454 330,827 164,821 -- -- --
Net unrealized appreciation
(depreciation) during the period . (2,181,112) 145,355 279,449 -- -- --
------------ ----------- ----------- ------------- ------------- -------------
Net increase in net assets resulting
from operations . . . . . . . . . . 244,537 1,232,641 627,306 2,988,530 1,687,016 691,552
From policyholder transactions:
Net premiums from policyholders . . 37,432,039 15,144,316 5,421,062 890,376,545 340,377,358 103,737,470
Net benefits to policyholders . . . (27,199,179) (4,937,583) (1,620,578) (918,869,964) (269,723,839) (100,296,756)
------------ ----------- ----------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from policyholder
transactions . . . . . . . . . . . . 10,232,860 10,206,733 3,800,484 (28,493,419) 70,653,519 3,440,714
------------ ----------- ----------- ------------- ------------- -------------
Net increase (decrease) in net assets 10,477,397 11,439,374 4,427,790 (25,504,889) 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 . . . . . $ 27,106,917 $16,629,520 $ 5,190,146 $ 61,006,769 $ 86,511,658 $ 14,171,123
============ =========== =========== ============= ============= =============
</TABLE>
See accompanying notes.
75
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SMALL/MID CAP
MID CAP VALUE SUBACCOUNT GROWTH SUBACCOUNT
---------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income . . . . . . . . . . $ 41,579 $ 75,449 $ 434,660 $ 1,388,661 $ 108,037 $ 842,666
Net realized gains (losses) . . . . . . . (860,332) (538,516) 101,787 13,375 232,246 297,666
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . 1,757,919 (830,390) (39,717) (1,001,208) 236,333 (730,748)
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from
operations . . . . . . . . . . . . . . . 939,166 (1,293,457) 496,730 400,828 576,616 409,584
From policyholder transactions:
Net premiums from policyholders . . . . . 32,024,751 18,837,112 6,323,061 11,809,133 4,563,154 8,511,081
Net benefits to policyholders . . . . . . (29,579,995) (7,855,945) (1,089,206) (9,775,543) (6,481,542) (6,274,668)
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from policyholder transactions 2,444,756 10,981,167 5,233,855 2,033,590 (1,918,388) 2,236,413
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets . . 3,383,922 9,687,710 5,730,585 2,434,418 (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 . . . . . . . $ 19,138,533 $15,754,611 $ 6,066,901 $ 9,925,831 $ 7,491,413 $ 8,833,185
============ =========== =========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE EQUITY SUBACCOUNT GROWTH & INCOME SUBACCOUNT
---------------------------------------- -------------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income . . . . . . . . $ 515,377 $ 283,067 $ 232,798 $ 22,850,302 $ 8,975,814 $ 5,747,928
Net realized gains (losses) . . . . . (735,504) (454,979) 252,095 6,207,253 2,061,212 2,390,414
Net unrealized appreciation
(depreciation) during the period . . 80,925 (698,676) (13,488) (5,814,839) 7,759,307 435,778
------------ ----------- ----------- ------------- ------------ ------------
Net increase (decrease) in net assets
resulting from
operations . . . . . . . . . . . . . . (139,202) (870,588) 471,405 23,242,716 18,796,333 8,574,120
From policyholder transactions:
Net premiums from policyholders . . . 22,699,314 6,964,604 4,833,914 196,639,863 60,975,616 35,535,599
Net benefits to policyholders . . . . (18,093,640) (5,513,221) (2,393,463) (106,763,955) (31,360,866) (21,776,809)
------------ ----------- ----------- ------------- ------------ ------------
Net increase in net assets resulting
from policyholder
transactions . . . . . . . . . . . . . 4,605,674 1,451,383 2,440,451 89,875,908 29,614,750 13,758,790
------------ ----------- ----------- ------------- ------------ ------------
Net increase in net assets . . . . . . 4,466,472 580,795 2,911,856 113,118,624 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 . . . . . . $ 9,238,646 $ 4,772,174 $ 4,191,379 $ 209,525,899 $ 96,407,275 $ 47,996,192
============ =========== =========== ============= ============ ============
</TABLE>
See accompanying notes.
76
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SHORT-TERM BOND
MANAGED 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 . . . . . . . . . $ 10,756,436 $ 3,484,281 $ 1,814,571 $ 907,486 $ 926,217 $ 394,991
Net realized gains (losses) . . . . . . 2,233,258 278,186 171,318 (441,667) 24,740 35,294
Net unrealized appreciation
(depreciation) during the period . . . (6,419,069) 1,791,231 715,231 (85,754) (136,999) (25,976)
------------ ----------- ----------- ------------ ------------ -----------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . 6,570,625 5,553,698 2,701,120 380,065 813,958 404,309
From policyholder transactions:
Net premiums from policyholders . . . . 113,292,872 21,019,273 16,914,475 41,259,110 27,490,588 12,911,228
Net benefits to policyholders . . . . . (34,219,380) (8,281,600) (9,357,535) (49,156,693) (21,534,195) (4,234,624)
------------ ----------- ----------- ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from policyholder transactions 79,073,492 12,737,673 7,556,940 (7,897,583) 5,956,393 8,676,604
------------ ----------- ----------- ------------ ------------ -----------
Net increase (decrease) in net assets . . 85,644,117 18,291,371 10,258,060 (7,517,518) 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 . . . . . . . $125,710,809 $40,066,692 $21,775,321 $ 11,728,988 $ 19,246,506 $12,476,155
============ =========== =========== ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL OPPORTUNITIES
SMALL CAP VALUE 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 . . . . . . . . . . $ 344,711 $ 14,015 $ 290,784 $ 2,006,004 $ 53,396 $ 55,901
Net realized gains (losses) . . . . . . . (979,002) (9,919) 75,149 1,907,809 191,495 80,782
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . 325,684 (523,693) (18,626) 3,818,953 1,108,416 (260,664)
------------ ----------- ---------- ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . (308,607) (519,597) 347,307 7,732,766 1,353,307 (123,981)
From policyholder transactions:
Net premiums from policyholders . . . . . 39,172,672 11,420,833 4,182,527 43,216,216 23,844,756 8,906,153
Net benefits to policyholders . . . . . . (30,591,417) (4,363,378) (897,951) (38,372,463) (12,275,087) (3,655,731)
------------ ----------- ---------- ------------ ------------ -----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . 8,581,255 7,057,455 3,284,576 4,843,753 11,569,669 5,250,422
------------ ----------- ---------- ------------ ------------ -----------
Net increase in net assets . . . . . . . . 8,272,648 6,537,858 3,631,883 12,576,519 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 . . . . . . . $ 18,783,396 $10,510,748 $3,972,890 $ 31,535,049 $ 18,958,530 $ 6,035,554
============ =========== ========== ============ ============ ===========
</TABLE>
See accompanying notes.
77
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY INDEX SUBACCOUNT
-----------------------------------------------------
1999 1998 1997
------------------------- ------------- ------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 5,503,450 $ 1,211,729 $ 378,697
Net realized gains
(losses). . . . . . 7,681,081 691,270 901,978
Net unrealized
appreciation
(depreciation)
during the period . 4,678,509 6,098,919 392,256
------------------------ ------------ -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 17,863,040 8,001,918 1,672,931
From policyholder
transactions:
Net premiums from
policyholders . . . 225,994,914 60,690,933 23,412,687
Net benefits to
policyholders . . . (147,909,470) (31,166,123) (9,622,006)
------------------------ ------------ -----------
Net increase in net
assets resulting from
policyholder
transactions . . . . 78,085,444 29,524,810 13,790,681
------------------------ ------------ -----------
Net increase in net
assets . . . . . . . 95,948,484 37,526,728 15,463,612
Net assets at
beginning of period 53,964,647 16,437,919 974,307
------------------------ ------------ -----------
Net assets at end of
period . . . . . . . $ 149,913,131 $ 53,964,647 $16,437,919
======================== ============ ===========
<CAPTION>
GLOBAL BOND SUBACCOUNT
--------------------------------------------------
1999 1998 1997
------------------------ ------------ -------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 424,767 $ 283,651 $ 71,030
Net realized gains (204,675) 81,659 8,335
(losses). . . . . .
Net unrealized
appreciation (433,526) 43,608 (11,727)
(depreciation) ----------------------- ----------- ----------
during the period .
Net increase (213,434) 408,918 67,638
(decrease) in net
assets resulting from
operations . . . . .
From policyholder
transactions:
Net premiums from 11,387,398 9,258,713 1,828,179
policyholders . . .
Net benefits to
policyholders . . . (10,615,019) (3,008,341) (534,164)
----------------------- ----------- ----------
Net increase in net
assets resulting from 772,379 6,250,372 1,294,015
policyholder ----------------------- ----------- ----------
transactions . . . .
Net increase in net 558,945 6,659,290 1,361,653
assets . . . . . . .
Net assets at
beginning of period 8,279,571 1,620,281 258,628
----------------------- ----------- ----------
Net assets at end of
period . . . . . . . $ 8,838,516 $ 8,279,571 $1,620,281
======================= =========== ==========
</TABLE>
<TABLE>
<CAPTION>
BRANDES INTERNATIONAL
TURNER CORE GROWTH 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 . . . . . . . . . . . $ 1,315,438 $ 77,203 $ 87,289 $ 515,681 $ 343,646 $ 25,175
Net realized gains . . . . . . . . . . . . . 1,038,462 156,278 76,711 507,727 89,337 12,541
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . . 1,626,646 562,620 32,626 3,486,097 91,915 (26,022)
----------- ----------- ---------- ----------- ------------ -----------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . . 3,980,546 796,101 196,626 4,509,505 524,898 11,694
From policyholder transactions:
Net premiums from policyholders . . . . . . 23,098,524 4,779,974 743,622 12,134,533 5,520,633 2,484,010
Net benefits to policyholders . . . . . . . (9,308,254) (1,690,860) (580,027) (5,569,496) (2,041,375) (1,088,249)
----------- ----------- ---------- ----------- ------------ -----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . . 13,790,270 3,089,114 163,595 6,565,037 3,479,258 1,395,761
----------- ----------- ---------- ----------- ------------ -----------
Net increase in net assets . . . . . . . . . 17,770,816 3,885,215 360,221 11,074,542 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 . . . . . . . . . $22,671,005 $ 4,900,189 $1,014,974 $17,415,296 $ 6,340,754 $ 2,336,598
=========== =========== ========== =========== ============ ===========
</TABLE>
See accompanying notes.
78
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FRONTIER CAPITAL APPRECIATION
SUBACCOUNT
--------------------------------------------------------------------
1999 1998 1997
----------------------------------------- ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 449,994 $ 9,897 $ 118,150
Net realized gains
(losses). . . . . . 624,068 (445,752) 614,358
Net unrealized
appreciation
(depreciation)
during the period . 3,431,408 432,064 (368,570)
---------------------------------------- ----------- -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 4,505,470 (3,791) 363,938
From policyholder
transactions:
Net premiums from
policyholders . . . 25,135,447 13,982,031 10,030,418
Net benefits to
policyholders . . . (22,331,613) (9,695,520) (5,969,436)
---------------------------------------- ----------- -----------
Net increase in net
assets resulting from
policyholder
transactions . . . . 2,803,834 4,286,511 4,060,982
---------------------------------------- ----------- -----------
Net increase in net
assets . . . . . . . 7,309,304 4,282,720 4,424,920
Net assets at
beginning of period 9,675,718 5,392,998 968,078
---------------------------------------- ----------- -----------
Net assets at end of
period . . . . . . . $ 16,985,022 $ 9,675,718 $ 5,392,998
======================================== =========== ===========
<CAPTION>
ENHANCED U.S.
EQUITY SUBACCOUNT
---------------------------------------------------------
1999 1998 1997*
-------------------------------- ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 518,137 $ 68,233 $ 14,857
Net realized gains 264,436 87,723 4,177
(losses). . . . . .
Net unrealized
appreciation 151,562 89,677 6,844
(depreciation) ------------------------------- ----------- ---------
during the period .
Net increase 934,135 245,633 25,878
(decrease) in net
assets resulting from
operations . . . . .
From policyholder
transactions:
Net premiums from 6,480,741 3,031,309 475,503
policyholders . . .
Net benefits to
policyholders . . . (3,151,279) (1,299,530) (4,176)
------------------------------- ----------- ---------
Net increase in net
assets resulting from 3,329,462 1,731,779 471,327
policyholder ------------------------------- ----------- ---------
transactions . . . .
Net increase in net 4,263,597 1,977,412 497,205
assets . . . . . . .
Net assets at
beginning of period 2,474,617 497,205 0
------------------------------- ----------- ---------
Net assets at end of
period . . . . . . . $ 6,738,214 $ 2,474,617 $ 497,205
=============================== =========== =========
</TABLE>
<TABLE>
<CAPTION>
EMERGING MARKETS GLOBAL EQUITY BOND INDEX
EQUITY 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 . . . . . . . . . . . $ 132,259 $ 135 $ 4,204 $ 152 $ 130,136 $ 22,905
Net realized gains (losses) . . . . . . . . 663,998 (45,975) 82,873 (21,835) (104,174) 1,002
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . 432,248 2,289 47,295 4,812 (78,192) (10,217)
------------ ----------- ----------- ----------- ----------- ----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . 1,228,505 (43,551) 134,372 (16,871) (52,230) 13,690
From policyholder transactions:
Net premiums from policyholders . . . . . . 18,579,194 2,434,226 3,151,983 2,372,034 6,471,518 1,176,234
Net benefits to policyholders . . . . . . . (16,271,324) (2,203,670) (2,613,505) (2,191,135) (2,358,694) (124,467)
------------ ----------- ----------- ----------- ----------- ----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . . 2,307,870 230,556 538,478 180,899 4,112,824 1,051,767
------------ ----------- ----------- ----------- ----------- ----------
Net increase in net assets . . . . . . . . . 3,536,375 187,005 672,850 164,028 4,060,594 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 . . . . . . . . $ 3,723,380 $ 187,005 $ 836,878 $ 164,028 $ 5,126,051 $1,065,457
============ =========== =========== =========== =========== ==========
</TABLE>
- ---------
* From July 1, 1997 (commencement of operations).
** From May 1, 1998 (commencement of operations).
See accompanying notes.
79
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SMALL/MID CAP CORE HIGH YIELD BOND
SUBACCOUNT SUBACCOUNT
------------------------ ----------------------------------------
1999 1998** 1999 1998**
------------ ----------- --------------------------- --------------
<S> <C> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income
(loss). . . . . . . $ 52,711 $ (535) $ 340,435 $ 86,759
Net realized gains
(losses). . . . . . 65,733 (25,196) 42,365 64,824
Net unrealized
appreciation
(depreciation)
during the period . (10,735) 18,718 (139,659) 149,416
----------- ---------- -------------------------- -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 107,709 (7,013) 243,141 300,999
From policyholder
transactions:
Net premiums from
policyholders . . . 5,817,483 1,089,030 19,870,990 6,683,673
Net benefits to
policyholders . . . (5,611,532) (778,864) (20,368,501) (2,457,088)
----------- ---------- -------------------------- -----------
Net increase
(decrease) in net
assets resulting from
policyholder
transactions . . . . 205,951 310,166 (497,511) 4,226,585
----------- ---------- -------------------------- -----------
Net increase
(decrease) in net
assets . . . . . . . 313,660 303,153 (254,370) 4,527,584
Net assets at
beginning of period 303,153 0 4,527,584 0
----------- ---------- -------------------------- -----------
Net assets at end of
period . . . . . . . $ 616,813 $ 303,153 $ 4,273,214 $ 4,527,584
=========== ========== ========================== ===========
</TABLE>
- ---------
** From May 1, 1998 (commencement of operations).
See accompanying notes.
80
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 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, Small Cap
Growth, International Balanced, Mid Cap Growth, Large Cap Value, Money Market,
Mid Cap Value, Small/Mid Cap Growth (formerly, Diversified Mid Cap Growth), Real
Estate Equity, Growth & Income, Managed, Short-Term Bond, Small Cap Value,
International Opportunities, Equity Index, Global Bond (formerly, Strategic
Bond), Turner Core Growth, Brandes International Equity, Frontier Capital
Appreciation, 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.
81
<PAGE>
JOHN HANCOCK VARIABLE LIFE SEPARATE 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, 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.
82
<PAGE>
JOHN HANCOCK VARIABLE LIFE SEPARATE 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, 1999 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO SHARES OWNED COST VALUE
--------- ------------ ------------ --------------
<S> <C> <C> <C>
Large Cap Growth . . . . . . 4,226,550 $108,181,136 $115,521,551
Sovereign Bond . . . . . . . 4,200,440 40,512,273 38,321,473
International Equity Index . 1,689,937 29,224,059 33,198,674
Small Cap Growth . . . . . . 1,622,919 25,907,535 31,022,828
International Balanced . . . 428,930 4,680,715 4,591,856
Mid Cap Growth . . . . . . . 2,172,468 46,744,046 63,499,616
Large Cap Value . . . . . . . 2,009,306 28,839,671 27,106,917
Money Market . . . . . . . . 6,100,677 61,006,768 61,006,769
Mid Cap Value . . . . . . . . 1,497,913 18,236,811 19,138,533
Small/Mid Cap Growth . . . . 707,222 10,888,164 9,925,831
Real Estate Equity . . . . . 805,182 9,643,804 9,238,646
Growth & Income . . . . . . . 10,470,370 207,387,033 209,525,899
Managed . . . . . . . . . . . 8,137,552 130,087,567 125,710,809
Short-Term Bond . . . . . . . 1,206,452 11,963,663 11,728,988
Small Cap Value . . . . . . . 1,720,546 18,985,985 18,783,396
International Opportunities . 2,078,452 26,831,679 31,535,049
Equity Index . . . . . . . . 7,327,855 138,687,664 149,913,131
Global Bond . . . . . . . . . 900,154 9,240,752 8,838,516
Turner Core Growth . . . . . 988,705 20,433,059 22,671,005
Brandes International Equity 1,122,129 13,875,593 17,415,296
Frontier Capital Appreciation 804,225 13,485,020 16,985,022
Enhanced U.S. Equity . . . . 321,327 6,490,133 6,738,214
Emerging Markets Equity . . . 303,646 3,288,843 3,723,380
Global Equity . . . . . . . . 68,965 784,773 836,878
Bond Index . . . . . . . . . 550,115 5,214,459 5,126,051
Small/Mid Cap CORE . . . . . 62,841 608,830 616,813
High Yield Bond . . . . . . . 475,514 4,263,457 4,273,214
</TABLE>
83
<PAGE>
JOHN HANCOCK VARIABLE LIFE SEPARATE 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 during 1999 were as
follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
--------- ------------ --------------
<S> <C> <C>
Large Cap Growth . . . . . . . . . $ 62,265,535 $ 14,711,539
Sovereign Bond . . . . . . . . . . 38,288,617 29,280,010
International Equity Index . . . . 32,519,440 17,541,313
Small Cap Growth . . . . . . . . . 27,757,302 12,281,978
International Balanced . . . . . . 3,415,587 1,768,784
Mid Cap Growth . . . . . . . . . . 45,338,211 14,783,738
Large Cap Value . . . . . . . . . . 22,257,609 10,304,554
Money Market . . . . . . . . . . . 304,141,849 329,646,739
Mid Cap Value . . . . . . . . . . . 15,413,952 12,927,617
Small/Mid Cap Growth . . . . . . . 8,759,614 5,337,363
Real Estate Equity . . . . . . . . 13,375,520 8,254,469
Growth & Income . . . . . . . . . . 144,949,345 32,223,136
Managed . . . . . . . . . . . . . . 111,633,323 21,803,394
Short-Term Bond . . . . . . . . . . 17,352,671 24,342,768
Small Cap Value . . . . . . . . . . 16,062,747 7,136,780
International Opportunities . . . . 24,767,973 17,918,215
Equity Index . . . . . . . . . . . 124,086,502 40,497,607
Global Bond . . . . . . . . . . . . 10,322,531 9,125,384
Turner Core Growth . . . . . . . . 20,980,047 5,874,338
Brandes International Equity . . . 10,664,333 3,583,615
Frontier Capital Appreciation . . . 13,387,462 10,133,633
Enhanced U.S. Equity . . . . . . . 5,925,334 2,077,734
Emerging Markets Equity . . . . . . 9,682,573 7,242,444
Global Equity . . . . . . . . . . . 2,167,637 1,624,954
Bond Index . . . . . . . . . . . . 5,900,997 1,658,038
Small/Mid Cap CORE . . . . . . . . 3,312,578 3,053,916
High Yield Bond . . . . . . . . . . 11,898,171 12,055,248
</TABLE>
84
<PAGE>
JOHN HANCOCK VARIABLE LIFE SEPARATE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. NET ASSETS
Accumulation shares attributable to net assets of policyholders and
accumulation share values for each subaccount at December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
VEP CLASS #1 VEP CLASS #2 VEP CLASS #3
-------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . . 432,627 $34.19 442,008 $34.29 156,934 $34.39
Sovereign Bond . . . . . . . 226,496 13.80 170,995 13.84 28,389 13.88
International Equity Index . 205,346 17.52 163,712 17.58 4,631 17.63
Small Cap Growth . . . . . . 151,029 21.68 131,551 21.71 42,832 21.76
International Balanced . . . 21,487 13.28 25,817 13.30 12,453 13.33
Mid Cap Growth . . . . . . . 202,405 35.56 145,034 35.62 45,513 35.69
Large Cap Value . . . . . . . 191,629 16.15 140,376 16.18 4,476 16.21
Money Market . . . . . . . . 613,611 13.08 1,102,161 13.12 347,735 13.15
Mid Cap Value . . . . . . . . 106,938 14.05 45,955 14.08 2,990 14.10
Small/Mid Cap Growth . . . . 83,852 19.77 90,674 19.83 41,701 19.88
Real Estate Equity . . . . . 94,768 14.40 68,355 14.44 2,732 14.49
Growth & Income . . . . . . . 945,411 30.90 579,234 31.00 212,540 31.09
Managed . . . . . . . . . . . 554,374 20.88 279,936 20.94 23,988 21.00
Short-Term Bond . . . . . . . 94,078 12.97 84,892 13.00 7,712 13.04
Small Cap Value . . . . . . . 114,641 12.30 82,461 12.33 55,278 12.35
International Opportunities . 115,902 16.52 159,219 16.55 2,521 16.58
Equity Index . . . . . . . . 442,683 23.06 565,394 23.10 189,577 23.14
Global Bond . . . . . . . . . 55,090 12.15 48,036 12.17 16,751 12.19
Turner Core Growth . . . . . 31,697 28.29 15,337 28.36 -- --
Brandes International Equity 18,319 16.91 33,342 16.94 -- --
Frontier Capital Appreciation 20,409 22.75 13,182 22.80 -- --
Enhanced U.S. Equity . . . . 3,102 17.47 -- 17.50 -- --
Emerging Markets Equity . . . 31,332 12.77 114,481 12.78 4,803 12.79
Global Equity . . . . . . . . 11,223 12.22 15,873 12.23 777 12.24
Bond Index . . . . . . . . . 99,617 10.34 99,264 10.34 64,039 10.35
