As filed with the Securities and Exchange Commission on June 22, 2001 Registration No. 333- ---------- ________________________________________________________________________________ U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM S-6 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] PRE-EFFECTIVE AMENDMENT NO. [ ] POST-EFFECTIVE AMENDMENT NO. [ ] ---------------------- JOHN HANCOCK MUTUAL VARIABLE LIFE INSURANCE ACCOUNT UV (Exact name of trust) JOHN HANCOCK LIFE INSURANCE COMPANY (Name of depositor) JOHN HANCOCK PLACE INSURANCE & SEPARATE ACCOUNTS DEPT.-LAW SECTOR BOSTON, MASSACHUSETTS 02117 (Complete address of depositor's principal executive offices) -------------------- RONALD J. BOCAGE, ESQ. INSURANCE & SEPARATE ACCOUNTS DEPT.-LAW SECTOR JOHN HANCOCK LIFE INSURANCE COMPANY JOHN HANCOCK PLACE, BOSTON, 02117 (Name and complete address of agent for service) -------------------- Copy to: THOMAS C. LAUERMAN, ESQ. Foley & Lardner 3000 K Street, N.W. Washington, D.C. 20007 -------------------- Approximate date of proposed public offering: as soon as practicable after the effective date of this Registration Statement. Title and amount of securities being registered: interests under flexible premium variable life contracts. The Registration hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Prospectus dated July 30, 2001 ------------------------------------------------ MEDALLION EXECUTIVE VARIABLE LIFE III ------------------------------------------------ a flexible premium variable life insurance policy issued by JOHN HANCOCK LIFE INSURANCE COMPANY ("John Hancock") The policy provides an investment option with fixed rates of return declared by John Hancock and the following variable investment options: - ----------------------------------------------------------------------------------------------------------------------------- Variable Investment Option Managed By -------------------------- ---------- Equity Index............................................ SSgA Funds Management, Inc. Growth & Income......................................... Independence Investment LLC and Putnam Investment Management, LLC Large Cap Value......................................... T. Rowe Price Associates, Inc. Large Cap Value CORE /(SM)/............................. Goldman Sachs Asset Management Large Cap Growth........................................ Independence Investment LLC Large Cap Aggressive Growth............................. Alliance Capital Management L.P. Large/Mid Cap Value..................................... Wellington Management Company, LLP Fundamental Growth...................................... Putnam Investment Management, LLC Mid Cap Growth.......................................... Janus Capital Corporation Small/Mid Cap CORE /(SM)/............................... Goldman Sachs Asset Management Small/Mid Cap Growth.................................... Wellington Management Company, LLP Small Cap Equity........................................ Capital Guardian Trust Company Small Cap Value......................................... T. Rowe Price Associates, Inc. Small Cap Growth........................................ John Hancock Advisers, Inc. V.A. Relative Value..................................... John Hancock Advisers, Inc. AIM V.I. Value.......................................... A I M Advisors, Inc. AIM V.I. Growth......................................... A I M Advisors, Inc. Fidelity VIP Growth..................................... Fidelity Management and Research Company Fidelity VIP Contrafund(R).............................. Fidelity Management and Research Company MFS Investors Growth Stock.............................. MFS Investment Management(R) MFS Research............................................ MFS Investment Management(R) MFS New Discovery....................................... MFS Investment Management(R) International Equity Index.............................. Independence Investment LLC International Opportunities............................. T. Rowe Price International, Inc. International Equity.................................... Goldman Sachs Asset Management Emerging Markets Equity................................. Morgan Stanley Investment Management Inc. Janus Aspen Worldwide Growth............................ Janus Capital Corporation Real Estate Equity...................................... Independence Investment LLC and Morgan Stanley Investment Management Inc. Health Sciences......................................... Putnam Investment Management, LLC V.A. Financial Industries............................... John Hancock Advisers, Inc. Janus Aspen Global Technology........................... Janus Capital Corporation Managed................................................. Independence Investment LLC and Capital Guardian Trust Company Global Balanced......................................... Capital Guardian Trust Company Short-Term Bond......................................... Independence Investment LLC Bond Index.............................................. Mellon Bond Associates, LLP Active Bond............................................. John Hancock Advisers, Inc. V.A. Strategic Income................................... John Hancock Advisers, Inc. High Yield Bond......................................... Wellington Management Company, LLP Global Bond............................................. Capital Guardian Trust Company Money Market............................................ Wellington Management Company, LLP - ----------------------------------------------------------------------------------------------------------------------------- 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 John Hancock Declaration Trust, the AIM Variable Insurance Funds, Fidelity's Variable Insurance Products Fund (Service Class) and Variable Insurance Products Fund II (Service Class), the MFS Variable Insurance Trust (Initial Class Shares), and the Janus Aspen Series (Service Shares Class) (together, "the Series Funds"). In this prospectus, the investment options of the Series Funds are referred to as "funds". In the prospectuses for the Series Funds, the investment options may be referred to as "funds", "portfolios" or "series". Each Series Fund 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 Series Funds. Each of the funds is separately managed and has its own investment objective and strategies. Attached at the end of this prospectus are prospectuses for the Series Funds. The Series Fund 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. * * * * * * * * * * * * John Hancock 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: 1-617-866-3048 2 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 29. . Behind the Additional Information section are the financial statements for John Hancock and Separate Account UV. These start on page 43. . Finally, there is an Alphabetical Index of Key Words and Phrases at the back of the prospectus on page 174. After the Alphabetical Index of Key Words and Phrases, this prospectus ends and the prospectuses for the Series Funds begin. ********** 3 BASIC INFORMATION This part of the prospectus provides answers to commonly asked questions about the policy. Here are the page numbers where the questions and answers appear: Question 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?.......................................................................... 6 .How will the value of my investment in the policy change over time?............................................... 8 .What charges will John Hancock deduct from my investment in the policy?........................................... 8 .What charges will the Series Funds deduct from my investment in the policy?....................................... 10 .What other charges could John Hancock impose in the future?....................................................... 12 .How can I change my policy's investment allocations?.............................................................. 13 .How can I access my investment in the policy?..................................................................... 13 .How much will John Hancock pay when the insured person dies?...................................................... 15 .What optional rider benefits can I choose?........................................................................ 16 .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 John Hancock pays out policy proceeds?............................................. 18 .To what extent can John Hancock 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 John Hancock?........................................................................... 20 4 What is the policy? The policy's primary purpose is to provide lifetime protection against economic loss due to the death of the insured person. The value of the amount you have invested under the policy may increase or decrease daily based upon the investment results of the variable investment options that you choose. The amount we pay to the policy's beneficiary if the insured person dies (we call this the "death benefit") may be similarly affected. While the insured person is alive, you will have a number of options under the policy. Here are some major ones: . Determine when and how much you invest in the various investment options . Borrow or withdraw amounts you have in the investment options . Change the beneficiary who will receive the death benefit . Change the amount of insurance . Turn in (i.e., "surrender") the policy for the full amount of its surrender value . Choose the form in which we will pay out the death benefit or other proceeds Most of these options are subject to limits that are explained later in this prospectus. Who owns the policy? That's up to the person who applies for the policy. The owner of the policy is the person who can exercise most of the rights under the policy, such as the right to choose the investment options or the right to surrender the policy. In many cases, the person buying the policy is also the person who will be the owner. However, the application for a policy can name another person or entity (such as a trust) as owner. Whenever we've used the term "you" in this prospectus, we've assumed that the reader is the person who has whatever right or privilege is being discussed. There may be tax consequences if the owner and the insured person are different, so you should discuss this issue with your tax adviser. How can 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 Minimum premium payment Each premium payment must be at least $50. Maximum premium payments Federal tax law limits the amount of premium payments you can make relative to the amount of your policy's insurance coverage. We will not knowingly accept any amount by which a premium payment exceeds the maximum. If you exceed certain other limits, the law may impose a penalty on amounts you take out of your policy. More discussion of these tax law requirements begins on page 36. Also, we may refuse to accept any amount of an additional premium if: . that amount of premium would increase our insurance risk exposure, and . the insured person doesn't provide us with adequate evidence that he or she continues to meet our requirements for issuing insurance. In no event, however, will we refuse to accept any premium necessary to prevent the policy or the guaranteed death benefit feature from terminating. Ways to pay premiums If you pay premiums by check or money order, they must be drawn on a U.S. bank in U.S. dollars and made payable to "John Hancock Life." We will not accept credit card checks. We will not accept starter or third party checks if they fail to satisfy our administrative requirements. Premiums after the first must be sent to the John Hancock 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, 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 John Hancock representative or by contacting the John Hancock Life Servicing Office. 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 death benefit feature" below). 6 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 death benefit feature is in effect, only the Additional Sum Insured, if any, can lapse. If the guaranteed 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 quarterly processing 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 3 years from the beginning of the grace period. You will have to provide evidence that the insured person still meets our requirements for issuing coverage. You will also have to pay a minimum amount of premium and be subject to the other terms and conditions applicable to reinstatements, as specified in the policy. If the guaranteed death benefit is not in effect and the insured person dies during the grace period, we will deduct any unpaid monthly charges from the death benefit. During such a grace period, you cannot make a partial withdrawal or policy loan. (The "quarterly processing dates" are every third monthly deduction date. The term "monthly deduction date" is defined on page 32 under "Procedures for issuance of a policy".) Guaranteed death benefit feature This feature guarantees that your Basic Sum Insured will not lapse during the first 5 policy years, regardless of adverse investment performance, if on each quarterly processing date during that 5 year period the amount of cumulative premiums you have paid (less all withdrawals from the policy and all outstanding loans) equals or exceeds the sum of all Guaranteed Death Benefit Premiums due to date. The annual Guaranteed Death Benefit Premium (or "GDB Premium) is defined in the policy and one-twelfth of that amount is "due" on each monthly deduction date. If the Guaranteed Death Benefit test is not satisfied on any quarterly processing date, the guaranteed death benefit feature will not be "in effect" on that quarterly processing date. No GDB 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 GDB 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 John Hancock pay when the insured person dies?" on page 15). The guaranteed 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 John --- Hancock pay when the 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. 7 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 32.) 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 a Series Fund 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 John Hancock 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 9. --- Otherwise, the charges applicable to the fixed investment option are the same as those applicable to the variable investment options. At any time, the "account value" of your policy is equal to: . the amount you invested, . plus or minus the investment experience of the investment options you've chosen, . minus all charges we deduct, and . minus all withdrawals you have made. If you take a loan on the policy, however, your account value will be computed somewhat differently. This is discussed on page 34. What charges will John Hancock 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 1.60% of each premium. We guarantee that this charge will never exceed 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 1.0% of 8 each premium. We guarantee that this charge will never exceed 1.25% of each premium. . Premium sales charge - A charge to help defray our sales costs. The current -------------------- charge is a percentage of a certain portion of the premium you pay. The percentage is currently 3% in policy years 1 through 10 and will never exceed 7% in any of those policy years. We currently intend to stop making this charge on premiums received after the 10th policy year, but this is not guaranteed. Because policies of this type were first offered for sale in 1999, no termination of this charge has yet occurred. In no event will this charge exceed 3% after the 10th policy year. The portion of each year's premium that is currently subject to the charge is called the "Target Premium". It's determined at the time the policy is issued and will appear in the "Policy Specifications" section of the policy. We currently impose no sales charge on premiums in excess of the Target Premium. However, we reserve the right to impose a charge of up to 3% of such excess premiums paid in any policy year. . Optional enhanced cash value rider charge - A charge to cover the cost of this ----------------------------------------- rider, if elected, equal to 1% of premiums paid in the first policy year. Deductions from account value . Maintenance charge - A monthly charge to help defray our administrative costs. ------------------ This is a flat dollar charge of up to $15 (currently $10). We currently intend to stop making this charge after the 20th policy year, but this is not guaranteed. . 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 the insured person, the Total Sum Insured and the length of time the policy has been in effect. Regardless of the table used, cost of insurance rates generally increase each year that you own your policy, as the insured person's attained age increases. (The insured person's "attained age" on any date is his or her age on the birthday nearest that date.) Higher current insurance rates are generally applicable to policies issued on a "guaranteed issue" basis, where only very limited underwriting information is obtained. This is often the case with policies issued to trustees, employers and similar entities. . Extra mortality charge - A monthly charge specified in your policy for ---------------------- additional mortality risk if the insured person is subject to certain types of special insurance risk. . Asset-based risk charge - A monthly charge for mortality and expense risks we ----------------------- assume. The charge is a percentage of that portion of your account value allocated to variable investment options. The current percentages are .0501% for policy years 1 - 10, .0292% for policy years 11 - 20, and .0125% thereafter. These percentages equate to effective annual rates of .60%, .35% and .15%, respectively. The reductions after 10 9 and 20 years have not occurred yet under any policy, since no policy has yet been outstanding for 10 years. We guarantee that this charge will never exceed .0753% of that portion of your account value allocated to variable investment options. This percentage equates to an effective annual rate of .90%. This charge does not apply to the fixed investment option. . Optional benefits charge - Monthly charges for any optional insurance benefits ------------------------ added to the policy by means of a rider (other than the enhanced cash value rider). We currently do not offer any rider for which such a charge is made, but we may offer such riders in the future. . 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 Series Funds deduct from my investment in the policy? The funds 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. We may also receive payments from a fund or its affiliates at an annual rate of up to approximately 0.35% of the average net assets that holders of our variable life insurance policies and variable annuity contracts have invested in that fund. Any such payments do not, however, result in any charge to you in addition to what is disclosed below. 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 2000, 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. ------------- Total Fund Total Fund Investment Distribution and Other Operating Operating Operating Management Service Expenses With Expenses With Expenses Absent Fund Name Fee (12b-1) Fees Reimbursement Reimbursement Reimbursement - --------- ---------- ---------------- --------------- ------------- --------------- John Hancock Variable Series Trust I (Note 1): Equity Index ............................. 0.13% N/A 0.06% 0.19% 0.19% Growth & Income........................... 0.68% N/A 0.08% 0.76% 0.76% Large Cap Value........................... 0.75% N/A 0.05% 0.80% 0.80% Large Cap Value CORE(SM).................. 0.75% N/A 0.10% 0.85% 1.09% Large Cap Growth.......................... 0.36% N/A 0.10% 0.46% 0.46% Large Cap Aggressive Growth............... 0.90% N/A 0.10% 1.00% 1.05% Large/Mid Cap Value....................... 0.95% N/A 0.10% 1.05% 1.36% Fundamental Growth*....................... 0.90% N/A 0.10% 1.00% 1.04% Mid Cap Growth............................ 0.81% N/A 0.04% 0.85% 0.85% Small/Mid Cap CORE(SM).................... 0.80% N/A 0.10% 0.90% 1.23% Small/Mid Cap Growth...................... 0.75% N/A 0.10% 0.85% 0.85% Small Cap Equity*......................... 0.90% N/A 0.10% 1.00% 1.03% Small Cap Value*.......................... 0.95% N/A 0.10% 1.05% 1.29% Small Cap Growth.......................... 0.75% N/A 0.07% 0.82% 0.82% International Equity Index................ 0.18% N/A 0.10% 0.28% 0.37% International Opportunities............... 0.83% N/A 0.10% 0.93% 1.09% International Equity...................... 1.00% N/A 0.10% 1.10% 1.76% ------------- 10 ------------- Total Fund Total Fund Investment Distribution and Other Operating Operating Operating Management Service Expenses With Expenses With Expenses Absent Fund Name Fee (12b-1) Fees Reimbursement Reimbursement Reimbursement - --------- ---------- ---------------- --------------- ------------- --------------- Emerging Markets Equity................... 1.22% N/A 0.10% 1.32% 2.49% Real Estate Equity........................ 1.01% N/A 0.09% 1.10% 1.10% Health Sciences........................... 1.00% N/A 0.10% 1.10% 1.10% Managed................................... 0.66% N/A 0.09% 0.75% 0.75% Global Balanced........................... 1.05% N/A 0.10% 1.15% 1.44% Short-Term Bond........................... 0.30% N/A 0.06% 0.36% 0.36% Bond Index................................ 0.15% N/A 0.10% 0.25% 0.27% Active Bond............................... 0.62% N/A 0.10% 0.72% 0.74% High Yield Bond........................... 0.65% N/A 0.10% 0.75% 0.87% Global Bond............................... 0.85% N/A 0.10% 0.95% 1.05% Money Market.............................. 0.25% N/A 0.04% 0.29% 0.29% John Hancock Declaration Trust (Note 2): V.A. Relative Value....................... 0.60% N/A 0.19% 0.79% 0.79% V.A. Financial Industries................. 0.80% N/A 0.10% 0.90% 0.90% V.A. Strategic Income..................... 0.60% N/A 0.16% 0.76% 0.76% AIM Variable Insurance Funds: AIM V.I. Value............................ 0.61% N/A 0.23% 0.84% 0.84% AIM V.I. Growth........................... 0.61% N/A 0.22% 0.83% 0.83% Variable Insurance Products Fund - Service Class (Note 3): Fidelity VIP Growth....................... 0.57% 0.10% 0.09% 0.76% 0.76% Variable Insurance Products Fund II - Service Class (Note 3): Fidelity VIP Contrafund(R)................ 0.57% 0.10% 0.09% 0.76% 0.76% MFS Variable Insurance Trust - Initial Class Shares (Note 4): MFS Investors Growth Stock*............... 0.75% 0.00% 0.16% 0.91% 0.92% MFS Research.............................. 0.75% 0.00% 0.10% 0.85% 0.85% MFS New Discovery......................... 0.90% 0.00% 0.16% 1.06% 1.09% Janus Aspen Series - Service Shares Class (Note 5): Janus Aspen Worldwide Growth.............. 0.65% 0.25% 0.05% 0.95% 0.95% Janus Aspen Global Technology............. 0.65% 0.25% 0.04% 0.94% 0.94% ------------- Notes to Fund Expense Table (1) Under its current investment management agreements with the John Hancock Variable Series Trust I, John Hancock Life Insurance Company reimburses a fund when the fund's "other fund expenses" exceed 0.10% of the fund's average daily net assets. Percentages shown for the Health Sciences Fund are estimates because the fund was not in operation in 2000. Percentages shown for the Growth & Income, Fundamental Growth, Small Cap Equity, Real Estate Equity, Managed, Global Balanced, Active Bond and Global Bond funds are calculated as if the current management fee schedules, which apply to these funds effective November 1, 2000, were in effect for all of 2000. Percentages shown for the Small Cap Value and Large Cap Value funds are calculated as if the current management fee schedules, which apply to these funds effective May 1, 2001, were in effect for all of 2000. "CORE(SM)" is a service mark of Goldman, Sachs & Co. * Fundamental Growth was formerly "Fundamental Mid Cap Growth," Small Cap Equity was formerly 11 "Small Cap Value," and Small Cap Value was formerly "Small/Mid Cap Value." (2) Percentages shown for John Hancock Declaration Trust funds reflect the investment management fees currently payable and other fund expenses allocated in 2000. John Hancock Advisers, Inc. has agreed to limit temporarily other expenses of each fund to 0.25% of the fund's average daily assets, at least until April 30, 2002. (3) Actual annual class operating expenses were lower for each of the Fidelity VIP funds shown because a portion of the brokerage commissions that the fund paid was used to reduce the fund's expenses, and/or because through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances were used to reduce a portion of the fund's expenses. See the accomanying prospectus of the fund for details. (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. "Other Operating Expenses" do not take into account these expense reductions, and are therefore higher than the actual expenses of the funds. Had these fee reductions been taken into account, total Fund Operating Expenses with Reimbursement would equal 0.90% for MFS Investors Growth Stock, 0.84% for MFS Research and 1.05% for MFS New Discovery. MFS Investment Management(R) (also doing business as Massachusetts Financial Services Company) has contractually agreed, subject to reimbursement, to bear expenses for the MFS Investors Growth Stock and New Discovery funds, such that the funds' "Other Expenses" (after taking into account the expense offset arrangement describe above) do not exceed 0.15% for Investors Growth Stock and 0.15% for New Discovery of the average daily net assets during the current fiscal year. * MFS Investors Growth Stock was formerly "MFS Growth." (5) Percentages shown forJanus Aspen funds are based upon expenses for the fiscal year ended December 31, 2000, restated to reflect a reduction in the management fee for the Worldwide Growth fund. Expenses are shown without the effect of any expense offset arrangement. What other charges could John Hancock 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. 12 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. A confirmation of each transfer will be sent to you. Under our current rules, you can make transfers out of any variable investment option anytime you wish. However, we reserve the right to: . impose limits on the number and frequency of transfers into and out of variable investment options, . impose a limit of not less than 12 on the number of such transfers in any policy year, and . impose a charge of up to $25 on each such transfer in excess of a yearly limit of not less than 12. 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, and . the maximum amount of any transfer into the fixed investment option after the second policy year. 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. 13 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 surrender value to fall below 3 months' worth of monthly charges (see "Deductions from account value" on page 9). We also reserve the right to refuse any partial withdrawal that would cause the policy's Total Sum Insured to fall below $100,000 or the policy's Basic Sum Insured to fall below $20,000. Because it reduces the account value, any partial withdrawal will reduce your death benefit under either Option A or Option B (see "How much will John Hancock pay when the insured person dies?" on page 15). Under Option A, such a partial withdrawal may also reduce the Total Sum Insured. This will happen only if the minimum insurance amount under Option A is equal to or less than the Total Sum Insured. Any such reduction in the Total Sum Insured will be implemented by first reducing any Additional Sum Insured then in effect. The Basic Sum Insured will be reduced only after the Additional Sum Insured has been reduced to zero. If such a reduction in Total Sum Insured would cause the policy to fail the Internal Revenue Code's definition of life insurance, we will not permit the partial withdrawal. Policy loans You may borrow from your policy at any time by completing a form satisfactory to us or, if the telephone transaction authorization form has been completed, by telephone. The maximum amount you can borrow is determined as follows: . We first determine the surrender value of your policy. . We then subtract an amount equal to 12 times the monthly charges then being deducted from account value. . We then multiply the resulting amount by .75% in policy years 1 through 10, .50% in policy years 11 through 20, and .25% thereafter. . We then subtract the third item above from the second item above. The minimum amount of each loan is $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 14 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 John Hancock pay when the insured person dies? In your application for the policy, you will tell us how much life insurance coverage you want on the life of the insured person. This is called the "Total Sum Insured." 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 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 32. When the insured person dies, we will pay the death benefit minus any outstanding loans. There are two ways of calculating the death benefit. You choose which one you want in the application. The two death benefit options are: . Option A - The death benefit will equal the greater of (1) the Total Sum Insured or (2) the minimum insurance amount (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, 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. 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 15 applied under Federal tax law - - the "guideline premium and cash value corridor test" and the "cash value accumulation test." When you elect the Option A death benefit, you must also elect which test you wish to have applied. If you elect the Option B death benefit, the guideline premium and cash value corridor test will automatically be applied. Under the guideline premium and cash value corridor test, we compute the minimum insurance amount each business day by multiplying the account value on that date by the so-called "corridor factor" applicable on that date. The corridor factors are derived by applying the guideline premium and cash value corridor test. The corridor factor starts out at 2.50 for ages at or below 40 and decreases as attained age increases, reaching a low of 1.0 at age 95. A table showing the factor for each age will appear in the policy. Under the cash value accumulation test, we compute the minimum insurance amount each business day by multiplying the account value on that date by the so-called "death benefit factor" applicable on that date. The death benefit factors are derived by applying the cash value accumulation test. The death benefit factor decreases as attained age increases. A table showing the factor for each age will appear in the policy. As noted above, you have to elect which test will be applied if you elect the Option A death benefit. The cash value accumulation test may be preferable if you want an increasing death benefit in later policy years and/or want to fund the policy at the "7 pay" limit for the full 7 years (see "Tax Considerations" beginning on page 36). The guideline premium and cash value corridor test may be preferable if you want the account value under the policy to increase without increasing the death benefit as quickly as might otherwise be required. When the insured person reaches 100 On the policy anniversary nearest the insured person's 100th birthday, the death benefit will become equal to the account value on the date of death. Death benefit Options A and B (as described above) will cease to apply. Also, we will stop deducting any monthly charges (other than the asset-based risk charge) and will stop accepting any premium payments. What optional rider benefits can I choose? Optional enhanced cash value rider If you surrender the policy at any time during the first 7 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 total premiums paid less cumulative partial withdrawals. The percentage used in each policy year will be specified in the policy. Also, if you die during the first 7 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 may increase the amount of insurance for which we are at risk, it may increase 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. As of the date of this prospectus, the rider described above was not yet available in all states. Therefore, depending on your policy's state of issue, you may be offered an older version of the rider with different terms than those described above. 16 Other riders We currently offer no other optional riders, but we may do so in the future. How can I change my policy's insurance coverage? Increase in coverage You may request an increase in the Additional Sum Insured at any time. Generally, each such increase must be at least $50,000. However, you will have to provide us with evidence that the insured person still meets our requirements for issuing insurance coverage. As to when an approved increase would take effect, see "Effective date of other policy transactions" on page 34. Decrease in coverage After the first policy year, you may request a reduction in the Total Sum Insured at any time, but only if: . the remaining Basic Sum Insured will be at least $20,000, . the remaining Total Sum Insured will be at least $100,000, 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. As to when an approved decrease would take effect, see "Effective date of other policy transactions" on page 34. Change of death benefit option As of any policy anniversary, you may change your coverage from death benefit Option A to Option B or vice-versa, but only if there is no change in the Federal tax law test used to determine the minimum insurance amount. If you change from Option A to Option B, we will require evidence that the insured person still meets our requirements for issuing coverage. This is because such a change increases our insurance risk exposure. Tax consequences Please read "Tax considerations" starting on page 36 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: 17 . John Hancock at one of the addresses shown on page 2, or . the John Hancock 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 John Hancock or the Series Funds prior to that date. The date of cancellation will be the date of such mailing or delivery. Can I choose the form in which John Hancock 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 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 John Hancock 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 John Hancock 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 35. 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 36. 19 How do I communicate with John Hancock? General Rules You should mail or express all checks and money orders for premium payments and loan repayments to the John Hancock Life Servicing Office at the appropriate address shown on page 2. Under our current rules, certain requests must be made in writing and be signed and dated by you. They include the following: . surrenders or partial withdrawals . 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 The following requests may be made either in writing (signed and dated by you) or by telephone or fax if a special form is completed (see "Telephone Transactions" below): . loans . transfers of account value among investment options . change of allocation among investment options for new premium payments You should mail or express all written requests to the John Hancock Life Servicing Office at the appropriate address shown on page 2. You should also send notice of the insured person's death and related documentation to the John Hancock 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 John Hancock Life Servicing Office or your John Hancock 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. 20 Our business day currently closes at 4:00 p.m. Eastern Standard Time, but special circumstances (such as suspension of trading on a major exchange) may dictate an earlier closing time. Telephone Transactions If you complete a special authorization form, you can request loans, transfers among investment options and changes of allocation among investment options simply by telephoning us at 1-800-732-5543 or by faxing us at 1-617-886-3048. Any fax request should include your name, daytime telephone number, policy number and, in the case of transfers and changes of allocation, the names of the investment options involved. We will honor telephone instructions from anyone who provides the correct identifying information, so there is a risk of loss to you if this service is used by an unauthorized person. However, you will receive written confirmation of all telephone transactions. There is also a risk that you will be unable to place your request due to equipment malfunction or heavy phone line usage. If this occurs, you should submit your request in writing. The policies are not designed for professional market timing organizations or other persons or entities that use programmed or frequent transfers among investment options. For reasons such as that, we reserve the right to change our telephone transaction policies or procedures at any time. We also reserve the right to suspend or terminate the privilege altogether with respect to all policies like yours or with respect to any class of such policies. 21 ILLUSTRATION OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER VALUES AND ACCUMULATED PREMIUMS The following tables illustrate the changes in death benefit, account value and surrender value of the policy under certain hypothetical circumstances that we assume solely for this purpose. Each table separately illustrates the operation of a policy for a specified issue age, premium payment schedule and Total Sum Insured. The amounts shown are for the end of each policy year and assume that all of the account value is invested in funds that achieve investment returns at constant gross annual rates of 0%, 6% and 12% (i.e., before any fees or expenses deducted from Series Fund assets). After the deduction of average fees and expenses at the Series Fund level (as described below) the corresponding net annual rates of return would be -0.82%, 5.13% and 11.08%. Investment return reflects investment income and all realized and unrealized capital gains and losses. The tables assume annual Planned Premiums that are paid at the beginning of each policy year for an insured person who is a 45 year old male nontobacco 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 John Hancock will apply in each year illustrated, including the intended waiver of the premium sales charge after the tenth policy year. The tables headed "Maximum Charges" are the same, except that the maximum permitted rates for all years are used for all charges. The tables do not reflect any charge that we reserve the right to make but are not currently making. The tables assume that no Additional Sum Insured or optional rider benefits have been elected and that no loans or withdrawals are made. With respect to fees and expenses deducted from Series Fund assets, the amounts shown in all tables reflect (1) investment management fees equivalent to an effective annual rate of .72%, and (2) an assumed average asset charge for all other Series Fund operating expenses equivalent to an effective annual rate of .10%. These rates are the arithmetic average for all funds of the Series Funds. 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 Series Fund operating expenses reflects reimbursements to certain funds as described in the footnotes to the table beginning on page 10. We currently expect those reimbursement arrangements to continue indefinitely, but that is not guaranteed. Without those arrangements, the assumed average asset charge for all other operating expenses shown above would be higher. This would result in lower values than those shown in the following tables. The second column of each table shows the amount you would have at the end of each policy year if an amount equal to the assumed Planned Premiums were invested to earn interest, after taxes, at 5% compounded annually. This is not a policy value. It is included for comparison purposes only. Because your circumstances will no doubt differ from those in the illustrations that follow, values under your policy will differ, in most cases substantially. Upon request, we will furnish you with a comparable illustration reflecting your proposed insured person's issue age, sex and underwriting risk classification, and the Total Sum Insured and annual Planned Premium amount requested. 22 Plan: Flexible Premium Variable Life $100,000 Total Sum Insured at Issue Male, Issue age 45, Fully Underwritten Nontobacco Underwriting Class Option A Death Benefit Guideline Premium and Cash Value Corridor Test Planned Premium: $5,649 for seven Policy Years, Guideline Premium Limit thereafter* Using Current Charges 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% - ------ ------------------ ------- ------- ------- ------ ------ -------- 1 5,931 100,000 100,000 100,000 5,138 5,450 5,761 2 12,159 100,000 100,000 100,000 10,068 11,006 11,981 3 18,699 100,000 100,000 100,000 14,900 16,784 18,821 4 25,565 100,000 100,000 100,000 19,651 22,813 26,367 5 32,775 100,000 100,000 100,000 20,921 25,498 30,884 6 40,345 100,000 100,000 100,000 20,295 26,319 33,782 7 48,294 100,000 100,000 100,000 19,649 27,154 36,967 8 50,709 100,000 100,000 100,000 18,982 28,003 40,471 9 53,244 100,000 100,000 100,000 18,319 28,890 44,351 10 55,906 100,000 100,000 100,000 17,659 29,816 48,647 11 58,702 100,000 100,000 100,000 17,017 30,837 53,521 12 61,637 100,000 100,000 100,000 16,341 31,878 58,915 13 64,718 100,000 100,000 100,000 15,621 32,932 64,888 14 67,954 100,000 100,000 100,000 14,861 34,006 71,514 15 71,352 100,000 100,000 102,526 14,061 35,101 78,866 16 74,920 100,000 100,000 111,363 13,225 36,225 87,002 17 78,666 100,000 100,000 120,938 12,326 37,359 95,983 18 82,599 100,000 100,000 131,310 11,358 38,503 105,895 19 86,729 100,000 100,000 142,542 10,313 39,654 116,838 20 91,065 100,000 100,000 154,702 9,180 40,809 128,919 25 95,619 100,000 100,000 246,063 2,964 48,083 213,968 30 100,400 ** 100,000 373,200 ** 56,035 355,429 35 105,420 ** 100,000 621,571 ** 64,547 591,973 _________________________ * The illustrations assume that Planned Premiums equal to the Target Premium are paid at the start of each of the first seven Policy Years and that premuims equal to the Guideline Premium Limit are paid at the start of each Policy Year thereafter. 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. In fact, for any given period of time, the investment results could be negative. 23 Plan: Flexible Premium Variable Life $100,000 Total Sum Insured at Issue Male, Issue age 45, Fully Underwritten Nontobacco Underwriting Class Option A Death Benefit Guideline Premium and Cash Value Corridor Test Planned Premium: $5,649 for seven Policy Years, Guideline Premium Limit thereafter* Using Maximum Charges Death Benefits Surrender Value ------------------------------------ -------------------------------------- Assuming hypothetical Assuming hypothetical End of Planned Premiums gross annual return of gross annual return of Policy accumulated at ------------------------------------ --------------------------------------- Year 5% annual interest 0% 6% 12% 0% 6% 12% - ------ ------------------ ------- ------- --------- ------ ------ ----------- 1 5,931 100,000 100,000 100,000 4,579 4,871 5,164 2 12,159 100,000 100,000 100,000 8,844 9,699 10,589 3 18,699 100,000 100,000 100,000 13,021 14,718 16,555 4 25,565 100,000 100,000 100,000 17,115 19,941 23,123 5 32,775 100,000 100,000 100,000 17,888 21,946 26,735 6 40,345 100,000 100,000 100,000 16,854 22,144 28,728 7 48,294 100,000 100,000 100,000 15,781 22,306 30,893 8 50,709 100,000 100,000 100,000 14,663 22,422 33,245 9 53,244 100,000 100,000 100,000 13,491 22,484 35,804 10 55,906 100,000 100,000 100,000 12,255 22,481 38,588 11 58,702 100,000 100,000 100,000 10,948 22,405 41,624 12 61,637 100,000 100,000 100,000 9,560 22,245 44,942 13 64,718 100,000 100,000 100,000 8,085 21,994 48,577 14 67,954 100,000 100,000 100,000 6,515 21,639 52,571 15 71,352 100,000 100,000 100,000 4,838 21,167 56,970 16 74,920 100,000 100,000 100,000 3,038 20,561 61,828 17 78,666 100,000 100,000 100,000 1,095 19,796 67,208 18 82,599 ** 100,000 100,000 ** 18,846 73,181 19 86,729 ** 100,000 100,000 ** 17,676 79,837 20 91,065 ** 100,000 104,681 ** 16,249 87,234 25 95,619 ** 100,000 156,417 ** 3,637 136,015 30 100,400 ** ** 223,681 ** ** 213,030 35 105,420 ** ** 353,172 ** ** 336,354 _______________________ * The illustrations assume that Planned Premiums equal to the Target Premium are paid at the start of each of the first seven Policy Years and that premuims equal to the Guideline Premium Limit are paid at the start of each Policy Year thereafter. 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. In fact, for any given period of time, the investment results could be negative. 24 Plan: Flexible Premium Variable Life $100,000 Total Sum Insured at Issue Male, Issue age 45, Fully Underwritten Nontobacco Underwriting Class Option B Death Benefit Guideline Premium and Cash Value Corridor Test Planned Premium: $5,649 for seven Policy Years, Guideline Premium Limit thereafter* Using Current Charges 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% - ------ ------------------ ------- ------- ------- ------ ------ ----------- 1 5,931 105,138 105,450 105,761 5,138 5,450 5,761 2 12,159 110,053 110,989 111,962 10,053 10,989 11,962 3 18,699 114,855 116,733 118,763 14,855 16,733 18,763 4 25,565 119,563 122,709 126,245 19,563 22,709 26,245 5 32,775 124,192 128,940 134,492 24,192 28,940 34,492 6 40,345 128,722 135,418 143,562 28,722 35,418 43,562 7 48,294 133,154 142,152 153,541 33,154 42,152 53,541 8 50,709 132,231 143,580 158,634 32,231 43,580 58,634 9 53,244 131,317 145,069 164,254 31,317 45,069 64,254 10 55,906 130,411 146,618 170,452 30,411 46,618 70,452 11 58,702 129,554 148,320 177,450 29,554 48,320 77,450 12 61,637 128,659 150,054 185,146 28,659 50,054 85,146 13 64,718 127,717 151,810 193,603 27,717 51,810 93,603 14 67,954 126,733 153,596 202,908 26,733 53,596 102,908 15 71,352 125,709 155,413 213,153 25,709 55,413 113,153 16 74,920 124,650 157,269 224,443 24,650 57,269 124,443 17 78,666 123,526 159,133 236,858 23,526 59,133 136,858 18 82,599 122,332 161,000 250,513 22,332 61,000 150,513 19 86,729 121,063 162,864 265,532 21,063 62,864 165,532 20 91,065 119,708 164,713 282,049 19,708 64,713 182,049 25 95,619 112,622 175,402 397,425 12,622 75,402 297,425 30 100,400 102,463 185,123 586,623 2,463 85,123 486,623 35 105,420 ** 191,108 896,852 ** 91,108 796,852 _____________________ * The illustrations assume that Planned Premiums equal to the Target Premium are paid at the start of each of the first seven Policy Years and that premuims equal to the Guideline Premium Limit are paid at the start of each Policy Year thereafter. 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. In fact, for any given period of time, the investment results could be negative. 25 Plan: Flexible Premium Variable Life $100,000 Total Sum Insured at Issue Male, Issue age 45, Fully Underwritten Nontobacco Underwriting Class Option B Death Benefit Guideline Premium and Cash Value Corridor Test Planned Premium: $5,649 for seven Policy Years, Guideline Premium Limit thereafter* Using Maximum Charges 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% - ------ ------------------ ------- ------- ------- ------ ------ -------- 1 5,931 104,557 104,848 105,139 4,557 4,848 5,139 2 12,159 108,777 109,625 110,508 8,777 9,625 10,508 3 18,699 112,885 114,561 116,376 12,885 14,561 16,376 4 25,565 116,881 119,661 122,792 16,881 19,661 22,792 5 32,775 120,761 124,925 129,804 20,761 24,925 29,804 6 40,345 124,526 130,359 137,470 24,526 30,359 37,470 7 48,294 128,167 135,959 145,847 28,167 35,959 45,847 8 50,709 126,717 136,465 149,439 26,717 36,465 49,439 9 53,244 125,217 136,914 153,314 25,217 36,914 53,314 10 55,906 123,658 137,295 157,489 23,658 37,295 57,489 11 58,702 122,034 137,599 161,988 22,034 37,599 61,988 12 61,637 120,340 137,813 166,836 20,340 37,813 66,836 13 64,718 118,572 137,929 172,063 18,572 37,929 72,063 14 67,954 116,724 137,937 177,700 16,724 37,937 77,700 15 71,352 114,790 137,823 183,780 14,790 37,823 83,780 16 74,920 112,757 137,569 190,332 12,757 37,569 90,332 17 78,666 110,613 137,154 197,389 10,613 37,154 97,389 18 82,599 108,339 136,549 204,982 8,339 36,549 104,982 19 86,729 105,916 135,725 213,139 5,916 35,725 113,139 20 91,065 103,325 134,650 221,896 3,325 34,650 121,896 25 95,619 ** 124,434 276,248 ** 24,434 176,248 30 100,400 ** 101,831 352,586 ** 1,831 252,586 35 105,420 ** ** 456,400 ** ** 356,400 __________________________ * The illustrations assume that Planned Premiums equal to the Target Premium are paid at the start of each of the first seven Policy Years and that premuims equal to the Guideline Premium Limit are paid at the start of each Policy Year thereafter. 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. In fact, for any given period of time, the investment results could be negative. 26 Plan: Flexible Premium Variable Life $100,000 Total Sum Insured at Issue Male, Issue age 45, Fully Underwritten Nontobacco Underwriting Class Option A Death Benefit Cash Value Accumulation Test Planned Premium: $5,649 for seven Policy Years, Guideline Premium Limit thereafter* Using Current Charges 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% - ------ ------------------ ------- ------- ------- ------ ------- -------- 1 5,931 100,000 100,000 100,000 5,138 5,450 5,761 2 12,159 100,000 100,000 100,000 10,068 11,006 11,981 3 18,699 100,000 100,000 100,000 14,900 16,784 18,821 4 25,565 100,000 100,000 100,000 19,651 22,813 26,367 5 32,775 100,000 100,000 100,000 24,336 29,118 34,709 6 40,345 100,000 100,000 105,419 28,942 35,700 43,910 7 48,294 100,000 100,000 125,946 33,473 42,574 54,015 8 50,709 100,000 100,055 134,214 32,657 44,167 59,245 9 53,244 100,000 100,918 143,137 31,847 45,832 65,006 10 55,906 100,000 101,861 152,774 31,041 47,572 71,350 11 58,702 100,000 103,104 163,532 30,295 49,495 78,504 12 61,637 100,000 104,388 175,101 29,521 51,486 86,363 13 64,718 100,000 105,704 187,523 28,711 53,543 94,987 14 67,954 100,000 107,058 200,873 27,869 55,672 104,458 15 71,352 100,000 108,466 215,253 26,994 57,879 114,863 16 74,920 100,000 109,928 230,740 26,091 60,172 126,302 17 78,666 100,000 111,432 247,394 25,134 62,539 138,845 18 82,599 100,000 112,985 265,318 24,119 64,982 152,596 19 86,729 100,000 114,596 284,633 23,039 67,504 167,668 20 91,065 100,000 116,263 305,442 21,883 70,105 184,179 25 95,619 100,000 128,171 443,429 15,853 86,136 298,003 30 100,400 100,000 142,634 649,837 6,609 105,296 479,726 35 105,420 ** 160,676 964,002 ** 127,927 767,517 _________________________ * The illustrations assume that Planned Premiums equal to the Target Premium are paid at the start of each of the first seven Policy Years and that premuims equal to the Guideline Premium Limit are paid at the start of each Policy Year thereafter. 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. In fact, for any given period of time, the investment results could be negative. 27 Plan: Flexible Premium Variable Life $100,000 Total Sum Insured at Issue Male, Issue age 45, Fully Underwritten Nontobacco Underwriting Class Option A Death Benefit Cash Value Accumulation Test Planned Premium: $5,649 for seven Policy Years, Guideline Premium Limit thereafter* Using Maximum Charges 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% - ------- ------------------ ------- ------- ------- ------ ------ -------- 1 5,931 100,000 100,000 100,000 4,579 4,871 5,164 2 12,159 100,000 100,000 100,000 8,844 9,699 10,589 3 18,699 100,000 100,000 100,000 13,021 14,718 16,555 4 25,565 100,000 100,000 100,000 17,115 19,941 23,123 5 32,775 100,000 100,000 100,000 21,125 25,377 30,360 6 40,345 100,000 100,000 100,000 25,054 31,040 38,342 7 48,294 100,000 100,000 109,801 28,901 36,942 47,091 8 50,709 100,000 100,000 115,763 27,662 37,793 51,101 9 53,244 100,000 100,000 122,083 26,379 38,639 55,444 10 55,906 100,000 100,000 128,782 25,044 39,475 60,145 11 58,702 100,000 100,000 135,879 23,651 40,297 65,229 12 61,637 100,000 100,000 143,398 22,190 41,102 70,726 13 64,718 100,000 100,000 151,361 20,657 41,888 76,669 14 67,954 100,000 100,000 159,788 19,041 42,651 83,093 15 71,352 100,000 100,000 168,726 17,335 43,387 90,035 16 74,920 100,000 100,000 178,178 15,521 44,088 97,530 17 78,666 100,000 100,000 188,186 13,583 44,745 105,616 18 82,599 100,000 100,000 198,783 11,498 45,348 114,329 19 86,729 100,000 100,000 210,001 9,238 45,881 123,705 20 91,065 100,000 100,000 221,868 6,773 46,330 133,784 25 95,619 ** 100,000 292,398 ** 46,771 196,504 30 100,400 ** 100,000 385,846 ** 41,363 284,841 35 105,420 ** 100,000 509,463 ** 19,715 405,623 __________________________ * The illustrations assume that Planned Premiums equal to the Target Premium are paid at the start of each of the first seven Policy Years and that premuims equal to the Guideline Premium Limit are paid at the start of each Policy Year thereafter. 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. In fact, for any given period of time, the investment results could be negative. 28 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. Contents of this section Beginning on page - ------------------------ ----------------- Description of John Hancock .................................. 30 How we support the policy and investment options.............. 30 Procedures for issuance of a policy........................... 31 Basic Sum Insured vs. Additional Sum Insured.................. 32 Commencement of investment performance........................ 32 How we process certain policy transactions.................... 33 Effects of policy loans....................................... 34 Additional information about how certain policy charges work.. 34 How we market the policies.................................... 35 Tax considerations............................................ 36 Reports that you will receive................................. 38 Voting privileges that you will have.......................... 39 Changes that John Hancock can make as to your policy.......... 39 Adjustments we make to death benefits......................... 40 When we pay policy proceeds................................... 40 Other details about exercising rights and paying benefits..... 40 Legal matters................................................. 41 Registration statement filed with the SEC..................... 41 Accounting and actuarial experts.............................. 41 Financial statements of John Hancock and the Account.......... 41 List of Directors and Executive Officers of John Hancock...... 42 29 Description of John Hancock We are John Hancock Life Insurance Company, 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 Life Insurance Company became a subsidiary of John Hancock Financial Services, Inc., a newly formed publicly-traded corporation. Our Home Office is at John Hancock Place, Boston, Massachusetts 02117. We are authorized to transact a life insurance and annuity business in all states and in the District of Columbia. As of December 31, 2000, our assets were approximately $88 billion. 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. How we support the policy and investment options Separate Account UV The variable investment options shown on page 1 are in fact subaccounts of Separate Account UV (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 John Hancock. The Account's assets are the property of John Hancock. 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 Series Funds. New subaccounts may be added as new funds are added to the Series Funds and made available to policy owners. Existing subaccounts may be deleted if existing funds are deleted from the Series Funds. We will purchase and redeem Series Fund shares for the Account at their net asset value without any sales or redemption charges. Shares of a Series Fund represent an interest in one of the funds of the Series Fund which corresponds to a subaccount of the Account. Any dividend or capital gains distributions received by the Account will be reinvested in shares of that same fund at their net asset value as of the dates paid. On each business day, shares of each fund are purchased or redeemed by us for each subaccount based on, among other things, the amount of net premiums allocated to the subaccount, distributions reinvested, and transfers to, from and among subaccounts, all to be effected as of that date. Such purchases and redemptions are effected at each 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 30 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 $100,000 and a minimum Basic Sum Insured at issue of $20,000. At the time of issue, the 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 person in either the premium rates or the charges or values under the policy. The illustrations set forth in this prospectus are sex-distinct and, therefore, may not reflect the rates, charges, or values that would apply to such policies. Minimum Initial Premium The Minimum Initial Premium must be received by us at our Life Servicing Office in order for the policy to be in full force and effect. There is no grace period for the payment of the Minimum Initial Premium. The Minimum Initial Premium is determined by us based on the characteristics of the insured person, the 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 person's rate class should be. After we approve an application for a policy and assign an appropriate insurance rate class, we will prepare the policy for delivery. We will not pay a death benefit under a policy unless the policy is in effect when the insured person dies (except for the circumstances described under "Temporary coverage prior to policy delivery" on page 32). The policy will take effect only if all of the following conditions are satisfied: . The policy is delivered to and received by the applicant. . The Minimum Initial Premium is received by us. . Each insured person is living and still meets our health criteria for issuing insurance. If all of the above conditions are satisfied, the policy will take effect on the date shown in the policy as the "date of issue." That is the date on which we begin to deduct monthly charges. Policy months, policy years and policy anniversaries are all measured from the date of issue. Backdating In order to preserve a younger age at issue for the insured person, we can designate a date of issue that 31 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 (if it is used to preserve the insured person's younger age at issue), but monthly charges begin earlier than would otherwise be the case. Those monthly charges will be deducted as soon as we receive premiums sufficient to pay them. Temporary coverage prior to policy delivery If a specified amount of premium is paid with the application for a policy and other conditions are met, we will provide temporary term life insurance coverage on the insured person for a period prior to the time coverage under the policy takes effect. Such temporary term coverage will be subject to the terms and conditions described in the application for the policy, including limits on amount and duration of coverage. Monthly deduction dates Each charge that we deduct monthly is assessed against your account value or the subaccounts at the close of business on the date of issue and at the close of the first business day in each subsequent policy month. Basic Sum Insured vs. Additional Sum Insured As noted earlier in this prospectus, you should consider a number of factors in determining whether to elect coverage in the form of Basic Sum Insured or in the form of Additional Sum Insured. The amount of sales charge deducted from premiums and the amount of compensation paid to the selling insurance agent will be less if coverage is included as Additional Sum Insured, rather than as Basic Sum Insured. On the other hand, the amount of any Additional Sum Insured is not included in the guaranteed death benefit feature. Therefore, if the policy's surrender value is insufficient to pay the monthly charges as they fall due (including the charges for the Additional Sum Insured), the Additional Sum Insured coverage will lapse, even if the Basic Sum Insured stays in effect pursuant to the guaranteed death benefit feature. Generally, you will incur lower sales charges and have more flexible coverage with respect to the Additional Sum Insured than with respect to the Basic Sum Insured. If this is your priority, you may wish to maximize the proportion of the Additional Sum Insured. However, if your priority is to take advantage of the guaranteed death benefit feature, the proportion of the Policy's Total Sum Insured that is guaranteed can be increased by taking out more coverage as Basic Sum Insured at the time of policy issuance. Any decision you make to modify the amount of Additional Sum Insured coverage after issue can have significant tax consequences (see "Tax Considerations" beginning on page 36). Commencement of investment performance Any premium payment processed prior to the twentieth day after the policy's date of issue will automatically be allocated to the Money Market investment option. On the later of the date such payment is received or the twentieth day following the date of issue, the portion of the Money Market investment option attributable to such payment will 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. 32 How we process certain policy transactions Premium payments We will process any premium payment as of the day we receive it, unless one of the following exceptions applies: (1) We will process a payment received prior to a policy's date of issue as if received on the date of issue. (2) If the Minimum Initial Premium is not received prior to the date of issue, we will process each premium payment received thereafter as if received on the business day immediately preceding the date of issue until all of the Minimum Initial Premium is received. (3) We will process the portion of any premium payment for which we require evidence of the insured person's continued insurability only after we have received such evidence and found it satisfactory to us. (4) If we receive any premium payment that we think will cause a policy to become a modified endowment or will cause a policy to lose its status as life insurance under the tax laws, we will not accept the excess portion of that premium payment and will immediately notify the owner. We will refund the excess premium when the premium payment check has had time to clear the banking system (but in no case more than two weeks after receipt), except in the following circumstances: . The tax problem resolves itself prior to the date the refund is to be made; or . The tax problem relates to modified endowment status and we receive a signed acknowledgment from the owner prior to the refund date instructing us to process the premium notwithstanding the tax issues involved. In the above cases, we will treat the excess premium as having been received on the date the tax problem resolves itself or the date we receive the signed acknowledgment. We will then process it accordingly. (5) If a premium payment is received or is otherwise scheduled to be processed (as specified above) on a date that is not a business day, the premium payment will be processed on the business day next following that date. Transfers among investment options Any reallocation among investment options must be such that the total in all investment options after reallocation equals 100% of account value. Transfers out of any investment option will be effective at the 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. 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. 33 Effective date of other policy transactions The following transactions take effect on the monthly deduction date on or next following the date we approve your request: . Total Sum Insured decreases. . Reinstatements of lapsed policies. The following transactions take effect on the policy anniversary on or next following the date we approve your request: . Additional Sum Insured increases. . Change of death benefit Option from A to B. A change from Option B to Option A is effective on the policy anniversary on or next following the date we receive the request. 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 the 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. Also, taking out a loan on the policy increases the risk that the policy may lapse because of the difference between the interest rate charged on the loan and the interest rate credited to the special loan account. Policy loans may also result in adverse tax consequences under certain circumstances (see "Tax considerations" beginning on page 36). Additional information about how certain policy charges work Sales expenses and related charges The premium sales charges help to compensate us for the cost of selling our policies. (See "What charges will John Hancock 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 35.) Similarly, administrative expenses not fully covered by the maintenance charge may also be recovered from such other sources. 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 $8,000. 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 $4,000. However, delaying the payment of 34 Target Premiums to later policy years could increase the risk that the guaranteed death benefit feature will lapse and the account value will be insufficient to pay 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 considerations" beginning on page 36.) 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 insured person dies during the policy grace period, the amount of unpaid monthly charges is deducted from the death benefit otherwise payable. Reduced charges for eligible classes The charges otherwise applicable may be reduced with respect to policies issued to a class of associated individuals or to a trustee, employer or similar entity where we anticipate that the sales to the members of the class will result in lower than normal sales or administrative expenses, lower taxes or lower risks to us. We will make these reductions in accordance with our rules in effect at the time of the application for a policy. The factors we consider in determining the eligibility of a particular group for reduced charges, and the level of the reduction, are as follows: the nature of the association and its organizational framework; the method by which sales will be made to the members of the class; the facility with which premiums will be collected from the associated individuals and the association's capabilities with respect to administrative tasks; the anticipated lapse and surrender rates of the policies; the size of the class of associated individuals and the number of years it has been in existence; the aggregate amount of premiums paid; and any other such circumstances which result in a reduction in sales or administrative expenses, lower taxes or lower risks. Any reduction in charges will be reasonable and will apply uniformly to all prospective policy purchasers in the class and will not unfairly discriminate against any owner. How we market the policies John Hancock Funds, Inc. ("JHFI") and Signator Investors, Inc.("Signator") act as principal distributors of the policies sold through this prospectus. JHFI and Signator are each registered as a broker-dealer under the Securities Exchange Act of 1934, and each is a member of the National Association of Securities Dealers, Inc. JHFI's address is 101 Huntington Avenue, Boston, Massachusetts 02199. Signator's address is 200 Clarendon Street, John Hancock Place, Boston, Massachusetts 02117. JHFI and Signator are subsidiaries of John Hancock. You can purchase a policy through representatives of broker-dealers and certain financial institutions who have entered into selling agreements with JHFI and us, or with Signator and us. We pay compensation to these broker-dealers for promoting, marketing and selling our products through their representatives who are authorized by applicable law to sell variable life insurance policies. In turn, the broker-dealers pay a portion of the compensation to these representatives, under their own arrangements. The most common schedule of gross commissions (inclusive of overrides and expense allowance payments paid to such broker-dealers and financial institutions and assuming no election of the optional enhanced cash value rider) is as follows: 35 . 21.25% of first year premiums paid up to the Target Premium plus 4.55% of any excess premium payments, . 10% of all premium payments paid in each of policy years 2 through 4 up to the Target Premium plus 3% of any excess premium payments, . 3% of all premium payments paid in policy years 5 through 10, and . 0.15% of end-of-year account value less policy loans in policy year 2 and thereafter. In situations where the broker dealer provides some or all of the additional marketing services required, we may pay an additional gross first year commission of up to 20% of premiums paid up to the Target Premium. In such instances, we may also pay an additional gross renewal commission. The additional gross renewal commission would not be expected to exceed 0.10% of account value less policy loans in policy years 2 and thereafter. For limited periods of time, we may pay additional compensation to broker-dealers as part of special sales promotions. Signator also pays its branch office principals, who are also independent general agents of ours, for sales of the policies to Signator customers. In turn, the branch office principals pay a portion of their compensation to their assigned marketing representatives, under their own arrangments. The most common schedule of gross commission (inclusive of overrides and expense allowance payments paid to such branch office principals and assuming no election of the optional enhanced cash value rider) is as follows: . 21% of the Target Premium paid in the first policy year, 9% of the Target Premium paid in each of policy years 2 through 4, and 2.25% of the Target Premium paid in each policy year thereafter, . 4.8% of any premium paid in the first policy year in excess of the Target Premium, . 2.25 to 2.50% of any premium paid in any other policy year in excess of the Target Premium, and . 0.14% of end-of-year account value less policy loans in policy year 2 and thereafter. Representatives who meet certain productivity and persistency standards may be eligible for additional compensation. From time to time, JHFI and Signator, at their expense, may provide significant additional amounts to financial services firms which sell or arrange for the sale of the policies. Such amounts may include, for example, financial assistance to financial services firms in connection with their conferences or seminars, sales or training programs for invited registered representatives and other employees, payment for travel expenses, including lodging, incurred by registered representatives and other employees for such seminars or training programs, seminars for the public, advertising and sales campaigns regarding the policies, and/or other events or activities sponsored by the financial services firms. We offer these contracts on a continuous basis, but neither JHFI nor Signator is obligated to sell any particular amount of policies. JHFI and Signator also serve as principal underwriters for John Hancock Variable Annuity Accounts U, I and V, and John Hancock Variable Life Accounts S, U and V, all of which are registered under the 1940 Act. Signator is also the principal underwriter for the John Hancock Variable Series Trust I, and JHFI is the principal underwriter for the John Hancock Declaration Trust. We reimburse JHFI and Signator for certain direct and indirect expenses actually incurred in connection with the marketing of these contracts. John Hancock performs insurance underwriting and determines whether to accept or reject the application for a policy and each insured person's risk classification. Officers and employees of John Hancock are covered by a blanket bond by a commercial carrier in the amount of $25 million. 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 36 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, if the policy terminates for any reason, the amount of any outstanding loan that was not previously considered income will be treated as if it had been distributed to the owner upon such termination. This could result in a considerable tax bill. Under certain circumstances involving large amounts of outstanding loans, you might find yourself having to choose between high premiums requirements to keep your policy from lapsing and a significant tax burden if you allow the lapse to occur. 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 any of the funds 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 37 changing the policy's ownership or making any assignment of ownership interests. 7-pay premium limit At the time of policy issuance, we will determine whether the Planned Premium schedule will exceed the 7-pay limit discussed below. If so, our standard procedures prohibit issuance of the policy unless you sign a form acknowledging that fact. The 7-pay limit is the total of net level premiums that would have been payable at any time for a comparable fixed policy to be fully "paid-up" after the payment of 7 equal annual premiums. "Paid-up" means that no further premiums would be required to continue the coverage in force until maturity, based on certain prescribed assumptions. If the total premiums paid at any time during the first 7 policy years exceed the 7-pay limit, the policy will be treated as a "modified endowment", which can have adverse tax consequences. The owner will be taxed on distributions and loans from a "modified endowment" to the extent of any income (gain) to the owner (on an income-first basis). The distributions and loans affected will be those made on or after, and within the two year period prior to, the time the policy becomes a modified endowment. Additionally, a 10% penalty tax may be imposed on taxable portions of such distributions or loans that are made before the owner attains age 591/2. Furthermore, any time there is a "material change" in a policy (such as an increase in Additional Sum Insured, the addition of certain other policy benefits after issue, a change in death benefit option, or reinstatement of a lapsed policy), the policy will have a new 7-pay limit as if it were a newly-issued policy. If a prescribed portion of the policy's then account value, plus all other premiums paid within 7 years after the material change, at any time exceed the new 7-pay limit, the policy will become a modified endowment. Moreover, if benefits under a policy are reduced (such as a reduction in the Total Sum Insured or death benefit or the reduction or cancellation of certain rider benefits) during the 7 years in which a 7-pay test is being applied, the 7-pay limit will be recalculated based on the reduced benefits. If the premiums paid to date are greater than the recalculated 7-pay limit, the policy will become a modified endowment. All modified endowments issued by the same insurer (or its affiliates) to the owner during any calendar year generally will be treated as one contract for the purpose of applying the modified endowment rules. A policy received in exchange for a modified endowment will itself also be a modified endowment. You should consult your tax advisor if you have questions regarding the possible impact of the 7-pay limit on your policy. Corporate and H.R. 10 plans The policy may be acquired in connection with the funding of retirement plans satisfying the qualification requirements of Section 401 of the Code. If so, the Code provisions relating to such plans and life insurance benefits thereunder should be carefully scrutinized. We are not responsible for compliance with the terms of any such plan or with the requirements of applicable provisions of the Code. Reports that you will receive At least annually, we will send you a statement setting forth the following information as of the end 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. 38 Semiannually we will send you a report containing the financial statements of the Series Funds, 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 Series Funds. We will vote the shares of each of the funds of a Series Fund which are deemed attributable to variable life insurance policies at regular and special meetings of the Series Fund's shareholders in accordance with instructions received from owners of such policies. Shares of the Series Fund 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 a Series Fund's meeting. Owners of policies may give instructions regarding the election of the Board of Trustees or Board of Directors of a Series Fund, ratification of the selection of independent auditors, approval of Series Fund 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 John Hancock can make as to your policy Changes relating to a Series Fund 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 John Hancock 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 John Hancock or an affiliate, (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: 39 . Changes necessary to comply with or obtain or continue exemptions under the federal securities laws . Combining or removing investment options . Changes in the form of organization of any separate account Any such changes will be made only to the extent permitted by applicable laws and only in the manner permitted by such laws. When required by law, we will obtain your approval of the changes and the approval of any appropriate regulatory authority. Adjustments we make to death benefits If the insured person commits suicide within certain time periods, the amount of death benefit we pay will be limited as described in the policy. Also, if an application misstated the age or gender of the insured person, we will adjust the amount of any death benefit as described in the policy. When we pay policy proceeds General We will pay any death benefit, withdrawal, surrender value or loan within 7 days after we receive the last required form or request (and, with respect to the death benefit, any other documentation that may be required). If we don't have information about the desired manner of payment within 7 days after the date we receive documentation of the insured person's death, we will pay the proceeds as a single sum. Delay to challenge coverage We may challenge the validity of your insurance policy based on any material misstatements made to us in the application for the policy. We cannot make such a challenge, however, beyond certain time limits that are specified in the policy. Delay for check clearance We reserve the right to defer payment of that portion of your account value that is attributable to a premium payment made by check for a reasonable period of time (not to exceed 15 days) to allow the check to clear the banking system. Delay of separate account proceeds We reserve the right to defer payment of any death benefit, loan or other distribution that is derived from a variable investment option if (a) the New York Stock Exchange is closed (other than customary weekend and holiday closings) or trading on the New York Stock Exchange is restricted; (b) an emergency exists, as a result of which disposal of securities is not reasonably practicable or it is not reasonably practicable to fairly determine the account value; or (c) the SEC by order permits the delay for the protection of owners. Transfers and allocations of account value among the investment options may also be postponed under these circumstances. If we need to defer calculation of separate account values for any of the foregoing reasons, all delayed transactions will be processed at the next values that we do compute. Other details about exercising rights and paying benefits Joint ownership If more than one person owns a policy, all owners must join in most requests to exercise rights under the policy. 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 40 assignment. An absolute assignment is a change of ownership. All collateral assignees of record must consent to any full surrender, partial withdrawal or loan from the policy. Your beneficiary You name your beneficiary when you apply for the policy. The beneficiary is entitled to the proceeds we pay following the insured person's death. You may change the beneficiary during the insured person's lifetime. Such a change requires the consent of any irrevocable named beneficiary. A new beneficiary designation is effective as of the date you sign it, but will not affect any payments we make before we receive it. If no beneficiary is living when the insured person dies, we will pay the insurance proceeds to the owner or the owner's estate. 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 John Hancock. The law firm of Foley & Lardner, Washington, D.C., has 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 John Hancock 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 and Second Vice President of John Hancock. Financial statements of John Hancock and the Account The financial statements of John Hancock included herein should be distinguished from the financial statements of the Account and should be considered only as bearing upon the ability of John Hancock to meet its obligations under the policies. In addition to those financial statements of John Hancock and the Account included herein that have been audited by Ernst & Young LLP, this prospectus also contains unaudited financial statements of both John Hancock and the Account for a period subsequent to the audited financial statements. 41 List of Directors and Executive Officers of John Hancock The Directors and Executive Officers of John Hancock and their principal occupations during the past five years are as follows: Directors Principal Occupations - --------- --------------------- David F. D'Alessandro............... Chairman of the Board, President, and Chief Executive Officer, John Hancock Foster L. Aborn..................... Director, formerly Vice Chairman of the Board and Chief Investment Officer, John Hancock Samuel W. Bodman.................... Chairman of the Board and Chief Executive Officer, Cabot Corporation (chemicals) I. MacAllister Booth................ Retired Chairman of the Board and Chief Executive Officer, Polaroid Corporation (photographic products) Wayne A. Budd....................... Executive Vice President and General Counsel, John Hancock; formerly Group President, Bell Atlantic - New England (telecommunications) John M. Connors, Jr................. Chairman and Chief Executive Officer and Director, Hill, Holliday, Connors, Cosmopoulos, Inc. (advertising). John M. DeCiccio.................... Executive Vice President and Chief Investment Officer, John Hancock Robert E. Fast...................... Senior Partner, Hale and Dorr (law firm). Kathleen F. Feldstein............... President, Economic Studies, Inc. (economic consulting). Nelson S. Gifford................... Principal, Fleetwing Capital Management (financial services) Michael C. Hawley................... Retired Chairman and Chief Executive Officer, The Gillette Company (razors, etc.) Edward H. Linde..................... President and Chief Executive Officer, Boston Properties, Inc. (real estate) Judith A, McHale.................... President and Chief Operating Officer, Discovery Communications, Inc. (multimedia communications) R. Robert Popeo..................... Chairman, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo (law firm) Richard F. Syron.................... Chairman of the Board, President and Chief Executive Officer, Thermo Electron Corp. (scientific and industrial instruments) Robert J. Tarr, Jr.................. Chairman, President and Chief Executive Officer, HomeRuns.com (online grocer) Other Executive Officers - ------------------------ Thomas E. Moloney................... Chief Financial Officer Derek Chilvers...................... Chairman and Chief Executive Officer of John Hancock International Holdings, Inc. Kathleen M. Graveline............... Executive Vice President - Retail Barry J. Rubenstein................. Vice President, Counsel and Secretary Robert F. Walters................... Executive Vice President and Chief Information Officer The business address of all Directors and officers of John Hancock is John Hancock Place, Boston, Massachusetts 02117. 42 UNAUDITED FINANCIAL STATEMENTS FOR JOHN HANCOCK LIFE INSURANCE COMPANY FIRST QUARTER 2001 43 JOHN HANCOCK LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS March 31 2001 December 31 (Unaudited) 2000 -------------- ------------- (in millions) Assets Investments Fixed maturities: Held to maturity--at amortized cost (fair value: 2001--$1,940.7; 2000--11,651.2)... $ 1,965.5 $ 11,888.6 Available-for-sale--at fair value (cost: 2001--$27,649.8; 2000--$15,790.3)....... 28,250.9 16,023.5 Equity securities: Available-for-sale--at fair value (cost: 2000--$867.9; 1999--$830.6)............. 1,039.2 1,094.9 Trading securities--at fair value (cost: 2001--$288.6; 2000--$193.4)............. 267.9 231.6 Mortgage loans on real estate................... 9,003.5 8,968.9 Real estate..................................... 528.6 519.0 Policy loans.................................... 437.3 428.6 Short-term investments.......................... 220.5 151.9 Other invested assets........................... 1,296.8 1,353.0 -------------- ----------- Total Investments............................. 43,010.2 40,660.0 Cash and cash equivalents....................... 1,681.6 2,841.2 Accrued investment income....................... 669.4 585.9 Premiums and accounts receivable................ 266.1 210.8 Deferred policy acquisition costs............... 2,385.8 2,388.5 Reinsurance recoverable......................... 3,212.4 2,829.0 Other assets.................................... 2,168.6 2,100.6 Closed block assets--Note 6..................... 9,984.9 9,710.0 Separate accounts assets........................ 23,411.6 26,454.8 -------------- ----------- Total Assets.................................. $ 86,790.6 $ 87,780.8 ============== =========== The accompanying notes are an integral part of these unaudited consolidated financial statements. 44 JOHN HANCOCK LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS -- (CONTINUED) March 31 2001 December 31 (Unaudited) 2000 ---------- ----------- (in millions) Liabilities and Shareholder's Equity Liabilities Future policy benefits........................................ $23,513.2 22,996.4 Policyholders' funds.......................................... 15,895.2 15,722.9 Unearned revenue.............................................. 689.2 671.3 Unpaid claims and claim expense reserves...................... 251.5 253.7 Dividends payable to policyholders............................ 120.5 130.8 Short-term debt............................................... 265.6 245.3 Long-term debt................................................ 534.1 534.0 Income taxes.................................................. 598.8 428.8 Other liabilities............................................. 3,458.6 2,600.7 Closed block liabilities -- Note 6............................ 12,180.7 12,035.9 Separate accounts liabilities................................. 23,411.6 26,454.8 --------- -------- Total Liabilities........................................... 80,919.0 82,074.6 Minority interest............................................. 281.1 290.3 Commitments and contingencies -- Note 5 Shareholder's Equity Common stock, $10,000 par value; 1,000 shares authorized and outstanding................................... 10.0 10.0 Additional paid in capital.................................... 4,998.5 4,998.9 Retained earnings............................................. 238.3 330.1 Accumulated other comprehensive income........................ 343.7 76.9 --------- -------- Total Shareholder's Equity.................................. 5,590.5 5,415.9 --------- -------- Total Liabilities and Shareholder's Equity.................. $86,790.6 87,780.8 ========= ======== The accompanying notes are an integral part of these unaudited consolidated financial statements. 45 JOHN HANCOCK LIFE INSURANCE COMPANY UNAUDITED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended March 31 ---------------------- 2001 2000 --------- ----------- (in millions) Revenues Premiums......................................................... $ 404.1 $ 457.7 Universal life and investment-type product charges............... 178.0 204.5 Net investment income............................................ 778.7 845.0 Net realized investment and other gains (losses), net of related amortization of deferred policy acquisition costs and amounts credited to participating pension contractholders ($4.3 and $(0.8), respectively.................. (26.4) 18.4 Investment management revenues, commission and other fees..................................................... 151.2 229.2 Other revenue.................................................... (11.6) (0.5) Contribution from the closed block -- Note 5..................... 20.3 28.7 credited to participating pension contractholders............... -------- -------- (Total revenues................................................. 1,494.3 1,783.0 Benefits and Expenses Benefits to policyholders, excluding amounts related to net realized investment and other gains (losses) credited to participating pension contractholders ($2.3 and $(2.1), respectively)................................................... 825.0 952.0 Other operating costs and expenses............................... 333.2 421.3 Amortization of deferred policy acquisition costs, excluding amounts related to net realized investment and other gains (losses) ($2.0 and $(1.3), respectively).................. 78.2 43.8 Dividends to policyholders....................................... 27.4 65.9 -------- -------- Total benefits and expenses.................................... 1,263.8 1,483.0 -------- -------- Income before income taxes, minority interest and cumulative effect of accounting changes......................... 230.5 300.0 Income taxes..................................................... 69.8 101.1 -------- -------- Income before minority interest and cumulative effect of accounting changes........................................... 160.7 198.9 Minority interest................................................ (9.7) (1.4) Income before cumulative effect of accounting changes............ 151.0 197.5 Cumulative effect of accounting changes, net of tax Derivative instruments and hedging activities.................. (16.1) 0.0 Pension and post employment benefits........................... 23.3 0.0 -------- -------- Net income....................................................... $ 158.2 $ 197.5 ======== ======== The accompanying notes are an integral part of these unaudited consolidated financial statements. 46 JOHN HANCOCK LIFE INSURANCE COMPANY UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME Additional Common Paid in Retained Stock Capital Earnings -------------- ------------ ----------- (in millions) Balance at December 31, 2000.......................... 10.0 $ 4,998.9 $ 330.1 Demutualizaton transactions........................... (0.4) Comprehensive income: Net income for the period............................ 158.2 Other comprehensive income, net of tax: Net unrealized gains ............................... Cash flow hedges.................................... Foreign currency translation Adjustment......................................... Comprehensive incom................................... Dividend paid to parent company....................... (250.0) Change in accounting principle........................ Minority interest..................................... -------------- ----------- --------- Balance at March 31, 2001............................. $ 10.0 $ 4,998.5 $ 238.3 ============== =========== ========= Balance at December 31, 1999 ......................... $ 4,782.9 Demutualization transaction........................... 10.0 4,904.2 (4,826.9) Comprehensive income: Net income before demutualization.................... 44.0 Net income after demutualization..................... 153.5 --------- Net income for the period............................ 197.5 Other comprehensive income, net of tax: Net unrealized gains................................. Foreign currency translation Adjustment ........................................ Minimum pension liability .......................... Comprehensive income.................................. -------------- ----------- --------- Balance at March 31, 2000............................. 10.0 $ 4,904.2 $ 153.5 ============== =========== ========= The accompanying notes are an integral part of these unaudited consolidated financial statements. 47 JOHN HANCOCK LIFE INSURANCE COMPANY UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME Accumulated Shares Other Total Outstanding Comprehensive Shareholder's (in Income Equity thousands) ------------- ------------- ----------- (in millions) Balance at December 31, 2000................ $ 76.9 $ 5,415.9 1,000.0 Demutualizaton transactions................. (0.4) Comprehensive income: Net income for the period.................. 158.2 Other comprehensive income, net of tax: Net unrealized gains...................... 36.3 36.3 Cash flow hedges.......................... (2.6) (2.6) Foreign currency translation Adjustment............................... 23.2 23.2 ------------- Comprehensive income........................ 215.1 Dividend paid to parent company............. (250.0) Change in accounting principle.............. 227.6 227.6 Minority interest........................... (17.7) (17.7) ------------- ------------- ----------- Balance at March 31, 2001................... $ 343.7 5,590.5 1,000.0 ============= ============= =========== Balance at December 31, 1999................ $ (29.7) $ 4,753.2 -- Demutualization transaction................. 87.3 1,000.0 Comprehensive income: Net income before demutualization.......... 44.0 Net income after demutualization........... 153.5 ------------- Net income for the period.................. 197.5 Other comprehensive income, net of tax: Net unrealized gains...................... 49.6 49.6 Foreign currency translation Adjustment............................... 8.2 8.2 Minimum pension liability................. (5.5) (5.5) ------------- Comprehensive income........................ 249.8 ------------- ------------- ----------- Balance at March 31, 2000................... $ 22.6 $ 5,090.3 1,000.0 ============= ============= =========== The accompanying notes are an integral part of these unaudited consolidated financial statements. 