Small/Mid Cap CORE . . . . . 12,833 10.76 3,271 10.77 4,416 10.78
High Yield Bond . . . . . . . 51,021 10.09 40,169 10.10 -- --
</TABLE>
85
<PAGE>
JOHN HANCOCK VARIABLE LIFE SEPARATE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
V COLI CLASS #4 V COLI CLASS #5 V COLI CLASS #6
-------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ------------ ------------ ------------ ------------ ------------ --------------
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . . 646,018 $34.50 282,553 $34.49 252,596 $34.52
Sovereign Bond . . . . . . . 17,426 14.64 538,047 14.66 335,449 14.67
International Equity Index . 63,956 16.24 130,903 16.26 235,165 16.28
Small Cap Growth . . . . . . 90,088 22.04 39,929 22.05 38,804 22.07
International Balanced . . . 68,220 13.50 6,065 13.51 54,964 13.52
Mid Cap Growth . . . . . . . 146,264 36.15 124,116 36.18 5,992 36.19
Large Cap Value . . . . . . . 151,753 16.42 133,066 16.43 416,273 16.44
Money Market . . . . . . . . 218,714 13.01 5,906 13.02 136,140 13.04
Mid Cap Value . . . . . . . . 69,726 14.29 24,485 14.30 281,375 14.30
Small/Mid Cap Growth . . . . 27,983 19.77 958 19.79 42,902 19.81
Real Estate Equity . . . . . 58,475 14.92 4,323 14.93 203,728 14.95
Growth & Income . . . . . . . 641,268 30.84 447,326 30.87 16,723 30.91
Managed . . . . . . . . . . . 162,478 21.64 83,071 21.66 150,514 21.68
Short-Term Bond . . . . . . . 99,163 13.21 351,710 13.22 -- --
Small Cap Value . . . . . . . 32,245 12.51 49,419 12.52 281,896 12.53
International Opportunities . 203,225 16.80 157,727 16.80 74,340 16.81
Equity Index . . . . . . . . 324,024 23.44 37,253 23.46 533,298 23.47
Global Bond . . . . . . . . . 54,500 12.35 9,809 12.36 -- --
Turner Core Growth . . . . . 7,772 28.80 12,496 28.83 -- --
Brandes International Equity 104,626 17.21 81,372 17.23 42,458 17.25
Frontier Capital Appreciation 74,553 23.16 62,806 23.18 -- --
Enhanced U.S. Equity . . . . 13,962 17.68 1 17.68 -- --
Emerging Markets Equity . . . -- -- 24,692 12.87 -- --
Global Equity . . . . . . . . -- -- -- 12.32 -- --
Bond Index . . . . . . . . . 2,519 10.42 10,132 10.42 -- --
Small/Mid Cap CORE . . . . . -- -- -- 10.84 -- --
High Yield Bond . . . . . . . 1,998 10.18 310 10.18 85,180 10.18
</TABLE>
86
<PAGE>
JOHN HANCOCK VARIABLE LIFE SEPARATE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MEDALLION EXECUTIVE VLI CLASS #7 MVEP CLASS #8 MVUL CLASS #9
--------------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ---------------- ---------------- ------------ ------------ ------------ --------------
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . 92,840 $79.68 781,223 $24.82 213,207 $22.10
Sovereign Bond . . . . . . 57,389 23.69 765,173 12.44 500,049 11.71
International Equity Index 113,572 27.55 780,218 15.05 200,089 15.54
Small Cap Growth . . . . . 193,672 21.70 298,417 21.90 197,401 24.61
International Balanced . . 52,288 13.29 41,158 13.41 36,634 12.85
Mid Cap Growth . . . . . . 168,579 35.59 383,762 35.92 103,210 39.83
Large Cap Value . . . . . . 269,931 16.17 125,284 16.31 115,052 13.95
Money Market . . . . . . . 280,073 18.10 339,940 11.94 435,648 11.42
Mid Cap Value . . . . . . . 412,439 14.06 242,213 14.19 70,954 12.00
Small/Mid Cap Growth . . . 3,416 19.80 257,950 12.63 33,652 12.85
Real Estate Equity . . . . 39,901 22.14 116,040 12.27 38,147 9.54
Growth & Income . . . . . . 828,857 68.13 1,383,220 21.88 552,475 19.13
Managed . . . . . . . . . . 2,321,332 39.65 236,592 16.81 102,294 15.37
Short-Term Bond . . . . . . 63,598 12.99 63,326 11.93 95,428 11.43
Small Cap Value . . . . . . 473,526 12.32 281,097 12.43 87,362 11.80
International Opportunities 559,454 16.54 227,841 16.68 335,763 15.97
Equity Index . . . . . . . 477,728 23.08 1,251,427 23.29 598,377 19.87
Global Bond . . . . . . . . 146,786 12.16 62,185 12.27 258,673 11.58
Turner Core Growth . . . . -- -- 229,705 25.66 76,087 24.67
Brandes International
Equity . . . . . . . . . . -- -- 495,542 16.53 58,572 17.67
Frontier Capital
Appreciation . . . . . . . -- -- 405,890 19.23 119,967 18.62
Enhanced U.S. Equity . . . -- -- 145,784 17.59 139,459 17.59
Emerging Markets Equity . . 45,954 12.77 18,062 12.82 40,257 12.82
Global Equity . . . . . . . 2,967 12.23 4,588 12.28 29,228 12.28
Bond Index . . . . . . . . 18,855 10.34 12,439 10.38 185 10.38
Small/Mid Cap CORE . . . . -- -- 16,742 10.81 477 10.81
High Yield Bond . . . . . . 34,470 10.10 82,547 10.14 72,026 10.14
</TABLE>
87
<PAGE>
JOHN HANCOCK VARIABLE LIFE SEPARATE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MVUL 98 CLASS #10 MVEP 98 CLASS #11 MEVL II CLASS #12
-------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ------------ ------------ ------------ ------------ ------------ --------------
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . . 221,057 $22.10 133,186 $24.82 -- --
Sovereign Bond . . . . . . . 122,492 11.71 96,742 12.44 -- --
International Equity Index . 40,197 15.54 68,833 15.05 -- --
Small Cap Growth . . . . . . 158,068 24.61 34,357 21.90 -- --
International Balanced . . . 22,819 12.85 3,040 13.41 -- --
Mid Cap Growth . . . . . . . 291,628 39.83 111,636 35.92 -- --
Large Cap Value . . . . . . . 66,485 13.95 73,993 16.31 -- --
Money Market . . . . . . . . 575,670 11.42 718,107 11.94 -- --
Mid Cap Value . . . . . . . . 62,352 11.99 52,021 14.19 -- --
Small/Mid Cap Growth . . . . 15,710 12.85 20,460 12.63 -- --
Real Estate Equity . . . . . 10,691 9.54 7,405 12.27 -- --
Growth & Income . . . . . . . 1,047,922 19.13 196,321 21.88 -- --
Managed . . . . . . . . . . . 55,779 15.37 43,618 16.81 -- --
Short-Term Bond . . . . . . . 26,887 11.43 31,697 11.93 -- --
Small Cap Value . . . . . . . 22,247 11.80 40,374 12.43 -- --
International Opportunities . 39,238 15.97 35,379 16.68 -- --
Equity Index . . . . . . . . 1,960,860 19.87 440,030 23.29 -- --
Global Bond . . . . . . . . . 35,346 11.58 51,458 12.27 -- --
Turner Core Growth . . . . . 377,311 24.67 142,883 25.66 -- --
Brandes International Equity 82,135 17.67 116,504 16.53 -- --
Frontier Capital Appreciation 90,807 18.62 69,320 20.00 -- --
Enhanced U.S. Equity . . . . 48,887 17.59 30,852 17.59 -- --
Emerging Markets Equity . . . 7,584 12.82 3,832 12.82 -- --
Global Equity . . . . . . . . 1,070 12.28 2,561 12.28 -- --
Bond Index . . . . . . . . . 137,733 10.38 46,924 10.38 -- --
Small/Mid Cap CORE . . . . . 10,536 10.81 8,881 10.81 -- --
High Yield Bond . . . . . . . 15,036 10.14 38,875 10.14 -- --
</TABLE>
88
<PAGE>
JOHN HANCOCK VARIABLE LIFE SEPARATE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
VEP CLASS #13
--------------------------
ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES
--------- ------------ --------------
----------------------------
<S> <C> <C>
Large Cap Growth . . . . . . -- --
Sovereign Bond . . . . . . . -- --
International Equity Index . -- --
Small Cap Growth . . . . . . -- --
International Balanced . . . -- --
Mid Cap Growth . . . . . . . -- --
Large Cap Value . . . . . . . -- --
Money Market . . . . . . . . -- --
Mid Cap Value . . . . . . . . -- --
Small/Mid Cap Growth . . . . -- --
Real Estate Equity . . . . . -- --
Growth & Income . . . . . . . -- --
Managed . . . . . . . . . . . -- --
Short-Term Bond . . . . . . . -- --
Small Cap Value . . . . . . . -- --
International Opportunities . -- --
Equity Index . . . . . . . . -- --
Global Bond . . . . . . . . . -- --
Turner Core Growth . . . . . -- --
Brandes International Equity -- --
Frontier Capital Appreciation -- --
Enhanced U.S. Equity . . . . -- --
Emerging Markets Equity . . . -- --
Global Equity . . . . . . . . -- --
Bond Index . . . . . . . . . -- --
Small/Mid Cap CORE . . . . . -- --
High Yield Bond . . . . . . . -- --
</TABLE>
89
<PAGE>
ALPHABETICAL INDEX OF KEY WORDS AND PHRASES
This index should help you locate more information about many of the important
concepts in this prospectus.
<TABLE>
<CAPTION>
KEY WORD OR PHRASE PAGE KEY WORD OR PHRASE PAGE
<S> <C> <C> <C> <C>
Account . . . . . . . 28 monthly deduction date. . . . . . . 30
account value . . . . 9 mortality and expense risk charge . 10
Additional Sum Insured 16 Option A; Option B. . . . . . . . . 16
annual processing date 16 optional benefits . . . . . . . . . 16
attained age. . . . . 10 optional extra death benefit
Basic Sum Insured . . 16 feature . . . . . . . . . . . . . . 16
beneficiary . . . . . 39 owner . . . . . . . . . . . . . . . 5
business day. . . . . 29 partial withdrawal. . . . . . . . . 14
changing Option A or B 18 partial withdrawal charge . . . . . 11
changing the Total Sum payment options . . . . . . . . . . 18
Insured . . . . . . 17
charges . . . . . . . 9 Planned Premium . . . . . . . . . . 7
Code. . . . . . . . . 35 policy anniversary. . . . . . . . . 30
cost of insurance policy split option . . . . . . . . 17
rates. . . . . . . . 10
date of issue . . . . 30 policy year . . . . . . . . . . . . 30
death benefit . . . . 5 premium; premium payment. . . . . . 5
deductions. . . . . . 19 prospectus. . . . . . . . . . . . . 3
dollar cost averaging 14 receive; receipt. . . . . . . . . . 21
enhanced cash value reinstate; reinstatement. . . . . . 7
rider. . . . . . . . 17
expenses of the Trusts 11 sales charges . . . . . . . . . . . 9
fixed investment SEC . . . . . . . . . . . . . . . . 2
option . . . . . . . 29
full surrender. . . . 14 Separate Account S. . . . . . . . . 28
fund. . . . . . . . . 2 Servicing Office. . . . . . . . . . 2
grace period. . . . . 7 special loan account. . . . . . . . 15
guaranteed minimum subaccount. . . . . . . . . . . . . 28
death benefit . . . 7 surrender . . . . . . . . . . . . . 14
Guaranteed Minimum
Death Benefit Premium 8 surrender value . . . . . . . . . . 14
insurance charge. . . 10 Target Premium. . . . . . . . . . . 9
insured person. . . . 5 tax considerations. . . . . . . . . 35
investment options. . 1 telephone transfers . . . . . . . . 21
JHVLICO . . . . . . . 28 Total Sum Insured . . . . . . . . . 16
transfers of account value. . . . . 13
lapse . . . . . . . . 7 Trust . . . . . . . . . . . . . . . 2
variable investment options . . . . 1
loan. . . . . . . . . 15 we; us. . . . . . . . . . . . . . . 28
withdrawal. . . . . . . . . . . . . 14
loan interest . . . . 15 withdrawal charges. . . . . . . . . 11
you; your . . . . . . . . . . . . . 5
maximum premiums. . . 6
Minimum Initial
Premium. . . . . . . 29
minimum insurance
amount . . . . . . . 17
minimum premiums. . . 6
modified endowment
contract . . . . . . 36
</TABLE>
90
<PAGE>
PROSPECTUS DATED MAY 1, 2000
VARIABLE ESTATE PROTECTION II
a flexible premium variable life survivorship insurance policy
issued by
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY ("JHVLICO")
The policy provides an investment option with fixed rates of return
declared by JHVLICO and the following variable investment options:
<TABLE>
<CAPTION>
VARIABLE INVESTMENT OPTION MANAGED BY
- -------------------------- ----------
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Managed. . . . . . . . . . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Growth & Income . . . . . Independence Investment Associates, Inc.
Fidelity VIP Contrafund(R). . . . . . . . . . . . . . . . Fidelity Management and Research Company
Equity Index . . . . . . . State Street Global Advisors
Large Cap Value . . . . . T. Rowe Price Associates, Inc.
Large Cap Growth . . . . . Independence Investment Associates, Inc.
Large Cap Aggressive Growth. . . . . . . . . . . . . . . . Alliance Capital Management L.P.
Fidelity VIP Growth. . . Fidelity Management and Research Company
AIM V.I. Value. . . . . . A I M Advisors, Inc.
Mid Cap Value . . . . . . Neuberger Berman, LLC
Fundamental Mid Cap Growth. . . . . . . . . . . . . . . . OppenheimerFunds, Inc.
Mid Cap Growth . . . . . . Janus Capital Corporation
Real Estate Equity . . . . Independence Investment Associates, Inc.
Small/Mid Cap CORE . . . . Goldman Sachs Asset Management
Small/Mid Cap Growth. . . Wellington Management Company, LLP
Small Cap Value . . . . . INVESCO Management & Research, Inc.
Small Cap Growth . . . . . . . . . . . . . . . . . . . . . John Hancock Advisers, Inc.
MFS New Discovery. . . . MFS Investment Management(R)
Global Balanced . . . . . Brinson Partners, Inc.
Templeton International Securities. . . . . . . . . . . . Templeton Investment Counsel, Inc.
International Equity Index . . . . . . . . . . . . . . . . Independence International Associates, Inc.
International Opportunities . . . . . . . . . . . . . . . . Rowe Price-Fleming International, Inc.
Morgan Stanley Dean Witter Investment
Emerging Markets Equity . . . . . . . . . . . . . . . . . Management, Inc.
Short-Term Bond . . . . . Independence Investment Associates, Inc.
Bond Index . . . . . . . . Mellon Bond Associates, LLP
Active Bond . . . . . . . . . . . . . . . . . . . . . . . John Hancock Advisers, Inc.
Global Bond . . . . . . . . . . . . . . . . . . . . . . . J.P. Morgan Investment Management, Inc.
High Yield Bond . . . . . Wellington Management Company, LLP
Money Market. . . . . . . John Hancock Life Insurance Company
Brandes International Equity. . . . . . . . . . . . . . . Brandes Investment Partners, L.P.
Turner Core Growth. . . . Turner Investment Partners, Inc.
Frontier Capital Appreciation. . . . . . . . . . . . . . . Frontier Capital Management Company, LLC
Clifton Enhanced U.S. Equity. . . . . . . . . . . . . . . The Clifton Group
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The variable investment options shown on page 1 are those available as of the
date of this prospectus. We may add, modify or delete variable investment
options in the future.
When you select one or more of these variable investment options, we invest
your money in the corresponding investment option(s) of one or more of the
following: the John Hancock Variable Series Trust I, the AIM Variable Insurance
Funds, Inc., the Templeton Variable Products Series Fund, Fidelity's Variable
Insurance Products Fund and Variable Insurance Products Fund II, the MFS
Variable Insurance Trust, and the M Fund, Inc. (together, "the Trusts"). In this
prospectus, the investment options of the Trusts are referred to as "funds".
In the prospectuses for the Trusts, the investment options may be referred to
as "funds", "portfolios" or "series".
Each Trust is a so-called "series" type mutual fund registered with the
Securities and Exchange Commission ("SEC"). The investment results of each
variable investment option you select will depend on those of the corresponding
fund of one of the Trusts. Each of the funds is separately managed and has its
own investment objective and strategies. Attached at the end of this prospectus
is a prospectus for each Trust. The Trust prospectuses contain detailed
information about each available fund. Be sure to read those prospectuses
before selecting any of the variable investment options shown on page 1.
* * * * * * * * * * * *
Please note that the SEC has not approved or disapproved these securities, or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
* * * * * * * * * * * *
JHVLICO LIFE SERVICING OFFICE
-----------------------------
Express Delivery U.S. Mail
---------------- ---------
529 Main Street (X-4) P.O. Box 111
Charlestown, MA 02129 Boston, MA 02117
Phone: 1-800-521-1234
Fax: 1-617-572-6956
2
<PAGE>
GUIDE TO THIS PROSPECTUS
This prospectus contains information that you should know before you buy a
policy or exercise any of your rights under the policy. However, please keep in
mind that this is a prospectus - - it is not the policy. The prospectus
---
simplifies many policy provisions to better communicate the policy's essential
features. Your rights and obligations under the policy will be determined by the
language of the policy itself. When you receive your policy, read it carefully.
This prospectus is arranged in the following way:
. The section which follows is called "Basic Information". It is in a
question and answer format. We suggest you read the Basic Information
section before reading any other section of the prospectus.
. Behind the Basic Information section are illustrations of
hypothetical policy benefits that help clarify how the policy works.
These start on page 24.
. Behind the illustrations is a section called "Additional Information"
that gives more details about the policy. It generally does not
---
repeat information that is in the Basic Information section. A table
of contents for the Additional Information section appears on page
33.
. Behind the Additional Information section are the financial
statements for JHVLICO and Separate Account S. These start on page
47.
. Finally, there is an Alphabetical Index of Key Words and Phrases at
the back of the prospectus on page 95.
After the Alphabetical Index of Key Words and Phrases, this prospectus ends and
the prospectuses for the Trusts begin.
* * * * * * * * * * * *
3
<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C>
Question Beginning on page
- --------
.What is the policy?. . . . . . . . . . . . . . . 5
.Who owns the policy?. . . . . . . . . . . . . . 5
.How can I invest money in the policy?. . . . . . 5
.Is there a minimum amount I must invest?. . . . 7
.How will the value of my investment in the policy change 8
over time?. . . . . . . . . . . . . . . . . . . .
.What charges will JHVLICO deduct from my investment in 9
the policy?. . . . . . . . . . . . . . . . . . .
.What charges will the Trusts deduct from my investment in 11
the policy?. . . . . . . . . . . . . . . . . . .
.What other charges could JHVLICO impose in the future? 13
.How can I change my policy's investment allocations? 14
.How can I access my investment in the policy?. . 15
.How much will JHVLICO pay when the last insured person 16
dies?. . . . . . . . . . . . . . . . . . . . . .
.What optional rider benefits can I choose?. . . 18
.How can I change my policy's insurance coverage? 19
.Can I cancel my policy after it's issued?. . . . 19
.Can I choose the form in which JHVLICO pays out policy 20
proceeds?. . . . . . . . . . . . . . . . . . . .
.To what extent can JHVLICO vary the terms and conditions
of its policies in particular cases?. . . . . . 21
.How will my policy be treated for income tax purposes? 21
.How do I communicate with JHVLICO?. . . . . . . 21
</TABLE>
4
<PAGE>
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
-----
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.
5
<PAGE>
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
41. 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 7 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 2 of this prospectus.
We will also accept premiums:
. by wire or by exchange from another insurance company,
. via an electronic funds transfer program (any owner interested in
making monthly premium payments must use this method), or
-------
. 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.
6
<PAGE>
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,
---
if the policy's surrender value is not sufficient to pay the charges on a
monthly deduction date (as defined on page 36), 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 and only if you've elected death benefit Option B (see
"How much will JHVLICO pay when the last insured person dies?" on page 16). 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 16), 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%.
7
<PAGE>
The Guaranteed Minimum Death Benefit Premium (or "GMDB Premium) is defined in
the policy and one-twelfth of it is "due" on each monthly deduction date. 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 16).
If the guaranteed minimum death benefit test is not satisfied on any monthly
deduction 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 monthly
deduction date on which default occurred. If it is reinstated more than 1 year
after such monthly deduction 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
---
much will JHVLICO pay when the last insured person dies?" on page 16).
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 37.)
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
8
<PAGE>
describe these charges under "What charges will JHVLICO deduct from my
investment in the policy?" below.
The amount you've invested in the fixed investment option will earn interest
at a rate we declare from time to time. We guarantee that this rate will be at
least 4%. If you want to know what the current declared rate is, just call or
write to us. The current declared rate will also appear in the annual statement
we will send you. Amounts you invest in the fixed investment option will not be
---
subject to the asset-based risk charge described on page 10. 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 15.
WHAT CHARGES WILL JHVLICO DEDUCT FROM MY INVESTMENT IN THE POLICY?
Deductions from premium payments
. Premium tax charge - A charge to cover state premium taxes we currently
--------------------
expect to pay, on average. This charge is currently 2.35% of each premium.
. DAC tax charge - A charge to cover the increased Federal income tax
----------------
burden that we currently expect will result from receipt of premiums. This
charge is currently 1.25% of each premium.
. Premium 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
--------------
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
9
<PAGE>
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 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 first 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 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
------------------------
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 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
10
<PAGE>
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 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 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 at issue and is guaranteed
not to exceed 3c per $1,000 of Basic Sum Insured at issue. 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.
. Age100 waiver of charges rider charge - A monthly charge if this rider is
---------------------------------------
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
--------------------------
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 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 TRUSTS DEDUCT FROM MY INVESTMENT IN THE POLICY?
The Trusts must pay investment management fees and other operating expenses.
These fees and expenses are different for each fund and reduce the investment
return of each fund. Therefore, they also indirectly reduce the return you will
earn on any variable investment options you select.
The following figures for the funds are based on historical fund expenses, as
a percentage (rounded to two decimal places) of each fund's average daily net
assets for 1999, except as indicated in the Notes appearing at the end of this
table. Expenses of the funds are not fixed or specified under the terms of the
policy, and those expenses may vary from year to year.