48 JOHN HANCOCK LIFE INSURANCE COMPANY UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31 ---------------------- 2001 2000 --------- --------- (in millions) Cash flows from operating activities: Net income............................................................................. $ 158.2 $ 197.5 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of discount -- fixed maturities......................................... (36.0) (26.7) Realized investment and other (gains) losses, net.................................... 26.4 (18.4) Change in deferred policy acquisition costs.......................................... (71.3) (83.0) Depreciation and amortization........................................................ 21.8 24.6 Net cash flows from trading securities............................................... (36.3) (145.7) Increase in accrued investment income................................................ (83.5) (43.3) Increase in premiums and accounts receivable......................................... (55.3) (62.5) (Increase) decrease in other assets and other liabilities, net....................... (182.3) 263.1 Increase in policy liabilities and accruals, net..................................... 480.3 247.6 Increase in income taxes............................................................. 237.3 101.2 Initial cash transferred to the closed block......................................... -- (158.6) Loss (contribution) from the closed block............................................ (20.3) (28.7) --------- --------- Net cash provided by operating activities........................................... 439.0 267.1 Cash flows from investing activities: Sales of: Fixed maturities available-for-sale................................................... 4,960.6 1,181.1 Equity securities available-for-sale.................................................. 59.1 42.2 Real estate........................................................................... 0.6 8.9 Short-term investments and other invested assets...................................... 21.7 11.0 Maturities, prepayments and scheduled redemptions of: Fixed maturities held-to-maturity..................................................... 60.2 472.3 Fixed maturities available-for-sale................................................... 636.9 289.1 Short-term investments and other invested assets...................................... 26.5 50.2 Mortgage loans on real estate......................................................... 237.2 333.8 Purchases of: Fixed maturities held-to-maturity..................................................... (6.7) (361.1) Fixed maturities available-for-sale................................................... (6,989.3) (1,951.6) Equity securities available-for-sale.................................................. (112.3) (47.3) Real estate........................................................................... (1.1) (9.2) Short-term investments and other invested assets...................................... (118.9) (258.5) Mortgage loans on real estate issued.................................................. (335.5) (173.2) Cash received related to acquisition of business...................................... -- 126.3 Other, net............................................................................ 16.6 (4.3) --------- --------- Net cash used in investing activities............................................... $(1,544.4) $ (290.3) ========= ========= The accompanying notes are an integral part of these unaudited consolidated financial statements. 49 JOHN HANCOCK LIFE INSURANCE COMPANY UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) Three Months Ended March 31 ---------------------- 2001 2000 --------- --------- (in millions) Cash flows from financing activities: Issuance of common stock................................................. $ -- $ 10.0 Contribution from parent................................................. -- 1,528.7 Payments to eligible policyholders under Plan of Reorganization.......... -- (791.7) Dividends paid to parent................................................. (250.0) -- Universal life and investment-type contract deposits..................... 1,780.9 1,522.9 Universal life and investment-type contract maturities and withdrawals... (1,605.4) (2,290.2) Issuance of long-term debt............................................... -- 10.0 Repayment of long-term debt.............................................. -- (18.0) Net increase (decrease) in commercial paper.............................. 20.3 (13.9) --------- --------- Net cash used in financing activities................................... (54.2) (42.2) --------- --------- Net decrease in cash and cash equivalents............................... (1,159.6) (65.4) Cash and cash equivalents at beginning of year............................ 2,841.2 1,797.7 --------- --------- Cash and cash equivalents at end of year................................ $ 1,681.6 $ 1,732.3 ========= ========= The accompanying notes are an integral part of these unaudited consolidated financial statements. 50 JOHN HANCOCK LIFE INSURANCE COMPANY NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited consolidated financial statements of John Hancock Life Insurance Company (the Company) have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, these unaudited consolidated financial statements contain all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the financial position and results of operations. Operating results for the three-month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. These unaudited consolidated financial statements should be read in conjunction with the Company's annual audited financial statements as of December 31, 2000 included in the Company's Form 10-K for the year ended December 31, 2000 filed with the Securities and Exchange Commission (hereafter referred to as the Company's 2000 Form 10-K). The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Reorganization and Initial Public Offering In connection with John Hancock Mutual Life Insurance Company's (the Mutual Company) Plan of Reorganization (the Plan), effective February 1, 2000, the Mutual Company 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. (JHFS), which is a holding company. All policyholder membership interests in the Mutual Company were extinguished on that date and eligible policyholders of the Mutual Company received, in the aggregate, 212.8 million shares of common stock, $1,438.7 million of cash and $43.7 million policy credits as compensation. In addition, the Company established a closed block to fund the guaranteed benefits and dividends of certain participating insurance policies. In connection with the Plan, the Mutual Company changed its name to John Hancock Life Insurance Company. In addition, on February 1, 2000, the JHFS completed its initial public offering (IPO) in which 102.0 million shares of common stock were issued at a price of $17.00 per share. Net proceeds from the IPO were $1,657.7 million, of which $105.7 million was retained by JHFS and $1,552.0 million was contributed to the Company. Cumulative Effect of Accounting Change During the first quarter of 2001, the Company changed the method of accounting for the recognition of deferred gains and losses considered in the calculation of the annual expense for its employee pension plan under SFAS No. 87, "Employers' Accounting for Pensions," and for its postretirement health and welfare plans under SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The Company changed the method of recognizing gains and losses from deferral within a 10% corridor and amortization of gains outside this corridor over the future working careers of the participants to deferral within a 5% corridor and amortization of gains and losses outside this corridor over the future working careers of the participants. The new method is preferable because, in the Company's situation, it produces results that more closely match current economic realities of the Company's retirement and welfare plans through the use of the current fair values of assets while still mitigating the impact of extreme gains and losses. As a result, the Company recorded a credit of $18.6 million (net of tax of $9.9 million), related to its employee benefit plans, and a credit of $4.7 million (net of tax of $2.6 million), related to its postretirement health and welfare plans. The total credit recorded as a cumulative effect of an accounting change was $23.3 million (net of tax of $12.5 million). 51 JOHN HANCOCK LIFE INSURANCE COMPANY NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued) In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement 133." This Statement amends SFAS No. 133 to defer its effective date for one year, to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities--an amendment of SFAS No. 133". This Statement makes certain changes in the hedging provisions of SFAS No. 133, and is effective concurrent with SFAS No. 133. As amended, SFAS No. 133 requires all derivatives to be recognized on the balance sheet at fair value, and establishes special accounting for the following three types of hedges: fair value hedges, cash flow hedges, and hedges of foreign currency exposures of net investments in foreign operations. Special accounting for qualifying hedges provides for matching the timing of gain or loss recognition on the hedging instrument with the recognition of the corresponding changes in value of the hedged item. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in the fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be recognized immediately in earnings and will be included in net realized and other investment gains. As a result, such amounts will not be included in the determination of the Company's segment after tax operating income. The Company believes that its current risk management philosophy will remain largely unchanged after adoption of the Statement. In addition, SFAS No. 133, as amended, precludes the designation of held-to-maturity fixed maturity investment securities as hedged items in hedging relationships where the hedged risk is interest rate risk. On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended. The adoption of SFAS No. 133, as amended, resulted in a charge to operations accounted for as a cumulative effect of accounting change of $16.1 million (net of tax of $8.3 million) as of January 1, 2001. In addition, as of January 1, 2001, a $227.6 million (net of tax of $122.6 million) cumulative effect of accounting change was recorded in other comprehensive income for the transition adjustment in the adoption of SFAS 133, as amended, and the reclassification of certain securities from the held-to-maturity category to available-for-sale. The transition adjustment for the adoption of Statement 133 resulted in an increase in other comprehensive income of $58.4 million (net of tax of $31.4 million) that was accounted for as the cumulative effect of an accounting change. The adjustment for the reclassification of $12.1 billion of the held-to-maturity fixed maturity investment portfolio to the available-for-sale category resulted in an increase in other comprehensive income of $169.2 million (net of tax of $91.2 million) as of January 1, 2001. New Accounting Pronouncements In December 2000, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 00-3, "Accounting by Insurance Enterprises for Demutualizations and Formations of Mutual Insurance Holding Companies and Certain Long-Duration Participating Contracts." The SOP, which was adopted with respect to accounting for demutualization expenses by the Company on December 15, 2000, requires that demutualization related expenses be classified as a single line item within income from continuing operations and should not be classified as an extraordinary item. The adoption of SOP 00-3 resulted in the reclassification of demutualization expenses previously recorded as an extraordinary item in the three months ended March 31, 2000 of $13.7 million (net of tax of $2.3 million). The remaining provisions of this SOP, which will require the (1) inclusion of all closed block activity together with all other assets, liabilities, revenues and expenses and (2) recognition of a policyholder dividend obligation that represents cumulative actual closed block earnings in excess of expected periodic amounts calculated at the date of the demutualization, are effective no later than December 31, 2001. See Note 6 for a summary description of the closed block assets, liabilities, revenues and expenses, which do not include the policyholder dividend obligation that will be required in 2001. The Company currently is evaluating the effect that establishing the policyholder dividend obligation will have on its results of operations and financial position. That impact is not known at this time. 52 JOHN HANCOCK LIFE INSURANCE COMPANY NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued) Codification In March 1998, the National Association of Insurance Commissioners (NAIC) adopted codified statutory accounting principles (Codification) effective January 1, 2001. Codification changes prescribe statutory accounting practices and results in changes to the accounting practices that the Company's domestic life insurance subsidiaries use to prepare their statutory-basis financial statements. The states of domicile of the Company's domestic life insurance subsidiaries adopted Codification as the prescribed basis of accounting on which domestic insurers must report their statutory-basis results effective January 1, 2001. The cumulative effect of changes in accounting principles adopted to conform to the requirements of Codification was reported as an adjustment to surplus in the statutory-basis financial statements as of January 1, 2001. Although the implementation of Codification had a negative impact on the Company's domestic life insurance subsidiaries' statutory-basis capital and surplus, the Company remains in compliance with all regulatory and contractual obligations. Recent Acquisitions On March 1, 2000, the Company acquired the individual long term care insurance business of Fortis, Inc. (Fortis). The pro forma results for the period ending March 31, 2000, assuming the acquisition of Fortis had taken place as of the beginning of 2000, would not be materially different from the reported results. Note 2. Transactions With Parent The Company provides JHFS with personnel, property and facilities in carrying out certain of its corporate functions. The Company annually determines a fee for these services and facilities based on a number of criteria. The amount of service fee charged to JHFS was $5.7 million for the three months ended March 31, 2001. No such service fee was charged to JHFS in the first quarter of 2000. During the three months ended March 31, 2001, the Company paid dividends to JHFS of $250.0 million. No such dividends were paid in the first quarter of 2000. Note 3. Segment Information The Company operates in the following five business segments: two segments primarily serve retail customers, two segments serve institutional customers and our fifth segment is the Corporate and Other Segment, which includes our international operations. Our retail segments are the Protection Segment and the Asset Gathering Segment. Our institutional segments are the Guaranteed and Structured Financial Products Segment (G&SFP) and the Investment Management Segment. For additional information about the Company's business segments please refer to the Company's 2000 Form 10-K. The following table summarizes selected financial information by segment for the three-months ended or as of March 31 and reconciles segment revenues and segment after-tax operating income to amounts reported in the unaudited consolidated statements of income (in millions). Included in the Protection Segment for 2001 are the closed block assets and liabilities, as well as the contribution from the closed block, which is reflected in "Revenues" in the table below (see Note 6). 53 JOHN HANCOCK LIFE INSURANCE COMPANY NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued) Retail Institutional Retail Asset Institutional Investment Corporate Protection Gathering G&SFP Management and Other Consolidated ---------- --------- ------------- ------------- --------- ------------ As of or for the three-months ended March 31, 2000 Revenues: Segment revenues....................... $ 337.4 $ 288.9 $ 494.9 $ 35.6 $ 363.9 $ 1,520.7 Realized investment and other gains (losses), net.................. (11.8) 6.9 (14.4) 2.5 (9.6) (26.4) --------- --------- --------- -------- --------- --------- Revenues............................... $ 325.6 $ 295.8 $ 480.5 $ 38.1 $ 354.3 $ 1,494.3 ========= ========= ========= ======== ========= ========= Net investment income.................. $ 144.3 $ 119.8 $ 466.8 $ 5.5 $ 42.3 $ 778.7 Net Income: Segment after-tax operating income..................... 68.1 31.5 58.4 5.4 17.4 180.8 Realized investment gains (losses), net........................ (5.5) 4.6 (8.2) (0.1) (5.6) (14.8) Restructuring charges.................. (1.2) (13.2) (0.1) (0.4) (0.1) (15.0) Extraordinary item Cumulative effect of accounting changes: Derivative instruments and hedging activities................. (6.2) (2.5) (3.5) -- (3.9) (16.1) Pension and post employment benefits........................... 17.9 2.0 2.3 (0.2) 1.3 23.3 --------- --------- --------- -------- --------- --------- Net income........................... $ 73.1 $ 22.4 $ 48.9 $ 4.7 $ 9.1 $ 158.2 ========= ========= ========= ======== ========= ========= Supplemental Information: Inter-segment revenues................. -- -- -- $ 8.1 $ (8.1) -- Equity in net income of investees accounted for by the equity method........................ $ 2.3 $ 1.1 $ 3.4 -- 12.6 $ 19.4 Amortization of deferred policy acquisition costs, excluding amounts related to realized investment gains..................... 27.3 23.4 0.6 -- 26.9 78.2 Segment assets......................... $27,235.9 $13,634.4 $31,608.5 $2,700.9 $11,610.9 $87,790.6 54 JOHN HANCOCK LIFE INSURANCE COMPANY NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued) Retail Institutional Retail Asset Institutional Investment Corporate Protection Gathering G&SFP Management and Other Consolidated ---------- --------- ------------- ------------- --------- ------------ As of or for the three-months ended March 31, 2000 Revenues: Segment revenues....................... $ 443.4 $ 297.4 $ 478.6 $ 79.2 $ 464.8 1,763.4 Realized investment and other gains (losses), net.................. 7.8 1.9 (7.4) -- 17.3 19.6 --------- --------- --------- -------- --------- --------- Revenues............................... $ 451.2 $ 299.3 $ 471.2 $ 79.2 $ 482.1 $ 1,783.0 ========= ========= ========= ======== ========= ========= Net investment income.................. $ 172.5 $ 102.6 $ 424.3 $ 5.6 $ 140.0 $ 845.0 Net Income: Segment after-tax operating income..................... 69.5 36.3 54.2 21.4 20.4 201.8 Realized investment gains (losses), net........................ 4.9 1.2 (4.7) -- 9.9 11.3 Restructuring charges.................. (3.0) (0.9) (2.1) -- (0.9) (6.9) Group pension dividend transfer........ -- -- 5.7 -- -- 5.7 Other demutualization related costs........................ (6.7) (1.4) (1.6) -- (0.5) (10.2) Extraordinary item..................... (2.6) (0.6) (0.6) -- (0.4) (4.2) --------- --------- --------- -------- --------- --------- Net income........................... $ 62.1 $ 34.6 $ 50.9 $ 21.4 $ 28.5 $ 197.5 ========= ========= ========= ======== ========= ========= Supplemental Information: Inter-segment revenues................. -- -- -- $ 11.1 $ (11.1) -- Equity in net income of investees accounted for by the equity method........................ $ 0.9 $ (0.2) $ 0.5 5.5 30.6 $ 37.3 Amortization of deferred policy acquisition costs, excluding amounts related to realized investment gains..................... 13.2 15.1 0.7 -- 14.8 43.8 --------- --------- --------- -------- --------- --------- Segment assets......................... $26,556.9 $14,337.6 $29,952.8 $2,253.9 $11,967.5 $85,068.7 Note 4. Severance The Company participated in a 1999 JHFS-initiated restructuring plan to reduce costs and increase future operating efficiency by consolidating portions of its operations. The plan consists primarily of reducing staff in the home office and terminating certain operations outside the home office. In connection with the restructuring plan, approximately 642 employees have been or will be terminated. These employees are or have been associated with operations in our Boston office and outside the home office. As of March 31, 2001, the liability for employee termination costs, included in other liabilities was $33.3 million. Employee termination costs, included in other operating costs and expenses, were $23.6 million and $10.8 million for the three months ended March 31, 2001 and 2000, respectively. Of the total number of employees affected, approximately 472 employees were terminated as of March 31, 2001, having received benefit payments of approximately $36.8 million. 55 JOHN HANCOCK LIFE INSURANCE COMPANY NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 5. Contingencies 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 March 31, 2001. 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, the Company 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, the Company specifically denied any wrongdoing. The reserve held in connection with the settlement to provide for relief to class members and for legal and administrative costs associated with the settlement amounted to $120.1 million and $172.8 million at March 31, 2001 and December 31, 2000, respectively. There were no additional reserves recorded related to the settlement for the three months ended March 31, 2001 and 2000. The estimated reserve is based on a number of factors, including the estimated cost per claim and the estimated costs to administer the claims. During 1996, management determined that it was probable that a settlement would occur and that a minimum loss amount could be reasonably estimated. Accordingly, the Company recorded its best estimate based on the information available at the time. The terms of the settlement agreement were negotiated throughout 1997 and approved by the court on December 31, 1997. In accordance with the terms of the settlement agreement, the Company contacted class members during 1998 to determine the actual type of relief to be sought by class members. The majority of the responses from class members were received by the fourth quarter of 1998. The type of relief sought by class members differed from the Company's previous estimates, primarily due to additional outreach activities by regulatory authorities during 1998 encouraging class members to consider alternative dispute resolution relief. In 1999, the Company updated its estimate of the cost of claims subject to alternative dispute resolution relief and revised its reserve estimate accordingly. 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. The Company will continue to update its estimate of the final cost of the settlement as the 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 the time, and the uncertainties associated with the final claim processing and alternative dispute resolution, the range of any additional cost related to the settlement cannot be estimated with precision. On February 28, 1997, the Company sold a major portion of its group insurance business to UNICARE Life & Health Insurance Company (UNICARE), a wholly owned subsidiary of WellPoint Health Networks, Inc. The business sold included the Company's group accident and health business and related group life business and Cost Care, Inc., Hancock Association Services Group and Tri-State, Inc., all of which were indirect wholly owned subsidiaries of the Company. The Company retained its group long-term care operations. The insurance business sold was transferred to UNICARE through a 100% coinsurance agreement. The Company has secured a $397.0 million letter of credit facility with a group of banks. The banks have agreed to issue a letter of credit to the Company pursuant to which the Company may draw up to $397.0 million for any claims not satisfied by UNICARE under the coinsurance agreement after the Company has incurred the first $113.0 million of losses from such claims. The amount available pursuant to the letter of credit agreement and any letter of credit issued thereunder automatically will be reduced on a scheduled basis consistent with the anticipated run-off of liabilities related to the business reinsured under the coinsurance agreement. 56 JOHN HANCOCK LIFE INSURANCE COMPANY NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued) The letter of credit facility was reduced to $272.0 million effective March 1, 2000 and was reduced again to $127.0 million on March 1, 2001. The letter of credit and any letter of credit issued thereunder are scheduled to expire on March 1, 2002. The Company remains liable to its policyholders to the extent that UNICARE does not meet its contractual obligations under the coinsurance agreement. Through the Company's group health insurance operations, the Company entered into a number of reinsurance arrangements covering of personal accident insurance and the occupational accident component of workers compensation insurance, a portion of which was originated through a pool managed by Unicover Managers, Inc. Under these arrangements, the Company both assumed risks as a reinsurer, and also passed 95% of these risks on to other companies. This business had originally been reinsured by a number of different companies, and has become the subject of widespread disputes. The disputes concern the placement of the business with reinsurers and recovery of the reinsurance. The Company is engaged in disputes, including a number of legal proceedings, related to this business. The risk to the Company is that other companies that reinsured the business from the Company may seek to avoid their reinsurance obligations. However, the Company believes that it has a reasonable legal position in this matter. During the fourth quarter of 1999 and early 2000, the Company received additional information about its exposure to losses under the various reinsurance programs. As a result of this additional information and in connection with global settlement discussions initiated in late 1999 with other parties involved in the reinsurance programs, during the fourth quarter of 1999 the Company recognized a charge for uncollectible reinsurance of $133.7 million, after tax, as its best estimate of its remaining loss exposure. The Company believes that any exposure to loss from this issue, in addition to amounts already provided for as of March 31, 2001, would not be material. 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 reinsurers. 57 JOHN HANCOCK LIFE INSURANCE COMPANY NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 6. Closed Block The following table sets forth certain summarized financial information relating to the closed block as of the dates indicated: March 31, December 31, 2001 2000 --------- -------------- (in millions) Assets Investments Fixed maturities: Held-to-maturity--at amortized cost (fair value: March 31--$117.7; December 31--$2,327.4).................................. $ 120.4 $ 2,269.9 Available-for-sale--at fair value (cost: March 31--$4,710.2; December 31--$2,378.7)...................................... 4,824.6 2,353.0 Equity securities: Available-for-sale--at fair value (cost: March 31--$9.1; December 31--$5.3)............................................. 9.5 6.3 Mortgage loans on real estate............................................................ 1,956.7 1,930.6 Policy loans............................................................................. 1,540.0 1,540.6 Short-term investments................................................................... 19.3 62.1 Other invested assets.................................................................... 39.8 40.7 --------- --------- Total Investments..................................................................... 8,510.3 8,203.2 Cash and cash equivalents................................................................ 297.4 305.6 Accrued investment income................................................................ 165.8 149.3 Premiums and accounts receivable......................................................... 19.5 27.1 Deferred policy acquisition costs........................................................ 907.3 947.3 Other assets............................................................................. 84.6 77.5 --------- --------- Total Closed Block Assets............................................................. $ 9,984.9 $ 9,710.0 --------- --------- Liabilities Future policy benefits................................................................... $ 9,983.5 $ 9,910.5 Policyholders' funds..................................................................... 1,467.9 1,459.5 Other liabilities........................................................................ 729.3 665.9 --------- --------- Total Closed Block Liabilities........................................................ $12,180.7 $12,035.9 ========= ========= 58 JOHN HANCOCK LIFE INSURANCE COMPANY NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table sets forth certain summarized financial information relating to the closed block for the period indicated: For the Period Three Months Ended February 1 March 31 Through March 31 2001 2000 ------------------ ---------------- (in millions) Revenues Premiums................................................................ $233.6 $171.9 Net investment income................................................... 169.0 108.9 Net realized investment and other gains, net............................ 2.7 3.1 Other closed block revenue (expense).................................... 0.3 (0.3) Total closed block revenues............................................ 405.6 283.6 Benefits and Expenses Benefits to policyholders............................................... 253.6 173.0 Other operating costs and expenses...................................... (2.3) (3.1) Amortization of deferred policy acquisition costs....................... 24.2 8.5 Dividends to policyholders.............................................. 109.8 76.5 Total closed block benefits and expenses............................... 385.3 254.9 Contribution from the closed block..................................... $ 20.3 $ 28.7 Note 7. Derivatives and Hedging Instruments The Company uses various derivative instruments to hedge and manage its exposure to changes in interest rate levels, foreign exchange rates, and equity market prices, and to manage the duration mismatch of assets and liabilities. The fair value of derivative instruments classified as assets at March 31, 2001 was $30.4 million and appears on the Consolidated Balance Sheet in other assets. The fair value of derivative instruments classified as liabilities at March 31, 2001 was $268.0 million and appears on the Consolidated Balance Sheet in other liabilities. In certain of these cases, the Company uses hedge accounting as allowed by SFAS 133, as amended, by designating derivative instruments as either fair value or cash flow hedges. For derivative instruments that are designated as fair value hedges, the change in fair value of the derivative instrument as well as the offsetting change in fair value of the hedged item are recorded in net realized investment and other gains and losses. The change in value of the hedged item is used to adjust its cost basis on a quarterly basis and is amortized into investment income over its remaining life, beginning either immediately or when the hedge designation is removed. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the change in fair value of the derivative instrument is recorded in other comprehensive income, and then reclassified into income when the hedged item affects income. Hedge effectiveness is assessed quarterly by a variety of techniques including regression analysis and cumulative dollar offset. In certain cases hedge ineffectiveness is assumed because the derivative instrument was constructed such that all terms of the derivative exactly match the hedged risk in the hedged item. The ineffective portion is recorded in net realized investment and other gains and losses. For derivative instruments not designated as hedges, the change in fair value of the derivative is recorded in net realized investment and other gains and losses. In cases where the Company receives or pays a premium as consideration for entering into a derivative instrument (i.e., interest rate caps and floors, swaptions, and equity collars), the premium is amortized into investment income over the useful life of the derivative instrument. The fair value of such premiums (i.e., the inherent ineffectiveness of the derivative) is excluded from the assessment of hedge effectiveness and is included in net realized investment and other gains and losses. 59 JOHN HANCOCK LIFE INSURANCE COMPANY NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued) Fair Value Hedges The Company uses interest rate futures contracts and interest rate swap agreements as part of its overall strategies of managing the duration mismatch of assets and liabilities or the average life of certain asset portfolios to specified targets. Interest rate swap agreements are contracts with a counterparty to exchange interest rate payments of a differing character (e.g., fixed-rate payments exchanged for variable-rate payments) based on an underlying principal balance (notional principal). The net differential to be paid or received on interest rate swap agreements and currency rate swap agreements is accrued and recognized as a component of net investment income. The Company also manages interest rate exposure by using interest rate swap agreements to modify certain liabilities, such as fixed rate debt and Constant Maturity Treasuries (CMT) indexed liabilities, by converting them to a floating rate. The Company enters into interest rate cap agreements, cancelable interest rates swap agreements, and written swaptions to manage the interest rate exposure of options that are embedded in certain assets and liabilities. A written swaption obligates the Company to enter into an interest rate agreement on the expiration date, contingent on future interest rates. Interest rate cap and floor agreements are contracts with a counterparty which require the payment of a premium for the right to receive payments for the difference between the cap or floor interest rate and a market interest rate on specified future dates based on an underlying principal balance (notional principal). Amounts earned on interest rate cap and floor agreements and swaptions are recorded as an adjustment to net investment income. The Company uses equity collar agreements to reduce its equity market exposure with respect to certain common stock investments that the Company holds. A collar consists of a written call option that limits the Company's potential for gain from appreciation in the stock price as well as a purchased put option that limits the Company's potential for loss from a decline in the stock price. Currency rate swap agreements are used to manage the Company's exposure to foreign exchange rate fluctuations. Currency rate swap agreements are contracts to exchange the currencies of two different countries at the same rate of exchange at specified future dates. For the three months ended March 31, 2001, the Company recognized a net loss of $7.5 million related to the ineffective portion of its fair value hedges, and a net gain of $2.1 million related to the portion of the hedging instruments that were excluded from the assessment of hedge effectiveness. For the three months ended March 31, 2001, none of the Company's hedged firm commitments no longer qualified as fair value hedges. Cash Flow Hedges The Company uses forward starting interest rate swap agreements to hedge the variable cash flows associated with future asset acquisitions, which will support the Company's long term care businesses. These agreements will reduce the impact of future interest rate changes on the cost of acquiring adequate assets to support the investment income assumptions used in pricing these products. The Company uses interest rate futures contracts to hedge the variable cash flows associated with variable benefit payments that it will make on certain annuity contracts. The Company uses interest rate floor agreements to hedge the interest rate risk associated with minimum interest rate guarantees in certain of its life insurance and annuity businesses. 60 JOHN HANCOCK LIFE INSURANCE COMPANY NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued) For the three months ended March 31, 2001, the Company recognized a net loss of $0.1 million related to the ineffective portion of its cash flow hedges, and a net gain of $8.0 million related to the portion of the hedging instruments that was excluded from the assessment of hedge effectiveness. For the three months ended March 31, 2001, none of the Company's hedged forecasted transactions no longer qualified as cash flow hedges. For the three months ended March 31, 2001, no amounts were reclassified from other accumulated comprehensive income to earnings and it is anticipated that approximately $1.4 million will be reclassified from other accumulated comprehensive income to earnings within the next twelve months. The maximum length for which variable cash flows are hedged is 24 years. For the three months ended March 31, 2001, none of the Company's cash flow hedges have been discontinued because it was probable that the original forecasted transaction would not occur by the end of the originally specified time period documented at inception of the hedging relationship. The transition adjustment for the adoption of SFAS 133, as amended, resulted in an increase in other comprehensive income of $23.0 million (net of tax of $12.3 million) representing the accumulation in other comprehensive income of the effective portion of the Company's cash flow hedges as of January 1, 2001. As of March 31, 2001, $2.7 million of losses representing the effective portion of the change in fair value of derivative instruments designated as cash flow hedges was added to accumulated other comprehensive income, resulting in a balance of $20.3 million (net of tax of $12.3 million) as of March 31, 2001. Derivatives Not Designated as Hedging Instruments The Company enters into interest rate swap agreements, cancelable interest rate swap agreements, interest rate futures contracts, and interest rate cap and floor agreements to manage exposure to interest rates as described above under Fair Value Hedging without designating the derivatives as hedging instruments. The Company enters into equity indexed futures contracts and equity indexed option contracts and equity swaps to generate investment return to be credited to equity indexed universal life insurance policies. The gains and losses on these derivatives are included in net investment income, and are offset by crediting similar amounts to policyholders accounts. Note 8. Related Party Transactions Certain directors of the Company are members or directors of other entities that periodically perform services for or have other transactions with the Company. Such transactions are either subject to bidding procedures or are otherwise entered into on terms comparable to those that would be available to unrelated third parties and are not material to the Company's results of operations or financial condition. 61 REPORT OF INDEPENDENT AUDITORS The Board of Directors John Hancock Variable Life Insurance Company We have audited the accompanying consolidated balance sheet of John Hancock Variable Life Insurance Company as of December 31, 2000, and the related consolidated statements of income, changes in shareholder's equity, and cash flows for the year ended December 31, 2000. Our audit also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of John Hancock Variable Life Insurance Company at December 31, 2000, and the consolidated results of their operations and their cash flows for the year ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /S/ ERNST & YOUNG LLP Boston, Massachusetts March 16, 2001 62 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEET December 31 2000 --------------------- (in millions) Assets Investments--Notes 3 and 4 Fixed maturities: Held-to-maturity--at amortized cost (fair value: $686.8)........................................ $ 715.4 Available-for-sale--at fair value (cost: $1,018.8).............................................. 1,011.8 Equity securities: Available-for-sale--at fair value (cost: $7.1).................................................. 8.1 Mortgage loans on real estate.................................................................... 554.8 Real estate...................................................................................... 23.9 Policy loans..................................................................................... 334.2 Short-term investments........................................................................... 21.7 Other invested assets............................................................................ 34.8 --------- Total Investments.............................................................................. 2,704.7 Cash and cash equivalents........................................................................ 277.3 Accrued investment income........................................................................ 52.1 Premiums and accounts receivable................................................................. 7.0 Deferred policy acquisition costs................................................................ 994.1 Reinsurance recoverable--Note 7.................................................................. 48.4 Other assets..................................................................................... 28.2 Separate accounts assets......................................................................... 8,082.9 --------- Total Assets................................................................................... $12,194.7 ========= The accompanying notes are an integral part of these consolidated financial statements. 63 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEET -- (continued) December 31 2000 ----------------- (in millions) Liabilities and Shareholder's Equity Liabilities Future policy benefits..................................... $ 2,754.2 Policyholders' funds....................................... 14.2 Unearned revenue........................................... 212.0 Unpaid claims and claim expense reserves................... 11.1 Dividends payable to policyholders......................... 0.1 Income taxes--Note 5....................................... 64.2 Other liabilities.......................................... 250.4 Separate accounts liabilities.............................. 8,082.9 -------------- Total Liabilities........................................ 11,389.1 Shareholder's Equity--Note 9 Common stock, $50 par value; 50,000 shares authorized; 50,000 shares issued and outstanding...................... 2.5 Additional paid in capital................................. 572.4 Retained earnings.......................................... 232.9 Accumulated other comprehensive loss....................... (2.2) -------------- Total Shareholder's Equity............................... 805.6 -------------- Total Liabilities and Shareholder's Equity............... $ 12,194.7 ============== The accompanying notes are an integral part of these consolidated financial statements. 64 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF INCOME Year Ended December 31 2000 ------------------------- (in millions) Revenues Premiums.................................................................................. $ 28.6 Universal life and investment-type product charges........................................ 337.1 Net investment income--Note 3............................................................. 213.4 Net realized investment losses, net of related amortization of deferred policy acquisition costs of $3.8--Notes 1, 3, and 10........................................................ (10.6) Other revenue............................................................................. 0.2 ----------- Total revenues.......................................................................... 568.7 Benefits and Expenses Benefits to policyholders................................................................. 248.6 Other operating costs and expenses........................................................ 116.8 Amortization of deferred policy acquisition costs, excluding amounts related to net realized investment losses of $3.8--Notes 1, 3 and 10.................................... 34.0 Dividends to policyholders................................................................ 26.1 ----------- Total benefits and expenses............................................................. 425.5 ----------- Income before income taxes................................................................ 143.2 Income taxes--Note 5...................................................................... 43.8 ----------- Net income................................................................................ $ 99.4 =========== The accompanying notes are an integral part of these consolidated financial statements. 65 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME Accumulated Additional Other Total Paid In Retained Comprehensive Shareholder's Common Stock Capital Earnings Loss Equity ------------ ---------- -------- ------------- --------------- Balance at December 31, 1999.......................... $2.5 $572.4 $133.5 ($13.4) $695.0 Comprehensive income: Net income........................................... 99.4 99.4 Other comprehensive income, net of tax: Net unrealized gains................................. 11.2 11.2 Comprehensive income.................................. 110.6 ---- ------ ------ ------ ------ Balance at December 31, 2000.......................... $2.5 $572.4 $232.9 ($2.2) $805.6 ==== ====== ====== ====== ====== The accompanying notes are an integral part of these consolidated financial statements. 66 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 31 2000 --------------- (in millions) Cash flows from operating activities: Net income.............................................................. $ 99.4 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of discount--fixed maturities............................ (1.9) Realized investment losses, net....................................... 10.6 Change in deferred policy acquisition costs........................... (141.5) Depreciation and amortization......................................... 1.9 Increase in accrued investment income................................. (10.2) Decrease in premiums and accounts receivable.......................... 0.3 Decrease in other assets and other liabilities, net................... 70.7 Decrease in policy liabilities and accruals, net...................... (401.1) Increase in income taxes.............................................. 22.5 -------- Net cash used by operating activities................................ (349.3) Cash flows from investing activities: Sales of: Fixed maturities available-for-sale.................................... 194.6 Equity securities available-for-sale................................... 1.0 Real estate............................................................ 0.2 Short-term investments and other invested assets....................... 1.3 Maturities, prepayments and scheduled redemptions of: Fixed maturities held-to-maturity...................................... 79.9 Fixed maturities available-for-sale.................................... 91.5 Short-term investments and other invested assets....................... 10.1 Mortgage loans on real estate.......................................... 85.6 Purchases of: Fixed maturities held-to-maturity...................................... (127.2) Fixed maturities available-for-sale.................................... (424.7) Equity securities available-for-sale................................... (0.6) Real estate............................................................ (0.4) Short-term investments and other invested assets....................... (38.8) Mortgage loans on real estate issued................................... (100.5) Other, net............................................................. (41.5) -------- Net cash used in investing activities................................ (269.5) Cash flows from financing activities: Universal life and investment-type contract deposits.................... $1,067.2 Universal life and investment-type contract maturities and withdrawals............................................................ (430.7) -------- Net cash provided by financing activities............................ 636.5 -------- Net increase in cash and cash equivalents............................ 17.7 Cash and cash equivalents at beginning of year........................... 259.6 -------- Cash and cash equivalents at end of year............................. $ 277.3 ======== The accompanying notes are an integral part of these consolidated financial statements. 67 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies John Hancock Variable Life Insurance Company (the Company) is a wholly-owned subsidiary of John Hancock Life Insurance Company (John Hancock or the Parent). The Company, domiciled in the Commonwealth of Massachusetts, issues variable and universal life insurance policies, individual whole and term life policies and variable annuity contracts. Those policies primarily are marketed through John Hancock's sales organization, 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 are also sold through various unaffiliated securities broker-dealers and certain other financial institutions. Currently, the Company writes business in all states except New York. Pursuant to a Plan of Reorganization approved by the policyholders 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. Prior to 2000, the Company did not prepare its financial statements in accordance with accounting principles generally accepted in the United States and financial information on such basis currently is not readily available for earlier periods. Comparative financial statements prepared on a statutory-basis are included elsewhere in this Form 10-K. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Investors Partner Life Insurance Company (IPL). All significant intercompany transactions and balances have been eliminated. The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Investments In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities", the Company is required to classify its investments into one of three categories: held-to-maturity, available-for-sale or trading. The Company determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Fixed maturity investments include bonds, mortgage-backed securities, and redeemable preferred stock and are classified as held-to-maturity or available-for-sale. Bonds and mortgage-backed securities, which the Company has the positive intent and ability to hold to maturity, are classified as held-to-maturity and carried at amortized cost. Fixed maturity investments not classified as held-to-maturity are classified as available-for-sale and are carried at fair value. Unrealized gains and losses related to available-for-sale securities are reflected in shareholder's equity, net of related amortization of deferred policy acquisition costs and applicable taxes. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. The amortized cost of fixed maturity investments is adjusted for impairments in value deemed to be other than temporary. 68 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 1. Summary of Significant Accounting Policies (continued) For the mortgage-backed bond portion of the fixed maturity investment portfolio, the Company recognizes income using a constant effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date, and anticipated future payments and any resulting adjustment is included in net investment income. Equity securities include common stock and non-redeemable preferred stock. Equity securities that have readily determinable fair values are carried at fair value. For equity securities which the Company has classified as available-for-sale, unrealized gains and losses are reflected in shareholder's equity as described above. Impairments in value deemed to be other than temporary are reported as a component of realized investment gains (losses). Mortgage loans on real estate are carried at unpaid principal balances adjusted for amortization of premium or discount, less allowance for probable losses. When it is probable that the Company will be unable to collect all amounts of principal and interest due according to the contractual terms of the mortgage loan agreement, the loan is deemed to be impaired and a valuation allowance for probable losses is established. The valuation allowance is based on the present value of the expected future cash flows, discounted at the loan's original effective interest rate, or on the collateral value of the loan if the loan is collateral dependent. Any change to the valuation allowance for mortgage loans on real estate is reported as a component of realized investment gains (losses). Interest received on impaired mortgage loans on real estate is included in interest income in the period received. If foreclosure becomes probable, the measurement method used is collateral value. Foreclosed real estate is then recorded at the collateral's fair value at the date of foreclosure, which establishes a new cost basis. Investment real estate, which the Company has the intent to hold for the production of income, is carried at depreciated cost, using the straight-line method of depreciation, less adjustments for impairments in value. In those cases where it is determined that the carrying amount of investment real estate is not recoverable, an impairment loss is recognized based on the difference between the depreciated cost and fair value of the asset. The Company reports impairment losses as part of realized investment gains (losses). Real estate to be disposed of is carried at the lower of cost or fair value less costs to sell. Any changes to the valuation allowance for real estate to be disposed of is reported as a component of realized investment gains (losses). The Company does not depreciate real estate to be disposed of. Policy loans are carried at unpaid principal balances which approximate fair value. Short-term investments are carried at amortized cost. Partnership and joint venture interests in which the Company does not have control or a majority ownership interest are recorded using the equity method of accounting and included in other invested assets. Realized investment gains and losses, other than those related to separate accounts for which the Company does not bear the investment risk, are determined on the basis of specific identification and are reported net of related amortization of deferred policy acquisition costs. Derivative Financial Instruments The Company uses futures contracts, interest rate swap, cap and floor agreements, swaptions and currency rate swap agreements for other than trading purposes to hedge and manage its exposure to changes in interest rate levels and foreign exchange rate fluctuations and to manage duration mismatch of assets and liabilities. The Company also uses equity collar agreements to reduce its exposure to market fluctuations in certain equity securities. 69 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 1. Summary of Significant Accounting Policies (continued) The Company uses futures contracts principally to hedge risks associated with interest rate fluctuations on anticipated fixed income asset acquisitions. Futures contracts represent commitments to either purchase or sell securities at a specified future date and at a specified price or yield. The Company uses interest rate swap, cap and floor agreements and swaptions for the purpose of converting the interest rate characteristics (fixed or variable) of certain investments to more closely match its liabilities. Interest rate swap agreements are contracts with a counterparty to exchange interest rate payments of a differing character (e.g., fixed-rate payments exchanged for variable-rate payments) based on an underlying principal balance (notional principal) to hedge against interest rate changes. Interest rate cap and floor agreements are contracts with a counterparty which require the payment of a premium for the right to receive payments for the difference between the cap or floor interest rate and a market interest rate on specified future dates based on an underlying principal balance (notional principal) to hedge against rising and falling interest rates. Swaptions entitle the Company to receive settlement payments from other parties on specified expiration dates, contingent on future interest rates. The amount of such settlement payments, if any, is determined by the present value of the difference between the fixed rate on a market rate swap and the strike rate multiplied by the notional amount. Currency rate swap agreements are used to manage the Company's exposure to foreign exchange rate fluctuations. Currency rate swap agreements are contracts to exchange the currencies of two different countries at the same rate of exchange at specified future dates. The Company invests in common stock that is subject to fluctuations from market value changes in stock prices. The Company sometimes seeks to reduce its market exposure to such holdings by entering into equity collar agreements. A collar consists of a call option that limits the Company's potential for gain from appreciation in the stock price as well as a put option that limits the Company's potential for loss from a decline in the stock price. Futures contracts are carried at fair value and require daily cash settlement. Changes in the fair value of futures contracts that qualify as hedges are deferred and recognized as an adjustment to the hedged asset or liability. The net differential to be paid or received on interest rate swap agreements and currency rate swap agreements is accrued and recognized as a component of net investment income. The related amounts due to or from counterparties are included in accrued investment income receivable or payable. Premiums paid for interest rate cap and floor agreements and swaptions are deferred and amortized to net investment income on a straight-line basis over the term of the agreements. The unamortized premium is included in other assets. Amounts earned on interest rate cap and floor agreements and swaptions are recorded as an adjustment to net investment income. Settlements received on swaptions are deferred and amortized over the life of the hedged assets as an adjustment to yield. Interest rate swap, cap and floor agreements, swaptions and currency rate swap agreements which hedge instruments designated as available-for-sale are adjusted to fair value with the resulting unrealized gains and losses, net of related taxes, included in shareholder's equity. Equity collar agreements are carried at fair value and are included in other invested assets, with the resulting unrealized gains and losses included in realized investment gains (losses). Hedge accounting is applied after the Company determines that the items to be hedged expose it to interest or price risk, designates these financial instruments as hedges and assesses whether the instruments reduce the hedged risks through the measurement of changes in the value of the instruments and the items being hedged at both inception and throughout the hedge period. 70 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 1. Summary of Significant Accounting Policies (continued) From time to time, futures contracts, interest rate swaps, cap and floor agreements, swaptions and currency rate swap agreements are terminated. If the terminated position was accounted for as a hedge, realized gains or losses are deferred and amortized over the remaining lives of the hedged assets or liabilities. Realized and unrealized changes in fair value of derivatives designated with items that no longer exist or are no longer probable of occurring are recorded as a component of the gain or loss arising from the disposition of the designated item or included in income when it is determined that the item is no longer probable of occurring. Changes in the fair value of derivatives no longer effective as hedges are recognized in income from the date the derivative becomes ineffective until their expiration. Revenue Recognition Premiums from participating and non-participating traditional life insurance and annuity policies with life contingencies are recognized as income when due. Premiums from universal life and investment-type contracts are reported as deposits to policyholders' account balances. Revenues from these contracts consist of amounts assessed during the period against policyholders' account balances for mortality charges, policy administration charges and surrender charges. Premiums for contracts with a single premium or a limited number of premium payments, due over a significantly shorter period than the total period over which benefits are provided, are recorded in income when due. The portion of such premium that is not required to provide for all benefits and expenses is deferred and recognized in income in a constant relationship to insurance in force or, for annuities, the amount of expected future benefit payments. Future Policy Benefits and Policyholders' Funds Future policy benefits for participating traditional life insurance policies are based on the net level premium method. This net level premium reserve is calculated using the guaranteed mortality and dividend fund interest rates, which range from 4.5% to 5.0%. The liability for annual dividends represents the accrual of annual dividends earned. Settlement dividends are accrued in proportion to gross margins over the life of the contract. For non-participating traditional life insurance policies, future policy benefits are estimated using a net level premium method on the basis of actuarial assumptions as to mortality, persistency, interest and expenses established at policy issue. Assumptions established at policy issue as to mortality and persistency are based on the Company's experience, which, together with interest and expense assumptions, include a margin for adverse deviation. Benefit liabilities for annuities during the accumulation period are equal to accumulated contractholders' fund balances and after annuitization are equal to the present value of expected future payments. Interest rates used in establishing such liabilities range from 7.5% to 8.0% for life insurance liabilities and 3.5% to 10.3% for individual annuity liabilities. Policyholders' funds for universal life and investment-type products are equal to the policyholder account values before surrender charges. Policy benefits that are charged to expense include benefit claims incurred in the period in excess of related policy account balances and interest credited to policyholders' account balances. Interest crediting rates range from 3.0% to 9.0% for universal life products. Liabilities for unpaid claims and claim expenses include estimates of payments to be made on reported individual life claims and estimates of incurred but not reported claims based on historical claims development patterns. Estimates of future policy benefit reserves, claim reserves and expenses are reviewed continually and adjusted as necessary; such adjustments are reflected in current earnings. Although considerable variability is inherent in such estimates, management believes that future policy benefit reserves and unpaid claims and claims expense reserves are adequate. 71 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 1. Summary of Significant Accounting Policies (continued) Participating Insurance Participating business represents approximately 16.3% of the Company's life insurance in force and 30.1% of life insurance premiums in 2000. The amount of policyholders' dividends to be paid is approved annually by the Company's Board of Directors. The determination of the amount of policyholder dividends is complex and varies by policy type. In general, the aggregate amount of policyholders' dividends is related to actual interest, mortality, morbidity, persistency and expense experience for the year and judgment as to the appropriate level of statutory surplus to be retained by the Company. Deferred Policy Acquisition Costs Costs that vary with, and are related primarily to, the production of new business have been deferred to the extent that they are deemed recoverable. Such costs include commissions, certain costs of policy issue and underwriting, and certain agency expenses. For participating traditional life insurance policies, such costs are being amortized over the life of the contracts at a constant rate based on the present value of the estimated gross margin amounts expected to be realized over the lives of the contracts. Estimated gross margin amounts include anticipated premiums and investment results less claims and administrative expenses, changes in the net level premium reserve and expected annual policyholder dividends. For universal life insurance contracts and investment-type products, such costs are being amortized generally in proportion to the present value of expected gross profits arising principally from surrender charges and investment results, and mortality and expense margins. The effects on the amortization of deferred policy acquisition costs of revisions to estimated gross margins and profits are reflected in earnings in the period such estimated gross margins and profits are revised. For non-participating term life insurance products, such costs are being amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing policy benefit reserves. Amortization expense was $30.2 million in 2000. Amortization of deferred policy acquisition costs is allocated to: (1) realized investment gains and losses for those products that realized gains and losses have a direct impact on the amortization of deferred policy acquisition costs; (2) unrealized investment gains and losses, net of tax, to provide for the effect on the deferred policy acquisition cost asset that would result from the realization of unrealized gains and losses on assets backing participating traditional life insurance and universal life and investment-type contracts; and (3) a separate component of benefits and expenses to reflect amortization related to the gross margins or profits, excluding realized gains and losses, relating to policies and contracts in force. Realized investment gains and losses related to certain products have a direct impact on the amortization of deferred policy acquisition costs as such gains and losses affect the amount and timing of profit emergence. Accordingly, to the extent that such amortization results from realized gains and losses, management believes that presenting realized investment gains and losses net of related amortization of deferred policy acquisition costs provides information useful in evaluating the operating performance of the Company. This presentation may not be comparable to presentations made by other insurers. Cash and Cash Equivalents Cash and cash equivalents include cash and all highly liquid debt investments with a maturity of three months or less when purchased. 72 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 1. Summary of Significant Accounting Policies (continued) Separate Accounts Separate account assets and liabilities reported in the accompanying consolidated balance sheet represent funds that are administered and invested by the Company to meet specific investment objectives of the contractholders. Investment income and investment gains and losses generally accrue directly to such contractholders who bear the investment risk, subject in some cases to minimum guaranteed rates. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of the Company. Separate account assets are reported at fair value. Deposits, net investment income and realized investment gains and losses of separate accounts are not included in the revenues of the Company. Fees charged to contractholders, principally mortality, policy administration and surrender charges, are included in universal life and investment-type product charges. Reinsurance The Company utilizes reinsurance agreements to provide for greater diversification of business, allow management to control exposure to potential losses arising from large risks and provide additional capacity for growth. Assets and liabilities related to reinsurance ceded contracts are reported on a gross basis. The accompanying statement of income reflects premiums, benefits and settlement expenses net of reinsurance ceded. 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. Federal Income Taxes The provision for federal income taxes includes amounts currently payable or recoverable and deferred income taxes, computed under the liability method, resulting from temporary differences between the tax basis and book basis of assets and liabilities. A valuation allowance is established for deferred tax assets when it is more likely than not that an amount will not be realized. Foreign Currency Translation Gains or losses on foreign currency transactions are reflected in earnings. Accounting Changes and New Accounting Principles Adopted SOP 98-7, "Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk," provides guidance on how to account for insurance and reinsurance contracts that do not transfer insurance risk under a method referred to as deposit accounting. SOP 98-7 is effective for fiscal years beginning after June 15, 1999. SOP 98-7 did not have a material impact on the Company's consolidated financial statements. 73 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 1. Summary of Significant Accounting Policies (continued) Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement 133." This Statement amends SFAS No. 133 to defer its effective date for one year, to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities--an amendment of SFAS No. 133." This Statement makes certain changes in the hedging provisions of SFAS No. 133, and is effective concurrent with SFAS No. 133. As amended, SFAS No. 133 requires all derivatives to be recognized on the balance sheet at fair value, and establishes special accounting for the following three types of hedges: fair value hedges, cash flow hedges, and hedges of foreign currency exposures of net investments in foreign operations. Special accounting for qualifying hedges provides for matching the timing of gain or loss recognition on the hedging instrument with the recognition of the corresponding changes in value of the hedged item. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in the fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be recognized immediately in earnings and will be included in net realized and other investment gains. The adoption of SFAS No. 133, as amended, will result in an increase in other comprehensive income of $0.5 million (net of tax of $0.3 million) as of January 1, 2001 that will be accounted for as the cumulative effect of an accounting change. In addition, the adoption of SFAS No. 133, as amended, will result in an increase to earnings of $4.9 million (net of tax of $2.7 million) as of January 1, 2001, that will be accounted for as the cumulative effect of an accounting change. The Company believes that its current risk management philosophy will remain largely unchanged after adoption of the Statement. SFAS No. 133, as amended, precludes the designation of held-to-maturity fixed maturity investment securities as hedged items in hedging relationships where the hedged risk is interest rates. As a result, in connection with the adoption of the Statement and consistent with the provisions of the Statement, on January 1, 2001, the Company will reclassify approximately $550.3 million of its held-to-maturity fixed maturity investment portfolio to the available-for-sale category. This will result in an additional increase in other comprehensive income of $4.7 million (net of tax of $2.5 million) as of January 1, 2001. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 101 (SAB 101), "Revenue Recognition in Financial Statements." SAB 101 clarifies the SEC staff's views on applying generally accepted accounting principles to revenue recognition in financial statements. In March 2000, the SEC issued an amendment, SAB 101A, which deferred the effective date of SAB 101. In June 2000, the SEC issued a second amendment, SAB 101B, which deferred the effective date of SAB 101 to no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The Company adopted SAB 101 in the fourth quarter of fiscal 2000. The adoption of SAB 101 did not have a material impact on the Company's results of operation or financial position. 74 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 1. Summary of Significant Accounting Policies (continued) Codification In March 1998, the National Association of Insurance Commissioners (NAIC) adopted codified statutory accounting principles (Codificationand results in changes to the accounting practices that the Company and its domestic life insurance subsidiary will use to prepare their statutory-basis financial statements. The states of domicile of the Company and its domestic life insurance subsidiary have adopted Codification as the prescribed basis of accounting on which domestic insurers must report their statutory-basis results effective January 1, 2001. The cumulative effect of changes in accounting principles adopted to conform to the requirements of Codification will be reported as an adjustment to surplus as of January 1, 2001. Management believes that, although the implementation of Codification will have a negative impact on the Company and its domestic life insurance subsidiary's statutory-basis capital and surplus, the Company and its domestic life insurance subsidiary will remain in compliance with all regulatory and contractual obligations. Note 2. Transactions with Parent John Hancock provides the Company with personnel, property and facilities in carrying out certain of its corporate functions. John Hancock annually determines a fee for these services and facilities based on a number of criteria, which were revised in 2000 to reflect continuing changes in the Company's operations. The amount of the service fee charged to the Company was $170.6 million, which has been included in other operating costs and expenses. As of December 31, 2000, the Company owed John Hancock $56.9 million related to these services, which is included in other liabilities. John Hancock has guaranteed that, if necessary, it will make additional capital contributions to prevent the Company's shareholder's equity from declining below $1.0 million. The Company has a modified coinsurance agreement with John Hancock to reinsure 50% of 1994 through 2000 issues of flexible premium variable life insurance and scheduled premium variable life insurance policies. In connection with this agreement, John Hancock transferred $24.2 million of cash for tax, commission, and expense allowances to the Company, which increased the Company's net income by $0.9 million. The Company has a modified coinsurance agreement with John Hancock to reinsure 50% of the Company's 1995 in-force block and 50% of 1996 and all future issue years of certain retail annuity contracts. In connection with this agreement, the Company is holding a deposit liability of $102.2 million as of December 31, 2000. This agreement had no impact on the Company's net gain from operations. Effective January 1, 1997, the Company entered into a stop-loss agreement with John Hancock to reinsure mortality claims in excess of 100% of expected mortality claims for all policies that are not reinsured under any other indemnity agreement. In connection with the agreement, John Hancock received $1.0 million from the Company in 2000. This agreement increased the Company's net gain from operations in 2000 by $1.1 million. 75 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 3. Investments The following information summarizes the components of net investment income and realized investment losses, net: Year Ended December 31 2000 --------------- (in millions) Net Investment Income Fixed maturities....................................................... $138.5 Equity securities...................................................... 0.2 Mortgage loans on real estate.......................................... 44.3 Real estate............................................................ 4.1 Policy loans........................................................... 17.1 Short-term investments................................................. 19.4 Other.................................................................. 1.1 ------ Gross investment income................................................ 224.7 Less investment expenses.............................................. 11.3 ------ Net investment income................................................. $213.4 ====== Net Realized Investment Gains (Losses), Net of Related Amortization of Deferred Policy Acquisition Costs Fixed maturities........................................................ $(16.0) Equity securities....................................................... 0.8 Mortgage loans on real estate and real estate........................... (2.3) Derivatives and other invested assets................................... 3.1 Amortization adjustment for deferred policy acquisition costs........... 3.8 ------ Net realized investment losses, net of related amortization of deferred policy acquisition costs................................... $(10.6) ====== 76 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (Continued) Note 3. Investments (continued) Gross gains of $1.5 million in 2000 and gross losses of $6.0 million in 2000 were realized on the sale of available-for-sale securities. The Company's investments in held-to-maturity securities and available-for-sale securities are summarized below: Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- ---------- (IN MILLIONS) December 31, 2000 Held-to-Maturity: Corporate securities...................................... $ 684.2 $23.4 $51.0 $ 656.6 Mortgage-backed securities................................ 29.3 0.2 1.2 28.3 Obligations of states and political subdivisions.......... 1.9 0.0 0.0 1.9 -------- ----- ----- -------- Total.................................................... $ 715.4 $23.6 $52.2 $ 686.8 ======== ===== ===== ======== Available-for-Sale: Corporate securities...................................... $ 751.6 $20.6 $27.8 $ 744.4 Mortgage-backed securities................................ 239.1 3.6 3.7 239.0 Obligations of states and political subdivisions.......... 0.9 0.0 0.0 0.9 Debt securities issued by foreign governments............. 11.1 0.3 0.6 10.8 U.S. Treasury securities and obligations of U.S. government corporations and agencies..................... 16.1 0.7 0.1 16.7 -------- ----- ----- -------- Total fixed maturities.................................... 1,018.8 25.2 32.2 1,011.8 Equity securities......................................... 7.1 2.8 1.8 8.1 -------- ----- ----- -------- Total.................................................... $1,025.9 $28.0 $34.0 $1,019.9 ======== ===== ===== ======== 77 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) Note 3. Investments (Continued) The amortized cost and fair value of fixed maturities at December 31, 2000, by contractual maturity, are shown below: Amortized Fair Cost Value --------- ---------- (In millions) Held-to-Maturity: Due in one year or less................................. $ 71.9 $ 72.1 Due after one year through five years................... 234.8 235.0 Due after five years through ten years.................. 222.5 223.0 Due after ten years..................................... 156.9 128.4 -------- -------- 686.1 658.5 Mortgage-backed securities.............................. 29.3 28.3 -------- -------- Total.................................................. $ 715.4 $ 686.8 ======== ======== Available-for-Sale: Due in one year or less................................. $ 24.9 $ 24.8 Due after one year through five years................... 332.3 333.0 Due after five years through ten years.................. 290.0 281.0 Due after ten years..................................... 132.5 134.0 -------- -------- 779.7 772.8 Mortgage-backed securities.............................. 239.1 239.0 -------- -------- Total.................................................. $1,018.8 $1,011.8 ======== ======== Expected maturities may differ from contractual maturities because eligible borrowers may exercise their right to call or prepay obligations with or without call or prepayment penalties. The Company participates in a securities lending program for the purpose of enhancing income on securities held. At December 31, 2000, $1.4 million of the Company's bonds and stocks, at market value, were on loan to various brokers/dealers, but were fully collateralized by cash and U.S. government securities in an account held in trust for the Company. The market value of the loaned securities is monitored on a daily basis, and the Company obtains additional collateral when deemed appropriate. Mortgage loans on real estate are evaluated periodically as part of the Company's loan review procedures and are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The allowance for losses is maintained at a level believed adequate by management to absorb estimated probable credit losses that exist at the balance sheet date. Management's periodic evaluation of the adequacy of the allowance for losses is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay (including the timing of future payments), the estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires estimating the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. 78 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (Continued) Note 3. Investments (continued) Changes in the allowance for probable losses on mortgage loans on real estate were as follows: Balance At Balance At Beginning End Of Of Year Additions Deductions Year ----------- --------- ---------- ------------- (In millions) Year ended December 31, 2000 Mortgage loans on real estate........................ $3.8 $1.2 $0.0 $5.0 ==== ==== ==== ==== At December 31, 2000 the total recorded investment in mortgage loans that are considered to be impaired under SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," along with the related provision for losses were as follows: December 31 2000 ------------- (in millions) Impaired mortgage loans on real estate with provision for losses.......................... $4.2 Provision for losses...................................................................... 1.2 ---- Net impaired mortgage loans on real estate................................................ $3.0 ==== The average investment in impaired loans and the interest income recognized on impaired loans were as follows: Year Ended December 31 2000 ------------- (In millions) Average recorded investment in impaired loans................. $2.1 Interest income recognized on impaired loans.................. 0.3 The payment terms of mortgage loans on real estate may be restructured or modified from time to time. Generally, the terms of the restructured mortgage loans call for the Company to receive some form or combination of an equity participation in the underlying collateral, excess cash flows or an effective yield at the maturity of the loans sufficient to meet the original terms of the loans. Restructured commercial mortgage loans aggregated $3.4 million as of December 31, 2000.The expected gross interest income that would have been recorded had the loans been current in accordance with the original loan agreements and the actual interest income recorded were as follows: Year Ended December 31 2000 ------------- (in millions) Expected..................................................... 0.34 Actual....................................................... 0.27 79 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (Continued) Note 3. Investments (continued) At December 31, 2000, the mortgage portfolio was diversified by geographic region and specific collateral property type as displayed below: Carrying Geographic Carrying Property Type Amount Concentration Amount - ------------- ------------- ------------- ------------- (in millions) (in millions) Apartments.................... $129.2 East North Central................ $ 68.1 Hotels........................ 15.1 East South Central................ 27.6 Industrial.................... 77.4 Middle Atlantic................... 27.1 Office buildings.............. 99.2 Mountain.......................... 35.7 Retail........................ 45.7 New England....................... 44.5 Mixed Use..................... 13.5 Pacific........................... 120.7 Agricultural.................. 165.6 South Atlantic.................... 156.7 Other......................... 14.1 West North Central................ 16.9 West South Central................ 59.3 Canada/Other...................... 3.2 Allowance for losses.......... (5.0) Allowance for losses.............. (5.0) ------ ------ Total........................ $554.8 Total............................ $554.8 ====== ====== Bonds with amortized cost of $7.0 million were non-income producing for the year ended December 31, 2000. Depreciation expense on investment real estate was $0.6 million in 2000. Accumulated depreciation was $2.5 million at December 31, 2000. Investments in unconsolidated joint ventures and partnerships accounted for by using the equity method of accounting totaled $0.4 million at December 31, 2000. Total combined assets of these joint ventures and partnerships were $28.5 million (consisting primarily of investments), and total combined liabilities were $8.7 million (including $2.9 million of non-recourse notes payable to banks) at December 31, 2000. Total combined revenues and expenses of such joint ventures and partnerships were $77.6 million and $76.3 million, respectively, resulting in $1.3 million of total combined income from operations before income taxes in 2000. Net investment income on investments accounted for on the equity method totaled $0.4 million in 2000. 80 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (Continued) Note 4. Derivatives The notional amounts, carrying values and estimated fair values of the Company's derivative instruments are as follows: Number of Contracts/ Assets (Liabilities) Notional --------------------- Amounts 2000 ---------- --------------------- Carrying Fair 2000 Value Value ---------- ----------- ----------- (in millions) Asset Hedges: Futures contracts to sell securities........................... 6 -- -- Interest rate swap agreements Notional......................... $600.0 -- (10.8) Average fixed rate--paid...................................... 6.38% -- -- Average float rate--received.................................. 6.69% -- -- Currency rate swap agreements.................................. $ 22.3 (0.6) (0.6) Equity collar agreements....................................... -- 0.4 0.4 Liability Hedges: Futures contracts to acquire securities........................ 43 0.1 0.1 Interest rate swap agreements Notional...................................................... $570.0 9.6 Average fixed rate--received.................................. 6.43% -- -- Average float rate--paid...................................... 6.69% -- -- Interest rate cap agreements................................... $239.4 2.1 2.1 Interest rate floor agreements................................. 485.4 4.5 4.5 Financial futures contracts are used principally to hedge risks associated with interest rate fluctuations on anticipated fixed income asset acquisitions. The Company is subject to the risks associated with changes in the value of the underlying securities; however, such changes in value generally are offset by opposite changes in the value of the hedged items. The contracts or notional amounts of the contracts represent the extent of the Company's involvement but not the future cash requirements, as the Company intends to close the open positions prior to settlement. The futures contracts expire in March 2001. The interest rate swap agreements expire in 2001 to 2011. The interest rate cap agreements expire in 2006 to 2007 and interest rate floor agreements expire in 2010. The currency rate swap agreements expire in 2006 to 2015. The equity collar agreements expire in 2005. Fair values for futures contracts are based on quoted market prices. Fair values for interest rate swap, cap and floor agreements, swaptions, and currency swap agreements and equity collar agreements are based on current settlement values. The current settlement values are based on quoted market prices, which utilize pricing models or formulas using current assumptions. 81 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 4. Derivatives (continued) 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. Note 5. Income Taxes The Company is included in the consolidated federal income tax return of John Hancock Financial Services, Inc. The federal income taxes of the Company are allocated on a separate return basis with certain adjustments. The components of income taxes were as follows: Year Ended December 31 2000 ------------- (in millions) Current taxes: Federal...................................................... $15.2 Foreign...................................................... 0.6 ----- 15.8 Deferred taxes: Federal...................................................... 28.0 Foreign...................................................... -- ----- 28.0 ----- Total income taxes.......................................... $43.8 ===== A reconciliation of income taxes computed by applying the federal income tax rate to income before income taxes and the consolidated income tax expense charged to operations follows: Year Ended December 31 2000 --------------- (in millions) Tax at 35%.................................................... $50.1 Add (deduct): Equity base tax.............................................. (5.6) Tax credits.................................................. (0.6) Foreign taxes................................................ 0.6 Tax exempt investment income................................. (0.7) ----- Total income taxes.......................................... $43.8 ===== 82 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (Continued) Note 5. Income Taxes (continued) The significant components of the Company's deferred tax assets and liabilities were as follows: December 31 2000 ------------- (in millions) Deferred Tax Assets: Policy reserve adjustments.................................... $ 74.6 Other postretirement benefits................................. 23.3 Book over tax basis of investments............................ 7.8 Interest...................................................... 7.5 Unrealized losses............................................. 1.4 ------ Total deferred tax assets.................................... 114.6 ------ Deferred Tax Liabilities: Deferred policy acquisition costs............................. 199.1 Depreciation.................................................. 1.8 Basis in partnerships......................................... 0.4 Market discount on bonds...................................... 0.6 Other......................................................... 9.5 ------ Total deferred tax liabilities............................... 211.4 ------ Net deferred tax liabilities................................. $ 96.8 ====== The Company made income tax payments of $62.9 million in 2000. Note 6. Debt And Line Of Credit At December 31, 2000, the Company had a line of credit with John Hancock Capital Corporation, an indirect, wholly-owned subsidiary of John Hancock, totaling $250.0 million. John Hancock Capital Corporation will commit, when requested, to loan funds at prevailing interest rates as agreed to from time to time between John Hancock Capital Corporation and the Company. At December 31, 2000, the Company had no outstanding borrowings under the agreement. Note 7. Reinsurance The effect of reinsurance on premiums written and earned was as follows: 2000 Premiums --------------- Written Earned ------- -------- (In millions) Life Insurance: Direct..................................................... $34.1 $34.1 Ceded...................................................... (5.5) (5.5) ----- ----- Net life insurance premiums............................ $28.6 $28.6 ===== ===== For the year ended December 31, 2000, benefits to policyholders under life ceded reinsurance contracts were $3.0 million. 83 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 7. Reinsurance (continued) Reinsurance ceded contracts do not relieve the Company from its obligations to policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet its obligations for reinsurance ceded to it under the reinsurance agreements. Failure of the reinsurers to honor their obligations could result in losses to the Company; consequently, estimates are established for amounts deemed or estimated to be uncollectible. To minimize its exposure to significant losses from reinsurance insolvencies, the Company evaluates the financial condition of its reinsurers and monitors concentration of credit risk arising from similar characteristics of the reinsurer. Note 8. Commitments And Contingencies The Company has extended commitments to purchase long-term bonds, issue real estate mortgages and purchase other assets totaling $37.0 million, $6.3 million and $17.4 million, respectively, at December 31, 2000. The Company monitors the creditworthiness of borrowers under long-term bond commitments and requires collateral as deemed necessary. If funded, loans related to real estate mortgages would be fully collateralized by the related properties. The estimated fair value of the commitments described above was $62.9 million at December 31, 2000. The majority of these commitments expire in 2001. 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, 2000. 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. The reserve held in connection with the settlement to provide for relief to class members and for legal and administrative costs associated with the settlement amounted to $66.3 million at December 31, 2000. No costs were incurred in 2000. The estimated reserve is based on a number of factors, including the estimated cost per claim and the estimated costs to administer the claims. During 1996, management determined that it was probable that a settlement would occur and that a minimum loss amount could be reasonably estimated. Accordingly, the Company recorded its best estimate based on the information available at the time. The terms of the settlement agreement were negotiated throughout 1997 and approved by the court on December 31, 1997. In accordance with the terms of the settlement agreement, the Company contacted class members during 1998 to determine the actual type of relief to be sought by class members. The majority of responses from class members were received by the fourth quarter of 1998. The type of relief sought by class members differed from the Company's previous estimates, primarily due to additional outreach activities by regulatory authorities during 1998 encouraging class members to consider alternative dispute resolution relief. In 1999, the Company updated its estimate of the cost of claims subject to alternative dispute resolution relief and revised its reserve estimate accordingly. 