11
<PAGE>
<TABLE>
<CAPTION>
Investment Distribution and Other Operating Total Fund Other Operating
Management Service Expenses With Operating Expenses Absent
Fund Name Fee (12b-1) Fees Reimbursement Expenses Reimbursement
- --------- ---------- ---------------- --------------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
JOHN HANCOCK VARIABLE SERIES TRUST I
(NOTE 1):
Managed . . . . . . . . . . . . . . . . 0.32% N/A 0.03% 0.35% 0.03%
Growth & Income . . . . . . . . . . . . 0.25% N/A 0.03% 0.28% 0.03%
Equity Index . . . . . . . . . . . . . 0.14% N/A 0.00% 0.14% 0.08%
Large Cap Value . . . . . . . . . . . . 0.74% N/A 0.10% 0.84% 0.11%
Large Cap Growth . . . . . . . . . . . 0.36% N/A 0.03% 0.39% 0.03%
Large Cap Aggressive Growth . . . . . . 0.98% N/A 0.10% 1.08% 0.19%
Mid Cap Value . . . . . . . . . . . . . 0.80% N/A 0.10% 0.90% 0.12%
Mid Cap Growth . . . . . . . . . . . . 0.82% N/A 0.10% 0.92% 0.11%
Fundamental Mid Cap Growth . . . . . . 0.85% N/A 0.10% 0.95% 0.24%
Real Estate Equity . . . . . . . . . . 0.60% N/A 0.10% 0.70% 0.10%
Small/Mid Cap CORE . . . . . . . . . . 0.80% N/A 0.10% 0.90% 0.66%
Small/Mid Cap Growth . . . . . . . . . 0.75% N/A 0.10% 0.85% 0.10%
Small Cap Value . . . . . . . . . . . . 0.80% N/A 0.10% 0.90% 0.16%
Small Cap Growth . . . . . . . . . . . 0.75% N/A 0.10% 0.85% 0.14%
Global Balanced * . . . . . . . . . . . 0.85% N/A 0.10% 0.95% 0.46%
International Equity Index . . . . . . 0.16% N/A 0.10% 0.26% 0.22%
International Opportunities . . . . . . 0.87% N/A 0.10% 0.97% 0.29%
Emerging Markets Equity . . . . . . . . 1.27% N/A 0.10% 1.37% 2.17%
Short-Term Bond . . . . . . . . . . . . 0.30% N/A 0.10% 0.40% 0.13%
Bond Index . . . . . . . . . . . . . . 0.15% N/A 0.10% 0.25% 0.20%
Active Bond * . . . . . . . . . . . . . 0.25% N/A 0.03% 0.28% 0.03%
Global Bond . . . . . . . . . . . . . . 0.69% N/A 0.10% 0.79% 0.15%
High Yield Bond . . . . . . . . . . . . 0.65% N/A 0.10% 0.75% 0.39%
Money Market . . . . . . . . . . . . . 0.25% N/A 0.06% 0.31% 0.06%
AIM VARIABLE INSURANCE FUNDS, INC.:
AIM V.I. Value . . . . . . . . . . . . 0.61% N/A 0.15% 0.76% 0.15%
VARIABLE INSURANCE PRODUCTS FUND -
SERVICE CLASS (NOTE 2):
Fidelity VIP Growth . . . . . . . . . . 0.58% 0.10% 0.07% 0.75% 0.09%
VARIABLE INSURANCE PRODUCTS FUND II -
SERVICE CLASS (NOTE 2):
Fidelity VIP Contrafund(R) . . . . . . 0.58% 0.10% 0.07% 0.75% 0.10%
FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST - CLASS 2 SHARES (NOTE
3):
Templeton International Securities . . 0.69% 0.25% 0.19% 1.13% 0.19%
MFS VARIABLE INSURANCE TRUST
(NOTE 4):
MFS New Discovery . . . . . . . . . . . 0.90% N/A 0.17% 1.07% 1.59%
M FUND, INC. (NOTE 5):
Brandes International Equity . . . . . 0.96% N/A 0.25% 1.21% 0.97%
Turner Core Growth . . . . . . . . . . 0.45% N/A 0.25% 0.70% 0.95%
Frontier Capital Appreciation . . . . . 0.90% N/A 0.25% 1.15% 0.57%
Clifton Enhanced U.S. Equity** . . . . 0.55% N/A 0.25% 0.80% 1.08%
</TABLE>
12
<PAGE>
NOTES TO FUND EXPENSE TABLE
(1) John Hancock Variable Series Trust I funds' percentages reflect
management fees and other fund expenses based on the allocation
methodology and expense reimbursement policy adopted April 23, 1999.
Under the policy, John Hancock Life Insurance Company voluntarily
reimburses a fund when the fund's "other fund expenses" exceed 0.10% of
the fund's average daily net assets (0.00% for Equity Index).
* Global Balanced was formerly "International Balanced" and Active Bond
was formerly "Sovereign Bond".
(2) A portion of the brokerage commissions that certain of the Fidelity VIP
funds pay was used to reduce fund expenses. In addition, through
arrangements with certain funds' custodian, credits realized as a result
of uninvested cash balances were used to reduce a portion of each
applicable fund's expenses. Without these reductions, the operating
expenses of the funds would have been higher, as shown in the last column
of this table.
(3) On February 8, 2000, shareholders of each fund approved a merger and
reorganization that combined the Templeton International Equity Fund with
the Templeton International Securities Fund, effective May 1, 2000.
Shareholders of the Templeton International Securities Fund had approved
new management fees, which apply to the combined funds effective May 1,
2000. The table shows restated total expenses for the fund based on the
new fees and the assets, as of December 31, 1999, of the Templeton
International Securities Fund. However, if the table reflected both the
new fees and the combined assets of the Templeton International Equity
Fund and the Templeton International Securities Fund, the estimated
expenses for the two funds combined after May 1, 2000 would be:
Management Fees 0.65%, Distribution and Service Fees 0.25%, Other Expenses
0.20%, and Total Fund Operating Expenses 1.10%.
(4) MFS Variable Insurance Trust funds have an expense offset arrangement
which reduces each fund's custodian fee based upon the amount of cash
maintained by the fund with its custodian and dividend disbursing agent.
Each fund may enter into other such arrangements and directed brokerage
arrangements, which would also have the effect of reducing the fund's
expenses. Expenses do not take into account these expense reductions, and
are therefore higher than the actual expenses of the fund. MFS Investment
Management(R) (also doing business as Massachusetts Financial Services
Company) has contractually agreed to bear expense for the New Discovery
Fund, subject to reimbursement by the fund, such that such fund's "other
fund expenses" shall not exceed 0.15% of the average daily net assets of
the fund during the current fiscal year.
(5) M Fund, Inc. funds' percentages reflect the investment management fees
currently payable and other fund expenses allocated in 1999. M Financial
Advisers, Inc. reimburses a fund when the fund's other operating expenses
exceed 0.25% of that fund's average daily net assets.
** Clifton Enhanced U.S. Equity was formerly "Enhanced U.S. Equity".
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.
13
<PAGE>
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.
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.
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%.
Transfers of existing account value
You may also transfer your existing account value from one investment option
to another. To do so, you must tell us how much to transfer, either as a whole
number percentage or as a specific dollar amount.
Under our current rules, you can make transfers out of any variable investment
option anytime you wish. However, transfers out of the fixed investment option
are currently subject to the following restrictions:
. You can only make such a transfer once in each policy year.
. The most you can transfer at any one time is the greater of $500 or 20%
of the assets in your fixed investment option.
We reserve the right to impose limits on:
. the minimum amount of each transfer out of the fixed investment option;
. the maximum amount of any transfer into the fixed investment option after
the second policy year; and
. the number and frequency of transfers out of the variable investment
options.
Dollar cost averaging
This is a program of automatic monthly transfers out of the Money Market
investment option into one or more of the other variable investment options. You
choose the investment options and the dollar amount and timing of the transfers.
The program is designed to reduce the risks that result from market
fluctuations. It does this by spreading out the allocation of your money to
investment options over a longer period of time. This allows you to reduce the
risk of investing most of your money at a time when market prices are high.
Obviously, the success of this strategy depends on market trends and is not
guaranteed.
14
<PAGE>
HOW CAN I ACCESS MY INVESTMENT IN THE POLICY?
Full surrender
You may surrender your policy in full at any time. If you do, we will pay you
the account value less any policy loans. 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 10). We also
reserve the right to refuse 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 16) and under the guaranteed minimum death benefit
feature (see page 7). 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 7. 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 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 7). 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
15
<PAGE>
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.
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 36.
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.
16
<PAGE>
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
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. An "annual processing date" is the first business
day of a policy year.
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 41). 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.
17
<PAGE>
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.
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.
18
<PAGE>
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. However, you will have to provide us with evidence that the
surviving insured persons still meet our requirements for issuing insurance
coverage. As to when such an increase would take effect, see "Effective date of
other policy transactions" on page 38.
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:
. 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. As to when such a decrease would take effect, see "Effective
date of other policy transactions" on page 38.
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 41 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 2, 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
19
<PAGE>
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
. Option 3 - Equal monthly payments for life, but with payments
guaranteed for a specific number of years
. Option 4 - Equal monthly payments for life with no refund
. Option 5 - Equal monthly payments for life with a refund if all of
the proceeds haven't been paid out
You cannot choose an option if the monthly payments under the option would be
less than $50. We will issue a supplementary agreement when the proceeds are
applied to any alternative payment option. That agreement will spell out the
terms of the option in full. We will credit interest on each of the above
options. For Options 1 and 2A, the interest will be at least an effective annual
rate of 3 1/2%.
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.
20
<PAGE>
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 of your insurance
coverage may vary from the terms and conditions described in this prospectus,
depending upon where you reside. These variations will be reflected in your
policy or in endorsements attached to your policy.
Variations in expenses or risks
We may vary the charges and other terms of our policies where special
circumstances result in sales or administrative expenses, mortality risks or
other risks that are different from those normally associated with the policies.
These include the type of variations discussed under "Reduced charges for
eligible classes" on page 39. No variation in any charge will exceed any maximum
stated in this prospectus with respect to that charge.
HOW WILL MY POLICY BE TREATED FOR INCOME TAX PURPOSES?
Generally, death benefits paid under policies such as yours are not subject to
income tax. Earnings on your account value are not subject to income tax as long
as we don't pay them out to you. If we do pay out any amount of your account
value upon surrender or partial withdrawal, all or part of that distribution
should generally be treated as a return of the premiums you've paid and should
not be subject to income tax. Amounts you borrow are generally not taxable to
you.
However, some of the tax rules change if your policy is found to be a
"modified endowment contract." This can happen if you've paid more than a
certain amount of premiums that is prescribed by the tax laws. Additional taxes
and penalties may be payable for policy distributions of any kind.
For further information about the tax consequences of owning a policy, please
read "Tax considerations" beginning on page 41.
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 2.
Certain requests must be made in writing and be signed and dated by you. They
include the following:
. loans, surrenders or partial withdrawals
21
<PAGE>
. 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 2. 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 "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 1-800-521-1234 or by faxing us at 1-617-572-6956.
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.
22
<PAGE>
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.
23
<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 -.79%, 5.16% and 11.12%.
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 preferred underwriting risk when the policy is issued and for a
female insured person who is 50 years old and a preferred 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 .66%, and (2) an assumed average asset charge for all
other Trust operating expenses equivalent to an effective annual rate of .13%.
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 as described
in the footnotes to the table beginning on page 11. We currently expect those
reimbursement arrangements to continue indefinitely, but that is not guaranteed.
The second column of each table shows the amount you would have at the end of
each policy year if an amount equal to the assumed Planned Premiums were
invested to earn interest, after taxes, at 5% compounded annually. This is not a
policy value. It is included for comparison purposes only.
Because your circumstances will no doubt differ from those in the
illustrations that follow, values under your policy will differ, in most cases
substantially. Upon request, we will furnish you with a comparable illustration
reflecting 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.
24
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION A DEATH BENEFIT GUIDELINE PREMIUM AND
CASH VALUE CORRIDOR TEST
NO GUARANTEED MINIMUM DEATH BENEFIT 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 $ 4,285 $ 4,568 $ 4,852
2 17,556 500,000 500,000 500,000 10,099 11,003 11,943
3 26,998 500,000 500,000 500,000 15,013 16,883 18,901
4 36,912 500,000 500,000 500,000 20,367 23,563 27,146
5 47,322 500,000 500,000 500,000 25,635 30,530 36,233
6 58,252 500,000 500,000 500,000 31,879 38,903 47,400
7 69,728 500,000 500,000 500,000 38,019 47,633 59,705
8 81,779 500,000 500,000 500,000 44,055 56,732 73,262
9 94,432 500,000 500,000 500,000 49,985 66,215 88,197
10 107,717 500,000 500,000 500,000 55,807 76,094 104,647
11 121,667 500,000 500,000 500,000 62,165 87,064 123,483
12 136,314 500,000 500,000 500,000 68,396 98,484 144,224
13 151,694 500,000 500,000 500,000 74,495 110,366 167,062
14 167,843 500,000 500,000 500,000 80,452 122,721 192,207
15 184,799 500,000 500,000 500,000 86,258 135,561 219,891
16 202,603 500,000 500,000 500,000 92,363 149,646 251,637
17 221,297 500,000 500,000 500,000 98,311 164,340 286,775
18 240,926 500,000 500,000 500,000 104,078 179,659 325,680
19 261,536 500,000 500,000 500,000 109,641 195,619 368,776
20 283,177 500,000 500,000 500,000 114,967 212,235 416,549
25 408,735 500,000 500,000 783,605 138,127 307,566 746,291
30 568,983 500,000 500,000 1,359,379 148,696 426,158 1,294,647
35 773,504 500,000 608,711 2,309,479 134,287 579,724 2,199,504
</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.
25
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION B DEATH BENEFIT GUIDELINE PREMIUM AND
CASH VALUE CORRIDOR TEST
NO GUARANTEED MINIMUM DEATH BENEFIT 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 $504,284 $504,568 $ 504,852 $ 4,284 $ 4,568 $ 4,852
2 17,556 509,691 510,594 511,534 10,099 11,002 11,942
3 26,998 515,011 516,881 518,899 15,011 16,881 18,899
4 36,912 520,364 523,559 527,142 20,364 23,559 27,142
5 47,322 525,630 530,524 536,226 25,630 30,524 36,226
6 58,252 531,872 538,893 547,388 31,872 38,893 47,388
7 69,728 538,009 547,619 559,686 38,009 47,619 59,686
8 81,779 544,040 556,711 573,233 44,040 56,712 73,233
9 94,432 549,963 566,185 588,154 49,963 66,185 88,154
10 107,717 555,776 576,050 604,583 55,776 76,050 104,583
11 121,667 562,125 587,005 623,393 62,125 87,005 123,393
12 136,314 568,342 598,401 644,094 68,342 98,401 144,094
13 151,694 574,419 610,246 666,868 74,419 110,246 166,868
14 167,843 580,345 622,545 691,914 80,345 122,545 191,914
15 184,799 586,104 635,301 719,445 86,104 135,301 219,445
16 202,603 592,142 649,261 750,954 92,142 149,261 250,954
17 221,297 597,994 663,774 785,734 97,994 163,774 285,734
18 240,926 603,629 678,832 824,103 103,629 178,832 324,103
19 261,536 609,011 694,421 866,406 109,011 194,421 366,406
20 283,177 614,093 710,516 913,017 114,093 210,516 413,017
25 408,735 634,441 798,864 1,228,254 134,441 298,864 728,254
30 568,983 636,984 891,711 1,732,616 136,984 391,711 1,232,616
35 773,504 604,955 969,928 2,529,310 104,955 469,928 2,029,310
</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, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION A DEATH BENEFIT GUIDELINE PREMIUM AND
CASH VALUE CORRIDOR TEST
NO GUARANTEED MINIMUM DEATH BENEFIT 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 $ 4,131 $ 4,409 $ 4,689
2 17,556 500,000 500,000 500,000 9,766 10,649 11,567
3 26,998 500,000 500,000 500,000 14,453 16,273 18,238
4 36,912 500,000 500,000 500,000 19,525 22,625 26,102
5 47,322 500,000 500,000 500,000 24,446 29,177 34,694
6 58,252 500,000 500,000 500,000 30,267 37,032 45,227
7 69,728 500,000 500,000 500,000 35,896 45,126 56,734
8 81,779 500,000 500,000 500,000 41,320 53,451 69,300
9 94,432 500,000 500,000 500,000 46,524 62,002 83,021
10 107,717 500,000 500,000 500,000 51,490 70,769 97,998
11 121,667 500,000 500,000 500,000 56,676 80,250 114,886
12 136,314 500,000 500,000 500,000 61,566 89,938 133,324
13 151,694 500,000 500,000 500,000 66,125 99,810 153,455
14 167,843 500,000 500,000 500,000 70,306 109,835 175,436
15 184,799 500,000 500,000 500,000 74,056 119,973 199,446
16 202,603 500,000 500,000 500,000 77,317 130,187 225,699
17 221,297 500,000 500,000 500,000 79,995 140,407 254,425
18 240,926 500,000 500,000 500,000 82,064 150,628 285,954
19 261,536 500,000 500,000 500,000 83,423 160,783 320,633
20 283,177 500,000 500,000 500,000 83,972 170,817 358,898
25 408,735 500,000 500,000 652,633 69,568 216,717 621,555
30 568,983 ** 500,000 1,095,714 ** 242,208 1,043,537
35 773,504 ** 500,000 1,786,523 ** 213,086 1,701,450
</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.
27
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION B DEATH BENEFIT GUIDELINE PREMIUM AND
CASH VALUE CORRIDOR TEST
NO GUARANTEED MINIMUM DEATH BENEFIT 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 $504,131 $504,409 $ 504,688 $ 4,131 $ 4,409 $ 4,688
2 17,556 509,357 510,240 511,158 9,765 10,648 11,566
3 26,998 514,449 516,268 518,233 14,449 16,268 18,233
4 36,912 519,515 522,612 526,088 19,515 22,612 26,088
5 47,322 524,424 529,150 534,661 24,424 29,150 34,661
6 58,252 530,225 536,980 545,162 30,225 36,980 45,162
7 69,728 535,824 545,032 556,613 35,824 45,033 56,613
8 81,779 541,203 553,294 569,090 41,203 53,294 69,090
9 94,432 546,343 561,750 582,671 46,343 61,750 82,671
10 107,717 551,220 570,381 597,439 51,220 70,381 97,439
11 121,667 556,285 579,667 614,016 56,285 79,667 114,016
12 136,314 561,013 589,085 632,004 61,013 89,085 132,004
13 151,694 565,359 598,588 651,490 65,359 98,588 151,490
14 167,843 569,263 608,111 672,555 69,263 108,111 172,555
15 184,799 572,658 617,576 695,280 72,658 117,576 195,280
16 202,603 575,468 626,896 719,744 75,468 126,896 219,744
17 221,297 577,576 635,934 745,988 77,576 135,934 245,988
18 240,926 578,951 644,632 774,145 78,951 144,632 274,145
19 261,536 579,467 652,834 804,261 79,467 152,834 304,261
20 283,177 579,010 660,386 836,401 79,010 160,386 336,401
25 408,735 556,768 680,983 1,028,418 56,768 180,983 528,418
30 568,983 ** 639,753 1,263,276 ** 139,753 763,276
35 773,504 ** ** 1,511,470 ** ** 1,011,470
</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, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION A DEATH BENEFIT CASH VALUE ACCUMULATION
TEST
NO GUARANTEED MINIMUM DEATH BENEFIT 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 $ 4,285 $ 4,568 $ 4,852
2 17,556 500,000 500,000 500,000 10,099 11,003 11,943
3 26,998 500,000 500,000 500,000 15,013 16,883 18,901
4 36,912 500,000 500,000 500,000 20,367 23,563 27,146
5 47,322 500,000 500,000 500,000 25,635 30,530 36,233
6 58,252 500,000 500,000 500,000 31,879 38,903 47,400
7 69,728 500,000 500,000 500,000 38,019 47,633 59,705
8 81,779 500,000 500,000 500,000 44,055 56,732 73,262
9 94,432 500,000 500,000 500,000 49,985 66,215 88,197
10 107,717 500,000 500,000 500,000 55,807 76,094 104,647
11 121,667 500,000 500,000 500,000 62,165 87,064 123,483
12 136,314 500,000 500,000 500,000 68,396 98,484 144,224
13 151,694 500,000 500,000 500,000 74,495 110,366 167,062
14 167,843 500,000 500,000 500,000 80,452 122,721 192,207
15 184,799 500,000 500,000 500,000 86,258 135,561 219,891
16 202,603 500,000 500,000 500,000 92,363 149,646 251,637
17 221,297 500,000 500,000 533,317 98,311 164,340 286,751
18 240,926 500,000 500,000 586,434 104,078 179,659 325,550
19 261,536 500,000 500,000 643,269 109,641 195,619 368,400
20 283,177 500,000 500,000 704,182 114,967 212,235 415,696
25 408,735 500,000 500,000 1,088,631 138,127 307,566 737,198
30 568,983 500,000 561,906 1,661,585 148,696 424,354 1,254,837
35 773,504 500,000 686,517 2,531,261 134,287 562,595 2,074,346
</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.
29
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION B DEATH BENEFIT CASH VALUE ACCUMULATION
TEST
NO GUARANTEED MINIMUM DEATH BENEFIT 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 $504,284 $504,568 $ 504,852 $ 4,284 $ 4,568 $ 4,852
2 17,556 509,691 510,594 511,534 10,099 11,002 11,942
3 26,998 515,011 516,881 518,899 15,011 16,881 18,899
4 36,912 520,364 523,559 527,142 20,364 23,559 27,142
5 47,322 525,630 530,524 536,226 25,630 30,524 36,226
6 58,252 531,872 538,893 547,388 31,872 38,893 47,388
7 69,728 538,009 547,619 559,686 38,009 47,619 59,686
8 81,779 544,040 556,711 573,233 44,040 56,712 73,233
9 94,432 549,963 566,185 588,154 49,963 66,185 88,154
10 107,717 555,776 576,050 604,583 55,776 76,050 104,583
11 121,667 562,125 587,005 623,393 62,125 87,005 123,393
12 136,314 568,342 598,401 644,094 68,342 98,401 144,094
13 151,694 574,419 610,246 666,868 74,419 110,246 166,868
14 167,843 580,345 622,545 691,914 80,345 122,545 191,914
15 184,799 586,104 635,301 719,445 86,104 135,301 219,445
16 202,603 592,142 649,261 750,954 92,142 149,261 250,954
17 221,297 597,994 663,774 785,734 97,994 163,774 285,734
18 240,926 603,629 678,832 824,103 103,629 178,832 324,103
19 261,536 609,011 694,421 866,406 109,011 194,421 366,406
20 283,177 614,093 710,516 913,017 114,093 210,516 413,017
25 408,735 634,441 798,864 1,228,254 134,441 298,864 728,254
30 568,983 636,984 891,711 1,732,616 136,984 391,711 1,232,616
35 773,504 604,955 969,928 2,529,310 104,955 469,928 2,029,310
</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.
30
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED UNDERWRITING CLASS OPTION A DEATH BENEFIT CASH VALUE ACCUMULATION
TEST
NO GUARANTEED MINIMUM DEATH BENEFIT 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 $ 4,131 $ 4,409 $ 4,689
2 17,556 500,000 500,000 500,000 9,766 10,649 11,567
3 26,998 500,000 500,000 500,000 14,453 16,273 18,238
4 36,912 500,000 500,000 500,000 19,525 22,625 26,102
5 47,322 500,000 500,000 500,000 24,446 29,177 34,694
6 58,252 500,000 500,000 500,000 30,267 37,032 45,227
7 69,728 500,000 500,000 500,000 35,896 45,126 56,734
8 81,779 500,000 500,000 500,000 41,320 53,451 69,300
9 94,432 500,000 500,000 500,000 46,524 62,002 83,021
10 107,717 500,000 500,000 500,000 51,490 70,769 97,998
11 121,667 500,000 500,000 500,000 56,676 80,250 114,886
12 136,314 500,000 500,000 500,000 61,566 89,938 133,324
13 151,694 500,000 500,000 500,000 66,125 99,810 153,455
14 167,843 500,000 500,000 500,000 70,306 109,835 175,436
15 184,799 500,000 500,000 500,000 74,056 119,973 199,446
16 202,603 500,000 500,000 500,000 77,317 130,187 225,699
17 221,297 500,000 500,000 500,000 79,995 140,407 254,425
18 240,926 500,000 500,000 514,936 82,064 150,628 285,859
19 261,536 500,000 500,000 558,693 83,423 160,783 319,963
20 283,177 500,000 500,000 604,570 83,972 170,817 356,892
25 408,735 500,000 500,000 871,762 69,568 216,717 590,339
30 568,983 ** 500,000 1,216,823 ** 242,208 918,951
35 773,504 ** 500,000 1,666,898 ** 213,086 1,366,008
</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.
31
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE SURVIVORSHIP $500,000 TOTAL SUM INSURED
MALE, ISSUE AGE 55, PREFERRED UNDERWRITING CLASS FEMALE, ISSUE AGE 50,
PREFERRED 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 $504,131 $504,409 $ 504,688 $ 4,131 $ 4,409 $ 4,688
2 17,556 509,357 510,240 511,158 9,765 10,648 11,566
3 26,998 514,449 516,268 518,233 14,449 16,268 18,233
4 36,912 519,515 522,612 526,088 19,515 22,612 26,088
5 47,322 524,424 529,150 534,661 24,424 29,150 34,661
6 58,252 530,225 536,980 545,162 30,225 36,980 45,162
7 69,728 535,824 545,032 556,613 35,824 45,033 56,613
8 81,779 541,203 553,294 569,090 41,203 53,294 69,090
9 94,432 546,343 561,750 582,671 46,343 61,750 82,671
10 107,717 551,220 570,381 597,439 51,220 70,381 97,439
11 121,667 556,285 579,667 614,016 56,285 79,667 114,016
12 136,314 561,013 589,085 632,004 61,013 89,085 132,004
13 151,694 565,359 598,588 651,490 65,359 98,588 151,490
14 167,843 569,263 608,111 672,555 69,263 108,111 172,555
15 184,799 572,658 617,576 695,280 72,658 117,576 195,280
16 202,603 575,468 626,896 719,744 75,468 126,896 219,744
17 221,297 577,576 635,934 745,988 77,576 135,934 245,988
18 240,926 578,951 644,632 774,145 78,951 144,632 274,145
19 261,536 579,467 652,834 804,261 79,467 152,834 304,261
20 283,177 579,010 660,386 836,401 79,010 160,386 336,401
25 408,735 556,768 680,983 1,028,418 56,768 180,983 528,418
30 568,983 ** 639,753 1,263,276 ** 139,753 763,276
35 773,504 ** ** 1,511,470 ** ** 1,011,470
</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.
32
<PAGE>
ADDITIONAL INFORMATION
This section of the prospectus provides additional detailed information that
is not contained in the Basic Information section on pages 4 through 23.
<TABLE>
<CAPTION>
CONTENTS OF THIS SECTION BEGINNING ON PAGE
- ------------------------ -----------------
<S> <C>
Description of JHVLICO ...................... 34
How we support the policy and investment options 34
Procedures for issuance of a policy......... 35
Basic Sum Insured vs. Additional Sum Insured 36
Commencement of investment performance...... 37
How we process certain policy transactions.. 37
Effects of policy loans..................... 38
Additional information about how certain policy charges 39
work........................................
How we market the policies.................. 40
Tax considerations.......................... 41
Reports that you will receive............... 43
Voting privileges that you will have........ 43
Changes that JHVLICO can make as to your policy 43
Adjustments we make to death benefits....... 44
When we pay policy proceeds................. 44
Other details about exercising rights and paying benefits 45
Legal matters............................... 45
Registration statement filed with the SEC... 45
Accounting and actuarial experts............ 45
Financial statements of JHVLICO and the Account 45
List of Directors and Executive Officers of JHVLICO 46
</TABLE>
33
<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. As of December 31, 1999, John
Hancock's assets were approximately $71 billion and it had invested
approximately $575 million in JHVLICO in connection with JHVLICO's organization
and operation. It is anticipated that John Hancock will from time to time make
additional capital contributions to JHVLICO to enable us to meet our reserve
requirements and expenses in connection with our business. John Hancock is
committed to make additional capital contributions if necessary to ensure that
we maintain a positive net worth.
HOW WE SUPPORT THE POLICY AND INVESTMENT OPTIONS
Separate Account 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 one of
the Trusts. New subaccounts may be added as new funds are added to the Trusts
and made available to policy owners. Existing subaccounts may be deleted if
existing funds are deleted from the Trusts.
We will purchase and redeem Trust shares for the Account at their net asset
value without any sales or redemption charges. Shares of a Trust represent an
interest in one of the funds of the Trust which corresponds to a subaccount of
the Account. Any dividend or capital gains distributions received by the Account
will be reinvested in shares of that same fund at their net asset value as of
the dates paid.
On each business day, shares of each fund are purchased or redeemed by us for
each subaccount based on, among other things, the amount of net premiums
allocated to the subaccount, distributions reinvested, and transfers to, from
and among subaccounts, all to be effected as of that date. Such
34
<PAGE>
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 36).
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.
35
<PAGE>
. 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
36
<PAGE>
wish to maximize the proportion of the Additional Sum Insured.
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 41).
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.
37
<PAGE>
Transfers among investment options
Any reallocation among investment options must be such that the total in all
investment options after reallocation equals 100% of account value. Transfers
out of any investment option will be effective at the end of the business day in
which we receive at our Life Servicing Office notice satisfactory to us.
We have the right to defer transfers of amounts out of the fixed investment
option for up to six months.
Dollar cost averaging
Scheduled transfers under this option may be made from the Money Market
investment option to not more than nine other variable investment options.
However, the amount transferred to any one investment option must be at least
$100.
Once we receive the election in form satisfactory to us at our Life Servicing
Office, transfers will begin on the second monthly deduction date following its
receipt. If you have any questions with respect to this provision, call
1-800-521-1234.
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 19)
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.
38
<PAGE>
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 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 40.)
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 41.)
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
39
<PAGE>
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;
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
40
<PAGE>
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, 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
41
<PAGE>
guidelines prescribing circumstances in which the ability of a policy owner to
direct his or her investment to particular funds may cause the policy owner,
rather than the insurance company, to be treated as the owner of the shares of
those funds. In that case, any income and gains attributable to those shares
would be included in your current gross income for federal income tax purposes.
Under current law, however, we believe that we, and not the owner of a policy,
would be considered the owner of the fund's shares for tax purposes.
Tax consequences of ownership or receipt of policy proceeds under federal,
state and local estate, inheritance, gift and other tax laws depend on the
circumstances of each owner or beneficiary.
Because there may be unfavorable tax consequences (including recognition of
taxable income and the loss of income tax-free treatment for any death benefit
payable to the beneficiary), you should consult a qualified tax adviser prior to
changing the policy's ownership or making any assignment of ownership interests.
7-pay premium limit
At the time of policy issuance, we will determine whether the Planned Premium
schedule will exceed the 7-pay limit discussed below. If so, our standard
procedures prohibit issuance of the policy unless you sign a form acknowledging
that fact.
The 7-pay limit is the total of net level premiums that would have been
payable at any time for a comparable fixed policy to be fully "paid-up" after
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
42
<PAGE>
Code. If so, the Code provisions relating to such plans and life insurance
benefits thereunder should be carefully scrutinized. We are not responsible for
compliance with the terms of any such plan or with the requirements of
applicable provisions of the Code.
REPORTS THAT YOU WILL RECEIVE
At least annually, we will send you a statement setting forth the following
information as of the end of the most recent reporting period: the amount of the
death benefit, the Basic Sum Insured and the Additional Sum Insured, the account
value, the portion of the account value in each investment option, the surrender
value, premiums received and charges deducted from premiums since the last
report, and any outstanding policy loan (and interest charged for the preceding
policy year). Moreover, you also will receive confirmations of premium payments,
transfers among investment options, policy loans, partial withdrawals and
certain other policy transactions.
Semiannually we will send you a report containing the financial statements of
the Trust, including a list of securities held in each fund.
VOTING PRIVILEGES THAT YOU WILL HAVE
All of the assets in the subaccounts of the Account are invested in shares of
the corresponding funds of the Trust. We will vote the shares of each of the
funds of the Trust which are deemed attributable to variable life insurance
policies at regular and special meetings of the Trust's shareholders in
accordance with instructions received from owners of such policies. Shares of
the Trust held in the Account which are not attributable to such policies, as
well as 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
43
<PAGE>
the 1940 Act, (4) to substitute for the fund shares held by a subaccount any
other investment permitted by law, and (5) to take any action necessary to
comply with or obtain any exemptions from the 1940 Act. We would notify owners
of any of the foregoing changes and, to the extent legally required, obtain
approval of owners and any regulatory body prior thereto. Such notice and
approval, however, may not be legally required in all cases.
Other permissible changes
We reserve the right to make any changes in the policy necessary to ensure the
policy is within the definition of life insurance under the Federal tax laws and
is in compliance with any changes in Federal or state tax laws.
In our policies, we reserve the right to make certain changes if they would
serve the best interests of policy owners or would be appropriate in carrying
out the purposes of the policies. Such changes include the following:
. Changes necessary to comply with or obtain or continue exemptions under
the federal securities laws
. Combining or removing investment options
. Changes in the form of organization of any separate account
Any such changes will be made only to the extent permitted by applicable laws
and only in the manner permitted by such laws. When required by law, we will
obtain your approval of the changes and the approval of any appropriate
regulatory authority.
ADJUSTMENTS WE MAKE TO DEATH BENEFITS
If 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
44
<PAGE>
transactions will be processed at the next values that we do compute.
OTHER DETAILS ABOUT EXERCISING RIGHTS AND PAYING BENEFITS
Joint ownership
If more than one person owns a policy, all owners must join in most requests
to exercise rights under the policy.
Assigning your policy
You may assign your rights in the policy to someone else as collateral for a
loan or for some other reason. Assignments do not require the consent of any
revocable beneficiary. A copy of the assignment must be forwarded to us. We are
not responsible for any payment we make or any action we take before we receive
notice of the assignment in good order. Nor are we responsible for the validity
of the assignment. An absolute assignment is a change of ownership. All
collateral assignees of record must consent to any full surrender, partial
withdrawal or loan from the policy.
Your beneficiary
You name your beneficiary when you apply for the policy. The beneficiary is
entitled to the proceeds we pay following the 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 Deborah A. Poppel, 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.
45
<PAGE>
LIST OF DIRECTORS AND EXECUTIVE OFFICERS OF JHVLICO
The Directors and Executive Officers of JHVLICO and their principal
occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Directors and Executive Principal Occupations
- ----------------------- ---------------------
Officers
- --------
<S> <C>
David F. D'Alessandro Chairman of the Board and Chief Executive
Officer of JHVLICO; President, Chief Operations
Officer and Chief Executive Officer-Elect, John
Hancock Life Insurance Company.
Michele G. Van Leer. Vice Chairman of the Board and President of
JHVLICO; Senior Vice President, John Hancock
Life Insurance Company.
Ronald J. Bocage . . . Director, Vice President and Counsel of JHVLICO;
Vice President and Counsel, John Hancock Life
Insurance Company.
Bruce M. Jones. . . . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Thomas J. Lee. . . . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Barbara L. Luddy. . . Director, Vice President and Actuary of JHVLICO;
Senior Vice President, John Hancock Life
Insurance Company.
Robert S. Paster. . . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Robert R. Reitano. . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Paul Strong . . . . . Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance Company.
Daniel L. Ouellette. Vice President, Marketing, of JHVLICO; Senior
Vice President, John Hancock Life Insurance
Company.
Edward P. Dowd. . . . Vice President, Investments, of JHVLICO; Senior
Vice President, John Hancock Life Insurance
Company
Roger G. Nastou. . . Vice President, Investments, of JHVLICO; Vice
President, John Hancock Life Insurance Company
Todd G. Engelsen. . . Vice President and Illustration Actuary of
JHVLICO; Second Vice President, John Hancock
Life Insurance Company
Julie H. Indge. . . . Treasurer of JHVLICO; Financial Officer, John
Hancock Life Insurance Company
Patrick F. Smith. . . Controller of JHVLICO; Senior Associate
Controller, John Hancock Life Insurance Company.
Peter H. Scavongelli. Secretary of JHVLICO; State Compliance Officer,
John Hancock Life Insurance Company
</TABLE>
The business address of all Directors and officers of JHVLICO is John Hancock
Place, Boston, Massachusetts 02117.
46
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Directors and Policyholders
John Hancock Variable Life Insurance Company
We have audited the accompanying statutory-basis statements of financial
position of John Hancock Variable Life Insurance Company as of December 31, 1999
and 1998, and the related statutory-basis statements of operations and
unassigned deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Commonwealth of Massachusetts Division of Insurance, which
practices differ from accounting principles generally accepted in the United
States. The variances between such practices and accounting principles generally
accepted in the United States also are described in Note 1. The effects on the
financial statements of these variances are not reasonably determinable but are
presumed to be material.
In our opinion, because of the effects of the matter described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with accounting principles generally accepted in the
United States, the financial position of John Hancock Variable Life Insurance
Company at December 31, 1999 and 1998, or the results of its operations or its
cash flows for the years then ended.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of John Hancock
Variable Life Insurance Company at December 31, 1999 and 1998, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance.
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 2000
47
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
---------- -----------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Bonds--Note 6 . . . . . . . . . . . . . . . . . . . . $ 1,216.3 $1,185.8
Preferred stocks . . . . . . . . . . . . . . . . . . 35.9 36.5
Common stocks . . . . . . . . . . . . . . . . . . . . 3.2 3.1
Investment in affiliates . . . . . . . . . . . . . . 80.7 81.7
Mortgage loans on real estate--Note 6 . . . . . . . . 433.1 388.1
Real estate . . . . . . . . . . . . . . . . . . . . . 25.0 41.0
Policy loans . . . . . . . . . . . . . . . . . . . . 172.1 137.7
Cash items:
Cash in banks . . . . . . . . . . . . . . . . . . 27.2 11.4
Temporary cash investments . . . . . . . . . . . . 222.9 8.5
--------- --------
250.1 19.9
Premiums due and deferred . . . . . . . . . . . . . . 29.9 32.7
Investment income due and accrued . . . . . . . . . . 33.2 29.8
Other general account assets . . . . . . . . . . . . 65.3 47.5
Assets held in separate accounts . . . . . . . . . . 8,268.2 6,595.2
--------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . $10,613.0 $8,599.0
========= ========
OBLIGATIONS AND STOCKHOLDER'S EQUITY
OBLIGATIONS
Policy reserves . . . . . . . . . . . . . . . . . . $ 1,866.6 $1,652.0
Federal income and other taxes payable--Note 1 . . 67.3 44.3
Other general account obligations . . . . . . . . . 219.0 150.9
Transfers from separate accounts, net . . . . . . . (221.6) (190.3)
Asset valuation reserve--Note 1 . . . . . . . . . . 23.1 21.9
Obligations related to separate accounts . . . . . 8,261.6 6,589.4
--------- --------
TOTAL OBLIGATIONS . . . . . . . . . . . . . . . . .
10,216.0 8,268.2
STOCKHOLDER'S EQUITY
Common Stock, $50 par value; authorized 50,000
shares;
issued and outstanding 50,000 shares . . . . . . 2.5 2.5
Paid-in capital . . . . . . . . . . . . . . . . . . 572.4 377.5
Unassigned deficit--Note 10 . . . . . . . . . . . . (177.9) (49.2)
--------- --------
TOTAL STOCKHOLDER'S EQUITY . . . . . . . . . . . . 397.0 330.8
--------- --------
TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY . . . . . $10,613.0 $8,599.0
========= ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
48
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
49
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------
1999 1998
------- --------
(IN MILLIONS)
<S> <C>
Cash flows from operating activities:
Insurance premiums . . . . . . . . . . . . . .
Net investment income . . . . . . . . . . . 134.2 118.2
Benefits to policyholders and beneficiaries . (321.6) (275.5)
Dividends paid to policyholders . . . . . . . . . (25.6) (22.3)
Insurance expenses and taxes . . . . . . . . . (344.8) (296.9)
Net transfers to separate accounts . . . . . . . (705.3) (874.4)
Other, net . . . . . . . . . . . . . . . . . . 540.6 551.3
------- -----------
NET CASH PROVIDED FROM OPERATIONS . . . . . . 236.0 475.7
------- -----------
Cash flows used in investing activities:
Bond purchases . . . . . . . . . . . . . . . . (240.7) (618.8)
Bond sales . . . . . . . . . . . . . . . . . . 108.3 340.7
Bond maturities and scheduled redemptions . . 78.4 111.8
Bond prepayments . . . . . . . . . . . . . . . 18.7 76.5
Stock purchases . . . . . . . . . . . . . . . (3.9) (23.4)
Proceeds from stock sales . . . . . . . . . . 3.6 1.9
Real estate purchases . . . . . . . . . . . . (2.2) (4.2)
Real estate sales . . . . . . . . . . . . . . 17.8 2.1
Other invested assets purchases . . . . . . . (4.5) 0.0
Mortgage loans issued. . . . . . . . . . . . . (70.7) (145.5)
Mortgage loan repayments . . . . . . . . . . . 25.3 33.2
Other, net . . . . . . . . . . . . . . . . . . (68.9) (435.2)
------- -----------
NET CASH USED IN INVESTING ACTIVITIES . . . . (138.8) (660.9)
------- -----------
Cash flows from financing activities:
Capital contribution . . . . . . . . . . . . . 194.9
Net (decrease) increase in short-term note
payable. . . . . . . . . . . . . . . . . . . (61.9) 61.9
------- -----------
NET CASH PROVIDED FROM FINANCING ACTIVITIES . . 133.0 61.9
------- -----------
INCREASE (DECREASE) IN CASH AND TEMPORARY CASH
INVESTMENTS 230.2
Cash and temporary cash investments at beginning
of year. . . . . . . . . . . . . . . . . . . . . 19.9 143.2
------- -----------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF
YEAR. . . . . . . . . . . . . . . . . . . . . 250.1 $19.9
======= ===========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
50
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES
John Hancock Variable Life Insurance Company (the Company) is a wholly-owned
subsidiary of John Hancock Life Insurance Company (formerly John Hancock Mutual
Life Insurance Company) (John Hancock). The Company, domiciled in the
Commonwealth of Massachusetts, principally writes variable and universal life
insurance policies. Those policies primarily are marketed through John
Hancock's sales organization, Signator Insurance Agency, which includes a career
agency system composed of Company-supported independent general agencies and a
direct brokerage system that markets directly to external independent brokers.
Policies also are sold through various unaffiliated securities broker-dealers
and certain other financial institutions. Currently, the Company writes
business in all states except New York.
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future
as more information becomes known, which could impact the amounts reported and
disclosed herein.
Basis of Presentation
The financial statements have been prepared using accounting practices
prescribed or permitted by the Commonwealth of Massachusetts Division of
Insurance and in conformity with the practices of the National Association of
Insurance Commissioners (NAIC), which practices differ from generally accepted
accounting principles (GAAP).
The significant differences from GAAP include: (1) policy acquisition costs
are charged to expense as incurred rather than deferred and amortized in
relation to future estimated gross profits; (2) policy reserves are based on
statutory mortality, morbidity, and interest requirements without consideration
of withdrawals and Company experience; (3) certain assets designated as
"nonadmitted assets" are excluded from the balance sheet by direct charges to
surplus; (4) reinsurance recoverables are netted against reserves and claim
liabilities rather than reflected as an asset; (5) bonds held as available for
sale are recorded at amortized cost or market value as determined by the NAIC
rather than at fair value; (6) an Asset Valuation Reserve and Interest
Maintenance Reserve as prescribed by the NAIC are not calculated under GAAP.
Under GAAP, realized capital gains and losses are reported in the income
statement on a pretax basis as incurred and investment valuation allowances are
provided when there has been a decline in value deemed other than temporary; (7)
investments in affiliates are carried at their net equity value with changes in
value being recorded directly to unassigned deficit rather than consolidated in
the financial statements; (8) no provision is made for the deferred income tax
effects of temporary differences between book and tax basis reporting; and (9)
certain items, including modifications to required policy reserves resulting
from changes in actuarial assumptions, are recorded directly to unassigned
deficit rather than being reflected in income. The effects of the foregoing
variances from GAAP have not been determined but are presumed to be material.
The significant accounting practices of the Company are as follows:
Pending Statutory Standards
During March 1998, the NAIC adopted codified statutory accounting principles
("Codification") effective January 1, 2001. Codification will likely change, to
some extent, prescribed statutory accounting practices and may result in changes
to the accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification will require adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Accordingly, before Codification
becomes effective for the Company, the Commonwealth of Massachusetts must adopt
Codification as the prescribed basis of accounting on which domestic insurers
must report their statutory-basis results to the Division
51
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
of Insurance. At this time, it is anticipated that the Commonwealth of
Massachusetts will adopt Codification effective January 1, 2001. The impact of
any such changes on the Company's unassigned deficit is not expected to be
material.
Revenues and Expenses
Premium revenues are recognized over the premium-paying period of the policies
whereas expenses, including the acquisition costs of new business, are charged
to operations as incurred and policyholder dividends are provided as paid or
accrued.
Cash and Temporary Cash Investments
Cash includes currency on hand and demand deposits with financial
institutions. Temporary cash investments are short-term, highly-liquid
investments both readily convertible to known amounts of cash and so near
maturity that there is insignificant risk of changes in value because of changes
in interest rates.
Valuation of Assets
General account investments are carried at amounts determined on the following
bases:
Bond and stock values are carried as prescribed by the NAIC; bonds generally
at amortized amounts or cost, preferred stocks generally at cost and common
stocks at fair value. The discount or premium on bonds is amortized using the
interest method.
Investments in affiliates are included on the statutory equity method.
Loan-backed bonds and structured securities are valued at amortized cost using
the interest method including anticipated prepayments. Prepayment assumptions
are obtained from broker dealer surveys or internal estimates and are based on
the current interest rate and economic environment. The retrospective
adjustment method is used to value all such securities except for interest-only
securities, which are valued using the prospective method.
The net interest effect of interest rate and currency rate swap transactions
is recorded as an adjustment of interest income as incurred. The initial cost
of interest rate cap agreements is amortized to net investment income over the
life of the related agreement. Gains and losses on financial futures contracts
used as hedges against interest rate fluctuations are deferred and recognized in
income over the period being hedged.
Mortgage loans are carried at outstanding principal balance or amortized cost.
Investment real estate is carried at depreciated cost, less encumbrances.
Depreciation on investment real estate is recorded on a straight-line basis.
Accumulated depreciation amounted to $1.9 million in 1999 and $3.0 million in
1998.
Real estate acquired in satisfaction of debt and real estate held for sale are
carried at the lower of cost or fair value.
Policy loans are carried at outstanding principal balance, not in excess of
policy cash surrender value.
52
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Asset Valuation and Interest Maintenance Reserves
The Asset Valuation Reserve (AVR) is computed in accordance with the
prescribed NAIC formula and represents a provision for possible fluctuations in
the value of bonds, equity securities, mortgage loans, real estate and other
invested assets. Changes to the AVR are charged or credited directly to the
unassigned deficit.
The Company also records the NAIC prescribed Interest Maintenance Reserve
(IMR) that represents that portion of the after tax net accumulated unamortized
realized capital gains and losses on sales of fixed income securities,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates. Such gains and losses are deferred and amortized into
income over the remaining expected lives of the investments sold. At December
31, 1999, the IMR, net of 1999 amortization of $2.3 million, amounted to $7.4
million, which is included in policy reserves. The corresponding 1998 amounts
were $2.4 million and $10.7 million, respectively.
Goodwill
The excess of cost over the statutory book value of the net assets of life
insurance business acquired was $8.9 million and $11.4 million at December 31,
1999 and 1998, respectively, and generally is amortized over a ten-year period
using a straight-line method.