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 the 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 estimated with precision. If the Company's share of the settlement increases, John Hancock will contribute additional capital to the Company so that the Company's total shareholder's equity would not be impacted. 84 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 9. Shareholder's Equity (a) Other Comprehensive Loss The components of accumulated other comprehensive loss are as follows: Accumulated Other Comprehensive Income ------------- Balance at January 1, 2000....................................... ($13.4) ------ Gross unrealized gains (net of deferred income tax expense of $9.7 million)................................................... 18.0 Less reclassification adjustment for gains, realized in net income (net of tax expense of $1.6 million)..................... (2.9) Adjustment to deferred policy acquisition costs (net of deferred income tax benefit of $2.1 million).................... (3.9) ------ Net unrealized gains............................................. 11.2 ------ Balance at December 31, 2000..................................... ($2.2) ====== Net unrealized investment gains (losses), included in the consolidated balance sheet as a component of shareholder's equity, are summarized as follows: 2000 ------------- (in millions) Balance, end of year comprises: Unrealized investment gains (losses) on: Fixed maturities................................................ ($7.0) Equity investments.............................................. 1.0 Derivatives and other........................................... 0.3 ----- Total.......................................................... (5.7) Amounts attributable to: Deferred policy acquisition cost................................ 2.1 Deferred federal income taxes................................... 1.4 ----- Total.......................................................... 3.5 ----- Net unrealized investment gains................................ ($2.2) ===== 85 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 9. Shareholder's Equity (continued) (b) Statutory Results The Company and its domestic insurance subsidiary prepare their statutory-basis financial statements in accordance with accounting practices prescribed or permitted by the state of domicile. Prescribed statutory accounting practices include state laws, regulations and administrative rules, as well as guidance published by the NAIC. Permitted accounting practices encompass all accounting practices that are not prescribed by the sources noted above. Since 1988, the Commonwealth of Massachusetts Division of Insurance has provided the Company with approval to recognize a pension plan prepaid expense in accordance with the requirements of SFAS No. 87, "Employers' Accounting for Pensions." The Company furnishes the Commonwealth of Massachusetts Division of Insurance with an actuarial certification of the prepaid expense computation on an annual basis. The pension plan prepaid expense amounted to $55.6 million at December 31, 2000. Statutory net income and surplus include the accounts of the Company and its wholly-owned subsidiary, Investors Partners Life Insurance Company. 2000 ------------- (in millions) Statutory net income.......................................... $ 26.6 Statutory surplus............................................. 527.2 Massachusetts has enacted laws governing the payment of dividends by insurers. Under Massachusetts insurance law, no insurer may pay any shareholder dividends from any source other than statutory unassigned funds without the prior approval of Massachusetts Commissioner of Insurance. Massachusetts law also limits the dividends an insurer may pay in any twelve month period, without the prior permission of the Commonwealth of Massachusetts Insurance Commissioner, to the greater of (i) 10% of its statutory policyholders' surplus as of the preceding December 31 or (ii) the individual company's statutory net gain from operations for the preceding calendar year, if such insurer is a life company. Note 10. Segment Information The Company's reportable segments are strategic business units offering different products and services. The reportable segments are managed separately, as they focus on different products, markets or distribution channels. Retail-Protection Segment. Offers a variety of individual life insurance, including participating whole life, term life, universal life and variable life insurance. Products are distributed through multiple distribution channels, including insurance agents and brokers and alternative distribution channels that include banks, financial planners, direct marketing and the Internet. Retail-Asset Gathering Segment. Offers individual annuities, consisting of fixed deferred annuities, fixed immediate annuities, single premium immediate annuities, and variable annuities. This segment distributes its products through distribution channels including insurance agents and brokers affiliated with the Company, securities brokerage firms, financial planners, and banks. 86 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 10. Segment Information (continued) The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Allocations of net investment income are based on the amount of assets allocated to each segment. Other costs and operating expenses are allocated to each segment based on a review of the nature of such costs, cost allocations utilizing time studies, and other relevant allocation methodologies. Management of the Company evaluates performance based on segment after-tax operating income, which excludes the effect of net realized investment gains or losses and unusual or non-recurring events and transactions. Segment after-tax operating income is determined by adjusting GAAP net income for net realized investment gains and losses, including gains and losses on disposals of businesses and certain other items which management believes are not indicative of overall operating trends. While these items may be significant components in understanding and assessing the Company's financial performance, management believes that the presentation of after-tax operating income enhances its understanding of the Company's results of operations by highlighting net income attributable to the normal, recurring operations of the business. Amounts reported as segment adjustments in the tables below primarily relate to: (i) certain realized investment gains (losses), net of related amortization adjustment for deferred policy acquisition costs; (ii) benefits to policyholders and expenses incurred relating to the settlement of a class action lawsuit against the Company involving certain individual life insurance policies sold from 1979 through 1996; (iii) restructuring costs related to our distribution systems and retail operations; (iv) the surplus tax on mutual life insurance companies that was allocated by John Hancock to the Company; and (v) a charge for certain one time costs associated with John Hancock's demutualization process. 87 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 10. Segment Information (continued) The following table summarizes selected financial information by segment for the year ended or as of December 31 and reconciles segment revenues and segment after-tax operating income to amounts reported in the consolidated statements of income (in millions): Retail Retail Asset Protection Gathering Consolidated ---------- --------- -------------- 2000 Revenues: Segment revenues..................................................... $ 530.8 $ 48.5 $ 579.3 Realized investment losses, net...................................... (10.6) -- (10.6) -------- -------- --------- Revenues............................................................. $ 520.2 $ 48.5 $ 568.7 ======== ======== ========= Net investment income................................................ $ 215.9 ($2.5) $ 213.4 Net Income: Segment after-tax operating income................................... 96.0 6.3 102.3 Realized investment losses, net...................................... (6.8) -- (6.8) Restructuring charges................................................ (1.1) -- (1.1) Surplus tax.......................................................... 5.4 0.2 5.6 Other demutualization related cost................................... (0.5) (0.1) (0.6) -------- -------- --------- Net income........................................................... $ 93.0 $ 6.4 $ 99.4 ======== ======== ========= Supplemental Information: Equity in net income of investees accounted for by the equity method....................................................... $ 1.3 -- $ 1.3 Amortization of deferred policy acquisition costs.................... 17.6 16.4 34.0 Income tax expense................................................... 40.7 3.1 43.8 Segment assets....................................................... 9,326.9 2,867.8 12,194.7 Net Realized Investment Gains Data: Net realized investment losses....................................... $ (14.4) -- $ (14.4) Add capitalization/less amortization of deferred policy acquisition costs related to net realized investment gains (losses)...................................................... 3.8 -- 3.8 -------- -------- --------- Net realized investment losses, net of related amortization of deferred policy acquisition costs--per consolidated financial statements................................................ (10.6) -- (10.6) Less income tax effect............................................... 3.8 -- 3.8 -------- -------- --------- Realized investment losses, net-after-tax adjustment made to calculate segment operating income.................................. ($6.8) -- ($6.8) ======== ======== ========= The Company operates only in the United States. The Company has no reportable major customers and revenues are attributed to countries based on the location of customers. 88 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 11. Fair Value of Financial Instruments The following discussion outlines the methodologies and assumptions used to determine the fair value of the Company's financial instruments. The aggregate fair value amounts presented herein do not represent the underlying value of the Company and, accordingly, care should be exercised in drawing conclusions about the Company's business or financial condition based on the fair value information presented herein. The following methods and assumptions were used by the Company to determine the fair values of financial instruments: Fair values for publicly traded fixed maturities (including redeemable preferred stocks) are obtained from an independent pricing service. Fair values for private placement securities and fixed maturities not provided by the independent pricing service are estimated by the Company by discounting expected future cash flows using a current market rate applicable to the yield, credit quality and maturity of the investments. The fair value for equity securities is based on quoted market prices. The fair value for mortgage loans on real estate is estimated using discounted cash flow analyses using interest rates adjusted to reflect the credit characteristics of the loans. Mortgage loans with similar characteristics and credit risks are aggregated into qualitative categories for purposes of the fair value calculations. Fair values for impaired mortgage loans are measured based either on the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the underlying collateral for loans that are collateral dependent. The carrying amount in the balance sheet for policy loans, short-term investments and cash and cash equivalents approximates their respective fair values. The fair value for fixed-rate deferred annuities is the cash surrender value, which represents the account value less applicable surrender charges. Fair values for immediate annuities without life contingencies are estimated based on discounted cash flow calculations using current market rates. The Company's derivatives include futures contracts, interest rate swap, cap and floor agreements, swaptions, currency rate swap agreements and equity collar agreements. Fair values for these contracts are based on current settlement values. These values are based on quoted market prices for the financial futures contracts and brokerage quotes that utilize pricing models or formulas using current assumptions for all swaps and other agreements. The fair value for commitments approximates the amount of the initial commitment. 89 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 11. Fair Value of Financial Instruments (continued) The following table presents the carrying amounts and fair values of the Company's financial instruments: December 31 2000 ---------------------------- Carrying Value Fair Value -------------- ------------ (in millions) Assets: Fixed maturities: Held-to-maturity................................... $ 715.4 $ 686.8 Available-for-sale................................. 1,011.8 1,011.8 Equity securities: Available-for-sale................................. 8.1 8.1 Mortgage loans on real estate....................... 554.8 574.2 Policy loans........................................ 334.2 334.2 Short-term investments.............................. 21.7 21.7 Cash and cash equivalents........................... 277.3 277.3 Liabilities: Fixed rate deferred and immediate annuities 63.8 60.4 Derivatives assets/(liabilities) relating to: Futures contracts, net............................. 0.1 0.1 Interest rate swap agreements...................... (1.2) Interest rate cap agreements....................... 2.1 2.1 Interest rate floor agreements..................... 4.5 4.5 Currency rate swap agreements...................... (0.6) (0.6) Equity collar agreements........................... 0.4 0.4 Commitments.......................................... -- 62.9 90 REPORT OF 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, 2000, 1999 and 1998, and the related statutory-basis statements of operations and unassigned deficit and cash flows for each of the three years in the period ended December 31, 2000. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules 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 and the effects on the accompanying financial statements also are described in Note 1. 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, 2000, 1999, and 1998, or the results of its operations or its cash flows for each of the three years in the period ended December 31, 2000. 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, 2000, 1999, and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting practices prescribed or permitted by the Commonwealth of Massachusetts Division of Insurance. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Boston, Massachusetts March 9, 2001 91 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION December 31 ----------------------------------- 2000 1999 1998 --------- ---------- -------- (In millions) Assets Bonds--Note 6......................................................... $ 1,400.5 $ 1,216.3 $1,185.8 Preferred stocks...................................................... 44.0 35.9 36.5 Common stocks......................................................... 2.8 3.2 3.1 Investment in affiliates.............................................. 84.8 80.7 81.7 Mortgage loans on real estate--Note 6................................. 456.0 433.1 388.1 Real estate........................................................... 24.5 25.0 41.0 Policy loans.......................................................... 218.9 172.1 137.7 Cash items: Cash in banks........................................................ 45.4 27.2 11.4 Temporary cash investments........................................... 226.6 222.9 8.5 --------- --------- -------- 272.0 250.1 19.9 Premiums due and deferred............................................. 73.0 29.9 32.7 Investment income due and accrued..................................... 43.3 33.2 29.8 Other general account assets.......................................... 17.6 65.3 47.5 Assets held in separate accounts...................................... 8,082.8 8,268.2 6,595.2 --------- --------- -------- Total Assets......................................................... $10,720.2 $10,613.0 $8,599.0 ========= ========= ======== Obligations and Stockholder's Equity Obligations Policy reserves....................................................... $ 2,207.9 $ 1,866.6 $1,652.0 Federal income and other taxes payable--Note 1........................ (7.4) 67.3 44.3 Other general account obligations..................................... 166.3 219.0 150.9 Transfers from separate accounts, net................................. (198.5) (221.6) (190.3) Asset valuation reserve--Note 1....................................... 26.7 23.1 21.9 Obligations related to separate accounts.............................. 8,076.4 8,261.6 6,589.4 --------- --------- -------- Total Obligations................................................... 10,271.4 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 2.5 Paid-in capital....................................................... 572.4 572.4 377.5 Unassigned deficit--Note 10........................................... (126.1) (177.9) (49.2) --------- --------- -------- Total Stockholder's Equity.......................................... 448.8 397.0 330.8 --------- --------- -------- Total Obligations and Stockholder's Equity............................ $10,720.2 $10,613.0 $8,599.0 ========= ========= ======== The accompanying notes are an integral part of the statutory-basis financial statements. 92 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY STATUTORY-BASIS STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT Year ended December 31 ------------------------------ 2000 1999 1998 -------- -------- ------- (In millions) Income Premiums..................................... $ 945.5 $ 950.8 $1,272.3 Net investment income--Note 3................ 176.7 136.0 122.8 Other, net................................... 475.6 605.4 618.1 -------- -------- -------- 1,597.8 1,692.2 2,013.2 Benefits and Expenses Payments to policyholders and beneficiaries.. 340.8 349.9 301.4 Additions to reserves to provide for future payments to policyholders and beneficiaries............................... 844.4 888.8 1,360.2 Expenses of providing service to policyholders and obtaining new insurance--Note 5........................... 363.4 314.4 274.2 State and miscellaneous taxes................ 25.8 20.5 28.1 -------- -------- -------- 1,574.4 1,573.6 1,963.9 -------- -------- -------- Gain From Operations Before Federal Income Tax (Credit) Expense and Net Realized Capital Losses............................... 23.4 118.6 49.3 Federal income tax (credit) expense--Note 1... (18.0) 42.9 33.1 -------- -------- -------- Gain From Operations Before Net Realized Capital Losses............................... 41.4 75.7 16.2 Net realized capital losses--Note 4........... (18.2) (1.7) (0.6) -------- -------- -------- Net Income.................................... 23.2 74.0 15.6 Unassigned deficit at beginning of year....... (177.9) (49.2) (58.3) Net unrealized capital gains (losses) and other adjustments--Note 4.................... 8.0 (3.8) (6.0) Adjustment to premiums due and deferred....... 21.4 -- -- Other reserves and adjustments--Note 10....... (0.8) (198.9) (0.5) -------- -------- -------- Unassigned Deficit at End of Year............. $ (126.1) $ (177.9) $ (49.2) ======== ======== ======== The accompanying notes are an integral part of the statutory-basis financial statements. 93 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY STATUTORY-BASIS STATEMENTS OF CASH FLOWS Year ended December 31 ---------------------------- 2000 1999 1998 -------- ------- -------- (In millions) Cash flows from operating activities: Insurance premiums............................ $ 939.9 $ 958.5 $1,275.3 Net investment income......................... 166.0 134.2 118.2 Benefits to policyholders and beneficiaries... (315.1) (321.6) (275.5) Dividends paid to policyholders............... (26.1) (25.6) (22.3) Insurance expenses and taxes.................. (362.4) (344.8) (296.9) Net transfers to separate accounts............ (513.0) (705.3) (874.4) Other, net.................................... 347.4 540.6 551.3 ------- ------- -------- Net Cash Provided From Operations........... 236.7 236.0 475.7 ------- ------- -------- Cash flows used in investing activities: Bond purchases................................ (450.7) (240.7) (618.8) Bond sales.................................... 148.0 108.3 340.7 Bond maturities and scheduled redemptions..... 80.0 78.4 111.8 Bond prepayments.............................. 29.4 18.7 76.5 Stock purchases............................... (8.8) (3.9) (23.4) Proceeds from stock sales..................... 1.7 3.6 1.9 Real estate purchases......................... (0.4) (2.2) (4.2) Real estate sales............................. 0.2 17.8 2.1 Other invested assets purchases............... (13.8) (4.5) -- Mortgage loans issued......................... (85.7) (70.7) (145.5) Mortgage loan repayments...................... 61.6 25.3 33.2 Other, net.................................... 23.7 (68.9) (435.2) ------- ------- -------- Net Cash Used in Investing Activities........ (214.8) (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............................ 21.9 230.2 (123.3) Cash and temporary cash investments at beginning of year............................. 250.1 19.9 143.2 ------- ------- -------- Cash and Temporary Cash Investments at End of Year.................................... $ 272.0 $ 250.1 $ 19.9 ======= ======= ======== The accompanying notes are an integral part of the statutory-basis financial statements. 94 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS Note 1. Nature of Operations and Significant Accounting Practices John Hancock Variable Life Insurance Company (the Company) is a wholly-owned subsidiary of John Hancock Life Insurance Company (John Hancock). The Company, domiciled in the Commonwealth of Massachusetts, writes variable and universal life insurance policies and variable annuity contracts. Those policies primarily are marketed through John Hancock's sales organization, 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. Pursuant to a Plan of Reorganization approved by the policyholders 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. 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. The carrying values of investment securities and real estate are reduced through the income statement when there has been a decline in value deemed other than temporary and mortgage loan valuation allowances, if necessary, are established when the Company determines it is probable that it will be unable to collect all amounts of principal and interest due according to the contractual terms of the mortgage loan agreement; (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. GAAP net income for the year ended December 31, 2000 and GAAP shareholder's equity as of December 31, 2000 and 1999 were $99.4 million, $805.6 million and $695.0 million, respectively. The effects of variances from GAAP on net income for the year ended December 31, 1999 have not been determined but are presumed to be material. 95 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 1. Nature of Operations and Significant Accounting Practices (continued) The significant accounting practices of the Company are as follows: Permitted Statutory Accounting Practices: In March 1998, the National Association of Insurance Commissioners (NAIC) adopted codified statutory accounting principles (Codification) effective January 1, 2001. Codification changes prescribed statutory accounting practices and results in changes to the accounting practices that the Company will use to prepare its statutory-basis financial statements. The Commonwealth of Massachusetts Division of Insurance has adopted Codification as the prescribed basis of accounting on which domestic insurers must report their statutory-basis results effective January 1, 2001. The cumulative effect of changes in accounting principles adopted to conform to the requirements of Codification will be reported as an adjustment to surplus as of January 1, 2001. Management believes that, although the implementation of Codification will have a negative impact on the Company's statutory-basis capital and surplus, the Company will remain in compliance with all regulatory and contractual obligations. 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 and floor 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. Net premiums related to equity collar positions are amortized into income on a straight- line basis over the term of the collars. The interest rate cap and floor agreements and collars are carried at fair value, with changes in fair value reflected directly in unassigned deficit. Mortgage loans are carried at outstanding principal balance or amortized cost. Investment real estate is carried at depreciated cost, less encumbrances. Depreciation on investment real estate is recorded on a straight-line basis. Accumulated depreciation amounted to $2.5 million in 2000, $1.9 million in 1999, and $3.0 million in 1998. 96 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 1. Nature of Operations and Significant Accounting Practices (continued) Real estate acquired in satisfaction of debt and real estate held for sale are carried at the lower of cost or fair value. Policy loans are carried at outstanding principal balance, not in excess of policy cash surrender value. Asset Valuation and Interest Maintenance Reserves: The Asset Valuation Reserve (AVR) is computed in accordance with the prescribed NAIC formula and represents a provision for possible fluctuations in the value of bonds, equity securities, mortgage loans, real estate and other invested assets. Changes to the AVR are charged or credited directly to the unassigned deficit. The Company also records the NAIC prescribed Interest Maintenance Reserve (IMR) that represents that portion of the after tax net accumulated unamortized realized capital gains and losses on sales of fixed income securities, principally bonds and mortgage loans, attributable to changes in the general level of interest rates. Such gains and losses are deferred and amortized into income over the remaining expected lives of the investments sold. At December 31, 2000, the IMR, net of 2000 amortization of $1.6 million, amounted to $4.2 million, which is included in other general account obligations. The corresponding 1999 amounts were $2.3 million and $7.4 million, respectively, and the corresponding 1998 amounts were $2.4 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 $6.3 million, $8.9 million, and $11.4 million at December 31, 2000, 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 annuity contracts and variable life insurance policies, and for which the contractholder, rather than the Company, generally bears the investment risk. Separate account obligations are intended to be satisfied from separate account assets and not from assets of the general account. Separate accounts generally are reported at fair value. The operations of the separate accounts are not included in the statement of operations; however, income earned on amounts initially invested by the Company in the formation of new separate accounts is included in other income. Fair Value Disclosure of Financial Instruments: Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosure about Fair Value of Financial Instruments," requires disclosure of fair value information about certain financial instruments, whether or not recognized in the statement of financial position, for which it is practicable to estimate the value. In situations where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. SFAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Therefore, the aggregate fair value amounts presented do not represent the underlying value of the Company. See Note 11. The methods and assumptions utilized by the Company in estimating its fair value disclosures for financial instruments are as follows: The carrying amounts reported in the statement of financial position for cash and temporary cash investments approximate their fair values. Fair values for public bonds are obtained from an independent pricing service. Fair values for private placement securities and publicly traded bonds not provided by the independent pricing service are estimated by the Company by discounting expected future cash flows using current market rates applicable to the yield, credit quality and maturity of the investments. The fair values for common and preferred stocks, other than its subsidiary investments, which are carried at equity values, are based on quoted market prices. 97 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 1. Nature of Operations and Significant Accounting Practices (continued) Fair values for futures contracts are based on quoted market prices. Fair values for interest rate swap, cap agreements, and currency swap agreements are based on current settlement values. The current settlement values are based on brokerage quotes that utilize pricing models or formulas using current assumptions. The fair value for mortgage loans is estimated using discounted cash flow analyses using interest rates adjusted to reflect the credit characteristics of the underlying loans. Mortgage loans with similar characteristics and credit risks are aggregated into qualitative categories for purposes of the fair value calculations. The carrying amount in the statement of financial position for policy loans approximates their fair value. The fair value for outstanding commitments to purchase long-term bonds and issue real estate mortgages is estimated using a discounted cash flow method incorporating adjustments for the difference in the level of interest rates between the dates the commitments were made and December 31, 2000. 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 2000. Federal Income Taxes: Federal income taxes are reported in the financial statements based on amounts determined to be payable as a result of operations within the current accounting period. The operations of the Company are consolidated with John Hancock in filing a consolidated federal income tax return for the affiliated group. The federal income taxes of the Company are allocated on a separate return basis with certain adjustments. The Company made federal income tax payments of $65.1 million in 2000, $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. 98 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 1. Nature of Operations and Significant Accounting Practices (continued) 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 2000, 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. Note 2. Investment in Affiliate The Company owns all outstanding shares of Investors Partner Life Insurance Company (IPL). IPL manages a block of single premium whole life insurance business and began marketing term life and variable universal life products through brokers in 1999. Summarized statutory-basis financial information for IPL for 2000, 1999 and 1998 is as follows: 2000 1999 1998 ------ ------ ------ (In millions) Total assets.......................................... $554.7 $571.0 $587.8 Total liabilities..................................... 476.3 499.2 517.5 Total revenues........................................ 42.8 35.6 38.8 Net income............................................ 3.3 3.5 3.8 Note 3. Net Investment Income Investment income has been reduced by the following amounts: 2000 1999 1998 ----- ----- ----- (In millions) Investment expenses................................... $ 9.0 $ 9.5 $ 8.3 Interest expense...................................... -- 1.7 2.4 Depreciation expense.................................. 0.6 0.6 0.8 Investment taxes...................................... 0.5 0.3 0.7 ----- ----- ----- $10.1 $12.1 $12.2 ===== ===== ===== 99 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 4. Net Capital Gains (Losses) and Other Adjustments Net realized capital losses consist of the following items: 2000 1999 1998 ------- ------ -------- (In millions) Net (losses) gains from asset sales................. $(19.5) $(2.8) $ 7.6 Capital gains tax................................... (0.3) 0.2 (2.9) Amounts transferred to IMR.......................... 1.6 0.9 (5.3) ------ ----- ----- Net realized capital losses........................ $(18.2) $(1.7) $(0.6) ====== ===== ===== Net unrealized capital gains (losses) and other adjustments consist of the following items: 2000 1999 1998 ------ ------ -------- (In millions) Net gains (losses) from changes in security values and book value adjustments........................... $11.6 $(2.6) $(2.7) Increase in asset valuation reserve................... (3.6) (1.2) (3.3) ----- ----- ----- Net unrealized capital gains (losses) and other adjustments......................................... $ 8.0 $(3.8) $(6.0) ===== ===== ===== Note 5. Transactions With Parent John Hancock provides the Company with personnel, property and facilities in carrying out certain of its corporate functions. John Hancock annually determines a fee for these services and facilities based on a number of criteria which were revised in 2000, 1999 and 1998 to reflect continuing changes in the Company's operations. The amount of the service fee charged to the Company was $162.2 million, $188.3 million, $157.5 million, in 2000, 1999, and 1998, respectively, which has been included in insurance and investment expenses. John Hancock 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 John Hancock includes $0.7 million, $0.2 million, and $0.7 million in 2000, 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. John Hancock allocates a portion of the activity related to its defined benefit pension plans to the Company. The pension plan prepaid expense allocated to the Company amounted to $55.0 million and $41.9 million in 2000 and 1999, respectively. Since 1988, the Massachusetts Division of Insurance has provided the Company with approval to recognize the pension plan prepaid expense, if any, in accordance with the requirements of SFAS No. 87, "Employers' Accounting for Pensions." The Company furnishes the Division of Insurance with an actuarial certification of the prepaid expense computation on an annual basis. 100 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (Continued) Note 5. Transactions With Parent (continued) The Company has a modified coinsurance agreement with John Hancock to reinsure 50% of 1994 through 2000 issues of flexible premium variable life insurance and scheduled premium variable life insurance policies. In connection with this agreement, John Hancock transferred $24.2 million, $44.5 million, and $4.9 million of cash for tax, commission, and expense allowances to the Company, which decreased the Company's net gain from operations by $0.9 million in 2000, and 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 $17.4 million, $40.0 million, and $12.7 million in 2000, 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 $5.6 million, $26.9 million, and $8.4 million in 2000, 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 100% of expected mortality claims in 2000, 1999 and 1998 for all policies that are not reinsured under any other indemnity agreement. In connection with the agreement, John Hancock received $1.0 million, $0.8 million, and $1.0 million in 2000, 1999, and 1998, respectively, for mortality claims to the Company. This agreement decreased the Company's net gain from operations by $1.1 million in 2000 and $0.5 million in both 1999 and 1998. The Company had a $200.0 million line of credit with an affiliate, John Hancock Capital Corp. At December 31, 2000 and 1999, the Company had no outstanding borrowings under this agreement. 101 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 6. Investments The statement value and fair value of bonds are shown below: Gross Gross Statement Unrealized Unrealized Fair Value Gains Losses Value --------- ---------- ---------- ---------- (in millions) December 31, 2000 U.S. Treasury securities and obligations of U.S. government corporations and agencies............. $ 5.7 $ -- $ -- $ 5.7 Obligations of states and political subdivisions........ 1.8 -- -- 1.8 Debt securities issued by foreign governments........... 10.9 0.3 0.6 10.6 Corporate securities.................................... 1,158.8 36.4 68.5 1,126.7 Mortgage-backed securities.............................. 223.3 3.4 4.6 222.1 -------- ----- ----- -------- Total bonds........................................ $1,400.5 $40.1 $73.7 $1,366.9 ======== ===== ===== ======== December 31, 1999 U.S. Treasury securities and obligations of U.S. government corporations and agencies............. $ 5.9 -- $ 0.1 $ 5.8 Obligations of states and political subdivisions........ 2.2 $ 0.1 0.1 2.2 Debt securities issued by foreign governments........... 13.9 0.8 0.1 14.6 Corporate securities.................................... 964.9 13.0 59.4 918.5 Mortgage-backed securities.............................. 229.4 0.5 7.8 222.1 -------- ----- ----- -------- Total bonds........................................ $1,216.3 $14.4 $67.5 $1,163.2 ======== ===== ===== ======== December 31, 1998 U.S. Treasury securities and obligations of U.S. government corporations and agencies............. $ 5.1 $ 0.1 -- $ 5.2 Obligations of states and political subdivisions........ 3.2 0.3 -- 3.5 Corporate securities.................................... 925.2 50.4 $15.0 960.6 Mortgage-backed securities.............................. 252.3 10.0 0.1 262.2 -------- ----- ----- -------- Total bonds........................................ $1,185.8 $60.8 $15.1 $1,231.5 ======== ===== ===== ======== The statement value and fair value of bonds at December 31, 2000, 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. 102 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 6. Investments (continued) Statement Fair Value Value --------- ---------- (in millions) Due in one year or less................................ $ 72.4 $ 72.5 Due after one year through five years.................. 424.2 427.7 Due after five years through ten years................. 428.5 419.5 Due after ten years.................................... 252.1 225.1 -------- -------- 1,177.2 1,144.8 Mortgage-backed securities............................. 223.3 222.1 -------- -------- $1,400.5 $1,366.9 ======== ======== Gross gains of $0.9 million in 2000, $0.3 million in 1999, and $3.4 million in 1998 and gross losses of $3.0 million in 2000, $4.0 million in 1999 and $0.7 million in 1998 were realized from the sale of bonds. At December 31, 2000, bonds with an admitted asset value of $9.6 million were on deposit with state insurance departments to satisfy regulatory requirements. The cost of common stocks was $3.1 million at December 31, 2000 and 1999 and $2.1 million at December 31, 1998. At December 31, 2000, gross unrealized appreciation on common stocks totaled $1.5 million, and gross unrealized depreciation totaled $1.8 million. The fair value of preferred stock totaled $41.6 million, $35.9 million, and $36.5 million at December 31, 2000, 1999, and 1998, respectively. Bonds with amortized cost of $5.1 million were non-income producing for the twelve months ended December 31, 2000. At December 31, 2000, 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. Statement Geographic Statement Property Type Value Concentration Value - ------------- ------------- ------------- ------------- (in millions) (in millions) Apartments................ $ 93.7 East North Central........ $ 64.3 Hotels.................... 13.0 East South Central........ 20.9 Industrial................ 63.5 Middle Atlantic........... 20.9 Office buildings.......... 84.7 Mountain.................. 27.0 Retail.................... 35.4 New England............... 23.4 Agricultural.............. 142.5 Pacific................... 108.0 Other..................... 23.2 South Atlantic............ 120.7 ------ West North Central........ 16.0 West South Central........ 51.5 Other..................... 3.3 ------ $456.0 $456.0 ====== ====== 103 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 6. Investments (continued) At December 31, 2000, the fair values of the commercial and agricultural mortgage loans portfolios were $317.5 million and $149.8 million, respectively. The corresponding amounts as of December 31, 1999 were approximately $323.5 million and $98.2 million, respectively. The maximum and minimum lending rates for mortgage loans during 2000 were 12.84% and 8.29% for agricultural loans, and 8.94% and 8.07% for other properties. Generally, the maximum percentage of any loan to the value of security at the time of the loan, exclusive of insured, guaranteed or purchase money mortgages, is 75%. For city mortgages, fire insurance is carried on all commercial and residential properties at least equal to the excess of the loan over the maximum loan which would be permitted by law on the land without the building, except as permitted by regulations of the Federal Housing Commission on loans fully insured under the provisions of the National Housing Act. For agricultural mortgage loans, fire insurance is not normally required on land based loans except in those instances where a building is critical to the farming operation. Fire insurance is required on all agri-business facilities in an aggregate amount equal to the loan balance. Note 7. Reinsurance The Company cedes business to reinsurers to share risks under variable life, universal life and flexible variable life insurance policies for the purpose of reducing exposure to large losses. Premiums, benefits and reserves ceded to reinsurers in 2000 were $588.1 million, $187.3 million, and $19.9 million, respectively. The corresponding amounts in 1999 were $594.9 million, $132.8 million, and $13.6 million, respectively, and 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 agreements in which the reinsurer may unilaterally cancel any reinsurance for reasons other than nonpayment of premiums or other similar credits. The Company does not have any reinsurance agreements in effect in which the amount of losses paid or accrued through December 31, 2000 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. 104 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 8. Financial Instruments With Off-Balance-Sheet Risk The notional amounts, carrying values and estimated fair values of the Company's derivative instruments were as follows at December 31: Number of Contracts/ Assets (Liabilities) Notional Amounts 2000 ---------------- --------------------- Carrying Fair 2000 Value Value ---------------- ----------- ----------- ($ In millions) Futures contracts to sell securities........................ $ -- $ -- $ -- Futures contracts to buy securities......................... 43 0.1 0.1 Interest rate swap agreements............................... $1,150.0 -- Interest rate cap agreements................................ 239.4 2.1 2.1 Currency rate swap agreements............................... 22.3 -- (0.6) Equity collar agreements.................................... -- 0.4 0.4 Interest rate floor agreements.............................. 361.4 1.4 1.4 Number of Contracts/ Assets (Liabilities) Notional Amounts 1999 ---------------- --------------------- Carrying Fair 1999 Value Value ---------------- ----------- ----------- ($ In millions) Futures contracts to sell securities........................ 362 $0.6 $ 0.6 Interest rate swap agreements............................... $965.0 -- 11.5 Interest rate cap agreements................................ 239.4 5.6 5.6 Currency rate swap agreements............................... 15.8 -- (1.6) Number of Contracts/ Assets (Liabilities) Notional Amounts 1998 ---------------- --------------------- Carrying Fair 1998 Value Value ---------------- ---------- ----------- ($ In millions) Futures contracts to sell securities........................ 947 $(0.5) $ (0.5) Interest rate swap agreements............................... $365.0 -- (17.7) Interest rate cap agreements................................ 89.4 3.1 3.1 Currency rate swap agreements............................... 15.8 -- (3.3) 105 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 8. Financial Instruments With Off-Balance-Sheet Risk (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 Company invests in common stock that is subject to fluctuations from market value changes in stock prices. The Company sometimes seeks to reduce its market exposure to such holdings by entering into equity collar agreements. A collar consists of a call that limits the Company's potential gain from appreciation in the stock price as well as a put that limits the Company's loss potential from a decline in the stock price. The futures contracts expire in 2001. 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 2015. The equity collar agreements expire in 2005. 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. Note 9. Policy Reserves, Policyholders' and Beneficiaries' Funds and Obligations Related To Separate Accounts The Company's annuity reserves and deposit fund liabilities that are subject to discretionary withdrawal, with and without adjustment, are summarized as follows: December 31, 2000 Percent ----------------- --------- (In millions) Subject to discretionary withdrawal (with adjustment)............... With market value adjustment....................................... $ 30.3 1.1% At book value less surrender charge................................ 54.7 2.1 At market value.................................................... 2,250.3 84.8 -------- ----- Total with adjustment............................................. 2,335.3 88.0 Subject to discretionary withdrawal at book value (without adjustment)............................................... 312.8 11.8 Not subject to discretionary withdrawal--general account............................................................ 7.1 0.2 -------- ----- Total annuity reserves and deposit liabilities.................... $2,655.2 100.0% ======== ===== 106 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 10. Commitments and Contingencies The Company has extended commitments to purchase long-term bonds issue real estate mortgages and purchase other assets totaling $33.5 million, $6.3 million and $14.7 million, respectively, at December 31, 2000. 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 $56.4 million at December 31, 2000. The majority of these commitments expire in 2001. 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, 2000. 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, 2000 amounted to $39.5 million and is based on a number of factors, including 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 estimated with precision. 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. 