Separate Accounts
Separate account assets and liabilities reported in the accompanying
statements of financial position represent funds that are separately
administered, principally for variable life insurance policies, and for which
the contractholder, rather than the Company, generally bears the investment
risk. Separate account obligations are intended to be satisfied from separate
account assets and not from assets of the general account. Separate accounts
generally are reported at fair value. The operations of the separate accounts
are not included in the statement of operations; however, income earned on
amounts initially invested by the Company in the formation of new separate
accounts is included in other income.
Fair Value Disclosure of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair value
information about certain financial instruments, whether or not recognized in
the statement of financial position, for which it is practicable to estimate the
value. In situations where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. SFAS
No. 107 excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements. Therefore, the aggregate fair value amounts
presented do not represent the underlying value of the Company. See Note 11.
The methods and assumptions utilized by the Company in estimating its fair
value disclosures for financial instruments are as follows:
The carrying amounts reported in the statement of financial position for cash
and temporary cash investments approximate their fair values.
Fair values for public bonds are obtained from an independent pricing service.
Fair values for private placement securities and publicly traded bonds not
provided by the independent pricing service are estimated by the
53
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Company by discounting expected future cash flows using current market rates
applicable to the yield, credit quality and maturity of the investments.
The fair values for common and preferred stocks, other than its subsidiary
investments, which are carried at equity values, are based on quoted market
prices.
Fair values for futures contracts are based on quoted market prices. Fair
values for interest rate swap, cap agreements, and currency swap agreements are
based on current settlement values. The current settlement values are based on
brokerage quotes that utilize pricing models or formulas using current
assumptions.
The fair value for mortgage loan is estimated using discounted cash flow
analyses using interest rates adjusted to reflect the credit characteristics of
the underlying loans. Mortgage loans with similar characteristics and credit
risks are engaged into qualitative categories for purposes of the fair value
calculations.
The carrying amount in the statement of financial position for policy loans
approximates their fair value.
The fair value for outstanding commitments to purchase long-term bonds and
issue real estate mortgages is estimated using a discounted cash flow method
incorporating adjustments for the difference in the level of interest rates
between the dates the commitments were made and December 31, 1999.
Capital Gains and Losses
Realized capital gains and losses are determined using the specific
identification method. Realized capital gains and losses, net of taxes and
amounts transferred to the IMR, are included in net gain or loss. Unrealized
gains and losses, which consist of market value and book value adjustments, are
shown as adjustments to the unassigned deficit.
Policy Reserves
Life reserves are developed by actuarial methods and are determined based on
published tables using statutorily specified interest rates and valuation
methods that will provide, in the aggregate, reserves that are greater than or
equal to the minimum or guaranteed policy cash values or the amounts required by
the Commonwealth of Massachusetts Division of Insurance. Reserves for variable
life insurance policies are maintained principally on the modified preliminary
term method using the 1958 and 1980 Commissioner's Standard Ordinary (CSO)
mortality tables, with an assumed interest rate of 4% for policies issued prior
to May 1, 1983 and 41/2% for policies issued on or thereafter. Reserves for
single premium policies are determined by the net single premium method using
the 1958 CSO mortality table, with an assumed interest rate of 4%. Reserves for
universal life policies issued prior to 1985 are equal to the gross account
value which at all times exceeds minimum statutory requirements. Reserves for
universal life policies issued from 1985 through 1988 are maintained at the
greater of the Commissioner's Reserve Valuation Method (CRVM) using the 1958 CSO
mortality table, with 41/2% interest or the cash surrender value. Reserves for
universal life policies issued after 1988 and for flexible variable policies are
maintained using the greater of the cash surrender value or the CRVM method with
the 1980 CSO mortality table and 51/2% interest for policies issued from 1988
through 1992; 5% interest for policies issued in 1993 and 1994; and 41/2%
interest for policies issued in 1995 through 1999.
Federal Income Taxes
Federal income taxes are reported in the financial statements based on amounts
determined to be payable as a result of operations within the current accounting
period. The operations of the Company are consolidated with John Hancock in
filing a consolidated federal income tax return basis for the affiliated group.
The federal income
54
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
taxes of the Company are allocated on a separate return basis with certain
adjustments. The Company made federal income tax payments of $10.6 million in
1999 and $38.2 million in 1998.
Income before taxes differs from taxable income principally due to tax-exempt
investment income, the limitation placed on the tax deductibility of
policyholder dividends, accelerated depreciation, differences in policy reserves
for tax return and financial statement purposes, capitalization of policy
acquisition expenses for tax purposes and other adjustments prescribed by the
Internal Revenue Code.
Amounts for disputed tax issues relating to the prior years are charged or
credited directly to policyholders' contingency reserve.
Adjustments to Policy Reserves
From time to time, the Company finds it appropriate to modify certain required
policy reserves because of changes in actuarial assumptions. Reserve
modifications resulting from such determinations are recorded directly to
stockholder's equity. No such refinements were made during 1999 or 1998.
Reinsurance
Premiums, commissions, expense reimbursements, benefits and reserves related
to reinsured business are accounted for on bases consistent with those used in
accounting for the original policies issued and the terms of the reinsurance
contracts. Premiums ceded to other companies have been reported as a reduction
of premium income. Amounts applicable to reinsurance ceded for future policy
benefits, unearned premium reserves and claim liabilities have been reported as
reductions of these items.
2. ACQUISITION
On June 23, 1993, the Company acquired all of the outstanding shares of stock
of Colonial Penn Annuity and Life Insurance Company (CPAL) from Colonial Penn
Life Insurance Company for an aggregate purchase price of approximately $42.5
million. At the date of acquisition, assets of CPAL were approximately $648.5
million, consisting principally of cash and temporary cash investments and
liabilities were approximately $635.2 million, consisting principally of
reserves related to a block of interest sensitive single-premium whole life
insurance business assumed by CPAL from Charter National Life Insurance Company
(Charter). The purchase price includes contingent payments of up to
approximately $7.3 million payable between 1994 and 1998 based on the actual
lapse experience of the business in force on June 23, 1993. The Company made the
final contingent payment to CPAL of $1.5 million during 1998.
55
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
On June 24, 1993, the Company contributed $24.6 million in additional capital
to CPAL. CPAL was renamed John Hancock Life Insurance Company of America
(JHLICOA) on July 7, 1993. JHLICOA was subsequently renamed Investors Partner
Life Insurance Company (IPL) on March 5, 1998. IPL manages the business assumed
from Charter and began marketing term life and variable universal life products
through brokers in 1999. Summarized financial information for IPL for 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(IN MILLIONS)
<S> <C> <C>
Total assets. . . . . . . . . . . . . . . . 570.7 587.8
Total liabilities. . . . . . . . . . . . . . 498.9 517.5
Total revenue. . . . . . . . . . . . . . . . 35.6 38.8
Net income. . . . . . . . . . . . . . . . . 3.5 3.8
</TABLE>
3. NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
------ ------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Investment expenses . . . . . . . . . . . . . $ 9.5 $ 8.3
Interest expense. . . . . . . . . . . . . . 1.7 2.4
Depreciation expense. . . . . . . . . . . . 0.6 0.8
Investment taxes. . . . . . . . . . . . . . 0.3 0.7
------ ------
$12.1 $12.2
====== ======
</TABLE>
56
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
4. NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital gains (losses) consist of the following items:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
------ ------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net gains from asset sales . . . . . . . . . . . (2.8) 7.6
Capital gains tax . . . . . . . . . . . . . . . . 0.2 (2.9)
Net capital gains transferred to IMR . . . . . . 0.9 (5.3)
------ ------
Net REALIZED CAPITAL LOSSES . . . . . . . . . . . (1.7) (0.6)
====== ======
</TABLE>
Net unrealized capital gains (losses) and other adjustments consist of the
following items:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
------ ------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net losses from changes in security values and book
value adjustments. . . . . . . . . . . . . . . (2.6) (2.7)
Increase in asset valuation reserve . . . . . . . . (1.2) (3.3)
------ ------
Net UNREALIZED CAPITAL LOSSES AND OTHER ADJUSTMENTS (3.8) (6.0)
====== ======
</TABLE>
57
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
5. TRANSACTIONS WITH PARENT
The Company's Parent provides the Company with personnel, property and
facilities in carrying out certain of its corporate functions. The Parent
annually determines a fee for these services and facilities based on a number of
criteria which were revised in 1999 and 1998 to reflect continuing changes in
the Company's operations. The amount of the service fee charged to the Company
was $188.3 million and $157.5 million in 1999 and 1998, respectively, which has
been included in insurance and investment expenses. The Parent has guaranteed
that, if necessary, it will make additional capital contributions to prevent the
Company's stockholder's equity from declining below $1.0 million.
The service fee charged to the Company by the Parent includes $0.2 million and
$0.7 million in 1999 and 1998, respectively, representing the portion of the
provision for retiree benefit plans determined under the accrual method,
including a provision for the 1993 transition liability which is being amortized
over twenty years, that was allocated to the Company.
The Company has a modified coinsurance agreement with John Hancock to reinsure
50% of 1994 through 1999 issues of flexible premium variable life insurance and
scheduled premium variable life insurance policies. In connection with this
agreement, John Hancock transferred $44.5 million and $4.9 million of cash for
tax, commission, and expense allowances to the Company, which increased the
Company's net gain from operations by $20.6 million and $22.2 million in 1999
and 1998, respectively.
Effective January 1, 1996, the Company entered into a modified coinsurance
agreement with John Hancock to reinsure 50% of the 1995 inforce block and 50% of
1996 and all future issue years of certain variable annuity contracts
(Independence Preferred, Declaration, Independence 2000, MarketPlace, and
Revolution). In connection with this agreement, the Company received a net cash
payment of $40.0 million and $12.7 million in 1999 and 1998, respectively, for
surrender benefits, tax, reserve increase, commission, expense allowances and
premium, This agreement increased the Company's net gain from operations by
$26.9 million and $8.4 million in 1999 and 1998, respectively.
Effective January 1, 1997, the Company entered into a stop-loss agreement with
John Hancock to reinsure mortality claims in excess of 110% of expected
mortality claims in 1999 and 1998 for all policies that are not reinsured under
any other indemnity agreement. In connection with the agreement, John Hancock
received $0.8 million and 1.0 million in 1999 and 1998, respectively, for
mortality claims to the Company. This agreement decreased the Company's net
gain from operations in both 1999 and 1998 by $0.5 million.
At December 31, 1998 the Company had outstanding a short-term note of $61.9
million payable to an affiliate at a variable rate of interest. The note was
part of a revolving line of credit and was repaid in 1999. Interest paid in
1999 and 1998 was $1.7 million and $2.9 million, respectively. The note is
included in other general account obligations at December 31, 1998.
58
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
6. INVESTMENTS
The statement value and fair value of bonds are shown below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
-------------- -------------- --------------- ---------
(IN MILLIONS)
December 31, 1999 . .
U.S. Treasury
securities and
obligations of U.S.
government
corporations and
agencies . . . . . . 5.9 0.0 0.1 5.8
Obligations of states
and political
subdivisions . . . . 2.2 0.1 0.1 2.2
Debit securities
issued by foreign
governments. . . . . 13.9 0.8 0.1 14.6
Corporate securities 964.9 13.0 59.4 918.5
Mortgage-backed
securities . . . . . 229.4 0.5 7.8 222.1
-------- ----- ------ --------
Total bonds . . . . .
======== ===== ====== ========
December 31, 1998
U.S. Treasury
securities and
obligations of U.S.
government
corporations and
agencies . . . . . . 5.1 0.1 0.0 5.2
Obligations of states
and political
subdivisions . . . . 3.2 0.3 0.0 3.5
Corporate securities 925.2 50.4 15.0 960.6
Mortgage-backed
securities . . . . . 252.3 10.0 0.1 262.2
-------- ----- ------ --------
Total bonds . . . . . 15.1
======== ===== ====== ========
</TABLE>
59
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
The statement value and fair value of bonds at December 31, 1999, by
contractual maturity, are shown below. Maturities will differ from contractual
maturities because eligible borrowers may exercise their right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
<S> <C> <C>
FAIR
VALUE VALUE
-------- ---------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Due in one year or less. . . . . . . . . . . . . . $ 58.5 58.2
Due after one year through five years. . . . . . . 286.8 282.0
Due after five years through ten years . . . . . . 425.4 405.6
Due after ten years. . . . . . . . . . . . . . . . 216.2 195.3
-------- ---------
986.9 941.1
Mortgage-backed securities . . . . . . . . . . . . 229.4 222.1
-------- ---------
$1,216.3
======== =========
</TABLE>
Gross gains of $0.3 million in 1999 and $3.4 million in 1998 and gross losses
of $4.0 million in 1999 and $0.7 million in 1998 were realized from the sale of
bonds.
At December 31, 1999, bonds with an admitted asset value of $9.1 million were
on deposit with state insurance departments to satisfy regulatory requirements.
The cost of common stocks was $3.1 million and $2.1 million at December 31,
1999 and 1998, respectively. At December 31, 1999, gross unrealized
appreciation on common stocks totaled $1.2 million, and gross unrealized
depreciation totaled $1.1 million. The fair value of preferred stock totaled
$35.9 million at December 31, 1999 and $36.5 million at December 31, 1998.
Bonds with amortized cost of $0.4 million were non-income producing for the
twelve months ended December 31, 1999.
At December 31, 1999, the mortgage loan portfolio was diversified by
geographic region and specific collateral property type as displayed below. The
Company controls credit risk through credit approvals, limits and monitoring
procedures.
60
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GEOGRAPHIC
PROPERTY TYPE CONCENTRATION
Apartments. . . . . . . . $112.1 East North Central $ 71.3
Hotels. . . . . . . . . . 11.3 East South Central 7.4
Industrial. . . . . . . . 66.0 Middle Atlantic 28.5
Office buildings. . . . . 86.4 Mountain 21.0
Retail. . . . . . . . . . 25.5 New England 37.5
Agricultural. . . . . . . 99.6 Pacific 111.1
Other . . . . . . . . . . 32.2 South Atlantic 87.6
West North Central 16.6
West South Central 48.6
Other 3.5
------
$433.1 $433.1
======
</TABLE>
At December 31, 1999, the fair values of the commercial and agricultural
mortgage loans portfolios were $323.5 million and $98.2 million, respectively.
The corresponding amounts as of December 31, 1998 were approximately $331.3
million and $70.0 million, respectively.
The maximum and minimum lending rates for mortgage loans during 1999 were
14.24% and 6.84% for agricultural loans, 7.45% and 7.00% for other properties.
Generally, the maximum percentage of any loan to the value of security at the
time of the loan, exclusive of insured, guaranteed or purchase money mortgages,
is 75%. For city mortgages, fire insurance is carried on all commercial and
residential properties at least equal to the excess of the loan over the maximum
loan which would be permitted by law on the land without the building, except as
permitted by regulations of the Federal Housing Commission on loans fully
insured under the provisions of the National Housing Act. For agricultural
mortgage loans, fire insurance is not normally required on land based loans
except in those instances where a building is critical to the farming operation.
Fire insurance is required on all agri-business facilities in an aggregate
amount equal to the loan balance.
61
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
7. REINSURANCE
The Company cedes business to reinsurers to share risks under variable life,
universal life and flexible variable life insurance policies for the purpose of
reducing exposure to large losses. Premiums, benefits and reserves ceded to
reinsurers in 1999 were $594.9 million, $132.8 million, and $13.6 million,
respectively. The corresponding amounts in 1998 were $590.2 million, $63.2
million, and $8.2 million, respectively.
Reinsurance ceded contracts do not relieve the Company from its obligations to
policyholders. The Company remains liable to its policyholders for the portion
reinsured to the extent that any reinsurer does not meet its obligations for
reinsurance ceded to it under the reinsurance agreements. Failure of the
reinsurers to honor their obligations could result in losses to the Company;
consequently, estimates are established for amounts deemed or estimated to be
uncollectible. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentration of credit risk arising from similar characteristics
of the reinsurer.
Neither the Company, nor any of its related parties, control, either directly
or indirectly, any external reinsurers with which the Company conducts business.
No policies issued by the Company have been reinsured with a foreign company
which is controlled, either directly or indirectly, by a party not primarily
engaged in the business of insurance.
The Company has not entered into any reinsurance agreement in which the
reinsurer may unilaterally cancel any reinsurance for reasons other than
nonpayment of premiums or other similar credits. The Company does not have any
reinsurance agreements in effect in which the amount of losses paid or accrued
through December 31, 1999 would result in a payment to the reinsurer of amounts
which, in the aggregate and allowing for offset of mutual credits from other
reinsurance agreements with the same reinsurer, exceed the total direct premiums
collected under the reinsured policies.
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The notional amounts, carrying values and estimated fail values of the
Company's derivative instruments were as follows at December 31:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <S> <C> <C>
NUMBER OF CONTRACTS/ ASSETS (LIABILITIES)
------------------
NOTIONAL AMOUNTS 1999 1998
FAIR VALUE
---------
------- ------- --------- --------- ---------
(IN MILLIONS)
Futures contracts to $ (0.5)
sell securities 362.0 947.0 $0.6 $0.6 $(0.5)
Interest rate swap (17.7)
agreements $965.0 $365.0 -- 11.5 --
Interest rate cap
agreements 239.4 89.4 5.6 5.6 3.1
Currency rate swap (3.3)
agreements 15.8 15.8 -- (1.6) --
</TABLE>
62
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
The Company uses futures contracts, interest rate swap, cap agreements, and
currency rate swap agreements for other than trading purposes to hedge and
manage its exposure to changes in interest rate levels, foreign exchange rate
fluctuations and to manage duration mismatch of assets and liabilities.
The futures contracts expire in 2000. The interest rate swap agreements
expire in 2000 to 2011. The interest rate cap agreements expire in 2006 to
2008. The currency rate swap agreements expire in 2006 to 2009.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform to the terms of the contract. The Company continually
monitors its position and the credit ratings of the counterparties to these
derivative instruments. To limit exposure associated with counterparty
nonperformance on interest rate and currency swap agreements, the Company enters
into master netting agreements with its counterparties. The Company believes the
risk of incurring losses due to nonperformance by its counterparties is remote
and that such losses, if any, would be immaterial. Futures contracts trade on
organized exchanges and, therefore, have minimal credit risk.
9. POLICY RESERVES POLICYHOLDERS' AND BENIFICIARIES' FUNDS AND OBLIGATIONS
RELATED TO SEPARATE ACCOUNTS
The Company' annuity reserves and deposit fund liabilities that are subject to
discretionary withdrawal, with and without adjustment, are summarized as
follows.
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1999 PERCENT
---------------- ------
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Subject to discretionary withdrawal (with
adjustment)
With market value adjustment . . . . . . . . . $3.8 0.1%
At book value less surrender charge 40.5 1.5
At market value . . . . . . . . . . . . . . . . 2,326.6 87.1
--------
Total with adjustment. . . . . . . . . . . 2,370.9 88.7
Subject to discretionary withdrawal 287.1 10.7
at book value (without adjustment) . . . . .
Not subject to discretionary withdrawal--general
account. . . . . . . . . . . . . . . . . . . . 15.4 0.6
--------
Total annuity reserves and deposit liabilities $2,673.4 100.0%
========
</TABLE>
63
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
The Company has extended commitments to purchase long-term bonds and issue
real estate mortgages totaling $15.4 million and $3.5 million, respectively, at
December 31, 1999. The Company monitors the creditworthiness of borrowers under
long-term bonds commitments and requires collateral as deemed necessary. If
funded, loans related to real estate mortgages would be fully collateralized by
the related properties. The estimated fair value of the commitments described
above is $19.4 million at December 31, 1999. The majority of these commitments
expire in 2000.
In the normal course of its business operations, the Company is involved with
litigation from time to time with claimants, beneficiaries and others, and a
number of litigation matters were pending as of December 31, 1999. It is the
opinion of management, after consultation with counsel, that the ultimate
liability with respect to these claims, if any, will not materially affect the
financial position or results of operations of the Company.
During 1997, John Hancock entered into a court-approved settlement relating to
a class action lawsuit involving certain individual life insurance policies sold
from 1979 through 1996. In entering into the settlement, John Hancock
specifically denied any wrongdoing. During 1999, the Company recorded a $194.9
million reserve, through a direct charge to its unassigned deficit, representing
the Company's share of the settlement and John Hancock contributed $194.9
million of capital to the Company. The reserve held at December 31, 1999
amounted to $136.5 million and is based on a number of factors, including the
estimated number of claims, the expected type of relief to be sought by class
members (general relief or alternative dispute resolution), the estimated cost
per claim and the estimated costs to administer the claims.
Given the uncertainties associated with estimating the reserve, it is
reasonably possible that the final cost of the settlement could differ
materially from the amounts presently provided for by the Company. John Hancock
and the Company will continue to update their estimate of the final cost of the
settlement as claims are processed and more specific information is developed,
particularly as the actual cost of the claims subject to alternative dispute
resolution becomes available. However, based on information available at this
time, and the uncertainties associated with the final claim processing and
alternative dispute resolution, the range of any additional costs related to the
settlement cannot be reasonably estimated. If the Company's share of the
settlement increases, John Hancock will contribute additional capital to the
Company so that the Company's total stockholder's equity would not be impacted.
64
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments:
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31,
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
--------------- ---------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(IN MILLIONS)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
ASSETS
Bonds--Note 6. . . . .
Preferred stocks--Note
6. . . . . . . . . . . . 35.9 35.9 36.5 36.5
Common stocks--Note 6. 3.2 3.2 3.1 3.1
Mortgage loans on real
estate--Note 6. . . . . 433.1 421.7 388.1 401.3
Policy loans--Note 1. 172.1 172.1 137.7 137.7
Cash items--Note 1. . 250.1 250.1 19.9 19.9
Derivatives assets
(liabilities) relating
to: --Note 8. . . . .
Futures contracts. . . 0.6 0.6 (0.5) (0.5)
Interest rate swaps. . -- 11.5 -- (17.7)
Currency rate swaps. . -- (1.6) -- (3.3)
Interest rate caps. . 5.6 5.6 3.1 3.1
LIABILITIES
Commitments--Note 10. -- 19.4 -- 32.1
</TABLE>
The carrying amounts in the table are included in the statutory-basis
statements of financial position. The method and assumptions utilized by the
Company in estimating its fair value disclosures are described in Note 1.
12. SUBSEQUENT EVENTS
REORGANIZATION AND INITIAL PUBLIC OFFERING
Pursuant to a Plan of Reorganization approved by the policyholders of John
Hancock and the Commonwealth of Massachusetts Division of Insurance, effective
February 1, 2000, John Hancock converted from a mutual life insurance company to
a stock life insurance company (i.e., demutualized) and became a wholly owned
subsidiary of John Hancock Financial Services, Inc., which is a holding company.
In connection with the reorganization, John Hancock changed its name to John
Hancock Life Insurance Company. In addition, on February 1, 2000, John Hancock
Financial Services, Inc. completed its initial public offering and 102 million
shares of common stock were issued at an initial public offering price of $17
per share.
65
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENT--(CONTINUED)
13. IMPACT OF YEAR 2000 (UNAUDITED)
The Company participated in the Year 2000 remediation project of its parent,
John Hancock. By late 1999, John Hancock and the Company completed their Year
2000 readiness plan to address issues that could result from computer programs
written using two digits to define the applicable year rather than four to
define the applicable year and century. As a result, John Hancock and the
Company were prepared for the transition to the Year 2000 and did not experience
any significant Year 2000 problems with respect to mission critical information
technology ("IT") or non-IT systems, applications or infrastructure. During the
date rollover to the year 2000, John Hancock and the Company implemented and
monitored their millennium rollover plan and conducted business as usual on
Monday, January 3, 2000.
Since January 3, 2000, the information systems, including mission critical
systems, which in the event of a Year 2000 failure would have the greatest
impact on operations, have functioned properly. In addition, neither John
Hancock nor the Company have experienced any significant Year 2000 issues
related to interactions with material business partners. No disruptions have
occurred which impact John Hancock or the Company's ability to process claims,
update customer accounts, process financial transactions, or report accurate
data to management and no business interruptions due to Year 2000 issues have
been experienced. While John Hancock and the Company continue to monitor their
systems, and those of material business partners, closely to ensure that no
unexpected Year 2000 issues develop, neither John Hancock nor the Company have
reason to expect any such issues.
The costs of the Year 2000 project consist of internal IT personnel and
external costs such as consultants, programmers, replacement software, and
hardware. The costs of the Year 2000 project are expensed as incurred. The
project is funded partially through a reallocation of resources from
discretionary projects. Through December 31, 1999, John Hancock has incurred
and expensed approximately $20.8 million in related payroll costs for internal
IT personnel on the project. The estimated remaining IT personnel costs of the
project are approximately $1.0 million. Through December 31, 1999, John Hancock
has incurred and expensed approximately $47.0 million in external costs for the
project. John Hancock's estimated remaining external cost of the project is
approximately $2.0 million. The total costs of the Year 2000 project to John
Hancock, based on management's best estimates, include approximately $21.7
million in internal IT personnel, $14.6 million in the external modification of
software, $18.3 million for external solution providers, $9.1 million in
replacement costs of non-compliant IT systems and $6.9 million in oversight,
test facilities and other expenses. Accordingly, the estimated range of total
costs of the Year 2000 project to John Hancock, internal and external, is
approximately $70 to $72.5 million. John Hancock's total Year 2000 project
costs include the estimated impact of external solution providers based on
presently available information.
66
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Policyholders of 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, Small Cap Growth,
International Balanced, Mid Cap Growth, Large Cap Value, Money Market, Mid Cap
Value, Small/Mid Cap Growth (formerly, Diversified Mid Cap Growth), Real Estate
Equity, Growth & Income, Managed, Short-Term Bond, Small Cap Value,
International Opportunities, Equity Index, Global Bond (formerly, Strategic
Bond), Turner Core Growth, Brandes International Equity, Frontier Capital
Appreciation, Enhanced U.S. Equity, Emerging Markets Equity, Global Equity, Bond
Index, Small/Mid Cap CORE and High Yield Bond Subaccounts) as of December 31,
1999, and the related statements of operations and changes in net assets for
each of the periods indicated therein. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting John Hancock Variable Life Account S at December 31,
1999, the results of their operations and the changes in their net assets for
each of the periods indicated, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Boston, Massachusetts
February 11, 2000
67
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
INTERNATIONAL
LARGE CAP SOVEREIGN EQUITY SMALL CAP
GROWTH BOND INDEX GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ----------- ------------- -------------
-------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . $ 8,016 $ 2,380 $ 2,435 $ 2,357
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . 115,521,551 38,321,474 33,198,674 31,022,828
Investments in shares
of portfolios of M
Fund Inc., at value -- -- -- --
Receivable from:
John Hancock Variable
Series Trust I . . 21,617 12,536 419 208,513
M Fund Inc. . . . . -- -- -- --
------------ ----------- ----------- -----------
Total assets . . . . 115,551,184 38,336,390 33,201,528 31,233,698
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company . . . . . . 20,467 12,194 75 208,172
M Fund Inc. . . . . -- -- -- --
Asset charges payable 9,166 2,723 2,779 2,698
------------ ----------- ----------- -----------
Total liabilities . . 29,633 14,917 2,854 210,870
------------ ----------- ----------- -----------
Net assets . . . . . $115,521,551 $38,321,473 $33,198,674 $31,022,828
============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL MID CAP LARGE CAP MONEY
BALANCED GROWTH VALUE MARKET
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ----------- ----------- -------------
------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . . $ 304 $ 4,698 $ 1,803 $ 3,061
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value . . . . . . . . 4,591,857 63,499,616 27,106,918 61,006,769
Investments in shares
of portfolios of M
Fund Inc., at value . -- -- -- --
Receivable from:
John Hancock Varidable
Series Trust I . . . 52 27,659 12,738 1,396,082
M Fund Inc. . . . . . -- -- -- --
---------- ----------- ----------- -----------
Total assets . . . . . 4,592,213 63,531,973 27,121,459 62,405,912
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company. . . . . . . 9 26,980 12,479 1,395,329
M Fund Inc. . . . . . -- -- -- --
Asset charges payable 348 5,377 2,063 3,814
---------- ----------- ----------- -----------
Total liabilities . . 357 32,357 14,542 1,399,143
---------- ----------- ----------- -----------
Net assets . . . . . . $4,591,856 $63,499,616 $27,106,917 $61,006,769
========== =========== =========== ===========
</TABLE>
See accompanying notes.
68
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MID CAP SMALL/MID CAP REAL ESTATE GROWTH&
VALUE GROWTH EQUITY INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . $ 1,422 $ 701 $ 611 $ 17,877
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . 19,138,533 9,925,831 9,238,646 209,525,898
Investments in shares
of portfolios of M
Fund Inc., at value -- -- -- --
Receivable from:
John Hancock Variable
Series Trust I . . 38,609 580,155 88 330,982
M Fund Inc. . . . . -- -- -- --
------------ -------------- ------------ ------------
Total assets . . . . 19,178,564 10,506,687 9,239,345 209,874,757
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company . . . . . . 38,404 580,049 -- 328,424
M Fund Inc. . . . . -- -- -- --
Asset charges payable 1,627 807 699 20,434
------------ -------------- ------------ ------------
Total liabilities . . 40,031 580,856 699 348,858
------------ -------------- ------------ ------------
Net assets . . . . . $ 19,138,533 $ 9,925,831 $ 9,238,646 $209,525,899
============ ============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM SMALL CAP INTERNATIONAL
MANAGED BOND VALUE OPPORTUNITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- -------------
-------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . $ 13,307 $ 731 $ 1,430 $ 2,454
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . 125,710,809 11,728,988 18,783,397 31,535,050
Investments in shares
of portfolios of M
Fund Inc., at value -- -- -- --
Receivable from:
John Hancock Variable
Series Trust I . . 34,311 215 189,514 1,308
M Fund Inc. . . . . -- -- -- --
------------ ----------- ----------- -----------
Total assets . . . . 125,758,427 11,729,934 18,974,341 31,538,812
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company . . . . . . 32,402 114 189,306 955
M Fund Inc. . . . . -- -- -- --
Asset charges payable 15,216 832 1,639 2,808
------------ ----------- ----------- -----------
Total liabilities . . 47,618 946 190,945 3,763
------------ ----------- ----------- -----------
Net assets . . . . . $125,710,809 $11,728,988 $18,783,396 $31,535,049
============ =========== =========== ===========
</TABLE>
See accompanying notes.
69
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
TURNER BRANDES
EQUITY GLOBAL CORE INTERNATIONAL
INDEX BOND GROWTH EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------- ---------------
------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . . $ 10,574 $ 734 $ 1,535 $ 1,016
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value . . . . . . . . 149,913,130 8,838,516 -- --
Investments in shares
of portfolios of M
Fund Inc., at value . -- -- 22,671,006 17,415,296
Receivable from:
John Hancock Variable
Series Trust I . . . 126,680 766,077 222 271
M Fund Inc. . . . . . -- -- -- --
------------ ---------- ----------- -----------
Total assets . . . . . 150,050,384 9,605,327 22,672,763 17,416,583
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance
Company. . . . . . . 125,115 765,972 -- 122
M Fund Inc. . . . . . -- -- -- --
Asset charges payable 12,138 839 1,758 1,165
------------ ---------- ----------- -----------
Total liabilities . . 137,253 766,811 1,758 1,287
------------ ---------- ----------- -----------
Net assets . . . . . . $149,913,131 $8,838,516 $22,671,005 $17,415,296
============ ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FRONTIER EMERGING
CAPITAL ENHANCED MARKETS GLOBAL
APPRECIATION U.S. EQUITY EQUITY EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ----------- ---------- ------------
---------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash . . . . . . . . . . $ 1,031 $ 437 $ 370 $ 71
Investments in shares of
portfolios of John
Hancock Variable Series
Trust I, at value . . . -- -- 3,723,380 836,878
Investments in shares of
portfolios of M Fund
Inc., at value . . . . . 16,985,022 6,738,214 -- --
Receivable from:
John Hancock Variable
Series Trust I . . . . 771 63 254 24
M Fund Inc. . . . . . . -- -- -- --
----------- ---------- ---------- --------
Total assets . . . . . . 16,986,824 6,738,714 3,724,004 836,973
LIABILITIES
Payable to:
John Hancock Variable
Life Insurance Company 620 -- 204 13
M Fund Inc. . . . . . . -- -- -- --
Asset charges payable . . 1,182 500 420 82
----------- ---------- ---------- --------
Total liabilities . . . . 1,802 500 624 95
----------- ---------- ---------- --------
Net assets . . . . . . . $16,985,022 $6,738,214 $3,723,380 $836,878
=========== ========== ========== ========
</TABLE>
See accompanying notes.
70
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SMALL/ MID
CAP CORE HIGH
BOND SUBACCOUNT YIELD
INDEX ---------- BOND
SUBACCOUNT SUBACCOUNT
---------- ------------
------------------------------------
<S> <C> <C> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . $ 374 $ 56 $ 310
Investments in shares of portfolios of
John Hancock Variable Series Trust I, at
value . . . . . . . . . . . . . . . . . 5,126,051 616,813 4,273,214
Investments in shares of portfolios of M
Fund Inc., at value . . . . . . . . . . -- -- --
Receivable from:
John Hancock Variable Series Trust I . 87 7 906,251
M Fund Inc. . . . . . . . . . . . . . . -- -- --
---------- -------- ----------
Total assets . . . . . . . . . . . . . . 5,126,512 616,876 5,179,775
LIABILITIES
Payable to:
John Hancock Variable Life Insurance
Company. . . . . . . . . . . . . . . . 20 -- 906,193
M Fund Inc. . . . . . . . . . . . . . . -- -- --
Asset charges payable . . . . . . . . . 441 63 368
---------- -------- ----------
Total liabilities . . . . . . . . . . . 461 63 906,561
---------- -------- ----------
Net assets . . . . . . . . . . . . . . . $5,126,051 $616,813 $4,273,214
========== ======== ==========
</TABLE>
See accompanying notes.
71
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
LARGE CAP GROWTH SUBACCOUNT SOVEREIGN BOND SUBACCOUNT
-------------------------------------- -----------------------------------
1999 1998 1997 1999 1998 1997
------------ ----------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $17,558,034 $ 6,312,073 $ 2,884,498 $ 2,851,613 $2,190,901 $855,742
M Fund Inc. . . . . -- -- -- -- -- --
----------- ----------- ----------- ----------- ---------- --------
Total investment
income . . . . . . . 17,558,034 6,312,073 2,884,498 2,851,613 2,190,901 855,742
Expenses:
Mortality and expense
risks . . . . . . . 324,595 168,652 91,256 126,407 93,556 39,184
----------- ----------- ----------- ----------- ---------- --------
Net investment income 17,233,439 6,143,421 2,793,242 2,725,206 2,097,345 816,558
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 5,003,007 1,750,881 619,721 (1,391,910) 185,230 80,538
Net unrealized
appreciation
(depreciation)
during the period . (2,053,672) 8,041,022 2,301,920 (1,837,190) (378,058) 63,687
----------- ----------- ----------- ----------- ---------- --------
Net realized and
unrealized gain
(loss) on investments 2,949,335 9,791,903 2,921,641 (3,229,100) (192,828) 144,225
----------- ----------- ----------- ----------- ---------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $20,182,774 $15,935,324 $ 5,714,883 $ (503,894) $1,904,517 $960,783
=========== =========== =========== =========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY INDEX SUBACCOUNT SMALL CAP GROWTH SUBACCOUNT
-------------------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 936,475 $1,930,710 $ 422,913 $ 3,697,955 $ -- $ 473
M Fund Inc. . . . . -- -- -- -- -- --
---------- ---------- ----------- ----------- ---------- --------
Total investment
income . . . . . . . 936,475 1,930,710 422,913 3,697,955 -- 473
Expenses:
Mortality and expense
risks . . . . . . . 81,058 45,651 33,893 60,221 22,593 6,547
---------- ---------- ----------- ----------- ---------- --------
Net investment income
(loss) . . . . . . . 855,417 1,885,059 389,020 3,637,734 (22,593) (6,074)
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains . 753,750 152,030 244,810 2,548,944 58,729 21,707
Net unrealized
appreciation
(depreciation)
during the period . 4,871,167 78,480 (1,219,540) 3,920,455 1,070,805 126,699
---------- ---------- ----------- ----------- ---------- --------
Net realized and
unrealized gain
(loss) on investments 5,624,917 230,510 (974,730) 6,469,399 1,129,534 148,406
---------- ---------- ----------- ----------- ---------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $6,480,334 $2,115,569 $ (585,710) $10,107,133 $1,106,941 $142,332
========== ========== =========== =========== ========== ========
</TABLE>
See accompanying notes.
72
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED SUBACCOUNT MID CAP GROWTH SUBACCOUNT
---------------------------------- ---------------------------------
1999 1998 1997 1999 1998 1997
----------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 372,766 $ 185,760 $ 61,249 $ 6,491,783 $1,114,374 $ --
M Fund Inc. . . . . -- -- -- -- -- --
---------- ---------- --------- ----------- ---------- --------
Total investment
income . . . . . . . 372,766 185,760 61,249 6,491,783 1,114,374 --
Expenses:
Mortality and expense
risks . . . . . . . 13,792 9,687 4,443 102,248 26,123 8,287
---------- ---------- --------- ----------- ---------- --------
Net investment income
(loss) . . . . . . . 358,974 176,073 56,806 6,389,535 1,088,251 (8,287)
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains . 15,640 24,206 8,667 5,188,018 599,619 1,235
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . (173,912) 147,461 (67,714) 15,078,681 1,184,263 486,186
---------- ---------- --------- ----------- ---------- --------
Net realized and
unrealized gain
(loss) on investments (158,272) 171,667 (59,047) 20,266,699 1,783,882 487,421
---------- ---------- --------- ----------- ---------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $ 200,702 $ 347,740 $ (2,241) $26,656,234 $2,872,133 $479,134
========== ========== ========= =========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
LARGE CAP VALUE SUBACCOUNT MONEY MARKET 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 . . $ 1,809,072 $ 797,874 $194,199 $3,279,928 $1,854,829 $758,434
M Fund Inc. . . . . -- -- -- -- -- --
----------- ---------- -------- ---------- ---------- --------
Total investment
income . . . . . . . 1,809,072 797,874 194,199 3,279,928 1,854,829 758,434
Expenses:
Mortality and expense
risks . . . . . . . 88,877 41,415 11,163 291,398 167,813 66,882
----------- ---------- -------- ---------- ---------- --------
Net investment income 1,720,195 756,459 183,036 2,988,530 1,687,016 691,552
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains . 705,454 330,827 164,821 -- -- --
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . (2,181,112) 145,355 279,449 -- -- --
----------- ---------- -------- ---------- ---------- --------
Net realized and
unrealized gain
(loss) on investments (1,475,658) 476,182 444,270 -- -- --
----------- ---------- -------- ---------- ---------- --------
Net increase in net
assets resulting from
operations . . . . . $ 244,537 $1,232,641 $627,306 $2,988,530 $1,687,016 $691,552
=========== ========== ======== ========== ========== ========
</TABLE>
See accompanying notes.
73
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MID CAP VALUE SUBACCOUNT SMALL/MID CAP GROWTH SUBACCOUNT
----------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
----------- ------------ --------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I . . . . . $ 110,190 $ 120,469 $446,081 $ 1,421,656 $ 142,469 $ 878,600
M Fund Inc. . . . . . . . . . . . . . . . . . -- -- -- -- -- --
---------- ----------- -------- ----------- ------------- -----------
Total investment income . . . . . . . . . . . . 110,190 120,469 446,081 1,421,656 142,469 878,600
Expenses:
Mortality and expense risks. . . . . . . . . . 68,611 45,020 11,421 32,995 34,432 35,934
---------- ----------- -------- ----------- ------------- -----------
Net investment income . . . . . . . . . . . . . 41,579 75,449 434,660 1,388,661 108,037 842,666
Net realized and unrealized gain (loss) on
investments:
Net realized gains (losses) . . . . . . . . . (860,332) (538,516) 101,787 13,375 232,246 297,666
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . . . 1,757,919 (830,390) (39,717) (1,001,208) 236,333 (730,748)
---------- ----------- -------- ----------- ------------- -----------
Net realized and unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . 897,587 (1,368,906) 62,070 (987,833) 468,579 (433,082)
---------- ----------- -------- ----------- ------------- -----------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . $ 939,166 $(1,293,457) $496,730 $ 400,828 $ 576,616 $ 409,584
========== =========== ======== =========== ============= ===========
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE EQUITY SUBACCOUNT GROWTH & INCOME SUBACCOUNT
---------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997
---------- ------------ --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 544,845 $ 305,783 $246,677 $23,565,679 $ 9,266,175 $5,917,063
M Fund Inc. . . . . -- -- -- -- -- --
--------- ----------- -------- ----------- ----------- ----------
Total investment
income . . . . . . . 544,845 305,783 246,677 23,565,679 9,266,175 5,917,063
Expenses:
Mortality and expense
risks . . . . . . . 29,468 22,716 13,879 715,377 290,361 169,135
--------- ----------- -------- ----------- ----------- ----------
Net investment income 515,377 283,067 232,798 22,850,302 8,975,814 5,747,928
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . (735,504) (454,979) 252,095 6,207,253 2,061,212 2,390,414
Net unrealized
appreciation
(depreciation)
during the period . 80,925 (698,676) (13,488) (5,814,839) 7,759,307 435,778
--------- ----------- -------- ----------- ----------- ----------
Net realized and
unrealized gain
(loss) on investments (654,579) (1,153,655) 238,607 392,414 9,820,519 2,826,192
--------- ----------- -------- ----------- ----------- ----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $(139,202) $ (870,588) $471,405 $23,242,716 $18,796,333 $8,574,120
========= =========== ======== =========== =========== ==========
</TABLE>
See accompanying notes.
74
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MANAGED SUBACCOUNT SHORT-TERM BOND SUBACCOUNT
------------------------------------ ------------------------------------
1999 1998 1997 1999 1998 1997
------------ ---------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $11,251,980 $3,606,186 $1,879,954 $ 957,614 $ 977,164 $ 415,542
M Fund Inc. . . . . -- -- -- -- -- --
----------- ---------- ---------- ---------- ----------- ---------
Total investment
income . . . . . . . 11,251,980 3,606,186 1,879,954 957,614 977,164 415,542
Expenses:
Mortality and expense
risks . . . . . . . 495,544 121,905 65,383 50,128 50,947 20,551
----------- ---------- ---------- ---------- ----------- ---------
Net investment income 10,756,436 3,484,281 1,814,571 907,486 926,217 394,991
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 2,233,258 278,186 171,318 (441,667) 24,740 35,294
Net unrealized
appreciation
(depreciation)
during the period . (6,419,069) 1,791,231 715,231 (85,754) (136,999) (25,976)
----------- ---------- ---------- ---------- ----------- ---------
Net realized and
unrealized gain
(loss) on investments (4,185,811) 2,069,417 886,549 (527,421) (112,259) 9,318
----------- ---------- ---------- ---------- ----------- ---------
Net increase in net
assets resulting from
operations . . . . . $ 6,570,625 $5,553,698 $2,701,120 $ 380,065 $ 813,958 $ 404,309
=========== ========== ========== ========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL OPPORTUNITIES
SMALL CAP VALUE 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 . . $ 409,324 $ 47,350 $299,278 $2,096,195 $ 103,399 $ 69,078
M Fund Inc. . . . . -- -- -- -- -- --
--------- --------- -------- ---------- ---------- ---------
Total investment
income . . . . . . . 409,324 47,350 299,278 2,096,195 103,399 69,078
Expenses:
Mortality and expense
risks . . . . . . . 64,613 33,335 8,494 90,191 50,003 13,177
--------- --------- -------- ---------- ---------- ---------
Net investment income 344,711 14,015 290,784 2,006,004 53,396 55,901
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . (979,002) (9,919) 75,149 1,907,809 191,495 80,782
Net unrealized
appreciation
(depreciation)
during the period . 325,684 (523,693) (18,626) 3,818,953 1,108,416 (260,664)
--------- --------- -------- ---------- ---------- ---------
Net realized and
unrealized gain
(loss) on investments (653,318) (533,612) 56,523 5,726,762 1,299,911 (179,882)
--------- --------- -------- ---------- ---------- ---------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $(308,607) $(519,597) $347,307 $7,732,766 $1,353,307 $(123,981)
========= ========= ======== ========== ========== =========
</TABLE>
See accompanying notes.
75
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY INDEX SUBACCOUNT GLOBAL BOND SUBACCOUNT
----------------------------------- --------------------------------
1999 1998 1997 1999 1998 1997
----------- ---------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 5,839,023 $1,337,750 $ 409,920 $ 460,088 $303,545 $ 74,850
M Fund Inc. . . . . -- -- -- -- -- --
----------- ---------- ---------- ----------- -------- --------
Total investment
income . . . . . . . 5,839,023 1,337,750 409,920 460,088 303,545 74,850
Expenses:
Mortality and expense
risks . . . . . . . 335,573 126,021 31,223 35,321 19,894 3,820
----------- ---------- ---------- ----------- -------- --------
Net investment income 5,503,450 1,211,729 378,697 424,767 283,651 71,030
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 7,681,081 691,270 901,978 (204,675) 81,659 8,335
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . 4,678,509 6,098,919 392,256 (433,526) 43,608 (11,727)
----------- ---------- ---------- ----------- -------- --------
Net realized and
unrealized gain
(loss) on investments 12,359,590 6,790,189 1,294,234 (638,201) 125,267 (3,392)
----------- ---------- ---------- ----------- -------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $17,863,040 $8,001,918 $1,672,931 $ (213,434) $408,918 $ 67,638
=========== ========== ========== =========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
BRANDES INTERNATIONAL
TURNER CORE GROWTH SUBACCOUNT EQUITY SUBACCOUNT
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
---------- -------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series
Trust I . . . . . . $1,349,358 $ -- $ -- $ 549,978 $ -- $ --
M Fund Inc. . . . . -- 84,940 91,360 -- 358,080 32,677
---------- -------- -------- ---------- -------- --------
Total investment
income . . . . . . . 1,349,358 84,940 91,360 549,978 358,080 32,677
Expenses:
Mortality and expense
risks . . . . . . . 33,920 7,737 4,071 34,297 14,434 7,502
---------- -------- -------- ---------- -------- --------
Net investment income 1,315,438 77,203 87,289 515,681 343,646 25,175
Net realized and
unrealized gain
(loss) on
investments: . . . .