107 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED) Note 11-Fair Value of Financial Instruments The following table presents the carrying amounts and fair values of the Company's financial instruments: December 31 --------------------------------------- 2000 1999 ------------------ ------------------ Carrying Fair Carrying Fair Amount Value Amount Value -------- --------- -------- ----------- (In millions) Assets Bonds--Note 6............................................. $1,400.5 $1,366.9 $1,216.3 $1,163.2 Preferred stocks--Note 6.................................. 44.0 41.6 35.9 35.9 Common stocks--Note 6..................................... 2.8 2.8 3.2 3.2 Mortgage loans on real estate--Note 6..................... 456.0 467.3 433.1 421.7 Policy loans--Note 1...................................... 218.9 218.9 172.1 172.1 Cash items--Note 1........................................ 272.0 272.0 250.1 250.1 Derivatives assets (liabilities) relating to: Note 8 Futures contracts......................................... 0.1 0.1 0.6 0.6 Interest rate swaps....................................... -- (0.4) -- 11.5 Currency rate swaps....................................... -- (0.6) -- (1.6) Interest rate caps........................................ 2.1 2.1 5.6 5.6 Equity collar agreements.................................. -- 0.4 -- -- Liabilities Commitments--Note 10...................................... -- 56.4 -- 19.4 108 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 11-Fair Value of Financial Instruments (continued) December 31 ------------------- 1998 ------------------- Carrying Fair Amount Value --------- ----------- (In millions) Assets Bonds--Note 6..................................................... $1,185.8 $1,231.5 Preferred stocks--Note 6.......................................... 36.5 36.5 Common stocks--Note 6............................................. 3.1 3.1 Mortgage loans on real estate--Note 6............................. 388.1 401.3 Policy loans--Note 1.............................................. 137.7 137.7 Cash items--Note 1................................................ 19.9 19.9 Derivatives assets (liabilities) relating to: Note 8 Futures contracts................................................. (0.5) (0.5) Interest rate swaps............................................... -- (17.7) Currency rate swaps............................................... -- (3.3) Interest rate caps................................................ 3.1 3.1 Liabilities Commitments--Note 10.............................................. -- 32.1 The carrying amounts in the tables 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. 109 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY SCHEDULE I -- SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES As of December 31, 2000 (in millions of dollars) Amount at Which Shown in the Consolidated Type of Investment Cost (2) Value Balance Sheet ------------------ -------- ----- --------------- Fixed maturity securities, available-for-sale: Bonds: United States government and government agencies and authorities........................ 16.1 16.7 16.7 States, municipalities and political subdivisions.................................... 6.8 6.7 6.7 Foreign governments.............................. 11.1 10.8 10.8 Public utilities................................. 49.1 50.1 50.1 Convertibles and bonds with warrants attached........................................ 13.7 13.6 13.6 All other corporate bonds........................ 877.1 871.5 871.5 Certificates of deposits......................... 0.0 0.0 0.0 Redeemable preferred stock....................... 44.9 42.4 42.4 ------- ------ ------- Total fixed maturity securities, available-for-sale.............................. 1,018.8 1,011.8 1,011.8 ------- ------- ------- Equity securities, available-for-sale: Common stocks: Public utilities................................. 0.0 0.0 0.0 Banks, trust and insurance companies............. 0.0 0.0 0.0 Industrial, miscellaneous and all other.......... 4.0 4.8 4.8 Non-redeemable preferred stock................... 3.1 3.3 3.3 ------- ------ ------- Total equity securities, available-for-sale.............................. 7.1 8.1 8.1 ------- ------ ------- Fixed maturity securities, held-to-maturity: Bonds: United States government and government agencies and authorities........................ 0.0 0.0 0.0 States, municipalities and political subdivisions.................................... 1.9 1.9 1.9 Foreign governments.............................. 0.0 0.0 0.0 Public utilities................................. 42.5 43.4 42.5 Convertibles and bonds with warrants attached........................................ 13.3 11.1 13.3 All other corporate bonds........................ 657.7 630.4 657.7 Certificates of deposits......................... 0.0 0.0 0.0 Redeemable preferred stock....................... 0.0 0.0 0.0 ------- ------ ------- Total fixed maturity securities, held-to-maturity................................ 715.4 686.8 715.4 ------- ------ ------- Equity securities, trading: Common stocks: Public utilities................................. Banks, trust and insurance companies............. Industrial, miscellaneous and all other.......... Non-redeemable preferred stock................... Total equity securities, trading................. 0.0 0.0 0.0 ------- ------- ------- Mortgage loans on real estate, net (1)........... 559.8 XXXX 554.8 110 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY SCHEDULE I -- SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES (continued) As of December 31, 2000 (in millions of dollars) Amount at Which Shown in the Consolidated Cost (2) Value Balance Sheet -------- ----- --------------- Real estate, net: Investment properties (1).............. 23.9 XXXX 23.9 Acquired in satisfaction of debt (1)... 0.0 XXXX 0.0 Policy loans........................... 334.2 XXXX 334.2 Other long-term investments (2)........ 34.8 XXXX 34.8 Short-term investments................. 21.7 XXXX 21.7 ------- ------- ------- Total investments..................... 2,715.7 1,706.7 2,704.7 ======= ======= ======= (1) Difference from Column B is primarily due to valuation allowances due to impairments on mortgage loans on real estate and due to accumulated depreciation and valuation allowances due to impairments on real estate. See note 3 to the consolidated financial statements. (2) Difference from Column B is primarily due to operating gains (losses) of investments in limited partnerships. See accompanying independent auditors' report. 111 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION As of December 31, 2000, 1999 and 1998 and for the year then ended (in millions of dollars) Future Policy Other Deferred Benefits, Policy Policy Losses, Claims Claims and Acquisition and Loss Unearned Benefits Premium Segment Costs Expenses Premiums Payable Revenue ------- ------------ --------------- --------- ---------- ------- GAAP 2000: Protection............................. $819.3 $2,698.4 $212.0 $11.1 $ 28.6 Asset Gathering........................ 174.8 70.0 -- -- -- ------ -------- ------ ----- -------- Total................................. $994.1 $2,768.4 $212.0 $11.1 $ 28.6 ------ -------- ------ ----- -------- Statutory Basis 2000: Variable Products..................... N/A $2,206.0 $ 8.8 $16.4 $ 945.4 ------ -------- ------ ----- -------- 1999: Variable Products..................... N/A $1,864.9 $ 3.9 $15.4 $ 950.8 ------ -------- ------ ----- -------- 1998: Variable Products..................... N/A $1,651.7 $ 2.3 $13.1 $1,272.3 ------ -------- ------ ----- -------- 112 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION (continued) As Of december 31, 2000, 1999 and 1998 and for the year then ended (in millions of dollars) Amortization of Benefits, Deferred Policy Claims, Losses, Acquisition Costs, Net and Excluding Amounts Other Investment Settlement Related To Realized Operating Segment Income Expenses Investment Gains Expenses ------- ---------- --------------- ------------------- --------- GAAP 2000: Protection.............. $215.9 $ 242.2 $17.6 $100.5 Asset Gathering......... (2.5) 6.4 16.4 16.3 ------ -------- ----- ------ Total.................. $213.4 $ 248.6 $34.0 $116.8 ------ -------- ----- ------ Statutory Basis 2000: Variable Products...... $176.7 $1,185.2 N/A $389.2 ------ -------- ----- ------ 1999: Variable Products...... $136.0 $1,238.7 N/A $334.9 ------ -------- ----- ------ 1998: Variable Products...... $122.8 $1,661.6 N/A $302.3 ------ -------- ----- ------ 113 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY AND SUBSIDIARY SCHEDULE IV -- REINSURANCE As of December 31, 2000 (in millions of dollars) Percentage Ceded to Assumed of Amount Gross Other from Other Assumed Amount Companies Companies Net Amount to Net --------- --------- ---------- ---------- ---------- GAAP 2000 Life insurance in force................ $98,737.2 $39,495.8 $ 37.1 $ 59,278.5 0.1% --------- --------- ---------- ---------- --- Premiums: Life insurance......................... $ 34.1 $ 5.5 $ -- $ 28.6 0.0% Accident and health insurance.......... -- -- -- -- 0.0% P&C.................................... -- -- -- -- 0.0% --------- --------- ---------- ---------- --- Total................................ $ 34.1 $ 5.5 $ -- $ 28.6 0.0% ========= ========= ========== ========== === Statutory Basis 2000 Life insurance in force................ $96,574.3 $38,059.7 $ -- $ 58,514.6 0.0% --------- --------- ---------- ---------- --- Premiums: Life insurance......................... $ 1,533.6 $ 588.1 $ -- $ 945.5 0.0% Accident and health insurance.......... -- -- -- -- 0.0% P&C.................................... -- -- -- -- 0.0% --------- --------- ---------- ---------- --- Total................................ $ 1,533.6 $ 588.1 $ -- $ 945.5 0.0% ========= ========= ========== ========== === 1999 Life insurance in force................ $74,831.8 $ 8,995.0 $ -- $ 55,836.8 0.0% --------- --------- ---------- ---------- --- Premiums: Life insurance......................... $ 1,545.7 $ 594.9 $ -- $ 950.8 0.0% Accident and health insurance.......... -- -- -- -- 0.0% P&C.................................... -- -- -- -- 0.0% --------- --------- ---------- ---------- --- Total................................ $ 1,545.7 $ 594.9 $ -- $ 950.8 0.0% ========= ========= ========== ========== === 114 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY AND SUBSIDIARY SCHEDULE IV--REINSURANCE (continued) As of December 31, 2000 (in millions of dollars) Percentage Ceded to Assumed of Amount Gross Other from Other Net Assumed Amount Companies Companies Amount to Net --------- --------- ---------- ---------- ---------- 1998 Life insurance in force................ $62,628.7 $15,302.1 $ -- $47,326.6 0.0% --------- --------- ---------- --------- --- Premiums: Life insurance......................... $ 1,862.5 $ 590.2 $ -- $ 1,272.3 0.0% Accident and health insurance.......... -- -- -- -- 0.0% P&C.................................... -- -- -- -- 0.0% --------- --------- ---------- --------- --- Total................................ $ 1,862.5 $ 590.2 $ -- $ 1,272.3 0.0% ========= ========= ========== ========= === Note: The life insurance caption represents principally premiums from traditional life insurance and life-contingent immediate annuities and excludes deposits on investment products and universal life insurance products. See accompanying independent auditors' report. 115 UNAUDITED FINANCIAL STATEMENTS FOR JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV FIRST QUARTER 2001 116 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENT OF ASSETS AND LIABILITIES (Unaudited) March 31, 2001 International Large Cap Active Equity Small Cap Growth Bond Index Growth Subaccount Subaccount Subaccount Subaccount ------------ ------------ ------------- ------------- Assets Cash................................................. $ -- $ -- $ -- $ -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value... 31,955,200 88,185,696 5,683,167 4,072,904 Investments in shares of portfolios of Outside Trust, at value.......................... -- -- -- -- Policy loans and accrued interest receivable......... 2,991,018 11,327,428 431,266 Receivable from: John Hancock Variable Series Trust I................. -- 441,725 14,108 -- Outside Trust........................................ -- -- -- -- ------------ ------------ ------------- ------------- Total assets......................................... 34,946,218 99,954,849 6,128,541 4,072,904 Liabilities Payable to: John Hancock Variable Life Insurance Company......... 559 1,300 98 66 Outside Trust........................................ -- -- -- -- Asset charges payable................................ -- -- -- -- ------------ ------------ ------------- ------------- Total liabilities.................................... 559 1,300 98 66 ------------ ------------ ------------- ------------- Net assets........................................... $ 34,945,659 $ 99,953,549 $ 6,128,443 $ 4,072,838 ============ ============ ============= ============= Global Mid Cap Large Cap Money Balanced Growth Value Market Subaccount Subaccount Subaccount Subaccount ---------- ------------ ----------- ------------ Assets Cash................................................. $ -- $ -- $ -- $ (1,285) Investments in shares of portfolios of John Hancock Variable Series Trust I, at value... 180,460 10,350,572 14,820,451 20,668,625 Investments in shares of portfolios of Outside Trust, at value.......................... -- -- -- -- Policy loans and accrued interest receivable......... -- -- 16,174 2,296,148 Receivable from: John Hancock Variable Series Trust I................. 227 -- -- 8,385 Outside Trust........................................ -- -- -- -- ---------- ------------ ----------- ------------ Total assets......................................... 180,687 10,350,572 14,836,625 22,971,873 Liabilities Payable to: John Hancock Variable Life Insurance Company......... 3 171 241 1,094 Outside Trust........................................ -- -- -- -- Asset charges payable................................ -- -- -- 3 ---------- ------------ ----------- ----------- Total liabilities.................................... 3 171 241 1,097 ---------- ------------ ----------- ----------- Net assets........................................... $ 180,684 $ 10,350,401 $14,836,384 $22,970,776 ========== ============ =========== =========== See accompanying notes. 117 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENT OF ASSETS AND LIABILITIES (Unaudited) (continued) March 31, 2001 Large/Mid Cap Small/Mid Cap Real Estate Growth & Value II Growth Equity Income Subaccount Subaccount Subaccount Subaccount ------------- ------------- ----------- -------------- Assets Cash................................................. $ -- $ -- $ 3 $ -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value... 4,084,348 5,372,068 5,115,412 196,949,722 Investments in shares of portfolios of Outside Trust, at value.......................... -- -- -- -- Policy loans and accrued interest receivable......... -- -- 384,420 33,111,620 Receivable from: John Hancock Variable Series Trust I................. 2,633 -- 23,160 -- Outside Trust........................................ -- -- -- -- ------------- ------------- ----------- -------------- Total assets......................................... 4,086,981 5,372,068 5,522,995 230,061,342 Liabilities Payable to: John Hancock Variable Life Insurance Company......... 67 87 88 2,793 Outside Trust........................................ -- -- -- -- Asset charges payable................................ -- -- -- -- ------------- ------------- ----------- -------------- Total liabilities.................................... 67 87 88 2,793 ------------- ------------- ----------- -------------- Net assets........................................... $ 4,086,914 $ 5,371,981 $ 5,522,907 $ 230,058,549 ============= ============= =========== ============== Short-Term Small Cap International Managed Bond Equity Opportunities Subaccount Subaccount Subaccount Subaccount ------------- ---------- ---------- --------------- Assets Cash................................................. $ (685) $ -- $ -- $ -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value... 91,271,868 393,901 2,810,164 9,219,807 Investments in shares of portfolios of Outside Trust, at value.......................... -- -- -- -- Policy loans and accrued interest receivable......... 13,756,579 -- -- -- Receivable from: John Hancock Variable Series Trust I................. 165,895 1,958 -- -- Outside Trust........................................ -- -- -- -- ------------- ---------- ---------- --------------- Total assets......................................... 105,193,657 395,859 2,810,164 9,219,807 Liabilities Payable to: John Hancock Variable Life Insurance Company......... 1,648 7 45 151 Outside Trust........................................ -- -- -- -- Asset charges payable................................ -- -- -- -- ------------- ---------- ---------- --------------- Total liabilities.................................... 1,648 7 45 151 ------------- ---------- ---------- --------------- Net assets........................................... $ 105,192,009 $ 395,852 $2,810,119 $ 9,219,656 ============= ========== ========== =============== See accompanying notes. 118 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENT OF ASSETS AND LIABILITIES (Unaudited) (continued) March 31, 2001 Brandes Equity Global Turner Core International Index Bond Growth Equity Subaccount Subaccount Subaccount Subaccount ----------- ---------- ----------- -------------- Assets Cash.................................................... $ -- $ -- $ -- $ -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value..... 44,739,299 1,088,725 363,051 1,222,726 Investments in shares of portfolios of Outside Trust, at value............................ -- -- -- -- Policy loans and accrued interest receivable............ -- -- -- -- Receivable from: John Hancock Variable Series Trust I.................... 40,484 -- -- -- Outside Trust........................................... -- -- -- -- ----------- ---------- ----------- -------------- Total assets............................................ 44,779,783 1,088,725 363,051 1,222,726 Liabilities Payable to: John Hancock Variable Life Insurance Company............ 729 18 6 20 Outside Trust........................................... -- -- -- -- Asset charges payable................................... -- -- -- -- ----------- ---------- ----------- -------------- Total liabilities....................................... 729 18 6 20 ----------- ---------- ----------- -------------- Net assets.............................................. $44,779,054 $1,088,707 $ 363,045 $ 1,222,706 =========== ========== =========== ============== Frontier Capital Emerging Small/Mid Appreciation Markets Equity Bond Index Cap Core Subaccount Subaccount Subaccount Subaccount ------------ -------------- ----------- ------------ Assets Cash................................................... $ -- $ -- $ -- $ -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value.... 626,088 659,594 283,491 517,936 Investments in shares of portfolios of Outside Trust, at value........................... -- -- -- -- Policy loans and accrued interest receivable........... -- -- -- -- Receivable from: John Hancock Variable Series Trust I................... -- -- 1,487 423 Outside Trust.......................................... -- -- -- -- ------------ ------------- ----------- ------------ Total assets........................................... 626,088 659,594 284,978 518,359 Liabilities Payable to: John Hancock Variable Life Insurance Company........... 10 11 5 9 Outside Trust.......................................... -- -- -- -- Asset charges payable.................................. -- -- -- -- ------------ ------------- ----------- ------------ Total liabilities...................................... 10 11 5 9 ------------ ------------- ----------- ------------ Net assets............................................. $ 626,078 $ 659,583 $ 284,973 $ 518,350 ============ ============= =========== ============ See accompanying notes. 119 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENT OF ASSETS AND LIABILITIES (Unaudited) (continued) March 31, 2001 High Clifton Large Cap Yield Enhanced Aggressive Fundamental Bond US Equity Growth Growth Subaccount Subaccount Subaccount Subaccount ---------- ---------- ----------- -------------- Assets Cash................................................. $ -- $ -- $ -- $ -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value 622,890 25,601 1,562 9,239 Investments in shares of portfolios of Outside Trust, at value......................... -- -- -- -- Policy loans and accrued interest receivable......... -- -- -- -- Receivable from: John Hancock Variable Series Trust I................. 4,477 -- -- -- Outside Trust........................................ -- -- -- -- ---------- --------- ----------- -------------- Total assets......................................... 627,367 25,601 1,562 9,239 Liabilities Payable to: John Hancock Variable Life Insurance Company......... 10 -- -- -- Outside Trust........................................ -- -- -- -- Asset charges payable................................ -- -- -- -- ---------- --------- ----------- -------------- Total liabilities.................................... 10 -- -- -- ---------- --------- ----------- -------------- Net assets. . . . . . . . $ 627,357 $ 25,601 $ 1,562 $ 9,239 ========== ========= =========== ============== Janus Aspen Fidelity VIP Fidelity VIP II Global Aim V.I. Value Growth Contrafund Technology Subaccount Subaccount Subaccount Subaccount -------------- ------------ --------------- ------------ Assets Cash................................................. $ -- $ -- $ -- $ -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value.. 4,634 3,425 5,547 2,633 Investments in shares of portfolios of Outside Trust, at value......................... -- -- -- -- Policy loans and accrued interest receivable......... -- -- -- -- Receivable from: John Hancock Variable Series Trust I................. -- -- -- -- Outside Trust........................................ -- -- -- -- --------------- ------------- --------------- ------------- Total assets......................................... 4,634 3,425 5,547 2,633 Liabilities Payable to: John Hancock Variable Life Insurance Company......... -- -- -- -- Outside Trust........................................ -- -- -- -- Asset charges payable -- -- -- -- --------------- ------------- --------------- ------------- Total liabilities.................................... -- -- -- -- --------------- ------------- --------------- ------------- Net assets........................................... $ 4,634 $ 3,425 $ 5,547 $ 2,633 =============== ============== =============== ============= See accompanying notes. 120 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENT OF ASSETS AND LIABILITIES (Unaudited) (CONTINUED) March 31, 2001 Janus Aspen MFS New Worldwide Discovery Active Growth Series Bond II Subaccount Subaccount Subaccount ------------ ----------- ------------ Assets Cash............................................................... $ -- $ -- $ -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value................ 3,838 14,414 1,558 Investments in shares of portfolios of Outside Trust, at value....................................... -- -- -- Policy loans and accrued interest receivable....................... -- -- -- Receivable from: John Hancock Variable Series Trust I............................... -- -- 8 Outside Trust...................................................... -- -- -- ------------ ----------- ------------ Total assets....................................................... 3,838 14,414 1,566 Liabilities Payable to: John Hancock Variable Life Insurance Company....................... -- -- -- Outside Trust...................................................... -- -- -- Asset charges payable.............................................. -- -- -- ------------ ----------- ------------ Total liabilities.................................................. -- -- -- ------------ ----------- ------------ Net assets......................................................... $ 3,838 $ 14,414 $ 1,566 ============ =========== ============ See accompanying notes. 121 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF OPERATIONS (Unaudited) Years and Periods Ended March 31, Large Cap Growth Subaccount Active Bond Subaccount --------------------------------------- ----------------------------------------- 2001 2000 1999 2001 2000 1999 ------------ ------------- ---------- ------------- ------------ ----------- Investment income: Distributions received from: John Hancock Variable Series Trust I........ $ 56,902 $ 6,351,461 $6,381,711 $ 1,588,230 $ 5,048,654 $ 5,184,234 Outside Trust............................... -- -- -- -- -- Interest income on policy loans.............. 223,081 161,454 -- 769,530 750,673 ----------- ------------ ---------- ------------ ----------- ----------- Total investment income...................... 56,902 6,574,542 6,543,165 1,588,230 5,818,184 5,934,907 Expenses: Mortality and expense risks................. 58,745 286,716 213,770 114,652 485,231 452,925 ----------- ------------ ---------- ------------ ----------- ----------- Net investment income (loss)................. (1,843) 6,287,826 6,329,395 1,473,578 5,332,953 5,481,982 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)................. 45,046 1,809,410 1,146,308 (138,339) (1,058,175) (388,883) Net unrealized appreciation (depreciation) during the period.......................... (8,553,529) (17,039,660) 320,087 1,719,671 3,862,398 (5,439,148) ----------- ------------ ---------- ------------ ----------- ----------- Net realized and unrealized gain (loss) on investments.............................. (8,508,483) (15,230,250) 1,466,395 1,581,332 2,804,223 (5,828,031) ----------- ------------ ---------- ------------ ----------- ----------- Net increase (decrease) in net assets resulting from operations................... $(8,510,326) $ (8,942,424) $7,795,790 $ 3,054,910 $ 8,137,176 $ (346,049) =========== ============ ========== ============ =========== =========== International Equity Index Subaccount Small Cap Growth Subaccount ----------------------------------------- --------------------------------------------- 2001 2000 1999 2001 2000 1999 ----------- ------------- ------------ ------------ -------------- -------------- Investment income: Distributions received from: John Hancock Variable Series Trust I... $ 22,483 $ 334,135 $ 212,869 $ -- $ 621,346 $ 543,433 Outside Trust.......................... -- -- -- -- -- -- Interest income on policy loans......... 7,927 29,828 20,538 -- -- -- ---------- ------------- ------------ ----------- ------------- -------------- Total investment income................. 30,410 363,963 233,407 -- 621,346 543,433 Expenses: Mortality and expense risks............ 9,425 41,808 32,838 7,198 39,379 15,809 ---------- ------------- ------------ ----------- ------------- -------------- Net investment income (loss)............ 20,985 322,155 200,569 (7,198) 581,967 527,624 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)............ (19,774) 76,586 62,140 190,317 159,388 48,210 Net unrealized appreciation (depreciation) during the period...... (765,992) (1,706,468) 1,295,768 (1,286,350) (2,654,137) 1,125,829 ---------- ------------- ------------ ----------- ------------- -------------- Net realized and unrealized gain (loss) on investments......................... (785,766) (1,629,882) 1,357,908 (1,096,033) (2,494,749) 1,174,039 ---------- ------------- ------------ ----------- ------------- -------------- Net increase (decrease) in net assets resulting from operations.............. $ (764,781) $ (1,307,727) $ 1,558,477 $(1,103,231) $ (1,912,782) $ 1,701,663 ========== ============= ============ =========== ============= ============== See accompanying notes. 122 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF OPERATIONS (Unaudited) (Continued) Years and Periods Ended March 31, Global Balanced Subaccount Mid Cap Growth Subaccount ----------------------------------- ---------------------------------------- 2001 2000 1999 2001 2000 1999 ----------- ---------- ---------- ------------ ------------ ---------- Investment income: Distributions received from: John Hancock Variable Series Trust I........... $ 631 $ 8,232 $ 17,211 $ -- $ 2,284,720 $1,373,009 Outside Trust................................... -- -- -- -- -- -- Interest income on policy loans.................. -- -- -- -- -- -- ---------- ---------- --------- ----------- ------------ ---------- Total investment income.......................... 631 8,232 17,211 -- 2,284,720 1,373,009 Expenses: Mortality and expense risks..................... 262 1,034 1,267 20,318 101,903 34,834 ---------- ---------- --------- ----------- ------------ ---------- Net investment income (loss)..................... 369 7,198 15,944 (20,318) 2,182,817 1,338,175 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)..................... (1,320) (3,641) 1,061 (488,136) 1,892,763 420,826 Net unrealized appreciation (depreciation) during the period............... (11,447) (21,945) (8,559) (4,750,794) (11,690,290) 4,283,452 ---------- ---------- --------- ----------- ------------ ---------- Net realized and unrealized gain (loss) on investments.................................. (12,767) (25,586) (7,498) (5,238,930) (9,797,527) 4,704,278 ---------- ---------- --------- ----------- ------------ ---------- Net increase (decrease) in net assets resulting from operations................ $ (12,398) $ (18,388) $ 8,446 $(5,259,248) $ (7,614,710) $6,042,453 ========== ========== ========= =========== ============ ========== Large Cap Value Subaccount Money Market Subaccount ------------------------------------ --------------------------------- 2001 2000 1999 2001 2000 1999 --------- ----------- ---------- -------- ---------- ---------- Investment income: Distributions received from: John Hancock Variable Series Trust I.............. $ 63,070 $ 759,319 $ 511,132 $386,759 $1,260,525 $1,134,371 Outside Trust..................................... -- -- -- -- -- -- Interest income on policy loans.................... -- -- -- -- 162,299 155,491 --------- ----------- ---------- -------- ---------- ---------- Total investment income............................ 63,070 759,319 511,132 386,759 1,422,824 1,289,862 Expenses: Mortality and expense risks....................... 22,047 65,992 36,983 32,564 132,261 146,758 --------- ----------- ---------- -------- ---------- ---------- Net investment income (loss)....................... 41,023 693,327 474,149 354,195 1,290,563 1,143,104 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)....................... 8,947 (47,306) 123,242 -- -- -- Net unrealized appreciation (depreciation) during the period................................ (537,604) 854,807 (499,454) -- -- -- --------- ----------- ---------- -------- ---------- ---------- Net realized and unrealized gain (loss) on investments.................................... (528,657) 807,501 (376,212) -- -- -- --------- ----------- ---------- -------- ---------- ---------- Net increase (decrease) in net assets resulting from operations......................... $(487,634) $ 1,500,828 $ 97,937 $354,195 $1,290,563 $1,143,104 ========= =========== ========== ======== ========== ========== See accompanying notes. 123 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF OPERATIONS (Unaudited) (continued) Years and periods ended March 31, Large/Mid Cap Value II Subaccount Small/Mid Cap Growth Subaccount ---------------------------------- ------------------------------------------ 2001 2000 1999 2001 2000 1999 --------- ---------- --------- ------------ ------------ ------------ Investment income: Distributions received from: John Hancock Variable Series Trust I............. $ 9,846 $ 861,684 $ 30,563 $ -- $ 603,438 $ 840,786 Outside Trust.................................... -- -- -- -- -- -- Interest income on policy loans................... -- -- -- -- -- -- --------- ---------- --------- ------------ ------------ ----------- Total investment income........................... 9,846 861,684 30,563 -- 603,438 840,786 Expenses: Mortality and expense risks...................... 7,377 36,705 28,106 8,478 32,879 30,491 --------- ---------- --------- ------------ ------------ ----------- Net investment income (loss)...................... 2,469 824,979 2,457 (8,478) 570,559 810,295 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)...................... 385,014 (47,013) (547,518) (6,081) (136,669) 16,952 Net unrealized appreciation (depreciation) during the period............................... (768,042) 853,987 657,486 (639,663) (2,663) (590,295) --------- ---------- --------- ------------ ------------ ----------- Net realized and unrealized gain (loss) on investments................................... (338,028) 806,974 109,968 (645,744) (139,332) (573,343) --------- ---------- --------- ------------ ------------ ----------- Net increase (decrease) in net assets resulting from operations.................................. $(380,559) $1,631,953 $ 112,425 $ (654,222) $ 431,227 $ 236,952 ========= ========== ========= ============ ============ =========== Real Estate Equity Subaccount Growth & Income Subaccount ----------------------------------- ---------------------------------------- 2001 2000 1999 2001 2000 1999 --------- ----------- ---------- ------------ ------------ ----------- Investment income: Distributions received from: John Hancock Variable Series Trust I............. $ 29,980 $ 471,363 $ 262,930 $ 794,662 $ 43,732,520 $35,057,066 Outside Trust.................................... -- -- -- -- -- -- Interest income on policy loans................... -- 21,486 17,361 -- 2,428,588 2,279,107 ---------- ------------ ---------- ------------ ------------ ----------- Total investment income........................... 29,980 492,849 280,291 794,662 46,161,108 37,336,173 Expenses: Mortality and expense risks...................... 7,999 27,585 24,900 275,159 1,733,223 1,779,482 ---------- ------------ ----------- ------------ ------------ ----------- Net investment income (loss)...................... 21,981 465,264 255,391 519,503 44,427,885 35,556,691 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)...................... (95,171) (159,205) (168,994) 284,830 18,300,286 5,502,422 Net unrealized appreciation (depreciation) during the period............................... (103,669) 919,904 (220,380) (36,829,357) (96,829,044) 2,405,417 ---------- ------------ ----------- ------------ ------------ ----------- Net realized and unrealized gain (loss) on investments................................... (198,840) 760,699 (389,374) (36,544,527) (78,528,758) 7,907,839 ---------- ------------ ----------- ------------ ------------ ----------- Net increase (decrease) in net assets resulting from operations.................................. $(176,859) $ 1,225,963 $ (133,983) $(36,025,024) $(34,100,873) $43,464,530 ========== ============ =========== ============ ============ =========== See accompanying notes. 124 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF OPERATIONS (Unaudited) (continued) Years and periods ended March 31, Managed Subaccount Short-Term Bond Subaccount -------------------------------------- ----------------------------------- 2001 2000 1999 2001 2000 1999 ------------ ------------- --------- ----------- ----------- --------- Investment income: Distributions received from: John Hancock Variable Series Trust I............. $ 827,470 $ 11,757,304 $ 9,998,433 $ 5,881 $ 17,131 $ 15,539 Outside Trust.................................... -- -- -- -- -- -- Interest income on policy loans................... -- -- 953,686 -- -- -- ----------- ------------ ----------- ----------- ----------- --------- Total investment income........................... 827,470 11,757,304 10,952,119 5,881 17,131 15,539 Expenses: Mortality and expense risks...................... 154,467 664,664 649,802 559 1,637 1,497 ----------- ------------ ----------- ----------- ----------- --------- Net investment income (loss)...................... 673,003 11,092,640 10,302,317 5,322 15,494 14,042 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)...................... 71,497 1,551,519 996,546 (200) (2,287) (8,638) Net unrealized appreciation (depreciation) during the period............................... (6,435,848) (12,278,637) (2,108,530) 5,275 6,756 (2,442) ----------- ------------ ----------- ----------- ----------- --------- Net realized and unrealized gain (loss) on investments................................... (6,364,351) (10,727,118) (1,111,984) 5,075 4,469 (11,080) ----------- ------------ ----------- ----------- ----------- --------- Net increase (decrease) in net assets resulting from operations.................................. $(5,691,348) $ 365,522 $ 9,190,333 $ 10,397 $ 19,963 $ 2,962 =========== ============ =========== =========== =========== ========= Small Cap Equity Subaccount International Opportunities Subaccount ------------------------------------- -------------------------------------- 2001 2000 1999 2001 2000 1999 ---------- ----------- ---------- ------------ ----------- ---------- Investment income: Distributions received from: John Hancock Variable Series Trust I............. $ -- $ 321,253 $ 79,585 $ -- $ 617,754 $ 241,151 Outside Trust.................................... -- -- -- -- -- -- Interest income on policy loans................... -- -- -- -- -- -- ----------- ----------- ---------- ----------- ----------- --------- Total investment income........................... -- 321,253 79,585 -- 617,754 241,151 Expenses: Mortality and expense risks...................... 5,256 23,745 17,680 15,091 53,038 17,937 ----------- ---------- ---------- ----------- ----------- --------- Net investment income (loss)...................... (5,256) 297,508 61,905 (15,091) 564,716 223,214 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)...................... (354,548) (110,857) (33,134) -- 348,813 155,412 Net unrealized appreciation (depreciation) during the period.............................. (17,236) (668,463) (148,401) (1,630,046) (2,497,504) 387,412 ----------- ----------- ---------- ----------- ----------- --------- Net realized and unrealized gain (loss) on investments................................... (371,784) (779,320) (181,535) (1,630,046) (2,148,691) 542,824 ----------- ----------- ---------- ----------- ----------- --------- Net increase (decrease) in net assets resulting from operations.................................. $ (377,040) $ (481,812) $ (119,630) $(1,645,137) $(1,583,975) $ 766,038 =========== =========== ========== =========== =========== ========= See accompanying notes. 125 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF OPERATIONS (Unaudited) (continued) Years and periods ended March 31, Equity Index Subaccount Global Bond Subaccount -------------------------------------- --------------------------------- 2001 2000 1999 2001 2000 1999 ----------- ----------- ---------- --------- -------- -------- Investment income: Distributions received from: John Hancock Variable Series Trust I.......... $ 140,562 $ 2,327,055 $ 593,325 $ -- $ 63,032 $ 37,862 Outside Trust................................. -- -- -- -- -- -- Interest income on policy loans................. -- -- -- -- -- ----------- ----------- ---------- --------- -------- -------- Total investment income......................... 140,562 2,327,055 593,325 -- 63,032 37,862 Expenses: Mortality and expense risks................... 71,524 185,175 63,950 1,656 5,624 4,084 ----------- ----------- ---------- --------- -------- -------- Net investment income (loss).................... 69,038 2,141,880 529,375 (1,656) 57,408 33,778 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)................... (19,774) 485,643 271,978 -- (14,302) (151) Net unrealized appreciation (depreciation) during the period........................... (6,143,969) (8,035,375) 1,282,937 (35,606) 63,359 (52,953) ----------- ----------- ---------- --------- -------- -------- Net realized and unrealized gain (loss) on investments................................ (6,163,743) (7,549,732) 1,554,915 (35,606) 49,057 (53,104) ----------- ----------- ---------- --------- -------- -------- Net increase (decrease) in net assets resulting from operations............................... $(6,094,705) $(5,407,852) $2,084,290 $ (37,262) $106,465 $(19,326) =========== =========== ========== ========= ======== ======== Brandes International Equity Turner Core Growth Subaccount Subaccount -------------------------------------- --------------------------------- 2001 2000 1999 2001 2000 1999 ----------- ----------- ---------- --------- -------- -------- Investment income: Distributions received from: John Hancock Variable Series Trust I.......... $ -- $ -- $ -- $ -- $ -- $ -- Outside Trust................................. -- 52,832 19,328 -- 92,935 16,354 Interest income on policy loans................. -- -- -- -- -- -- ----------- ----------- ---------- --------- -------- -------- Total investment income......................... -- 52,832 19,328 -- 92,935 16,354 Expenses: Mortality and expense risks................... 605 2,215 1,139 1,738 4,973 2,166 ----------- ----------- ---------- --------- -------- -------- Net investment income (loss).................... (605) 50,617 18,189 (1,738) 87,962 14,188 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)................... 176 20,969 26,736 17,938 13,902 11,526 Net unrealized appreciation (depreciation) during the period........................... (89,574) (120,040) 23,628 (128,838) (35,201) 122,734 ----------- ----------- ---------- --------- -------- -------- Net realized and unrealized gain (loss) on investments................................ (89,398) (99,071) 50,364 (110,900) (21,299) 134,260 ----------- ----------- ---------- --------- -------- -------- Net increase (decrease) in net assets resulting from operations............................... $ (90,003) $ (48,454) $ 68,553 $(112,638) $ 66,663 $148,448 =========== =========== ========== ========= ======== ======== See accompanying notes. 126 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF OPERATIONS (Unaudited) (continued) Years and periods ended March 31, Frontier Capital Appreciation Subaccount Emerging Markets Equity Subaccount -------------------------------- ----------------------------------- 2001 2000 1999 2001 2000 1999 -------- --------- -------- --------- --------- -------- Investment income: Distributions received from: John Hancock Variable Series Trust I.............. $ -- $ -- $ -- $ -- $ 63,791 $ 15,636 Outside Trust..................................... -- 133,836 13,028 -- -- -- Interest income on policy loans..................... -- -- -- -- -- -- -------- --------- -------- --------- --------- -------- Total investment income............................. -- 133,836 13,028 -- 63,791 15,636 Expenses: Mortality and expense risks....................... 915 3,700 4,257 1,276 5,200 466 -------- --------- -------- --------- --------- -------- Net investment income (loss)........................ (915) 130,136 8,771 (1,276) 58,591 15,170 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)....................... 955 68,311 (59,550) (238,994) 19,902 1,838 Net unrealized appreciation (depreciation) during the period............................... (40,716) (175,994) 89,369 145,003 (571,486) 92,713 -------- --------- -------- --------- --------- -------- Net realized and unrealized gain (loss) on investments.................................... (39,761) (107,683) 29,819 (93,991) (551,584) 94,551 -------- --------- -------- --------- --------- -------- Net increase (decrease) in net assets resulting from operations................................... $(40,676) $ 22,453 $ 38,590 $ (95,267) $(492,993) $109,721 ======== ========= ======== ========= ========= ======== Bond Index Subaccount Small/Mid Cap CORE Subaccount -------------------------------- ----------------------------------- 2001 2000 1999 2001 2000 1999 -------- --------- --------- --------- --------- -------- Investment income: Distributions received from: John Hancock Variable Series Trust I.............. $ 4,168 $ 7,273 $ 2,971 $ 848 $ 22,843 $ 6,699 Outside Trust..................................... -- -- -- -- -- -- Interest income on policy loans..................... -- -- -- -- -- -------- --------- -------- --------- --------- -------- Total investment income............................. 4,168 7,273 2,971 848 22,843 6,699 Expenses: Mortality and expense risks....................... 383 561 270 811 1,051 335 -------- --------- -------- --------- --------- -------- Net investment income (loss)........................ 3,785 6,712 2,701 37 21,792 6,364 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)....................... 1,234 (607) (1,613) 514 1,505 1,093 Net unrealized appreciation (depreciation) during the period............................... 1,497 6,100 (1,753) (54,662) (13,928) 4,719 -------- --------- -------- --------- --------- -------- Net realized and unrealized gain (loss) on investments.................................... 2,731 5,493 (3,366) (54,148) (12,423) 5,812 -------- --------- -------- --------- --------- -------- Net increase (decrease) in net assets resulting from operations................................... $ 6,516 $ 12,205 $ (665) $ (54,111) $ 9,369 $ 12,176 ======== ========= ======== ========= ========= ======== See accompanying notes. 127 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF OPERATIONS (Unaudited) (continued) Years and periods ended March 31, Clifton Enhanced Us High Yield Bond Subaccount Equity Subaccount ------------------------------ ---------------------------- 2001 2000 1999 2001 2000 1999* -------- --------- ------- ------- ------- ------- Investment income: Distributions received from: John Hancock Variable Series Trust I.............................. $ 11,021 $ 84,101 $ 3,011 $ -- $ -- $ -- Outside Trust..................................................... -- -- -- -- 3,328 1,435 Interest income on policy loans.................................... -- -- -- -- -- -- -------- --------- ------- ------- ------- ------- Total investment income............................................ 11,021 84,101 3,011 -- 3,328 1,435 Expenses: Mortality and expense risks....................................... 954 5,409 220 33 138 61 -------- --------- ------- ------- ------- ------- Net investment income (loss)....................................... 10,067 78,692 2,791 (33) 3,190 1,374 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)....................................... (89,515) (12,114) (396) (143) 302 11 Net unrealized appreciation (depreciation) during the period...... 181,617 (188,735) (1,172) (2,544) (5,562) 1,285 -------- --------- ------- ------- ------- ------- Net realized and unrealized gain (loss) on investments............. 92,102 (200,849) (1,568) (2,687) (5,260) 1,296 -------- --------- ------- ------- ------- ------- Net increase (decrease) in net assets resulting from operations........................................................ $102,169 $(122,157) $ 1,223 $(2,720) $(2,070) $ 2,670 ======== ========= ======= ======= ======= ======= Large Cap Fundamental Aim V.I. Aggressive Growth Value Growth Subaccount Subaccount Subaccount ------------------ ------------------- ---------------- 2001 2000** 2001 2000* 2001 2000* ------- ------ -------- -------- ----- ------- Investment income: Distributions received from: John Hancock Variable Series Trust I............................ $ -- $ 36 $ -- $ 1,361 $ -- $ 241 Outside Trust................................................... -- -- -- -- -- -- Interest income on policy loans.................................. -- -- -- -- -- -- ------- ------ -------- -------- ----- ------- Total investment income.......................................... -- 36 -- 1,361 -- 241 Expenses: Mortality and expense risks..................................... 3 6 18 10 8 11 ------- ------ -------- -------- ----- ------- Net investment income (loss)..................................... (3) 30 (18) 1,351 (8) 230 Net realized and unrealized gain (loss) on investments: Net realized losses............................................. (13) (8) (64) (10) (18) (11) Net unrealized depreciation during the period................... (329) (616) (3,955) (1,226) (574) (1,068) ------- ------ -------- -------- ----- ------- Net realized and unrealized loss on investments.................. (342) (624) (4,019) (1,236) (592) (1,079) ------- ------ -------- -------- ----- ------- Net increase (decrease) in net assets resulting from operations............................................... $ (345) $ (594) $ (4,037) $ 115 $(600) $ (849) ======= ====== ======== ======== ===== ======= ____________________________ * From May 1, 1999 (commencement of operations). ** From April 24, 2000 (commencement of operations). See accompanying notes. 128 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF OPERATIONS (Unaudited) (continued) Years and periods ended March 31, Fidelity Vip II Janus Aspen Global Fidelity Vip Contrafund Technology Growth Subaccount Subaccount Subaccount ------------------ ----------------- -------------------- 2001 2000** 2001 2000** 2001 2000*** ------- ----- ------- ------ ------- ------- Investment income: Distributions received from: John Hancock Variable Series Trust I.............................. $ 272 $ -- $ 205 $ -- $ -- $ -- Outside Trust..................................................... -- -- -- -- -- 24 Interest income on policy loans.................................... -- -- -- -- -- -- ------- ----- ------- ------ ------- ------- Total investment income............................................ 272 -- 205 -- -- 24 Expenses: Mortality and expense risks....................................... 6 12 9 6 5 8 ------- ----- ------- ------ ------- ------- Net investment income (loss)....................................... 266 (12) 196 (6) (5) 16 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)....................................... (34) (4) (23) (7) (21) (99) Net unrealized depreciation during the period..................... (928) (366) (1,025) (525) (1,066) (1,649) ------- ----- ------- ------ ------- ------- Net realized and unrealized loss on investments.................... (962) (370) (1,048) (532) (1,087) (1,748) ------- ----- ------- ------ ------- ------- Net decrease in net assets resulting from operations............... $ (696) $(382) $ (852) $ (538) $(1,092) $(1,732) ======= ===== ======= ====== ======= ======= Janus Aspen Active Bond Worldwide MFS New Discovery II Growth Subaccount Series Subaccount Subaccount ----------------- ----------------- ---------- 2001 2000*** 2001 2000** 2001 **** ----- ------- -------- ------ --------- Investment income: Distributions received from: John Hancock Variable Series Trust I.............................. $ -- $ -- $ -- $ -- $ 20 Outside Trust..................................................... -- 1 -- -- -- Interest income on policy loans.................................... -- -- -- -- -- ------ ------- ------- ------ --------- Total investment income............................................ -- 1 -- -- 20 Expenses: Mortality and expense risks....................................... 7 8 27 19 2 ------ ------- ------- ------ --------- Net investment income (loss)....................................... (7) (7) (27) (19) 18 Net realized and unrealized gain (loss) on investments: Net realized losses............................................... (10) (71) (298) (7) -- Net unrealized appreciation (depreciation) during the period...... (771) (717) (2,020) 197 -- ------ ------- ------- ------ --------- Net realized and unrealized gain (loss) on investments............. (781) (788) (2,318) 190 -- ------ ------- ------- ------ --------- Net increase (decrease) in net assets resulting from operations.... $ (788) $ (795) $(2,345) $ 171 $ 18 ===== ======= ======= ====== ========= _____________________________ ** From April 24, 2000 (commencement of operations). *** From June 29, 2000 (commencement of operations). **** January 2, 2001 (commencement of operations). See accompanying notes. 129 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) Years and periods ended March 31, Large Cap Growth Subaccount Active Bond Subaccount ---------------------------------------- ------------------------------------------- 2001 2000 1999 2001 2000 1999 ------------ ------------- ----------- ------------ ------------- -------------- Increase (decrease) in net assets from operations: Net investment income (loss).......... $ (1,843) $ 6,287,826 $ 6,329,395 $ 1,473,578 $ 5,332,953 $ 5,481,982 Net realized gains (losses)........... 45,046 1,809,410 1,146,308 (138,339) (1,058,175) (388,883) Net unrealized appreciation (depreciation) during the period..... (8,553,529) (17,039,660) 320,087 1,719,671 3,862,398 (5,439,148) ----------- ------------ ----------- ----------- ------------ ----------- Net increase (decrease) in net assets resulting from operations............. (8,510,326) (8,942,424) 7,795,790 3,054,910 8,137,176 (346,049) From policyholder transactions: Net premiums from policyholders....... 2,268,519 16,225,070 10,950,682 1,478,767 26,218,788 11,668,600 Net benefits to policyholders......... (2,109,912) (8,421,666) (5,776,293) (2,542,688) (17,903,281) (7,543,864) Net increase in policy loans.......... -- 407,961 -- -- 620,295 -- ----------- ------------ ----------- ----------- ------------ ----------- Net increase (decrease) in net assets resulting from policyholder transactions.......................... 158,607 8,211,365 5,174,389 (1,063,921) 8,935,802 4,124,736 ----------- ------------ ----------- ----------- ------------ ----------- Net increase (decrease) in net assets.. (8,351,719) (731,059) 12,970,179 1,990,989 17,072,978 3,778,687 Net assets at beginning of period...... 43,297,378 44,028,437 31,058,258 97,962,560 80,889,582 77,110,895 ----------- ------------ ----------- ----------- ------------ ----------- Net assets at end of period............ $34,945,659 $ 43,297,378 $44,028,437 $99,953,549 $ 97,962,560 $80,889,582 =========== ============ =========== =========== ============ =========== International Equity Index Subaccount Small Cap Growth Subaccount --------------------------------------- ----------------------------------------- 2001 2000 1999 2001 2000 1999 ----------- ------------ ----------- ----------- ------------ ----------- Increase (decrease) in net assets from operations: Net investment income (loss).......... $ 20,985 $ 322,155 $ 200,569 $ (7,198) $ 581,967 $ 527,624 Net realized gains (losses)........... (19,774) 76,586 62,140 190,317 159,388 48,210 Net unrealized appreciation (depreciation) during the period..... (765,992) (1,706,468) 1,295,768 (1,286,350) (2,654,137) 1,125,829 ----------- ------------ ----------- ----------- ------------ ----------- Net increase (decrease) in net assets resulting from operations............. (764,781) (1,307,727) 1,558,477 (1,103,231) (1,912,782) 1,701,663 From policyholder transactions: Net premiums from policyholders....... 400,417 2,208,529 1,634,643 495,371 4,738,730 1,398,160 Net benefits to policyholders......... (391,533) (1,307,479) (1,119,500) (1,701,121) (956,063) (390,180) Net increase in policy loans.......... -- 110,023 -- -- -- -- ----------- ------------ ----------- ----------- ------------ ----------- Net increase (decrease) in net assets resulting from policyholder transactions.......................... 8,884 1,011,073 515,143 (1,205,750) 3,782,667 1,007,980 ----------- ------------ ----------- ----------- ------------ ----------- Net increase (decrease) in net assets.. (755,897) (296,654) 2,073,620 (2,308,981) 1,869,885 2,709,643 Net assets at beginning of period...... 6,884,340 7,180,994 5,107,374 6,381,819 4,511,934 1,802,291 ----------- ------------ ----------- ----------- ------------ ----------- Net assets at end of period............ $ 6,128,443 $ 6,884,340 $ 7,180,994 $ 4,072,838 $ 6,381,819 $ 4,511,934 =========== ============ =========== =========== ============ =========== See accompanying notes. 130 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) (continued) Years and periods ended March 31, Global Balanced Subaccount Mid Cap Growth Subaccount ---------------------------------------- --------------------------------------------- 2001 2000 1999 2001 2000 1999 ------------ ----------- ----------- -------------- ------------- -------------- Increase (decrease) in net assets from operations: Net investment income (loss)........... $ 369 $ 7,198 $ 15,944 $ (20,318) $ 2,182,817 $ 1,338,175 Net realized gains (losses)............ (1,320) (3,641) 1,061 (488,136) 1,892,763 420,826 Net unrealized appreciation (depreciation) during the period...... (11,447) (21,945) (8,559) (4,750,794) (11,690,290) 4,283,452 ------------ ----------- ----------- -------------- ------------- -------------- Net increase (decrease) in net assets resulting from operations.............. (12,398) (18,388) 8,446 (5,259,248) (7,614,710) 6,042,453 From policyholder transactions: Net premiums from policyholders........ 26,356 75,380 115,573 1,518,152 13,112,643 7,041,199 Net benefits to policyholders.......... (6,995) (83,639) (133,983) (585,449) (4,430,561) (947,660) Net increase in policy loans........... -- -- -- -- -- -- ------------ ----------- ----------- -------------- ------------- -------------- Net increase (decrease) in net assets resulting from policyholder transactions 19,361 (8,259) (18,410) 932,703 8,682,082 6,093,539 ------------ ----------- ----------- -------------- ------------- -------------- Net increase (decrease) in net assets... 6,963 (26,647) (9,964) (4,326,545) 1,067,372 12,135,992 Net assets at beginning of period....... 173,721 200,368 210,332 14,676,946 13,609,574 1,473,582 ------------ ----------- ----------- -------------- ------------- -------------- Net assets at end of period............. $ 180,684 $ 173,721 $ 200,368 $ 10,350,401 $ 14,676,946 $ 13,609,574 ============ =========== =========== ============== ============= ============== Large Cap Value Subaccount Money Market Subaccount ---------------------------------------- --------------------------------------------- 2001 2000 1999 2001 2000 1999 ------------ ----------- ----------- -------------- ------------- -------------- Increase (decrease) in net assets from operations: Net investment income................. $ 41,023 $ 693,327 $ 474,149 $ 354,195 $ 1,290,563 $ 1,143,104 Net realized gains (losses)........... 8,947 (47,306) 123,242 -- -- -- Net unrealized appreciation (depreciation) during the period..... (537,604) 854,807 (499,454) -- -- ------------ ----------- ----------- -------------- ------------- -------------- Net increase (decrease) in net assets resulting from operations............. (487,634) 1,500,828 97,937 354,195 1,290,563 1,143,104 From policyholder transactions: Net premiums from policyholders....... 650,188 7,024,748 5,449,922 3,582,547 26,609,851 16,733,655 Net benefits to policyholders......... (316,358) (1,798,175) (1,059,147) (7,181,694) (22,265,301) (46,642,184) Net increase in policy loans.......... -- -- -- -- 77,509 -- ------------ ----------- ----------- -------------- ------------- -------------- Net increase (decrease) in net assets resulting from policyholder transactions.......................... 333,830 5,226,573 4,390,775 (3,599,147) 4,422,059 (29,908,529) ------------ ----------- ----------- -------------- ------------- -------------- Net increase (decrease) in net assets.. (153,804) 6,727,401 4,488,712 (3,244,952) 5,712,622 (28,765,425) Net assets at beginning of period...... 14,990,188 8,262,787 3,774,075 26,215,728 20,503,106 49,268,531 ------------ ----------- ----------- -------------- ------------- -------------- Net assets at end of period............ $ 14,836,384 $14,990,188 $ 8,262,787 $ 22,970,776 $ 26,215,728 $ 20,503,106 ============ =========== =========== ============== ============= ============== 131 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) (continued) Years and periods ended March 31, Large/Mid Cap Value II Subaccount Small/Mid Cap Growth Subaccount ---------------------------------------- ------------------------------------------- 2001 2000 1999 2001 2000 1999 ----------- ----------- ----------- ------------ ------------- ------------ Increase (decrease) in net assets from operations: Net investment income (loss)............ $ 2,469 $ 824,979 $ 2,457 $ (8,478) $ 570,559 $ 810,295 Net realized gains (losses)............. 385,014 (47,013) (547,518) (6,081) (136,669) 16,952 Net unrealized appreciation (depreciation) during the period....... (768,042) 853,987 657,486 (639,663) (2,663) (590,295) ----------- ----------- ----------- ------------ ------------- ------------ Net increase (decrease) in net assets resulting from operations............... (380,559) 1,631,953 112,425 (654,222) 431,227 236,952 From policyholder transactions: Net premiums from policyholders......... 469,756 2,895,543 2,086,192 404,696 1,474,342 1,533,102 Net benefits to policyholders........... (4,401,292) (830,119) (3,546,814) (233,915) (1,536,191) (1,200,248) Net increase in policy loans............ -- -- -- -- -- -- ----------- ----------- ----------- ------------ ------------- ------------ Net increase (decrease) in net assets resulting from policyholder transactions............................ (3,931,536) 2,065,424 (1,460,622) 170,781 (61,849) 332,854 ----------- ----------- ----------- ------------ ------------- ------------ Net increase (decrease) in net assets.... (4,312,095) 3,697,377 (1,348,197) (483,441) 369,378 569,806 Net assets at beginning of period........ 8,399,009 4,701,632 6,049,829 5,855,422 5,486,044 4,916,238 ----------- ----------- ----------- ------------ ------------- ------------ Net assets at end of period.............. $ 4,086,914 $ 8,399,009 $ 4,701,632 $ 5,371,981 $ 5,855,422 $ 5,486,044 =========== =========== =========== ============ ============= ============ Real Estate Equity Subaccount Growth & Income Subaccount --------------------------------------- ------------------------------------------- 2001 2000 1999 2001 2000 1999 ---------- ----------- ----------- ----------- ------------- ------------ Increase (decrease) in net assets from operations: Net investment income................... $ 21,981 $ 465,264 $ 255,391 $ 519,503 $ 44,427,885 $ 35,556,691 Net realized gains (losses)............. (95,171) (159,205) (168,994) 284,830 18,300,286 5,502,422 Net unrealized appreciation (depreciation) during the period....... (103,669) 919,904 (220,380) (36,829,357) (96,829,044) 2,405,417 ----------- ----------- ----------- ------------ ------------- ------------ Net increase (decrease) in net assets resulting from operations............... (176,859) 1,225,963 (133,983) (36,025,024) (34,100,873) 43,464,530 From policyholder transactions: Net premiums from policyholders......... 535,053 1,762,038 968,627 5,559,317 31,462,247 34,593,082 Net benefits to policyholders........... (838,060) (1,130,179) (2,335,552) (6,962,278) (71,685,409) (34,650,911) Net increase in policy loans............ -- 114,851 -- -- 1,310,472 -- Net increase (decrease) in net assets resulting from policyholder transactions............................ (303,007) 746,710 (1,366,925) (1,402,961) (38,912,690) (57,829) ----------- ----------- ----------- ------------ ------------- ------------ Net increase (decrease) in net assets.... (479,866) 1,972,673 (1,500,908) (37,427,985) (73,013,563) 43,406,701 Net assets at beginning of period........ 6,002,773 4,030,100 5,531,008 267,486,534 340,500,097 297,093,396 ----------- ----------- ----------- ------------ ------------- ------------ Net assets at end of period.............. $ 5,522,907 $ 6,002,773 $ 4,030,100 $230,058,549 $ 267,486,534 $340,500,097 =========== =========== =========== ============ ============= ============ See accompanying notes. 132 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) (continued) Years and periods ended March 31, Managed Subaccount Short-Term Bond Subaccount ------------------------------------------ ---------------------------------------- 2001 2000 1999 2001 2000 1999 ------------- ------------- ------------ ----------- ------------ ----------- Increase (decrease) in net assets from operations: Net investment income................... $ 673,003 $ 11,092,640 $ 10,302,317 $ 5,322 $ 15,494 $ 14,042 Net realized gains (losses)............. 71,497 1,551,519 996,546 (200) (2,287) (8,638) Net unrealized appreciation (depreciation) during the period....... (6,435,848) (12,278,637) (2,108,530) 5,275 6,756 (2,442) ------------ ------------ ------------ ----------- ------------ ----------- Net increase (decrease) in net assets resulting from operations............... (5,691,348) 365,522 9,190,333 10,397 19,963 2,962 From policyholder transactions: Net premiums from policyholders......... 2,733,753 12,192,565 13,430,282 50,620 167,135 109,732 Net benefits to policyholders........... (4,326,623) (19,842,234) (14,305,859) (22,133) (69,043) (370,270) Net increase in policy loans............ -- 630,955 -- -- -- -- ------------ ------------ ------------ ----------- ------------ ----------- Net increase (decrease) in net assets resulting from policyholder transactions............................ (1,592,870) (7,018,714) (875,577) 28,487 98,092 (260,538) ------------ ------------ ------------ ----------- ------------ ----------- Net increase (decrease) in net assets.... (7,284,218) (6,653,192) 8,314,756 38,884 118,055 (257,576) Net assets at beginning of period........ 112,476,227 119,129,419 110,814,663 356,968 238,913 496,489 ------------ ------------ ------------ ----------- ------------ ----------- Net assets at end of period.............. $105,192,009 $112,476,227 $119,129,419 $ 395,852 $ 356,968 $ 238,913 ============ ============ ============ =========== ============ =========== Small Cap Equity Subaccount International Opportunities Subaccount ------------------------------------------ ---------------------------------------- 2001 2000 1999 2001 2000 1999 ------------- ------------- ------------ ----------- ------------ ----------- Increase (decrease) in net assets from operations: Net investment income (loss)............ $ (5,256) $ 297,508 $ 61,905 $ (15,091) $ 564,716 $ 223,214 Net realized gains (losses)............. (354,548) (110,857) (33,134) -- 348,813 155,412 Net unrealized appreciation (depreciation) during the period....... (17,236) (668,463) (148,401) (1,630,046) (2,497,504) 387,412 ------------ ------------ ------------ ----------- ------------ ----------- Net increase (decrease) in net assets resulting from operations.............................. (377,040) (481,812) (119,630) (1,645,137) (1,583,975) 766,038 From policyholder transactions: Net premiums from policyholders......... 528,349 1,608,648 1,483,922 229,218 9,284,275 2,354,681 Net benefits to policyholders........... (1,483,012) (452,404) (447,402) (224,396) (469,272) (3,673,500) Net increase in policy loans............ -- -- -- -- -- -- ------------ ------------ ------------ ----------- ------------ ----------- Net increase (decrease) in net assets resulting from policyholder transactions............................ (954,663) 1,156,242 1,036,520 4,822 8,815,003 (1,318,819) ------------ ------------ ------------ ----------- ------------ ----------- Net increase (decrease) in net assets.................................. (1,331,703) 674,430 916,890 (1,640,315) 7,231,028 (552,781) Net assets at beginning of period........ 4,141,822 3,467,392 2,550,502 10,859,971 3,628,943 4,181,724 ------------ ------------ ------------ ----------- ------------ ----------- Net assets at end of period.............. $ 2,810,119 $ 4,141,822 $ 3,467,392 $ 9,219,656 $ 10,859,971 $ 3,628,943 ============ ============ ============ =========== ============ =========== See accompanying notes. 133 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) (continued) Years and periods ended March 31, Equity Index Subaccount Global Bond Subaccount --------------------------------------- -------------------------------------- 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ----------- ----------- ------------ Increase (decrease) in net assets from operations: Net investment income (loss)................. $ 69,038 $ 2,141,880 $ 529,375 $ (1,656) $ 57,408 $ 33,778 Net realized gains (losses).................. (19,774) 485,643 271,978 -- (14,302) (151) Net unrealized appreciation (depreciation) during the period............ (6,143,969) (8,035,375) 1,282,937 (35,606) 63,359 (52,953) ----------- ----------- ----------- ---------- ---------- --------- Net increase (decrease) in net assets resulting from operations.................... (6,094,705) (5,407,852) 2,084,290 (37,262) 106,465 (19,326) From policyholder transactions: Net premiums from policyholders.............. 1,580,613 43,728,519 6,697,385 62,483 396,099 696,619 Net benefits to policyholders................ (803,570) (2,630,030) (1,623,429) (76,375) (192,421) (317,999) Net increase in policy loans................. -- -- -- -- -- -- ----------- ----------- ----------- ---------- ---------- --------- Net increase (decrease) in net assets resulting from policyholder transactions..... 777,043 41,098,489 5,073,956 (13,892) 203,678 378,620 ----------- ----------- ----------- ---------- ---------- --------- Net increase (decrease) in net assets......... (5,317,662) 35,690,637 7,158,246 (51,154) 310,143 359,294 Net assets at beginning of period............. 50,096,716 14,406,079 7,247,833 1,139,861 829,718 470,424 ----------- ----------- ----------- ---------- ---------- --------- Net assets at end of period................... $44,779,054 $50,096,716 $14,406,079 $1,088,707 $1,139,861 $ 829,718 =========== =========== =========== ========== ========== ========= Turner Core Growth Subaccount Brandes International Equity Subaccount ------------------------------------- ------------------------------------------- 2001 2000 1999 2001 2000 1999 ----------- ------------ ----------- -------------- ------------- ------------ Increase (decrease) in net assets from operations: Net investment income (loss)................. $ (605) $ 50,617 $ 18,189 $ (1,738) $ 87,962 $ 14,188 Net realized gains........................... 176 20,969 26,736 17,938 13,902 11,526 Net unrealized appreciation (depreciation) during the period............ (89,574) (120,040) 23,628 (128,838) (35,201) 122,734 ---------- ----------- ---------- ------------- ------------ --------- Net increase (decrease) in net assets resulting from operations.................... (90,003) (48,454) 68,553 (112,638) 66,663 148,448 From policyholder transactions: Net premiums from policyholders.............. 86,315 192,556 109,802 225,505 616,308 152,629 Net benefits to policyholders................ (3,761) (31,415) (45,555) (59,367) (39,267) (31,332) Net increase in policy loans................. -- -- -- -- -- -- ---------- ----------- ---------- ------------- ------------ --------- Net increase in net assets resulting from policyholder transactions..... 82,554 161,141 64,247 166,138 577,041 121,297 ---------- ----------- ---------- ------------- ------------ --------- Net increase (decrease) in net assets......... (7,449) 112,687 132,800 53,500 643,704 269,745 Net assets at beginning of period............. 370,494 257,807 125,007 1,169,206 525,502 255,757 ---------- ----------- ---------- ------------- ------------ --------- Net assets at end of period................... $ 363,045 $ 370,494 $ 257,807 $ 1,222,706 $ 1,169,206 $ 525,502 ========== =========== ========== ============= ============ ========= See accompanying notes. 134 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) (continued) Years and periods ended March 31, Frontier Capital Appreciation Subaccount Emerging Markets Equity Subaccount ----------------------------------------- ----------------------------------- 2001 2000 1999 2001 2000 1999 ----------- ------------ -------------- ----------- ------------ ---------- Increase (decrease) in net assets from operations: Net investment income (loss)................... $ (915) $ 130,136 $ 8,771 $ (1,276) $ 58,591 $ 15,170 Net realized gains (losses).................... 955 68,311 (59,550) (238,994) 19,902 1,838 Net unrealized appreciation (depreciation) during the period.............. (40,716) (175,994) 89,369 145,003 (571,486) 92,713 -------- --------- ----------- --------- ---------- -------- Net increase (decrease) in net assets resulting from operations...................... (40,676) 22,453 38,590 (95,267) (492,993) 109,721 From policyholder transactions: Net premiums from policyholders................ 155,390 219,803 103,675 277,816 1,133,676 336,277 Net benefits to policyholders.................. (5,352) (179,523) (2,221,410) (264,318) (337,143) (8,915) Net increase in policy loans................... -- -- -- -- -- -- -------- --------- ----------- --------- ---------- -------- Net increase (decrease) in net assets resulting from policyholder transactions....... 150,038 40,280 (2,117,735) 13,498 796,533 327,362 -------- --------- ----------- --------- ---------- -------- Net increase (decrease) in net assets........... 109,362 62,733 (2,079,145) (81,769) 303,540 437,083 Net assets at beginning of period............... 516,716 453,983 2,533,128 741,352 437,812 729 -------- --------- ----------- --------- ---------- -------- Net assets at end of period..................... $626,078 $ 516,716 $ 453,983 $ 659,583 $ 741,352 $437,812 ======== ========= =========== ========= ========== ======== Bond Index Subaccount Small/Mid Cap Core Subaccount --------------------------------------- ------------------------------------- 2001 2000 1999 2001 2000 1999 ---------- ----------- ---------- ----------- ------------ --------- Increase (decrease) in net assets from operations: Net investment income ......................... $ 3,785 $ 6,712 $ 2,701 $ 37 $ 21,792 $ 6,364 Net realized gains (losses).................... 1,234 (607) (1,613) 514 1,505 1,093 Net unrealized appreciation (depreciation) during the period.............. 1,497 6,100 (1,753) (54,662) (13,928) 4,719 --------- ---------- --------- ---------- ---------- --------- Net increase (decrease) in net assets resulting from operations...................... 6,516 12,205 (665) (54,111) 9,369 12,176 From policyholder transactions: Net premiums from policyholders................ 35,603 196,240 80,921 20,422 479,768 44,493 Net benefits to policyholders.................. (23,058) (16,742) (20,596) (7,512) (6,951) (12,003) Net increase in policy loans................... -- -- -- -- -- -- --------- ---------- --------- ---------- ---------- --------- Net increase in net assets resulting from policyholder transactions....... 12,545 179,498 60,325 12,910 472,817 32,490 --------- ---------- --------- ---------- ---------- --------- Net increase (decrease) in net assets........... 19,061 191,703 59,660 (41,201) 482,186 44,666 Net assets at beginning of period............... 265,912 74,209 14,549 559,551 77,365 32,699 --------- ---------- --------- ---------- ---------- --------- Net assets at end of period..................... $ 284,973 $ 265,912 $ 74,209 $ 518,350 $ 559,551 $ 77,365 ========= ========== ========= ========== ========== ========= See accompanying notes. 135 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) (continued) Years and periods ended March 31, Clifton Enhanced High Yield Bond Subaccount US Equity Subaccount ---------------------------------- ------------------------------- 2001 2000 1999 2001 2000 1999* ------------ ----------- -------- ------------ -------- -------- Increase (decrease) in net assets from operations: Net investment income (loss)............................. $ 10,067 $ 78,692 $ 2,791 $ (33) $ 3,190 $ 1,374 Net realized gains (losses).............................. (89,515) (12,114) (396) (143) 302 11 Net unrealized appreciation (depreciation) during the period..................................... 181,617 (188,735) (1,172) (2,544) (5,562) 1,285 ----------- ---------- ------- ---------- ------- ------- Net increase (decrease) in net assets resulting from operations............................................... 102,169 (122,157) 1,223 (2,720) (2,070) 2,670 From policyholder transactions: Net premiums from policyholders.......................... 288,522 1,514,684 69,375 5,604 16,541 15,505 Net benefits to policyholders............................ (1,143,201) (88,711) -- (578) (9,351) -- Net increase in policy loans............................. -- -- -- -- -- -- ----------- ---------- ------- ---------- ------- ------- Net increase (decrease) in net assets resulting from policyholder transactions................. (854,679) 1,425,973 69,375 5,026 7,190 15,505 ----------- ---------- ------- ---------- ------- ------- Net increase (decrease) in net assets...................... (752,510) 1,303,816 70,598 2,306 5,120 18,175 Net assets at beginning of period.......................... 1,379,867 76,051 5,453 23,295 18,175 -- ----------- ---------- ------- ---------- ------- ------- Net assets at end of period................................ $ 627,357 $1,379,867 $76,051 $ 25,601 $23,295 $18,175 =========== ========== ======= ========== ======= ======= Large Cap Aggressive Fundamental Growth AIM V.I. Value Growth Subaccount Subaccount Subaccount ---------------------- ------------------------ -------------------- 2001 2000** 2001 2000** 2001 2000** ---------- ---------- ---------- ------------- -------- ---------- Increase (decrease) in net assets from operations: Net investment income (loss)............................. $ (3) $ 30 $ (18) $ 1,351 $ (8) $ 230 Net realized gains (losses)............................... (13) (8) (64) (10) 18 (11) Net unrealized depreciation during the period............. (329) (616) (3,955) (1,226) (574) (1,068) ------- -------- --------- ------------ ------- ------- Net increase (decrease) in net assets resulting from operations................................................ (345) (594) (4,037) 115 (600) (849) From policyholder transactions: Net premiums from policyholders........................... -- 2,528 7,511 9,264,914 -- 12,213 Net benefits to policyholders............................. (27) -- (7,488) (9,251,776) 58 (6,072) Net increase in policy loans.............................. -- -- -- -- -- -- ------- -------- --------- ------------ ------- ------- Net increase (decrease) in net assets resulting from policyholder transactions................................. (27) 2,528 23 13,138 (58) 6,141 ------- -------- --------- ------------ ------- ------- Net increase (decrease) in net assets...................... (372) 1,934 (4,014) 13,253 (658) 5,292 Net assets at beginning of period.......................... 1,934 -- 13,253 -- 5,292 -- ------- -------- --------- ------------ ------- ------- Net assets at end of period................................ $ 1,562 $ 1,934 $ 9,239 $ 13,253 $ 4,634 $ 5,292 ======= ======== ========= ============ ======= ======= __________________________ * From May 1, 1999 (commencement of operations). ** From April 24, 2000 (commencement of operations). See accompanying notes. 136 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) (continued) Years and periods ended March 31, Fidelity VIP Fidelity VIP II Janus Aspen Global Growth Contrafund Technical Subaccount Subaccount Subaccount --------------- ----------------- -------------------- 2001 2000** 2001 2000** 2001 2000*** ------- ------- -------- -------- --------- --------- Increase (decrease) in net assets from operations: Net investment income (loss)................................. $ 266 $ (6) $ 196 $ (12) $ (5) $ 16 Net realized gains (loss).................................... (34) (7) (23) (4) (21) (99) Net unrealized depreciation during the period................ (928) (525) (1,025) (366) (1,066) (1,649) ------ ------ ------- ------- ------- ------- Net decrease in net assets resulting from operations........... (696) (538) (852) (382) (1,092) (1,732) From policyholder transactions: Net premiums from policyholders.............................. 639 5,160 -- 13,880 215 5,487 Net benefits to policyholders................................ 746 (394) 108 (6,991) 245 -- Net increase in policy loans................................. -- -- -- -- -- -- ------ ------ ------- ------- ------- ------- Net increase (decrease) in net assets resulting from policyholder transactions.................................... (107) 4,766 (108) 6,889 (30) 5,487 ------ ------ ------- ------- ------- ------- Net increase (decrease) in net assets.......................... (803) 4,228 (960) 6,507 (1,122) 3,755 Net assets at beginning of period.............................. 4,228 -- 6,507 -- 3,755 -- ------ ------ ------- ------- ------- ------- Net assets at end of period.................................... $3,425 $4,228 $ 5,547 $ 6,507 $ 2,633 $ 3,755 ====== ====== ======= ======= ======= ======= Janus Aspen Worldwide MFS New Active Bond Growth Discovery Series II Subaccount Subaccount Subaccount ------------------------- ------------------ -------------- 2001 2000*** 2001 2000** 2001**** ------------- ----------- -------- --------- -------------- Increase (decrease) in net assets from operations: Net investment income (loss).................................... $ (7) $ (7) $ (27) $ (19) $ 18 Net realized losses............................................. (10) (71) (298) (7) -- Net unrealized appreciation (depreciation) during the period.... (771) (717) (2,020) 197 -- ------ ------ ------- -------- ------ Net increase (decrease) in net assets resulting from operations... (788) (795) (2,345) 171 18 From policyholder transactions: Net premiums from policyholders................................. 406 5,929 7,311 37,394 3,084 Net benefits to policyholders................................... 444 (470) 9,359 (18,758) 1,536 Net increase in policy loans.................................... -- -- -- -- -- ------ ------ ------- -------- ------ Net increase (decrease) in net assets resulting from policyholder transactions....................................... (38) 5,459 (2,048) 18,636 1,548 ------ ------ ------- -------- ------ Net increase (decrease) in net assets............................. (826) 4,664 (4,393) 18,807 1,566 Net assets at beginning of period................................. 4,664 -- 18,807 -- -- ------ ------ ------- -------- ------ Net assets at end of period....................................... $3,838 $4,664 $14,414 $ 18,807 $1,566 ====== ====== ======= ======== ====== ___________________________________ ** From April 24, 2000 (commencement of operations). ***From June 29, 2000 (commencement of operations). ****From January 2, 2001 (commencement of operations). See accompanying notes. 137 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV NOTES TO FINANCIAL STATEMENTS (Unaudited) March 31, 2001 1. Organization John Hancock Variable Life Insurance Account UV (the Account) is a separate investment account of John Hancock Life Insurance Company (JHVLICO or John Hancock). John Hancock Variable Life Insurance Account UV 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 thirty-four subaccounts. The assets of each subaccount are invested exclusively in shares of a corresponding Fund of John Hancock Variable Series Trust I (the Trust) or of other Outside Investment Trust (Outside Trust). New subaccounts may be added as new Funds are added to the Trust or to Outside Trust, or as other investment options are developed, and made available to policyholders. The thirty-four subaccounts of the Trust and Outside Trust which are currently available are the Large Cap Growth, Active Bond, International Equity Index, Small Cap Growth, Global Balanced, Mid Cap Growth, Large Cap Value, Money Market, Large / Mid Cap Value II (formerly, Mid Cap Value), Small/Mid Cap Growth, Real Estate Equity, Growth & Income, Managed, Short-Term Bond, Small Cap Equity, International Opportunities, Equity Index, Global Bond, Turner Core Growth, Brandes International Equity, Frontier Capital Appreciation, Emerging Markets Equity, Bond Index, Small/Mid Cap CORE, High Yield Bond, Clifton Enhanced US Equity, Large Cap Aggressive Growth, Fundamental Growth, AIM V.I. Value, Fidelity VIP Growth, Fidelity VIP II Contrafund, Janus Aspen Global Technology, Janus Aspen Worldwide Growth, and MFS New Discovery Series subaccounts. Each subaccount 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 accounting principles generally accepted in the United States 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 Outside Trust 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. 138 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued) Expenses JHVLICO assumes mortality and expense risks of the variable life insurance policies for which asset charges are deducted at various rates ranging from .50% to .625%, depending on the type of policy, of net assets (excluding policy loans) of the Account. Additionally, a monthly charge at varying levels for the cost of extra insurance is deducted from the net assets of the Account. JHVLICO makes certain deductions for administrative expenses and state premium taxes from premium payments before amounts are transferred to the Account. 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. 3. Transactions with Affiliates JHVLICO acts as the distributor, principal underwriter and investment advisor for the Fund. Certain officers of the Account are officers and directors of JHVLICO or the Fund. 139 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued) 4. Details of Investments The details of the shares owned and cost and value of investments in the Subaccounts of the Trust and of Outside Trust at March 31, 2001 were as follows: Shares Subaccount Owned Cost Value ---------- ---------- ------------ -------------- Large Cap Growth.................. 2,142,985 $ 49,926,070 $ 31,955,200 Active Bond....................... 9,214,254 88,530,485 88,185,696 International Equity Index........ 419,644 7,024,529 5,683,167 Small Cap Growth.................. 381,648 6,595,955 4,072,904 Global Balanced................... 20,875 213,529 180,460 Mid Cap Growth.................... 991,758 22,245,700 10,350,572 Large Cap Value................... 1,067,933 14,853,747 14,820,451 Money Market...................... 20,668,625 20,668,625 20,668,625 Large/Mid Cap Value II............ 297,567 4,125,698 4,084,348 Small/Mid Cap Growth.............. 439,551 6,567,534 5,372,068 Real Estate Equity................ 387,993 5,218,939 5,115,412 Growth & Income................... 16,409,885 264,477,211 196,949,722 Managed........................... 7,071,207 100,199,458 91,271,868 Short-Term Bond................... 39,396 388,706 393,901 Small Cap Equity.................. 347,680 3,759,697 2,810,164 International Opportunities....... 915,284 10,692,614 9,219,807 Equity Index...................... 2,886,394 56,897,041 44,739,299 Global Bond....................... 108,722 1,108,349 1,088,725 Turner Core Growth................ 25,840 519,080 363,051 Brandes International Equity...... 89,446 1,257,979 1,222,726 Frontier Capital Appreciation..... 38,767 720,483 626,088 Emerging Markets Equity........... 107,257 993,413 659,594 Bond Index........................ 28,785 277,798 283,491 Small/Mid Cap CORE................ 58,388 579,919 517,936 High Yield Bond................... 80,176 631,199 622,890 Clifton Enhanced U.S. Equity...... 1,802 32,422 25,601 Large Cap Aggressive Growth....... 200 2,507 1,562 Fundamental Growth................ 1,060 14,420 9,239 AIM V.I. Value.................... 191 6,277 4,634 Fidelity VIP Growth............... 101 4,878 3,425 Fidelity VIP II Contrafund........ 279 6,939 5,547 Janus Aspen Global Technology..... 568 5,348 2,633 Janus Aspen Worldwide Growth...... 126 5,325 3,838 MFS New Discovery Series.......... 1,002 16,237 14,414 Active Bond II.................... 149 1,547 1,558 140 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued) Purchases, including reinvestment of dividend distributions, and proceeds from sales of shares in the Subaccounts of the Trust and of the Outside Trust during 2001 were as follows. Subaccount Purchases Sales ---------- ---------- ------------ Large Cap Growth...................... $1,174,312 $1,019,983 Active Bond........................... 1,134,286 1,598,409 International Equity Index............ 233,523 208,045 Small Cap Growth...................... 278,215 1,491,097 Global Balanced....................... 25,984 6,478 Mid Cap Growth........................ 2,132,636 1,220,080 Large Cap Value....................... 546,581 187,661 Money Market.......................... 3,280,696 6,591,196 Large/Mid Cap Value II................ 387,812 4,319,445 Small/Mid Cap Growth.................. 283,797 121,407 Real Estate Equity.................... 297,657 637,604 Growth & Income....................... 3,388,212 3,382,097 Managed............................... 1,248,340 2,480,972 Short-Term Bond....................... 50,002 18,144 Small Cap Equity...................... 505,791 1,465,665 International Opportunities........... 129,044 139,162 Equity Index.......................... 1,183,400 377,074 Global Bond........................... 53,434 68,964 Turner Core Growth.................... 85,338 3,383 Brandes International Equity.......... 224,867 60,447 Frontier Capital Appreciation......... 154,523 5,390 Emerging Markets Equity............... 265,362 253,129 Bond Index............................ 35,313 20,465 Small/Mid Cap CORE.................... 18,027 5,494 High Yield Bond....................... 284,685 1,133,764 Clifton Enhanced U.S. Equity.......... 5,604 611 Large Cap Aggressive Growth........... 0 30 Fundamental Growth.................... 120 115 AIM V.I. Value........................ 0 66 Fidelity VIP Growth................... 272 113 Fidelity VIP II Contrafund............ 205 117 Janus Aspen Global Technology......... 0 35 Janus Aspen Worldwide Growth.......... 0 45 MFS New Discovery Series.............. 0 2,075 Active Bond II........................ 1,587 40 141 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued) 5. Net Assets Accumulation shares attributable to net assets of policyholders and accumulation share values for each subaccount at March 31, 2001 were as follows: UV VLI Class #1 UV VLI Class #2 UV MVL Class #3 ---------------------------- ---------------------------- ---------------------------- Accumulation Accumulation Accumulation Accumulation Accumulation Accumulation Subaccount Shares Share Values Shares Share Values Shares Share Values - ---------- ------------- ------------- ------------- ------------- ------------ ------------- Large Cap Growth 0 $ 56.33 0 $ 64.48 55,691 $ 51.27 Active Bond 0 64.38 0 0 21,124 26.74 Active Bond II 0 0 0 0 0 0 International Equity Index 0 20.73 0 0 24,938 19.94 Small Cap Growth 0 0 0 0 91,547 13.40 Global Balanced 0 0 0 0 7,296 11.22 Mid Cap Growth 0 0 0 0 170,003 15.16 Large Cap Value 0 0 0 0 76,747 17.57 Large Cap Value Core II 0 0 0 0 0 0 Money Market 0 33.79 0 33.79 292,751 19.36 Large/Mid Cap Value II 0 0 0 0 75,340 16.83 Small/Mid Cap Growth 0 0 0 0 30,812 19.15 Real Estate Equity 0 27.86 0 0 11,520 27.93 Growth & Income 0 137.13 0 137.37 146,949 49.77 Managed 0 43.85 0 0 56,928 36.98 Short-Term Bond 0 0 0 0 6,876 14.33 Small Cap Equity 0 0 0 0 40,978 9.85 Int'l Opportunities 0 0 0 0 39,193 11.67 Equity Index 0 0 0 0 285,645 18.34 Global Bond 0 0 0 0 24,496 13.09 Turner Core Growth 0 0 0 0 5,365 18.58 Brandes International Equity 0 0 0 0 20,299 16.32 Frontier Capital Appreciation 0 0 0 0 3,831 21.12 Emerging Markets Equity 0 0 0 0 18,728 6.98 Bond Index 0 0 0 0 6,299 11.79 Small/Mid Cap CORE 0 0 0 0 4,140 10.12 High Yield Bond 0 0 0 0 44,787 9.70 Clifton Enhanced US Equity 0 0 0 0 2,484 10.31 Large Cap Aggressive Growth 0 0 0 0 0 0 Fundamental Growth 0 0 0 0 0 0 AIM V.I. Value 0 0 0 0 0 0 Fidelity VIP Growth 0 0 0 0 0 0 Fidelity VIP II Contrafund 0 0 0 0 0 0 Templeton International 0 0 0 0 0 0 Janus Aspen Global Technology 0 0 0 0 0 0 Janus Aspen Worldwide Growth 0 0 0 0 0 0 MFS New Discovery Series 0 0 0 0 0 0 142 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued) UV FLEX Class #4 UV FLEX II Class #5 UV VEP Class #7 ---------------------------- ---------------------------- ----------------------------- Accumulation Accumulation Accumulation Accumulation Accumulation Accumulation Subaccount Shares Share Values Shares Share Values Shares Share Values - ---------- ------------- ------------- ------------- ------------- ------------- -------------- Large Cap Growth 345,618 $51.27 31,463 $51.27 21,452 $21.99 Active Bond 1,676,751 26.74 13,449 26.74 17,659 15.57 Active Bond II 0 0 0 0 143 10.96 International Equity Index 149,685 19.94 12,658 19.94 17,444 12.68 Small Cap Growth 155,823 13.40 39,454 13.40 14,027 13.39 Global Balanced 3,856 11.22 4,610 11.22 345 11.20 Mid Cap Growth 418,962 15.16 53,667 15.16 21,924 15.14 Large Cap Value 685,534 17.57 50,169 17.57 17,670 17.55 Large Cap Value Core II 0 0 0 0 0 10.09 Money Market 330,799 19.36 9,141 19.36 35,111 13.99 Large/Mid Cap Value II 103,521 16.83 32,715 16.83 30,611 16.81 Small/Mid Cap Growth 227,066 19.15 9,615 19.15 7,111 19.11 Real Estate Equity 107,983 27.93 9,272 27.93 1,132 18.17 Growth & Income 1,382,511 49.77 80,377 49.77 78,370 22.57 Managed 1,099,286 36.98 35,963 36.98 20,443 19.46 Short-Term Bond 16,202 14.33 2,513 14.33 1,923 14.30 Small Cap Equity 199,806 9.85 27,737 9.85 14,353 9.83 Int'l Opportunities 707,065 11.67 17,027 11.67 14,048 11.65 Equity Index 1,996,318 18.34 82,122 18.34 46,415 18.31 Global Bond 43,776 13.09 9,151 13.09 5,719 13.07 Turner Core Growth 14,156 18.58 16 18.58 0 19.96 Brandes International Equity 39,495 16.32 1,063 16.32 876 16.09 Frontier Capital Appreciation 18,694 21.12 543 $21.12 272 22.75 Emerging Markets Equity 61,026 6.98 8,871 6.98 5,036 6.97 Bond Index 16,225 11.79 1,141 11.79 329 11.78 Small/Mid Cap CORE 30,105 10.12 1,367 10.12 234 6.68 High Yield Bond 15,921 9.70 2,433 9.70 1,360 9.69 Clifton Enhanced US Equity 0 10.31 0 10.31 0 13.59 Large Cap Aggressive Growth 0 0 0 0 234 6.68 Fundamental Growth 0 0 0 0 1,292 7.15 AIM V.I. Value 0 0 0 0 621 7.46 Fidelity VIP Growth 0 0 0 0 457 7.49 Fidelity VIP II Contrafund 0 0 0 0 663 8.37 Templeton International 0 0 0 0 0 8.71 Janus Aspen GlobalTechnology 0 0 0 0 552 4.77 Janus Aspen Worldwide Growth 0 0 0 0 555 6.91 MFS New Discovery Series 0 0 0 0 1,665 8.66 143 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued) UV VEP Class #8 UV VEP Class #9 ----------------------------- ----------------------------- Accumulation Accumulation Accumulation Accumulation Subaccount Shares Share Values Shares Share Values - ---------- -------------- ------------- ------------- -------------- Large Cap Growth 15,740 $22.07 2,286 $22.15 Active Bond 5,690 15.62 0 15.68 Active Bond II 0 10.96 0 10.97 International Equity Index 6,674 12.72 0 12.77 Small Cap Growth 3,048 13.42 0 13.45 Global Balanced 0 11.23 0 11.26 Mid Cap Growth 18,270 15.17 0 15.21 Large Cap Value 14,389 17.59 0 17.63 Large Cap Value Core II 0 10.09 0 10.10 Money Market 40,727 14.04 0 14.09 Large/Mid Cap Value II 735 16.85 0 16.89 Small/Mid Cap Growth 5,919 19.18 0 19.25 Real Estate Equity 0 18.23 0 18.30 Growth & Income 31,741 22.65 3,014 22.73 Managed 12,080 19.54 0 19.60 Short-Term Bond 0 14.35 0 14.40 Small Cap Equity 2,512 9.86 0 9.88 Int'l Opportunities 8,335 11.68 4,485 11.71 Equity Index 31,417 18.36 0 18.40 Global Bond 0 13.11 0 13.14 Turner Core Growth 0 20.01 0 20.06 Brandes International Equity 13,357 16.13 0 16.18 Frontier Capital Appreciation 5,797 22.81 0 22.87 Emerging Markets Equity 916 6.98 0 7.00 Bond Index 183 11.79 0 11.81 Small/Mid Cap CORE 596 10.13 0 10.14 High Yield Bond 212 9.70 0 9.72 Clifton Enhanced U.S. Equity 0 13.62 0 13.65 Large Cap Aggressive Growth 0 6.68 0 6.68 Fundamental Growth 0 7.16 0 7.16 AIM V.I. Value 0 7.46 0 7.47 Fidelity VIP Growth 0 7.50 0 7.50 Fidelity VIP II Contrafund 0 8.37 0 8.38 Templeton International 0 8.71 0 8.72 Janus Aspen Global Technology 0 4.78 0 4.78 Janus Aspen Worldwide Growth 0 6.91 0 6.92 MFS New Discovery Series 0 8.66 0 8.67 144 Report of Independent Auditors To the Policyholders of, John Hancock Variable Life Insurance Account UV of John Hancock Mutual Life Insurance Company We have audited the accompanying statement of assets and liabilities of John Hancock Variable Life Insurance Account UV (the Account) (comprising, respectively, the Large Cap Growth, Active Bond (formerly, Sovereign Bond), International Equity Index, Small Cap Growth, Global 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 Equity (formerly, Small Cap Value), International Opportunities, Equity Index, Global Bond (formerly, Strategic Bond), Turner Core Growth, Brandes International Equity, Frontier Capital Appreciation, Emerging Markets Equity, Bond Index, Small/Mid Cap CORE, High Yield Bond, Clifton Enhanced US Equity, Large Cap Aggressive Growth, Fundamental Growth (formerly, Fundamental Mid Cap Growth), Aim V.I. Value, Fidelity VIP Growth, Fidelity VIP II Contrafund, Janus Aspen Global Technology, Janus Aspen Worldwide Growth, and MFS New Discovery Series Subaccounts) as of December 31, 2000, 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 Mutual Life Insurance Account UV at December 31, 2000, the results of their operations and changes in their net assets for each of the periods indicated, in conformity with accounting principles generally accepted in the United States. /S/ ERNST & YOUNG LLP February 13, 2001 145 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENT OF ASSETS AND LIABILITIES December 31, 2000 International Large Cap Active Equity Small Cap Growth Bond Index Growth Subaccount Subaccount Subaccount Subaccount ---------- ---------- ------------- ---------- Assets Cash....................... -- -- -- -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value..................... $40,309,354 $87,068,487 $6,443,455 $6,381,819 Investments in shares of portfolios of Outside Trust, at value........... -- -- -- -- Policy loans and accrued interest receivable....... 