Net realized gains . 1,038,462 156,278 76,711 507,727 89,337 12,541
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . 1,626,646 562,620 32,626 3,486,097 91,915 (26,022)
---------- -------- -------- ---------- -------- --------
Net realized and
unrealized gain
(loss) on investments 2,665,108 718,898 109,337 3,993,824 181,252 (13,481)
---------- -------- -------- ---------- -------- --------
Net increase in net
assets resulting from
operations . . . . . $3,980,546 $796,101 $196,626 $4,509,505 $524,898 $ 11,694
========== ======== ======== ========== ======== ========
</TABLE>
See accompanying notes.
76
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FRONTIER CAPITAL APPRECIATION
SUBACCOUNT ENHANCED U.S. EQUITY SUBACCOUNT
--------------------------------- --------------------------------
1999 1998 1997 1999 1998 1997*
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . $ 487,465 $ -- $ -- $532,067 $ -- $ --
M Fund Inc. . . . . -- 34,738 128,190 -- 72,302 15,335
---------- --------- --------- -------- -------- -------
Total investment
income . . . . . . . 487,465 34,738 128,190 532,067 72,302 15,335
Expenses:
Mortality and expense
risks . . . . . . . 37,471 24,841 10,040 13,930 4,069 478
---------- --------- --------- -------- -------- -------
Net investment income 449,994 9,897 118,150 518,137 68,233 14,857
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 624,068 (445,752) 614,358 264,436 87,723 4,177
Net unrealized
appreciation
(depreciation)
during the period . 3,431,408 432,064 (368,570) 151,562 89,677 6,844
---------- --------- --------- -------- -------- -------
Net realized and
unrealized gain
(loss) on investments 4,055,476 (13,688) 245,788 415,998 177,400 11,021
---------- --------- --------- -------- -------- -------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $4,505,470 $ (3,791) $ 363,938 $934,135 $245,633 $25,878
========== ========= ========= ======== ======== =======
</TABLE>
<TABLE>
<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 . . $ 137,724 $ 522 $ 6,063 $ 491 $ 140,772 $ 23,842
M Fund Inc. . . . . -- -- -- -- -- --
---------- -------- -------- -------- --------- --------
Total investment
income . . . . . . . 137,724 522 6,063 491 140,772 23,842
Expenses:
Mortality and expense
risks . . . . . . . 5,465 387 1,859 339 10,636 937
---------- -------- -------- -------- --------- --------
Net investment income 132,259 135 4,204 152 130,136 22,905
Net realized and
unrealized gain
(loss) on
investments:
Net realized gains
(losses). . . . . . 663,998 (45,975) 82,873 (21,835) (104,174) 1,002
Net unrealized
appreciation
(depreciation)
during the period . 432,248 2,289 47,295 4,812 (78,192) (10,217)
---------- -------- -------- -------- --------- --------
Net realized and
unrealized gain
(loss) on investments 1,096,246 (43,686) 130,168 (17,023) (182,366) (9,215)
---------- -------- -------- -------- --------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $1,228,505 $(43,551) $134,372 $(16,871) $ (52,230) $ 13,690
========== ======== ======== ======== ========= ========
</TABLE>
- ---------
* From July 1, 1997 (commencement of operations).
** From May 1, 1998 (commencement of operations).
77
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF OPERATIONS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<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 . . . . . . . . . . . $ 54,784 $ -- $ 352,641 $ 88,721
M Fund Inc. . . . . . . . . . . -- -- -- --
-------- -------- --------- --------
Total investment income . . . . 54,784 -- 352,641 88,721
Expenses:
Mortality and expense risks . . 2,073 535 12,206 1,962
-------- -------- --------- --------
Net investment income (loss) . . 52,711 (535) 340,435 86,759
Net realized and unrealized gain
(loss) on investments:
Net realized gains (losses) . . 65,733 (25,196) 42,365 64,824
Net unrealized appreciation
(depreciation) during the
period . . . . . . . . . . . . (10,735) 18,718 (139,659) 149,416
-------- -------- --------- --------
Net realized and unrealized gain
(loss) on investments . . . . . 54,998 (6,478) (97,294) 214,240
-------- -------- --------- --------
Net increase (decrease) in net
assets resulting from operations $107,709 $ (7,013) $ 243,141 $300,999
======== ======== ========= ========
</TABLE>
- ---------
** From May 1, 1998 (commencement of operations).
See accompanying notes.
78
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
LARGE CAP GROWTH SUBACCOUNT SOVEREIGN BOND SUBACCOUNT
------------------------------------------ -----------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income . . . . . . . . $ 17,233,439 $ 6,143,421 $ 2,793,242 $ 2,725,206 $ 2,097,345 $ 816,558
Net realized gains (losses) . . . . . 5,003,007 1,750,881 619,721 (1,391,910) 185,230 80,538
Net unrealized appreciation
(depreciation) during the period . . (2,053,672) 8,041,022 2,301,920 (1,837,190) (378,058) 63,687
------------ ------------ ------------ ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . 20,182,774 15,935,324 5,714,883 (503,894) 1,904,517 960,783
From policyholder transactions:
Net premiums from policyholders . . . 75,667,981 29,859,648 20,264,849 74,595,720 38,567,292 21,324,560
Net benefits to policyholders . . . . (45,347,424) (13,281,028) (10,390,849) (68,312,320) (27,391,317) (8,009,615)
------------ ------------ ------------ ------------ ------------ -----------
Net increase in net assets resulting
from policyholder
transactions . . . . . . . . . . . . . 30,320,557 16,578,620 9,874,000 6,283,400 11,175,975 13,314,945
------------ ------------ ------------ ------------ ------------ -----------
Net increase in net assets . . . . . . 50,503,331 32,513,944 15,588,883 5,779,506 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 . . . . . . $115,521,551 $ 65,018,220 $ 32,504,276 $ 38,321,473 $ 32,541,967 $19,461,475
============ ============ ============ ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY SMALL CAP
INDEX SUBACCOUNT GROWTH SUBACCOUNT
---------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) . . . . . . $ 855,417 $ 1,885,059 $ 389,020 $ 3,637,734 $ (22,593) $ (6,074)
Net realized gains . . . . . . . . . . . 753,750 152,030 244,810 2,548,944 58,729 21,707
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . 4,871,167 78,480 (1,219,540) 3,920,455 1,070,805 126,699
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . 6,480,334 2,115,569 (585,710) 10,107,133 1,106,941 142,332
From policyholder transactions:
Net premiums from policyholders . . . . . 53,332,374 10,034,119 8,150,400 52,637,861 12,088,047 2,870,481
Net benefits to policyholders . . . . . . (39,209,664) (8,344,107) (4,505,840) (40,800,272) (6,621,834) (1,005,386)
------------ ----------- ----------- ------------ ----------- -----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . 14,122,710 1,690,012 3,644,560 11,837,589 5,466,213 1,865,095
------------ ----------- ----------- ------------ ----------- -----------
Net increase in net assets . . . . . . . . 20,603,044 3,805,581 3,058,850 21,944,722 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 . . . . . . . $ 33,198,674 $12,595,630 $ 8,790,049 $ 31,022,828 $ 9,078,106 $ 2,504,952
============ =========== =========== ============ =========== ===========
</TABLE>
See accompanying notes.
79
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED
SUBACCOUNT MID CAP GROWTH SUBACCOUNT
-------------------------------------- ---------------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------ ----------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) . . . . . $ 358,974 $ 176,073 $ 56,806 $ 6,389,535 $ 1,088,251 $ (8,287)
Net realized gains . . . . . . . . . . 15,640 24,206 8,667 5,188,018 599,619 1,235
Net unrealized appreciation
(depreciation) during the period . . (173,912) 147,461 (67,714) 15,078,681 1,184,263 486,186
----------- ----------- ---------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations . . . . . . 200,702 347,740 (2,241) 26,656,234 2,872,133 479,134
From policyholder transactions:
Net premiums from policyholders . . . 6,295,052 3,163,316 1,608,069 65,183,285 11,323,614 3,212,754
Net benefits to policyholders . . . . (5,007,225) (1,882,974) (282,878) (41,018,347) (5,132,055) (915,459)
----------- ----------- ---------- ------------- ------------- -------------
Net increase in net assets resulting
from policyholder transactions . . . . 1,287,827 1,280,342 1,325,191 24,164,938 6,191,559 2,297,295
----------- ----------- ---------- ------------- ------------- -------------
Net increase in net assets . . . . . . 1,488,529 1,628,082 1,322,950 50,821,172 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 . . . . . . $ 4,591,856 $ 3,103,327 $1,475,245 $ 63,499,616 $ 12,678,444 $ 3,614,752
=========== =========== ========== ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
LARGE CAP VALUE SUBACCOUNT MONEY MARKET SUBACCOUNT
---------------------------------------- ---------------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income . . . . . . . $ 1,720,195 $ 756,459 $ 183,036 $ 2,988,530 $ 1,687,016 $ 691,552
Net realized gains . . . . . . . . . 705,454 330,827 164,821 -- -- --
Net unrealized appreciation
(depreciation) during the period . (2,181,112) 145,355 279,449 -- -- --
------------ ----------- ----------- ------------- ------------- -------------
Net increase in net assets resulting
from operations . . . . . . . . . . 244,537 1,232,641 627,306 2,988,530 1,687,016 691,552
From policyholder transactions:
Net premiums from policyholders . . 37,432,039 15,144,316 5,421,062 890,376,545 340,377,358 103,737,470
Net benefits to policyholders . . . (27,199,179) (4,937,583) (1,620,578) (918,869,964) (269,723,839) (100,296,756)
------------ ----------- ----------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from policyholder
transactions . . . . . . . . . . . . 10,232,860 10,206,733 3,800,484 (28,493,419) 70,653,519 3,440,714
------------ ----------- ----------- ------------- ------------- -------------
Net increase (decrease) in net assets 10,477,397 11,439,374 4,427,790 (25,504,889) 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 . . . . . $ 27,106,917 $16,629,520 $ 5,190,146 $ 61,006,769 $ 86,511,658 $ 14,171,123
============ =========== =========== ============= ============= =============
</TABLE>
See accompanying notes.
80
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SMALL/MID CAP
MID CAP VALUE SUBACCOUNT GROWTH SUBACCOUNT
---------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income . . . . . . . . . . $ 41,579 $ 75,449 $ 434,660 $ 1,388,661 $ 108,037 $ 842,666
Net realized gains (losses) . . . . . . . (860,332) (538,516) 101,787 13,375 232,246 297,666
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . 1,757,919 (830,390) (39,717) (1,001,208) 236,333 (730,748)
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from
operations . . . . . . . . . . . . . . . 939,166 (1,293,457) 496,730 400,828 576,616 409,584
From policyholder transactions:
Net premiums from policyholders . . . . . 32,024,751 18,837,112 6,323,061 11,809,133 4,563,154 8,511,081
Net benefits to policyholders . . . . . . (29,579,995) (7,855,945) (1,089,206) (9,775,543) (6,481,542) (6,274,668)
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from policyholder transactions 2,444,756 10,981,167 5,233,855 2,033,590 (1,918,388) 2,236,413
------------ ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets . . 3,383,922 9,687,710 5,730,585 2,434,418 (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 . . . . . . . $ 19,138,533 $15,754,611 $ 6,066,901 $ 9,925,831 $ 7,491,413 $ 8,833,185
============ =========== =========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE EQUITY SUBACCOUNT GROWTH & INCOME SUBACCOUNT
---------------------------------------- -------------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------ ------------ -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income . . . . . . . . $ 515,377 $ 283,067 $ 232,798 $ 22,850,302 $ 8,975,814 $ 5,747,928
Net realized gains (losses) . . . . . (735,504) (454,979) 252,095 6,207,253 2,061,212 2,390,414
Net unrealized appreciation
(depreciation) during the period . . 80,925 (698,676) (13,488) (5,814,839) 7,759,307 435,778
------------ ----------- ----------- ------------- ------------ ------------
Net increase (decrease) in net assets
resulting from
operations . . . . . . . . . . . . . . (139,202) (870,588) 471,405 23,242,716 18,796,333 8,574,120
From policyholder transactions:
Net premiums from policyholders . . . 22,699,314 6,964,604 4,833,914 196,639,863 60,975,616 35,535,599
Net benefits to policyholders . . . . (18,093,640) (5,513,221) (2,393,463) (106,763,955) (31,360,866) (21,776,809)
------------ ----------- ----------- ------------- ------------ ------------
Net increase in net assets resulting
from policyholder
transactions . . . . . . . . . . . . . 4,605,674 1,451,383 2,440,451 89,875,908 29,614,750 13,758,790
------------ ----------- ----------- ------------- ------------ ------------
Net increase in net assets . . . . . . 4,466,472 580,795 2,911,856 113,118,624 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 . . . . . . $ 9,238,646 $ 4,772,174 $ 4,191,379 $ 209,525,899 $ 96,407,275 $ 47,996,192
============ =========== =========== ============= ============ ============
</TABLE>
See accompanying notes.
81
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SHORT-TERM BOND
MANAGED 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 . . . . . . . . . $ 10,756,436 $ 3,484,281 $ 1,814,571 $ 907,486 $ 926,217 $ 394,991
Net realized gains (losses) . . . . . . 2,233,258 278,186 171,318 (441,667) 24,740 35,294
Net unrealized appreciation
(depreciation) during the period . . . (6,419,069) 1,791,231 715,231 (85,754) (136,999) (25,976)
------------ ----------- ----------- ------------ ------------ -----------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . 6,570,625 5,553,698 2,701,120 380,065 813,958 404,309
From policyholder transactions:
Net premiums from policyholders . . . . 113,292,872 21,019,273 16,914,475 41,259,110 27,490,588 12,911,228
Net benefits to policyholders . . . . . (34,219,380) (8,281,600) (9,357,535) (49,156,693) (21,534,195) (4,234,624)
------------ ----------- ----------- ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from policyholder transactions 79,073,492 12,737,673 7,556,940 (7,897,583) 5,956,393 8,676,604
------------ ----------- ----------- ------------ ------------ -----------
Net increase (decrease) in net assets . . 85,644,117 18,291,371 10,258,060 (7,517,518) 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 . . . . . . . $125,710,809 $40,066,692 $21,775,321 $ 11,728,988 $ 19,246,506 $12,476,155
============ =========== =========== ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL OPPORTUNITIES
SMALL CAP VALUE 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 . . . . . . . . . . $ 344,711 $ 14,015 $ 290,784 $ 2,006,004 $ 53,396 $ 55,901
Net realized gains (losses) . . . . . . . (979,002) (9,919) 75,149 1,907,809 191,495 80,782
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . 325,684 (523,693) (18,626) 3,818,953 1,108,416 (260,664)
------------ ----------- ---------- ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . (308,607) (519,597) 347,307 7,732,766 1,353,307 (123,981)
From policyholder transactions:
Net premiums from policyholders . . . . . 39,172,672 11,420,833 4,182,527 43,216,216 23,844,756 8,906,153
Net benefits to policyholders . . . . . . (30,591,417) (4,363,378) (897,951) (38,372,463) (12,275,087) (3,655,731)
------------ ----------- ---------- ------------ ------------ -----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . 8,581,255 7,057,455 3,284,576 4,843,753 11,569,669 5,250,422
------------ ----------- ---------- ------------ ------------ -----------
Net increase in net assets . . . . . . . . 8,272,648 6,537,858 3,631,883 12,576,519 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 . . . . . . . $ 18,783,396 $10,510,748 $3,972,890 $ 31,535,049 $ 18,958,530 $ 6,035,554
============ =========== ========== ============ ============ ===========
</TABLE>
See accompanying notes.
82
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY INDEX SUBACCOUNT
-----------------------------------------------------
1999 1998 1997
------------------------- ------------- ------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 5,503,450 $ 1,211,729 $ 378,697
Net realized gains
(losses). . . . . . 7,681,081 691,270 901,978
Net unrealized
appreciation
(depreciation)
during the period . 4,678,509 6,098,919 392,256
------------------------ ------------ -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 17,863,040 8,001,918 1,672,931
From policyholder
transactions:
Net premiums from
policyholders . . . 225,994,914 60,690,933 23,412,687
Net benefits to
policyholders . . . (147,909,470) (31,166,123) (9,622,006)
------------------------ ------------ -----------
Net increase in net
assets resulting from
policyholder
transactions . . . . 78,085,444 29,524,810 13,790,681
------------------------ ------------ -----------
Net increase in net
assets . . . . . . . 95,948,484 37,526,728 15,463,612
Net assets at
beginning of period 53,964,647 16,437,919 974,307
------------------------ ------------ -----------
Net assets at end of
period . . . . . . . $ 149,913,131 $ 53,964,647 $16,437,919
======================== ============ ===========
<CAPTION>
GLOBAL BOND SUBACCOUNT
--------------------------------------------------
1999 1998 1997
------------------------ ------------ -------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 424,767 $ 283,651 $ 71,030
Net realized gains (204,675) 81,659 8,335
(losses). . . . . .
Net unrealized
appreciation (433,526) 43,608 (11,727)
(depreciation) ----------------------- ----------- ----------
during the period .
Net increase (213,434) 408,918 67,638
(decrease) in net
assets resulting from
operations . . . . .
From policyholder
transactions:
Net premiums from 11,387,398 9,258,713 1,828,179
policyholders . . .
Net benefits to
policyholders . . . (10,615,019) (3,008,341) (534,164)
----------------------- ----------- ----------
Net increase in net
assets resulting from 772,379 6,250,372 1,294,015
policyholder ----------------------- ----------- ----------
transactions . . . .
Net increase in net 558,945 6,659,290 1,361,653
assets . . . . . . .
Net assets at
beginning of period 8,279,571 1,620,281 258,628
----------------------- ----------- ----------
Net assets at end of
period . . . . . . . $ 8,838,516 $ 8,279,571 $1,620,281
======================= =========== ==========
</TABLE>
<TABLE>
<CAPTION>
BRANDES INTERNATIONAL
TURNER CORE GROWTH 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 . . . . . . . . . . . $ 1,315,438 $ 77,203 $ 87,289 $ 515,681 $ 343,646 $ 25,175
Net realized gains . . . . . . . . . . . . . 1,038,462 156,278 76,711 507,727 89,337 12,541
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . . 1,626,646 562,620 32,626 3,486,097 91,915 (26,022)
----------- ----------- ---------- ----------- ------------ -----------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . . 3,980,546 796,101 196,626 4,509,505 524,898 11,694
From policyholder transactions:
Net premiums from policyholders . . . . . . 23,098,524 4,779,974 743,622 12,134,533 5,520,633 2,484,010
Net benefits to policyholders . . . . . . . (9,308,254) (1,690,860) (580,027) (5,569,496) (2,041,375) (1,088,249)
----------- ----------- ---------- ----------- ------------ -----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . . 13,790,270 3,089,114 163,595 6,565,037 3,479,258 1,395,761
----------- ----------- ---------- ----------- ------------ -----------
Net increase in net assets . . . . . . . . . 17,770,816 3,885,215 360,221 11,074,542 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 . . . . . . . . . $22,671,005 $ 4,900,189 $1,014,974 $17,415,296 $ 6,340,754 $ 2,336,598
=========== =========== ========== =========== ============ ===========
</TABLE>
See accompanying notes.
83
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FRONTIER CAPITAL APPRECIATION
SUBACCOUNT
--------------------------------------------------------------------
1999 1998 1997
----------------------------------------- ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 449,994 $ 9,897 $ 118,150
Net realized gains
(losses). . . . . . 624,068 (445,752) 614,358
Net unrealized
appreciation
(depreciation)
during the period . 3,431,408 432,064 (368,570)
---------------------------------------- ----------- -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 4,505,470 (3,791) 363,938
From policyholder
transactions:
Net premiums from
policyholders . . . 25,135,447 13,982,031 10,030,418
Net benefits to
policyholders . . . (22,331,613) (9,695,520) (5,969,436)
---------------------------------------- ----------- -----------
Net increase in net
assets resulting from
policyholder
transactions . . . . 2,803,834 4,286,511 4,060,982
---------------------------------------- ----------- -----------
Net increase in net
assets . . . . . . . 7,309,304 4,282,720 4,424,920
Net assets at
beginning of period 9,675,718 5,392,998 968,078
---------------------------------------- ----------- -----------
Net assets at end of
period . . . . . . . $ 16,985,022 $ 9,675,718 $ 5,392,998
======================================== =========== ===========
<CAPTION>
ENHANCED U.S.
EQUITY SUBACCOUNT
---------------------------------------------------------
1999 1998 1997*
-------------------------------- ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 518,137 $ 68,233 $ 14,857
Net realized gains 264,436 87,723 4,177
(losses). . . . . .
Net unrealized
appreciation 151,562 89,677 6,844
(depreciation) ------------------------------- ----------- ---------
during the period .
Net increase 934,135 245,633 25,878
(decrease) in net
assets resulting from
operations . . . . .
From policyholder
transactions:
Net premiums from 6,480,741 3,031,309 475,503
policyholders . . .
Net benefits to
policyholders . . . (3,151,279) (1,299,530) (4,176)
------------------------------- ----------- ---------
Net increase in net
assets resulting from 3,329,462 1,731,779 471,327
policyholder ------------------------------- ----------- ---------
transactions . . . .
Net increase in net 4,263,597 1,977,412 497,205
assets . . . . . . .
Net assets at
beginning of period 2,474,617 497,205 0
------------------------------- ----------- ---------
Net assets at end of
period . . . . . . . $ 6,738,214 $ 2,474,617 $ 497,205
=============================== =========== =========
</TABLE>
<TABLE>
<CAPTION>
EMERGING MARKETS GLOBAL EQUITY BOND INDEX
EQUITY 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 . . . . . . . . . . . $ 132,259 $ 135 $ 4,204 $ 152 $ 130,136 $ 22,905
Net realized gains (losses) . . . . . . . . 663,998 (45,975) 82,873 (21,835) (104,174) 1,002
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . 432,248 2,289 47,295 4,812 (78,192) (10,217)
------------ ----------- ----------- ----------- ----------- ----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . 1,228,505 (43,551) 134,372 (16,871) (52,230) 13,690
From policyholder transactions:
Net premiums from policyholders . . . . . . 18,579,194 2,434,226 3,151,983 2,372,034 6,471,518 1,176,234
Net benefits to policyholders . . . . . . . (16,271,324) (2,203,670) (2,613,505) (2,191,135) (2,358,694) (124,467)
------------ ----------- ----------- ----------- ----------- ----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . . 2,307,870 230,556 538,478 180,899 4,112,824 1,051,767
------------ ----------- ----------- ----------- ----------- ----------
Net increase in net assets . . . . . . . . . 3,536,375 187,005 672,850 164,028 4,060,594 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 . . . . . . . . $ 3,723,380 $ 187,005 $ 836,878 $ 164,028 $ 5,126,051 $1,065,457
============ =========== =========== =========== =========== ==========
</TABLE>
- ---------
* From July 1, 1997 (commencement of operations).
** From May 1, 1998 (commencement of operations).
See accompanying notes.
84
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SMALL/MID CAP CORE HIGH YIELD BOND
SUBACCOUNT SUBACCOUNT
------------------------ ----------------------------------------
1999 1998** 1999 1998**
------------ ----------- --------------------------- --------------
<S> <C> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income
(loss). . . . . . . $ 52,711 $ (535) $ 340,435 $ 86,759
Net realized gains
(losses). . . . . . 65,733 (25,196) 42,365 64,824
Net unrealized
appreciation
(depreciation)
during the period . (10,735) 18,718 (139,659) 149,416
----------- ---------- -------------------------- -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 107,709 (7,013) 243,141 300,999
From policyholder
transactions:
Net premiums from
policyholders . . . 5,817,483 1,089,030 19,870,990 6,683,673
Net benefits to
policyholders . . . (5,611,532) (778,864) (20,368,501) (2,457,088)
----------- ---------- -------------------------- -----------
Net increase
(decrease) in net
assets resulting from
policyholder
transactions . . . . 205,951 310,166 (497,511) 4,226,585
----------- ---------- -------------------------- -----------
Net increase
(decrease) in net
assets . . . . . . . 313,660 303,153 (254,370) 4,527,584
Net assets at
beginning of period 303,153 0 4,527,584 0
----------- ---------- -------------------------- -----------
Net assets at end of
period . . . . . . . $ 616,813 $ 303,153 $ 4,273,214 $ 4,527,584
=========== ========== ========================== ===========
</TABLE>
- ---------
** From May 1, 1998 (commencement of operations).
See accompanying notes.
85
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 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, Small Cap
Growth, International Balanced, Mid Cap Growth, Large Cap Value, Money Market,
Mid Cap Value, Small/Mid Cap Growth (formerly, Diversified Mid Cap Growth), Real
Estate Equity, Growth & Income, Managed, Short-Term Bond, Small Cap Value,
International Opportunities, Equity Index, Global Bond (formerly, Strategic
Bond), Turner Core Growth, Brandes International Equity, Frontier Capital
Appreciation, 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.
86
<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, 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.
87
<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, 1999 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO SHARES OWNED COST VALUE
--------- ------------ ------------ --------------
<S> <C> <C> <C>
Large Cap Growth . . . . . . 4,226,550 $108,181,136 $115,521,551
Sovereign Bond . . . . . . . 4,200,440 40,512,273 38,321,473
International Equity Index . 1,689,937 29,224,059 33,198,674
Small Cap Growth . . . . . . 1,622,919 25,907,535 31,022,828
International Balanced . . . 428,930 4,680,715 4,591,856
Mid Cap Growth . . . . . . . 2,172,468 46,744,046 63,499,616
Large Cap Value . . . . . . . 2,009,306 28,839,671 27,106,917
Money Market . . . . . . . . 6,100,677 61,006,768 61,006,769
Mid Cap Value . . . . . . . . 1,497,913 18,236,811 19,138,533
Small/Mid Cap Growth . . . . 707,222 10,888,164 9,925,831
Real Estate Equity . . . . . 805,182 9,643,804 9,238,646
Growth & Income . . . . . . . 10,470,370 207,387,033 209,525,899
Managed . . . . . . . . . . . 8,137,552 130,087,567 125,710,809
Short-Term Bond . . . . . . . 1,206,452 11,963,663 11,728,988
Small Cap Value . . . . . . . 1,720,546 18,985,985 18,783,396
International Opportunities . 2,078,452 26,831,679 31,535,049
Equity Index . . . . . . . . 7,327,855 138,687,664 149,913,131
Global Bond . . . . . . . . . 900,154 9,240,752 8,838,516
Turner Core Growth . . . . . 988,705 20,433,059 22,671,005
Brandes International Equity 1,122,129 13,875,593 17,415,296
Frontier Capital Appreciation 804,225 13,485,020 16,985,022
Enhanced U.S. Equity . . . . 321,327 6,490,133 6,738,214
Emerging Markets Equity . . . 303,646 3,288,843 3,723,380
Global Equity . . . . . . . . 68,965 784,773 836,878
Bond Index . . . . . . . . . 550,115 5,214,459 5,126,051
Small/Mid Cap CORE . . . . . 62,841 608,830 616,813
High Yield Bond . . . . . . . 475,514 4,263,457 4,273,214
</TABLE>
88
<PAGE>
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 during 1999 were as
follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
--------- ------------ --------------
<S> <C> <C>
Large Cap Growth . . . . . . . . . $ 62,265,535 $ 14,711,539
Sovereign Bond . . . . . . . . . . 38,288,617 29,280,010
International Equity Index . . . . 32,519,440 17,541,313
Small Cap Growth . . . . . . . . . 27,757,302 12,281,978
International Balanced . . . . . . 3,415,587 1,768,784
Mid Cap Growth . . . . . . . . . . 45,338,211 14,783,738
Large Cap Value . . . . . . . . . . 22,257,609 10,304,554
Money Market . . . . . . . . . . . 304,141,849 329,646,739
Mid Cap Value . . . . . . . . . . . 15,413,952 12,927,617
Small/Mid Cap Growth . . . . . . . 8,759,614 5,337,363
Real Estate Equity . . . . . . . . 13,375,520 8,254,469
Growth & Income . . . . . . . . . . 144,949,345 32,223,136
Managed . . . . . . . . . . . . . . 111,633,323 21,803,394
Short-Term Bond . . . . . . . . . . 17,352,671 24,342,768
Small Cap Value . . . . . . . . . . 16,062,747 7,136,780
International Opportunities . . . . 24,767,973 17,918,215
Equity Index . . . . . . . . . . . 124,086,502 40,497,607
Global Bond . . . . . . . . . . . . 10,322,531 9,125,384
Turner Core Growth . . . . . . . . 20,980,047 5,874,338
Brandes International Equity . . . 10,664,333 3,583,615
Frontier Capital Appreciation . . . 13,387,462 10,133,633
Enhanced U.S. Equity . . . . . . . 5,925,334 2,077,734
Emerging Markets Equity . . . . . . 9,682,573 7,242,444
Global Equity . . . . . . . . . . . 2,167,637 1,624,954
Bond Index . . . . . . . . . . . . 5,900,997 1,658,038
Small/Mid Cap CORE . . . . . . . . 3,312,578 3,053,916
High Yield Bond . . . . . . . . . . 11,898,171 12,055,248
</TABLE>
89
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. NET ASSETS
Accumulation shares attributable to net assets of policyholders and
accumulation share values for each subaccount at December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
VEP CLASS #1 VEP CLASS #2 VEP CLASS #3
-------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . . 432,627 $34.19 442,008 $34.29 156,934 $34.39
Sovereign Bond . . . . . . . 226,496 13.80 170,995 13.84 28,389 13.88
International Equity Index . 205,346 17.52 163,712 17.58 4,631 17.63
Small Cap Growth . . . . . . 151,029 21.68 131,551 21.71 42,832 21.76
International Balanced . . . 21,487 13.28 25,817 13.30 12,453 13.33
Mid Cap Growth . . . . . . . 202,405 35.56 145,034 35.62 45,513 35.69
Large Cap Value . . . . . . . 191,629 16.15 140,376 16.18 4,476 16.21
Money Market . . . . . . . . 613,611 13.08 1,102,161 13.12 347,735 13.15
Mid Cap Value . . . . . . . . 106,938 14.05 45,955 14.08 2,990 14.10
Small/Mid Cap Growth . . . . 83,852 19.77 90,674 19.83 41,701 19.88
Real Estate Equity . . . . . 94,768 14.40 68,355 14.44 2,732 14.49
Growth & Income . . . . . . . 945,411 30.90 579,234 31.00 212,540 31.09
Managed . . . . . . . . . . . 554,374 20.88 279,936 20.94 23,988 21.00
Short-Term Bond . . . . . . . 94,078 12.97 84,892 13.00 7,712 13.04
Small Cap Value . . . . . . . 114,641 12.30 82,461 12.33 55,278 12.35
International Opportunities . 115,902 16.52 159,219 16.55 2,521 16.58
Equity Index . . . . . . . . 442,683 23.06 565,394 23.10 189,577 23.14
Global Bond . . . . . . . . . 55,090 12.15 48,036 12.17 16,751 12.19
Turner Core Growth . . . . . 31,697 28.29 15,337 28.36 -- --
Brandes International Equity 18,319 16.91 33,342 16.94 -- --
Frontier Capital Appreciation 20,409 22.75 13,182 22.80 -- --
Enhanced U.S. Equity . . . . 3,102 17.47 -- 17.50 -- --
Emerging Markets Equity . . . 31,332 12.77 114,481 12.78 4,803 12.79
Global Equity . . . . . . . . 11,223 12.22 15,873 12.23 777 12.24
Bond Index . . . . . . . . . 99,617 10.34 99,264 10.34 64,039 10.35
Small/Mid Cap CORE . . . . . 12,833 10.76 3,271 10.77 4,416 10.78
High Yield Bond . . . . . . . 51,021 10.09 40,169 10.10 -- --
</TABLE>
90
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
V COLI CLASS #4 V COLI CLASS #5 V COLI CLASS #6
-------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ------------ ------------ ------------ ------------ ------------ --------------
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . . 646,018 $34.50 282,553 $34.49 252,596 $34.52
Sovereign Bond . . . . . . . 17,426 14.64 538,047 14.66 335,449 14.67
International Equity Index . 63,956 16.24 130,903 16.26 235,165 16.28
Small Cap Growth . . . . . . 90,088 22.04 39,929 22.05 38,804 22.07
International Balanced . . . 68,220 13.50 6,065 13.51 54,964 13.52
Mid Cap Growth . . . . . . . 146,264 36.15 124,116 36.18 5,992 36.19
Large Cap Value . . . . . . . 151,753 16.42 133,066 16.43 416,273 16.44
Money Market . . . . . . . . 218,714 13.01 5,906 13.02 136,140 13.04
Mid Cap Value . . . . . . . . 69,726 14.29 24,485 14.30 281,375 14.30
Small/Mid Cap Growth . . . . 27,983 19.77 958 19.79 42,902 19.81
Real Estate Equity . . . . . 58,475 14.92 4,323 14.93 203,728 14.95
Growth & Income . . . . . . . 641,268 30.84 447,326 30.87 16,723 30.91
Managed . . . . . . . . . . . 162,478 21.64 83,071 21.66 150,514 21.68
Short-Term Bond . . . . . . . 99,163 13.21 351,710 13.22 -- --
Small Cap Value . . . . . . . 32,245 12.51 49,419 12.52 281,896 12.53
International Opportunities . 203,225 16.80 157,727 16.80 74,340 16.81
Equity Index . . . . . . . . 324,024 23.44 37,253 23.46 533,298 23.47
Global Bond . . . . . . . . . 54,500 12.35 9,809 12.36 -- --
Turner Core Growth . . . . . 7,772 28.80 12,496 28.83 -- --
Brandes International Equity 104,626 17.21 81,372 17.23 42,458 17.25
Frontier Capital Appreciation 74,553 23.16 62,806 23.18 -- --
Enhanced U.S. Equity . . . . 13,962 17.68 1 17.68 -- --
Emerging Markets Equity . . . -- -- 24,692 12.87 -- --
Global Equity . . . . . . . . -- -- -- 12.32 -- --
Bond Index . . . . . . . . . 2,519 10.42 10,132 10.42 -- --
Small/Mid Cap CORE . . . . . -- -- -- 10.84 -- --
High Yield Bond . . . . . . . 1,998 10.18 310 10.18 85,180 10.18
</TABLE>
91
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MEDALLION EXECUTIVE VLI CLASS #7 MVEP CLASS #8 MVUL CLASS #9
--------------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ---------------- ---------------- ------------ ------------ ------------ --------------
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . 92,840 $79.68 781,223 $24.82 213,207 $22.10
Sovereign Bond . . . . . . 57,389 23.69 765,173 12.44 500,049 11.71
International Equity Index 113,572 27.55 780,218 15.05 200,089 15.54
Small Cap Growth . . . . . 193,672 21.70 298,417 21.90 197,401 24.61
International Balanced . . 52,288 13.29 41,158 13.41 36,634 12.85
Mid Cap Growth . . . . . . 168,579 35.59 383,762 35.92 103,210 39.83
Large Cap Value . . . . . . 269,931 16.17 125,284 16.31 115,052 13.95
Money Market . . . . . . . 280,073 18.10 339,940 11.94 435,648 11.42
Mid Cap Value . . . . . . . 412,439 14.06 242,213 14.19 70,954 12.00
Small/Mid Cap Growth . . . 3,416 19.80 257,950 12.63 33,652 12.85
Real Estate Equity . . . . 39,901 22.14 116,040 12.27 38,147 9.54
Growth & Income . . . . . . 828,857 68.13 1,383,220 21.88 552,475 19.13
Managed . . . . . . . . . . 2,321,332 39.65 236,592 16.81 102,294 15.37
Short-Term Bond . . . . . . 63,598 12.99 63,326 11.93 95,428 11.43
Small Cap Value . . . . . . 473,526 12.32 281,097 12.43 87,362 11.80
International Opportunities 559,454 16.54 227,841 16.68 335,763 15.97
Equity Index . . . . . . . 477,728 23.08 1,251,427 23.29 598,377 19.87
Global Bond . . . . . . . . 146,786 12.16 62,185 12.27 258,673 11.58
Turner Core Growth . . . . -- -- 229,705 25.66 76,087 24.67
Brandes International
Equity . . . . . . . . . . -- -- 495,542 16.53 58,572 17.67
Frontier Capital
Appreciation . . . . . . . -- -- 405,890 19.23 119,967 18.62
Enhanced U.S. Equity . . . -- -- 145,784 17.59 139,459 17.59
Emerging Markets Equity . . 45,954 12.77 18,062 12.82 40,257 12.82
Global Equity . . . . . . . 2,967 12.23 4,588 12.28 29,228 12.28
Bond Index . . . . . . . . 18,855 10.34 12,439 10.38 185 10.38
Small/Mid Cap CORE . . . . -- -- 16,742 10.81 477 10.81
High Yield Bond . . . . . . 34,470 10.10 82,547 10.14 72,026 10.14
</TABLE>
92
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MVUL 98 CLASS #10 MVEP 98 CLASS #11 MEVL II CLASS #12
-------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
--------- ------------ ------------ ------------ ------------ ------------ --------------
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . . 221,057 $22.10 133,186 $24.82 -- --
Sovereign Bond . . . . . . . 122,492 11.71 96,742 12.44 -- --
International Equity Index . 40,197 15.54 68,833 15.05 -- --
Small Cap Growth . . . . . . 158,068 24.61 34,357 21.90 -- --
International Balanced . . . 22,819 12.85 3,040 13.41 -- --
Mid Cap Growth . . . . . . . 291,628 39.83 111,636 35.92 -- --
Large Cap Value . . . . . . . 66,485 13.95 73,993 16.31 -- --
Money Market . . . . . . . . 575,670 11.42 718,107 11.94 -- --
Mid Cap Value . . . . . . . . 62,352 11.99 52,021 14.19 -- --
Small/Mid Cap Growth . . . . 15,710 12.85 20,460 12.63 -- --
Real Estate Equity . . . . . 10,691 9.54 7,405 12.27 -- --
Growth & Income . . . . . . . 1,047,922 19.13 196,321 21.88 -- --
Managed . . . . . . . . . . . 55,779 15.37 43,618 16.81 -- --
Short-Term Bond . . . . . . . 26,887 11.43 31,697 11.93 -- --
Small Cap Value . . . . . . . 22,247 11.80 40,374 12.43 -- --
International Opportunities . 39,238 15.97 35,379 16.68 -- --
Equity Index . . . . . . . . 1,960,860 19.87 440,030 23.29 -- --
Global Bond . . . . . . . . . 35,346 11.58 51,458 12.27 -- --
Turner Core Growth . . . . . 377,311 24.67 142,883 25.66 -- --
Brandes International Equity 82,135 17.67 116,504 16.53 -- --
Frontier Capital Appreciation 90,807 18.62 69,320 20.00 -- --
Enhanced U.S. Equity . . . . 48,887 17.59 30,852 17.59 -- --
Emerging Markets Equity . . . 7,584 12.82 3,832 12.82 -- --
Global Equity . . . . . . . . 1,070 12.28 2,561 12.28 -- --
Bond Index . . . . . . . . . 137,733 10.38 46,924 10.38 -- --
Small/Mid Cap CORE . . . . . 10,536 10.81 8,881 10.81 -- --
High Yield Bond . . . . . . . 15,036 10.14 38,875 10.14 -- --
</TABLE>
93
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
VEP CLASS #13
--------------------------
ACCUMULATION ACCUMULATION
PORTFOLIO SHARES SHARE VALUES
--------- ------------ --------------
----------------------------
<S> <C> <C>
Large Cap Growth . . . . . . -- --
Sovereign Bond . . . . . . . -- --
International Equity Index . -- --
Small Cap Growth . . . . . . -- --
International Balanced . . . -- --
Mid Cap Growth . . . . . . . -- --
Large Cap Value . . . . . . . -- --
Money Market . . . . . . . . -- --
Mid Cap Value . . . . . . . . -- --
Small/Mid Cap Growth . . . . -- --
Real Estate Equity . . . . . -- --
Growth & Income . . . . . . . -- --
Managed . . . . . . . . . . . -- --
Short-Term Bond . . . . . . . -- --
Small Cap Value . . . . . . . -- --
International Opportunities . -- --
Equity Index . . . . . . . . -- --
Global Bond . . . . . . . . . -- --
Turner Core Growth . . . . . -- --
Brandes International Equity -- --
Frontier Capital Appreciation -- --
Enhanced U.S. Equity . . . . -- --
Emerging Markets Equity . . . -- --
Global Equity . . . . . . . . -- --
Bond Index . . . . . . . . . -- --
Small/Mid Cap CORE . . . . . -- --
High Yield Bond . . . . . . . -- --
</TABLE>
94
<PAGE>
ALPHABETICAL INDEX OF KEY WORDS AND PHRASES
This index should help you locate more information about many of the important
concepts in this prospectus.
<TABLE>
<CAPTION>
KEY WORD OR PHRASE PAGE KEY WORD OR PHRASE PAGE
<S> <C> <C> <C> <C>
Account . . . . . . . 34 42
account value . . . . 9 36
Additional Sum Insured 16 16
annual processing date 17 18
asset-based risk
charge . . . . . . . 10 17
attained age. . . . . 10 5
Basic Sum Insured . . 16 15
beneficiary . . . . . 45 11
business day. . . . . 35 20
changing Option A or B 19 7
changing the Total Sum
Insured . . . . . . 19 36
charges . . . . . . . 9 18
Code. . . . . . . . . 41 36
cost of insurance
rates. . . . . . . . 10 5
date of issue . . . . 36 3
death benefit . . . . 5 22
deductions. . . . . . 9 7
dollar cost averaging 14 9
expenses of the Trusts 11 2
fixed investment
option . . . . . . . 35 34
full surrender. . . . 15 2
fund. . . . . . . . . 2 15
grace period. . . . . 7 34
guaranteed minimum
death benefit . . . 7 15
Guaranteed Minimum
Death Benefit Premium 8 15
insurance charge. . . 10 10
insured person. . . . 5 41
investment options. . 1 22
JHVLICO . . . . . . . 34 16
lapse . . . . . . . . 7 14
loan. . . . . . . . . 15 2
loan interest . . . . 15 1
maximum premiums. . . 6 34
Minimum Initial
Premium. . . . . . . 35 15
minimum insurance
amount . . . . . . . 17 11
minimum premiums. . . 6 5
</TABLE>
95
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the John
Hancock Variable Life Insurance Company has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunder
duly authorized, and its seal to be hereunto fixed and attested, all in the City
of Boston and Commonwealth of Massachusetts on the 1st day of May, 2000.
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY
(SEAL)
By /s/ MICHELE G. VAN LEER
-----------------------
Michele G. Van Leer
President
Attest: /s/ PETER H. SCAVONGELLI
----------------------
Peter H. Scavongelli
Secretary
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities with John Hancock Variable Life Insurance
Company and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ PATRICK F. SMITH
- --------------------
Patrick F. Smith Controller (Principal Accounting May 1, 2000
Officer and Acting Principal
Financial Officer)
/s/ MICHELE G. VAN LEER
- -----------------------
Michele G. Van Leer Vice Chairman of the Board
for herself and as and President(Acting Principal
Attorney-in-Fact Executive Officer) May 1, 2000
For: David F. D'Alessandro Chairman of the Board
Robert S. Paster Director
Thomas J. Lee Director
Barbara L. Luddy Director
Ronald J. Bocage Director
Robert R. Reitano Director
Bruce M. Jones Director
Paul Strong Director
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, certifies that it meets all of the requirements for effectiveness of
this Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, and its seal to be hereunto fixed and attested, all in the City of
Boston and Commonwealth of Massachusetts on the 1st day of May, 2000.
On behalf of the Registrant
By John Hancock Variable Life Insurance Company
(Depositor)
(SEAL)
By /s/ Michele G. Van Leer
-----------------------
Michele G. Van Leer
President
Attest /s/ PETER H. SCAVONGELLI
------------------------
Peter H. Scavongelli
Secretary
<PAGE>
EXHIBIT 6
[John Hancock Life Insurance Company Letterhead]
May 1, 2000
Board of Directors of the John Hancock Variable Life Insurance Company
Re: Actuarial Opinion:
Members of the Board:
This opinion is furnished in connection with the filing the Amendment
to the Registration Statement on Form S-6 in which this opinion is being filed
as an exhibit, pursuant to the Securities Act of 1933, as amended, with respect
to variable life insurance policies under which amounts will be allocated to one
or more of the subaccounts of one or more variable life insurance separate
accounts. The policies described in the prospectus(es) in said Amendment.
The policy form was reviewed under my direction, and I am familiar with
the amended Registration Statement and exhibits. In my opinion, the
illustrations of policy benefits, values, and accumulated premiums shown in the
prospectus(es) (or appendix thereto) included in the Amendment, based on the
assumptions stated with the illustrations, are consistent with the provisions of
the policies Such assumptions, including, to the extent applicable, the current
cost of insurance rates, current scheduled rates of other charges, current
dividend scales, and any other currently scheduled credits, are reasonable. The
policies have not been designed so as to make the relationship between premiums
and benefits, as shown in the illustrations, appear disproportionately more
favorable to a prospective purchaser of a policy for an insured person(s) with
the characteristics illustrated than to a prospective purchaser of a policy for
an insured person(s) with other characteristics; nor have the particular
examples set forth in the illustrations been selected for the purpose of making
this relationship appear more favorable.
I hereby consent to the filing of this opinion as an exhibit to the
amended Registration Statement and to the use of my name under the heading
"Experts" or "Accounting and Actuarial Experts" in the propectus(es).
Deborah A. Poppel, FSA
Second Vice President
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Prospectus and to the use of our reports dated February 11, 2000, with respect
to the financial statements of John Hancock Variable Life Account S, and dated
March 10, 2000, with respect to the financial statements of John Hancock
Variable Life Insurance Company, included in this Post-Effective Amendment No.
11 to the Registration Statement (Form S-6, No. 33-64366).
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
April 26, 2000
<PAGE>
EXHIBIT 10
[LETTERHEAD OF JOHN HANCOCK LIFE INSURANCE COMPANY]
May 1, 2000
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
John Hancock Variable Life Account S
File Nos. 33-64366 and 811-7782
Commissioners:
This opinion is being furnished with respect to the filing of
Post-Effective Amendment No. 11 under the Securities Act of 1933 on the Form S-6
Registration Statement of John Hancock Variable Life Account S as required by
Rule 485 under the 1933 Act.
We have acted as counsel to Registrant for the purpose of preparing
this Post-Effective Amendment which is being filed pursuant to paragraph (b) of
Rule 485 and hereby represent to the Commission that in our opinion this Post-
Effective Amendment does not contain disclosures which would render it
ineligible to become effective pursuant to paragraph (b).
We hereby consent to the filing of this opinion with and as a part of
this Post-Effective Amendment to Registrant's Registration Statement with the
Commission.
Very truly yours,
/s/ Ronald J. Bocage
--------------------
Ronald J. Bocage
Counsel