2,988,024 10,894,073 440,884 8,939 Receivable from: John Hancock Variable Series Trust I........... 78,996 43,980 3,951 -- Portfolio of Outside Trusts................... -- -- -- -- ----------- ----------- ---------- ---------- Total assets............... 43,376,374 98,006,540 6,888,290 6,390,758 Liabilities Payable to: John Hancock Variable Life Insurance Company... 76,877 40,173 3,625 8,618 Portfolio of Outside Trusts................... -- -- -- -- Asset charges payable...... 2,119 3,807 326 321 ----------- ----------- ---------- ---------- Total liabilities.......... 78,996 43,980 3,951 8,939 ----------- ----------- ---------- ---------- Net assets................. $43,297,378 $97,962,560 $6,884,339 $6,381,819 =========== =========== ========== ========== Global Mid Cap Large Cap Money Balanced Growth Value Market Subaccount Subaccount Subaccount Subaccount --------- --------- ---------- ---------- Assets Cash....................... -- -- -- $ (1,285) Investments in shares of portfolios of John Hancock Variable Series Trust I, at value.. $173,721 $14,676,946 $14,990,188 23,979,125 Investments in shares of portfolios of Outside Trusts, at value.......... -- -- -- -- Policy loans and accrued interest receivable....... -- -- -- 2,237,889 Receivable from: John Hancock Variable Series Trust I........... 171 29,614 13,493 413,212 Portfolio of Outside Trust.................... -- -- -- -- -------- ----------- ----------- ----------- Total assets............... 173,892 14,706,560 15,003,681 26,628,941 Liabilities Payable to: John Hancock Variable Life Insurance Company... 162 28,877 12,748 411,972 Portfolio of Outside Trusts................... -- -- -- -- Asset charges payable...... 9 737 745 1,241 -------- ----------- ----------- ----------- Total liabilities.......... 171 29,614 13,493 413,213 -------- ----------- ----------- ----------- Net assets................. $173,721 $14,676,946 $14,990,188 $26,215,728 ======== =========== =========== =========== See accompanying notes. 146 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENT OF ASSETS AND LIABILITIES (Continued) December 31, 2000 Mid Cap Small/Mid Cap Real Estate Growth & Value Growth Equity Income Subaccount Subaccount Subaccount Subaccount ---------- ------------- ----------- ---------- Assets Cash..................... -- -- $ 3 -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value................... $8,399,009 $5,855,422 5,654,199 $233,488,134 Investments in shares of portfolios of Outside Trust, at value................... -- -- -- -- Policy loans and accrued interest receivable.............. -- -- 348,571 33,998,401 Receivable from: John Hancock Variable Series Trust I......... 8,739 26,900 49,159 Portfolio of Outside Trusts................. 52,486 -- -- -- ---------- ---------- ---------- ------------ Total assets............. 8,451,495 5,864,161 6,029,673 267,535,694 Liabilities Payable to: John Hancock Variable Life Insurance Company................ 52,072 8,446 26,610 39,397 Portfolio of Outside Trusts................. -- -- -- -- Asset charges payable.... 414 293 290 9,763 ---------- ---------- ---------- ------------ Total liabilities........ 52,486 8,739 26,900 49,160 ---------- ---------- ---------- ------------ Net assets............... $8,399,009 $5,855,422 $6,002,773 $267,486,534 ========== ========== ========== ============ Short-Term Small Cap International Managed Bond Equity Opportunities Subaccount Subaccount Subaccount Subaccount ---------- ---------- ---------- ------------- Assets Cash..................... $ (685) -- -- -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value................... 98,868,851 $356,968 $4,141,822 $10,859,971 Investments in shares of portfolios of Outside Trust, at value................... -- -- -- -- Policy loans and accrued interest receivable.............. 13,608,061 -- -- -- Receivable from: John Hancock Variable Series Trust I......... 17,989 192 1,324 13,244 Outside Trust........... -- -- -- -- ------------ -------- ---------- ----------- Total assets............. 112,494,216 357,160 4,143,146 10,873,215 Liabilities Payable to: John Hancock Variable Life Insurance Company................ 12,682 174 1,117 12,716 Outside Trust........... -- -- -- -- Asset charges payable.... 5,307 18 207 528 ------------ -------- ---------- ----------- Total liabilities........ 17,989 192 1,324 13,244 ------------ -------- ---------- ----------- Net assets............... $112,476,227 $356,968 $4,141,822 $10,859,971 ============ ======== ========== =========== See accompanying notes. 147 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENT OF ASSETS AND LIABILITIES (continued) December 31, 2000 Brandes Equity Global Turner Core International Index Bond Growth Equity Subaccount Subaccount Subaccount Subaccount ---------- ---------- ----------- ------------- Assets Cash......................................................... -- -- -- -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value....................... $50,096,716 $ 1,139,861 -- -- Investments in shares of portfolios of Outside Trust, at value......................................... -- -- $ 370,494 $ 1,169,206 Policy loans and accrued interest receivable................. -- -- -- -- Receivable from: John Hancock Variable Series Trust I.................... 10,356 243 -- -- Portfolio of Outside Trusts............................. -- -- 18 57 ----------- ----------- -------- ------------ Total assets................................................. 50,107,072 1,140,104 370,512 1,169,263 Liabilities Payable to: John Hancock Variable Life Insurance Company............. 7,866 187 -- -- Portfolio of Outside Trusts.............................. -- -- -- -- Asset charges payable........................................ 2,490 56 18 57 ----------- ----------- ---------- ------------ Total liabilities............................................ 10,356 243 18 57 ----------- ----------- ---------- ------------ Net assets................................................... $50,096,716 $ 1,139,861 $ 370,494 $ 1,169,206 =========== =========== ========== ============ Frontier Capital Emerging Small/mid Appreciation Markets Equity Bond Index Cap Core Subaccount Subaccount Subaccount Subaccount ------------ -------------- ---------- ---------- Assets Cash........................................................ -- -- -- -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value........................ -- $741,352 $265,912 $559,551 Investments in shares of portfolios of Outside trust, at value.................................................... $516,716 -- -- -- Policy loans and accrued interest receivable................ -- -- -- -- Receivable from: John Hancock Variable Series Trust I..................... -- 7,964 13 28 Portfolio of Outside Trusts................................ 26 -- -- -- -------- -------- -------- -------- Total assets................................................ 516,742 749,316 265,925 559,579 Liabilities Payable to: John Hancock Variable Life Insurance Company............... -- 7,928 -- -- Portfolio of Outside Trusts................................ -- -- -- -- Asset charges payable....................................... 26 36 13 28 -------- -------- -------- -------- Total liabilities........................................... 26 7,964 13 28 -------- -------- -------- -------- Net assets.................................................. $516,716 $741,352 $265,912 $559,551 ======== ======== ======== ======== See accompanying notes. 148 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENT OF ASSETS AND LIABILITIES (continueD) December 31, 2000 High Large Cap Yield Clifton Enhanced Aggressive Fundamental Bond Us Equity Growth Growth Subaccount Subaccount Subaccount Subaccount ---------- ---------------- ---------- ----------- Assets Cash.................................................................. -- -- -- -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value............................................. $1,379,867 $23,295 $1,934 $13,253 Investments in shares of portfolios of Outside Trust, at value........ -- -- -- -- Policy loans and accrued interest receivable.......................... -- -- -- -- Receivable from:...................................................... -- -- John Hancock Variable Series Trust I................................. 68 1 -- 1 Portfolio of Outside Trusts.......................................... -- -- -- -- ---------- ------- ------ ------- Total assets.......................................................... 1,379,935 23,296 1,934 13,254 Liabilities Payable to: John Hancock Variable Life Insurance Company......................... -- -- -- 1 Portfolio of Outside Trusts.......................................... -- -- -- -- Asset charges payable................................................. 68 1 -- -- ---------- ------- ------ ------- Total liabilities..................................................... 68 1 -- 1 ---------- ------- ------ ------- Net assets............................................................ $1,379,867 $23,295 $1,934 $13,253 ========== ======= ====== ======= Janus Aspen Fidelity VIP Fidelity VIP II Global AIM V.I. Value Growth Contrafund Technology Subaccount Subaccount Subaccount Subaccount -------------- ------------ --------------- ----------- Assets Cash...................................................................... -- -- -- -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value................................................. -- -- -- -- Investments in shares of portfolios of Outside Trust, at value............ $5,292 $4,228 $6,507 $3,755 Policy loans and accrued interest receivable.............................. -- -- -- -- Receivable from:.......................................................... -- -- John Hancock Variable Series Trust I..................................... -- -- -- -- Portfolio of Outside Trusts.............................................. -- -- -- -- ------ ------ ------ ------ Total assets.............................................................. 5,292 4,228 6,507 3,755 Liabilities Payable to: John Hancock Variable Life Insurance Company............................. -- -- -- -- Portfolio of Outside Trusts.............................................. -- -- -- -- Asset charges payable..................................................... -- -- -- -- ------ ------ ------ ------ Total liabilities......................................................... -- -- -- -- ------ ------ ------ ------ Net assets................................................................ $5,292 $4,228 $6,507 $3,755 ====== ====== ====== ====== See accompanying notes. 149 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENT OF ASSETS AND LIABILITIES (continued) DECEMBER 31, 2000 Janus Aspen MFS New Worldwide Discovery Growth Series Subaccount Subaccount ----------- ---------- Assets Cash............................................................................ -- -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value....................................................... -- -- Investments in shares of portfolios of Outside Trust, at value.................. $4,664 $18,807 Policy loans and accrued interest receivable.................................... -- -- Receivable from: John Hancock Variable Series Trust I........................................... -- -- Portfolio of Outside Trusts.................................................... -- 1 ------ ------- Total assets.................................................................... 4,664 18,808 Liabilities Payable to: John Hancock Variable Life Insurance Company................................... -- -- Portfolio of Outside Trusts.................................................... -- -- Asset charges payable........................................................... -- 1 ------ ------- Total liabilities............................................................... -- 1 ------ ------- Net assets...................................................................... $4,664 $18,807 ====== ======= See accompanying notes. 150 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF OPERATIONS Years and periods ended December 31, Large Cap Growth Subaccount Active Bond Subaccount ------------------------------------- -------------------------------------- 2000 1999 1998 2000 1999 1998 ------------- ---------- ---------- ------------ ------------ ------------- Investment income: Distributions received from: John Hancock Variable Series Trust I.......... $ 6,351,461 $6,381,711 $2,836,032 $ 5,048,654 $ 5,184,234 $5,266,576 Outside Trusts................................ -- -- -- -- -- -- Interest income on policy loans............... 223,081 161,454 128,186 769,530 750,673 727,807 ------------ ---------- ---------- ----------- ----------- ---------- Total investment income........................ 6,574,542 6,543,165 2,964,218 5,818,184 5,934,907 5,994,383 Expenses: Mortality and expense risks................... 286,716 213,770 143,859 485,231 452,925 415,570 ------------ ---------- ---------- ----------- ----------- ---------- Net investment income.......................... 6,287,826 6,329,395 2,820,359 5,332,953 5,481,982 5,578,813 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)................... 1,809,410 1,146,308 433,509 (1,058,175) (388,883) (142,628) Net unrealized appreciation (depreciation) during the period............. (17,039,660) 320,087 4,558,660 3,862,398 (5,439,148) (102,600) ------------ ---------- ---------- ----------- ----------- ---------- Net realized and unrealized gain (loss) on investments......................... (15,230,250) 1,466,395 4,992,169 2,804,223 (5,828,031) (245,228) ------------ ---------- ---------- ----------- ----------- ---------- Net increase (decrease) in net assets resulting from operations..................... $ (8,942,424) $7,795,790 $7,812,528 $ 8,137,176 $ (346,049) $5,333,585 ============ ========== ========== =========== =========== ========== International Equity Index Subaccount Small Cap Growth Subaccount -------------------------------------- ------------------------------------- 2000 1999 1998 2000 1999 1998 -------------- ------------ ---------- ------------ ---------- ----------- Investment income: Distributions received from: John Hancock Variable Series Trust I............ $ 334,135 $ 212,869 $743,339 $ 621,346 $ 43,433 $ -- Outside Trusts.................................. -- -- -- -- -- -- Interest income on policy loans................. 29,828 20,538 17,802 -- -- -- ----------- ---------- -------- ----------- ---------- -------- Total investment income.......................... 363,963 233,407 761,141 621,346 543,433 -- Expenses: Mortality and expense risks..................... 41,808 32,838 26,542 39,379 15,809 8,233 ----------- ---------- -------- ----------- ---------- -------- Net investment income (loss)..................... 322,155 200,569 734,599 581,967 527,624 (8,233) Net realized and unrealized gain (loss) on investments: Net realized gains.............................. 76,586 62,140 52,891 159,388 48,210 21,741 Net unrealized appreciation (depreciation) during the period............... (1,706,468) 1,295,768 13,239 (2,654,137) 1,125,829 204,674 ----------- ---------- -------- ----------- ---------- -------- Net realized and unrealized gain (loss) on investments........................... (1,629,882) 1,357,908 66,130 (2,494,749) 1,174,039 226,415 ----------- ---------- -------- ----------- ---------- -------- Net increase (decrease) in net assets resulting from operations....................... $(1,307,727) $1,558,477 $800,729 $(1,912,782) $1,701,663 $218,182 =========== ========== ======== =========== ========== ======== See accompanying notes. 151 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF OPERATIONS (continued) Years and periods ended December 31, Global Balanced Subaccount Mid Cap Growth Subaccount ---------------------------- -------------------------------------- 2000 1999 1998 2000 1999 1998 --------- -------- ------- ------------- ---------- ----------- Investment income: Distributions received from: John Hancock Variable Series Trust I...... $ 8,232 $17,211 $12,240 $ 2,284,720 $1,373,009 $130,303 Outside Trusts............................ -- -- -- -- -- -- Interest income on policy loans........... -- -- -- -- -- -- -------- ------- ------- ------------ ---------- -------- Total investment income.................... 8,232 17,211 12,240 2,284,720 1,373,009 130,303 Expenses: Mortality and expense risks............... 1,034 1,267 826 101,903 34,834 5,242 -------- ------- ------- ------------ ---------- -------- Net investment income...................... 7,198 15,944 11,414 2,182,817 1,338,175 125,061 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)............... (3,641) 1,061 1,050 1,892,763 420,826 26,192 Net unrealized appreciation (depreciation) during the period........................ (21,945) (8,559) 12,294 (11,690,290) 4,283,452 193,946 -------- ------- ------- ------------ ---------- -------- Net realized and unrealized gain (loss) on investments........................... (25,586) (7,498) 13,344 (9,797,527) 4,704,278 220,138 -------- ------- ------- ------------ ---------- -------- Net increase (decrease) in net assets resulting from operations................ $(18,388) $ 8,446 $24,758 $ (7,614,710) $6,042,453 $345,199 ======== ======= ======= ============ ========== ======== Large Cap Value Subaccount Money Market Subaccount --------------------------------- ------------------------------------ 2000 1999 1998 2000 1999 1998 ----------- ---------- -------- ---------- ---------- ---------- Investment income: Distributions received from: John Hancock Variable Series Trust I...... $ 759,319 $ 511,132 $185,232 $1,260,525 $1,134,371 $2,249,510 Outside Trusts............................ -- -- -- -- -- -- Interest income on policy loans........... -- -- -- 162,299 155,491 154,162 ---------- --------- -------- ---------- ---------- ---------- Total investment income.................... 759,319 511,132 185,232 1,422,824 1,289,862 2,403,672 Expenses: Mortality and expense risks............... 65,992 36,983 15,356 132,261 146,758 263,735 ---------- --------- -------- ---------- ---------- ---------- Net investment income...................... 693,327 474,149 169,876 1,290,563 1,143,104 2,139,937 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)............... (47,306) 123,242 68,953 -- -- -- Net unrealized appreciation (depreciation) during the period......... 854,807 (499,454) 64,132 -- -- -- ---------- --------- -------- ---------- ---------- ---------- Net realized and unrealized gain (loss) on investments............................... 807,501 (376,212) 133,085 -- -- -- ---------- --------- -------- ---------- ---------- ---------- Net increase in net assets resulting from operations................................ $1,500,828 $ 97,937 $302,961 $1,290,563 $1,143,104 $2,139,937 ========== ========= ======== ========== ========== ========== See accompanying notes. 152 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF OPERATIONS (continued) Years and periods ended December 31, Mid Cap Value Subaccount Small/Mid Cap Growth Subaccount ---------------------------------- ----------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ---------- --------- ---------- ---------- --------- Investment income: Distributions received from: John Hancock Variable Series Trust I..... $ 861,684 $ 30,563 $ 53,920 $ 603,438 $ 840,786 $ 93,281 Outside Trusts........................... -- -- -- -- -- -- Interest income on policy loans.......... -- -- -- -- -- -- ---------- --------- --------- --------- --------- -------- Total investment income................... 861,684 30,563 53,920 603,438 840,786 93,281 Expenses: Mortality and expense risks.............. 36,705 28,106 34,857 32,879 30,491 26,942 ---------- --------- --------- --------- --------- -------- Net investment income..................... 824,979 2,457 19,063 570,559 810,295 66,339 Net realized and unrealized gain (loss) on investments: Net realized gains (losses).............. (47,013) (547,518) 74,634 (136,669) 16,952 33,249 Net unrealized appreciation (depreciation) during the period........ 853,987 657,486 (944,401) (2,663) (590,295) 126,465 ---------- --------- --------- --------- --------- -------- Net realized and unrealized gain (loss) on investments........................... 806,974 109,968 (869,767) (139,332) (573,343) 159,714 ---------- --------- --------- --------- --------- -------- Net increase (decrease) in net assets resulting from operations................ $1,631,953 $ 112,425 $(850,704) $ 431,227 $ 236,952 $226,053 ========== ========= ========= ========= ========= ======== Real Estate Equity Subaccount Growth & Income Subaccount ----------------------------------- --------------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ---------- ----------- ------------- ----------- ------------ Investment income: Distributions received from: John Hancock Variable Series Trust I..... $ 471,363 $ 262,930 $ 343,976 $ 43,732,520 $35,057,066 $26,306,209 Outside Trusts........................... -- -- -- -- -- -- Interest income on policy loans.......... 21,486 17,361 17,260 2,428,588 2,279,107 1,996,131 ---------- --------- ----------- ------------ ----------- ----------- Total investment income................... 492,849 280,291 361,236 46,161,108 37,336,173 28,302,340 Expenses: Mortality and expense risks.............. 27,585 24,900 33,890 1,733,223 1,779,482 1,466,469 ---------- --------- ----------- ------------ ----------- ----------- Net investment income..................... 465,264 255,391 327,346 44,427,885 35,556,691 26,835,871 Net realized and unrealized gain (loss) on investments: Net realized gains (losses).............. (159,205) (168,994) 158,205 18,300,286 5,502,422 3,223,935 Net unrealized appreciation (depreciation) during the period........ 919,904 (220,380) (1,546,717) (96,829,044) 2,405,417 32,918,552 ---------- --------- ----------- ------------ ----------- ----------- Net realized and unrealized gain (loss) on investments.................... 760,699 (389,374) (1,388,512) (78,528,758) 7,907,839 36,142,487 ---------- --------- ----------- ------------ ----------- ----------- Net increase (decrease) in net assets resulting from operations................ $1,225,963 $(133,983) $(1,061,166) $(34,100,873) $43,464,530 $62,978,358 ========== ========= =========== ============ =========== =========== See accompanying notes. 153 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF OPERATIONS (continued) Years and periods ended December 31, Managed Subaccount Short-Term Bond Subaccount ---------------------------------------- ----------------------------- 2000 1999 1998 200 1999 1998 ------------ ----------- ----------- ------- -------- ------- Investment income: Distributions received from: John Hancock Variable Series Trust I....... $ 11,757,304 $ 9,998,433 $ 9,347,788 $17,131 $ 15,539 $27,350 Outside Trusts............................. -- -- -- -- -- -- Interest income on policy loans............ -- 953,686 854,487 -- -- -- ------------ ----------- ----------- ------- -------- ------- Total investment income..................... 11,757,304 10,952,119 10,202,275 17,131 15,539 27,350 Expenses: Mortality and expense risks................ 664,664 649,802 577,276 1,637 1,497 2,680 ------------ ----------- ----------- ------- -------- ------- Net investment income....................... 11,092,640 10,302,317 9,624,999 15,494 14,042 24,670 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)................ 1,551,519 996,546 791,245 (2,287) (8,638) 265 Net unrealized appreciation (depreciation) during the period.......... (12,278,637) (2,108,530) 6,629,458 6,756 (2,442) (4,247) ------------ ----------- ----------- ------- -------- ------- Net realized and unrealized gain (loss) on investments...................... (10,727,118) (1,111,984) 7,420,703 4,469 (11,080) (3,982) ------------ ----------- ----------- ------- -------- ------- Net increase in net assets resulting from operations................. $ 365,522 $ 9,190,333 $17,045,702 $19,963 $ 2,962 $20,688 ============ =========== =========== ======= ======== ======= Small Cap Equity Subaccount International Opportunities Subaccount --------------------------------- -------------------------------------- 2000 1999 1998 2000 1999 1998 --------- --------- --------- ----------- -------- --------- Investment income: Distributions received from: John Hancock Variable Series Trust I....... $ 321,253 $ 79,585 $ 12,675 $ 617,754 $241,151 $ 33,443 Outside Trusts............................. -- -- -- -- -- -- Interest income on policy loans............ -- -- -- -- -- -- --------- --------- --------- ----------- -------- -------- Total investment income..................... 321,253 79,585 12,675 617,754 241,151 33,443 Expenses: Mortality and expense risks................ 23,745 17,680 11,853 53,038 17,937 21,581 --------- --------- --------- ----------- -------- -------- Net investment income....................... 297,508 61,905 822 564,716 223,214 11,862 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)................ (110,857) (33,134) 29,257 348,813 155,412 33,474 Net unrealized appreciation (depreciation) during the period.......... (668,463) (148,401) (105,331) (2,497,504) 387,412 272,314 --------- --------- --------- ----------- -------- -------- Net realized and unrealized gain (loss) on investments...................... (779,320) (181,535) (76,074) (2,148,691) 542,824 305,788 --------- --------- --------- ----------- -------- -------- Net increase (decrease) in net assets resulting from operations.................. $(481,812) $(119,630) $ (75,252) $(1,583,975) $766,038 $317,650 ========= ========= ========= =========== ======== ======== See accompanying notes 154 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF OPERATIONS (continued) Years and periods ended December 31, Equity Index Subaccount Global Bond Subaccount ----------------------------------- ------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ---------- ---------- -------- -------- ------- Investment income: Distributions received from: John Hancock Variable Series Trust I....... $ 2,327,055 $ 593,325 $ 185,267 $ 63,032 $ 37,862 $19,628 Outside Trusts............................. -- -- -- -- -- -- Interest income on policy loans............ -- -- -- -- -- -- ----------- ---------- ---------- -------- -------- ------- Total investment income..................... 2,327,055 593,325 185,267 63,032 37,862 19,628 Expenses: Mortality and expense risks................ 185,175 63,950 27,141 5,624 4,084 1,979 ----------- ---------- ---------- -------- -------- ------- Net investment income....................... 2,141,880 529,375 158,126 57,408 33,778 17,649 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)................ 485,643 271,978 443,879 (14,302) (151) 3,991 Net unrealized appreciation (depreciation) during the period.......... (8,035,375) 1,282,937 585,673 63,359 (52,953) 4,,308 ----------- ---------- ---------- -------- -------- ------- Net realized and unrealized gain (loss) on investments...................... (7,549,732) 1,554,915 1,029,552 49,057 (53,104) 8,299 ----------- ---------- ---------- -------- -------- ------- Net increase (decrease) in net assets resulting from operations.................. $(5,407,852) $2,084,290 $1,187,678 $106,465 $(19,326) $25,948 =========== ========== ========== ======== ======== ======= Turner Core Growth Subaccount Brandes International Equity Subaccount ------------------------------ --------------------------------------- 2000 1999 1998 2000 1999 1998 --------- ------- ------- -------- -------- ------- Investment income: Distributions received from: John Hancock Variable Series Trust I....... -- -- -- -- -- -- Outside Trusts............................. $ 52,832 $19,328 $ 2,231 $ 92,935 $ 16,354 $14,444 Interest income on policy loans............ -- -- -- -- -- -- --------- ------- ------- -------- -------- ------- Total investment income..................... 52,832 19,328 2,231 92,935 16,354 14,444 Expenses: Mortality and expense risks................ 2,215 1,139 565 4,973 2,166 1,158 --------- ------- ------- -------- -------- ------- Net investment income....................... 50,617 18,189 1,666 87,962 14,188 13,286 Net realized and unrealized gain (loss) on investments: Net realized gains......................... 20,969 26,736 2,780 13,902 11,526 600 Net unrealized appreciation (depreciation) during the period.......... (120,040) 23,628 22,686 (35,201) 122,734 8,581 --------- ------- ------- -------- -------- ------- Net realized and unrealized gain (loss) on investments...................... (99,071) 50,364 25,466 (21,299) 134,260 9,181 --------- ------- ------- -------- -------- ------- Net increase (decrease) in net assets resulting from operations.................. $ (48,454) $68,553 $27,132 $ 66,663 $148,448 $22,467 ========= ======= ======= ======== ======== ======= See accompanying notes 155 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF OPERATIONS (continued) Years and periods ended December 31, Frontier Capital Appreciation Subaccount Emerginng Markets Equity Subaccount ----------------------------------------- ------------------------------------ 2000 1999 1998 2000 1999 1998* ----------- --------- ---------- ---------- -------- -------- Investment income: Distributions received from: John Hancock Variable Series Trust I.... -- -- -- $ 63,791 $ 15,636 $ 1 Outside Trusts.......................... $ 133,836 $ 13,028 $12,832 -- -- -- Interest income on policy loans......... -- -- -- -- -- -- ----------- --------- ---------- ---------- -------- -------- Total investment income.................. 133,836 13,028 12,832 63,791 15,636 1 Expenses: Mortality and expense risks............. 3,700 4,257 13,446 5,200 466 -- ----------- --------- ---------- ---------- -------- -------- Net investment income (loss)............. 130,136 8,771 (614) 58,591 15,170 1 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)............. 68,311 (59,550) 23,061 19,902 1,838 (1) Net unrealized appreciation (depreciation) during the period....... (175,994) 89,369 (840) (571,486) 92,713 (48) ----------- --------- ---------- ---------- -------- -------- Net realized and unrealized gain (loss) on investments................... (107,683) 29,819 22,221 (551,584) 94,551 (49) ----------- --------- ---------- ---------- -------- -------- Net increase (decrease) in net assets resulting from operations............... $ 22,453 $ 38,590 $21,607 $(492,993) $109,721 $ (48) =========== ========= ========== ========== ======== ======== Bond Index Subaccount Small/Mid Cap CORE Subaccount ----------------------------- ------------------------------ 2000 1999 1998* 2000 1999 1998* ------- -------- --------- --------- -------- -------- Investment income: Distributions received from: John Hancock Variable Series Trust I....................... $ 7,273 $ 2,971 $ 296 $ 22,843 $ 6,699 $ -- Outside Trusts............................................. -- -- -- -- -- -- Interest income on policy loans............................ -- -- -- -- -- -- ------- -------- --------- --------- -------- -------- Total investment income..................................... 7,273 2,971 296 22,843 6,699 -- Expenses: Mortality and expense risks................................ 561 270 11 1,051 335 48 ------- -------- --------- --------- -------- -------- Net investment income (loss)................................ 6,712 2,701 285 21,792 6,364 (48) Net realized and unrealized gain (loss) on investments: Net realized gains (losses)................................ (607) (1,613) (26) 1,505 1,093 (1,957) Net unrealized appreciation (depreciation) during the period.......................... 6,100 (1,753) (147) (13,928) 4,719 1,888 ------- -------- --------- --------- -------- -------- Net realized and unrealized gain (loss) on investments...................................... 5,493 (3,366) (173) (12,423) 5,812 (69) ------- -------- --------- --------- -------- -------- Net increase (decrease) in net assets resulting from operations.................................. $12,205 $ (665) $ 112 $ 9,369 $ 12,176 $ (117) ======= ======== ========= ========= ======== ======== _______________________________________ * From May 1, 1998 (commencement of operations). See accompanying notes. 156 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF OPERATIONS (continued) Years and periods ended December 31, Large Cap Aggressive Clifton Enhanced US Growth High Yield Bond Subaccount Equity Subaccount Subaccount --------------------------- -------------------- ---------- 2000 1999 1998* 2000 1999** 2000*** --------- ------- ----- -------- ------- ---------- Investment income: Distributions received from: John Hancock Variable Series Trust I................ $ 84,101 $ 3,011 $ 50 -- -- $ 36 Outside Trusts...................................... -- -- -- $ 3,328 $ 1,435 -- Interest income on policy loans..................... -- -- -- -- -- -- --------- ------- ----- -------- ------- ---------- Total investment income.............................. 84,101 3,011 50 3,328 1,435 36 Expenses: Mortality and expense risks......................... 5,409 220 2 138 61 6 --------- ------- ----- -------- ------- ---------- Net investment income................................ 78,692 2,791 48 3,190 1,374 30 Net realized and unrealized gain (loss) on investments: Net realized gains (losses)......................... (12,114) (396) (108) 302 11 (8) Net unrealized appreciation (depreciation) during the period................... (188,735) (1,172) (19) (5,562) 1,285 (616) --------- ------- ----- -------- ------- ---------- Net realized and unrealized gain (loss) on investments............................... (200,849) (1,568) (127) (5,260) 1,296 (624) --------- ------- ----- -------- ------- ---------- Net increase (decrease) in net assets resulting from operations........................... $(122,157) $ 1,223 $ (79) $ (2,070) $ 2,670 $ (594) ========= ======= ===== ======== ======= ========== Fundamental AIM V.I. Fidelity VIP Fidelity VIP II Growth Value Growth Contrafund Subaccount Subaccount Subaccount Subaccount ----------- ----------- ------------ ---------------- 2000*** 2000*** 2000*** 2000*** ----------- ----------- ------------ ---------------- Investment income: Distributions received from: John Hancock Variable Series Trust I......................... $ 1,361 $ 241 -- -- Outside Trusts............................................... -- -- -- -- Interest income on policy loans.............................. -- -- -- -- ----------- ----------- ------------ ---------------- Total investment income....................................... 1,361 241 -- -- Expenses: Mortality and expense risks.................................. 10 11 $ 6 $ 12 ----------- ----------- ------------ ---------------- Net investment income (loss).................................. 1,351 230 (6) (12) Net realized and unrealized (loss) on investments: Net realized (losses)........................................ (10) (11) (7) (4) Net unrealized (depreciation) during the period............................ (1,226) (1,068) (525) (366) ----------- ----------- ------------ ---------------- Net realized and unrealized (loss) on investments........................................ (1,236) (1,079) (532) (370) ----------- ----------- ------------ ---------------- Net increase (decrease) in net assets resulting from operations.................................... $ 115 $ (849) $ (538) $ (382) =========== =========== ============ ================ ________________________________________ * From May 1, 1998 (commencement of operations). ** From May 1, 1999 (commencement of operations). *** From April 24, 2000 (commencement of operations). See accompanying notes. 157 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF OPERATIONS (continued) Years and periods ended December 31, Janus Aspen Janus Aspen Global Worldwide MFS New Technology Growth Discovery Series Subaccount Subaccount Subaccount ----------- ----------- ---------------- 2000**** 2000**** 2000*** ----------- ----------- ---------------- Investment income: Distributions received from: John Hancock Variable Series Trust I................................. -- -- -- Outside Trust........................................................ $ 24 $ 1 -- Interest income on policy loans...................................... -- -- -- ------- ----- ---- Total investment income............................................... 24 1 -- Expenses: Mortality and expense risks.......................................... 8 8 $ 19 ------- ----- ---- Net investment income (loss).......................................... 16 (7) (19) Net realized and unrealized gain (loss) on investments: Net realized (losses)................................................ (99) (71) (7) Net unrealized appreciation (depreciation) during the period......... (1,649) (717) 197 ------- ----- ---- Net realized and unrealized gain (loss) on investments................ (1,748) (788) 190 ------- ----- ---- Net increase (decrease) in net assets resulting from operations....... $(1,732) $(795) $171 ======= ===== ==== _________________________ *** From April 24, 2000 (commencement of operations). **** From June 29, 2000 (commencement of operations). See accompanying notes. 158 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF CHANGES IN NET ASSETS Years and periods ended December 31, Large Cap Growth Subaccount Active Bond Subaccount ---------------------------------------- --------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ----------- ----------- ----------- ------------ ----------- Increase (decrease) in net assets from operations: Net investment income..................... $ 6,287,826 $ 6,329,395 $ 2,820,359 5,332,953 $ 5,481,982 $ 5,578,813 Net realized gains (losses)............... 1,809,410 1,146,308 433,509 (1,058,175) (388,883) (142,628) Net unrealized appreciation (depreciation) during the period......... (17,039,660) 320,087 4,558,660 3,862,398 (5,439,148) (102,600) ------------ ----------- ----------- ----------- ------------- ----------- Net increase (decrease) in net assets resulting from operations................. (8,942,424) 7,795,790 7,812,528 8,137,176 (346,049) 5,333,585 From policyholder transactions: Net premiums from policyholders........... 16,225,070 10,950,682 6,922,934 26,218,788 11,668,600 10,038,753 Net benefits to policyholders............. (8,421,666) (5,776,293) (3,869,320) (17,903,281) (7,543,864) (7,974,328) Net increase in policy loans.............. 407,961 -- -- 620,295 -- -- ------------ ----------- ----------- ----------- ------------ ----------- Net increase in net assets resulting from policyholder transactions................. 8,211,365 5,174,389 3,053,614 8,935,802 4,124,736 2,064,425 ------------ ----------- ----------- ----------- ------------ ----------- Net increase (decrease) in net assets...... (731,059) 12,970,179 10,866,142 17,072,978 3,778,687 7,398,010 Net assets at beginning of period.......... 44,028,437 31,058,258 20,192,116 80,889,582 77,110,895 69,712,885 ------------ ----------- ----------- ----------- ------------ ----------- Net assets at end of period................ $ 43,297,378 $44,028,437 $31,058,258 $97,962,560 $ 80,889,582 $77,110,895 ============ =========== =========== =========== ============ =========== International Equity Index Subaccount Small Cap Growth Subaccount ---------------------------------------- --------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ----------- ----------- ----------- ------------ ----------- Increase (decrease) in net assets from operations: Net investment income (loss)................. $ 322,155 $ 200,569 $ 734,599 $ 581,967 $ 527,624 $ (8,233) Net realized gains........................... 76,586 62,140 52,891 159,388 48,210 21,741 Net unrealized appreciation (depreciation) during the period........................... (1,706,468) 1,295,768 13,239 (2,654,137) 1,125,829 204,674 ------------ ----------- ----------- ----------- ------------ ----------- Net increase (decrease) in net assets resulting from operations.............................. (1,307,727) 1,558,477 800,729 (1,912,782) 1,701,663 218,182 From policyholder transactions: Net premiums from policyholders.............. 2,208,528 1,634,643 1,489,281 4,738,730 1,398,160 891,480 Net benefits to policyholders................ (1,307,479) (1,119,500) (1,357,312) (956,063) (390,180) (269,586) Net increase in policy loans................. 110,023 -- -- -- -- -- ------------ ----------- ----------- ----------- ------------ ----------- Net increase in net assets resulting from policyholder transactions.................... 1,011,072 515,143 141,969 3,782,667 1,007,980 621,894 ------------ ----------- ----------- ----------- ------------ ----------- Net increase (decrease) in net assets......... (296,655) 2073,620 942,698 1,869,885 2,709,643 840,076 Net assets at beginning of period............. 7,180,994 5,107,374 4,164,676 4,511,934 1,802,291 962,215 ------------ ----------- ----------- ----------- ------------ ----------- Net assets at end of period................... $ 6,884,339 $ 7,180,994 $ 5,107,374 $ 6,381,819 $ 4,511,934 $ 1,802,291 ============ =========== =========== =========== ============ =========== See accompanying notes. 159 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF CHANGES IN NET ASSETS (continued) Years and periods ended December 31, Global Balanced Subaccount Mid Cap Growth Subaccount ----------------------------------- ------------------------------------------------- 2000 1999 1998 2000 1999 1998 --------- ---------- --------- --------------- ----------------- ------------- Increase (decrease) in net assets from operations: Net investment income................. $ 7,198 $ 15,944 $ 11,414 $ 2,182,817 $ 1,338,175 $ 125,061 Net realized gains (losses)........... (3,641) 1,061 1,050 1,892,763 420,826 26,192 Net unrealized appreciation (depreciation) during the period..... (21,945) (8,559) 12,294 (11,690,290) 4,283,452 193,946 -------- --------- -------- -------------- ---------------- ------------- Net increase (decrease) in net assets resulting from operations............. (18,388) 8,446 24,758 (7,614,710) 6,042,453 345,199 From policyholder transactions: Net premiums from policyholders....... 75,380 115,573 150,466 13,112,643 7,041,199 772,359 Net benefits to policyholders......... (83,639) (133,983) (50,204) (4,430,561) (947,660) (211,806) Net increase (decrease) in policy loans................................. -- -- -- -- -- -- -------- --------- -------- -------------- ---------------- ------------- Net increase (decrease) in net assets resulting from policyholder transactions.......................... (8,259) (18,410) 100,262 8,682,082 6,093,539 560,553 -------- --------- -------- -------------- ---------------- ------------- Net increase (decrease) in net assets................................ (26,647) (9,964) 125,020 1,067,372 12,135,992 905,752 Net assets at beginning of period...... 200,368 210,332 85,312 13,609,574 1,473,582 567,830 -------- --------- -------- -------------- ---------------- ------------- Net assets at end of period............ $173,721 $ 200,368 $210,332 $ 14,676,946 $ 13,609,574 $ 1,473,582 ======== ========= ======== ============== ================ ============= Large Cap Value Subaccount Money Market Subaccount -------------------------------------- ------------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ----------- ------------- ------------- ------------- Increase (decrease) in net assets from operations: Net investment income................. $ 693,327 $ 474,149 $ 169,876 $ 1,290,563 $ 1,143,104 $ 2,139,937 Net realized gains (losses)........... (47,306) 123,242 68,953 -- -- -- Net unrealized appreciation (depreciation) during the period..... 854,807 (499,454) 64,132 -- -- -- ----------- ----------- ---------- ------------ ------------ ------------ Net increase in net assets resulting from operations............. 1,500,828 97,937 302,961 1,290,563 1,143,104 2,139,937 From policyholder transactions: Net premiums from policyholders....... 7,024,748 5,449,922 2,321,440 26,609,851 16,733,655 55,692,824 Net benefits to policyholders......... (1,798,175) (1,059,147) (528,449) (22,265,301) (46,642,184) (22,850,788) Net increase (decrease) in policy loans................................ -- -- -- 77,509 -- (198,682) ----------- ----------- ---------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from policyholder transactions.......................... 5,226,573 4,390,775 1,792,991 4,422,059 (29,908,529) 32,643,354 ----------- ----------- ---------- ------------ ------------ ------------ Net increase (decrease) in net assets.. 6,727,401 4,488,712 2,095,932 5,712,622 (28,765,425) 34,783,291 Net assets at beginning of period...... 8,268,787 3,774,075 1,678,123 20,503,106 49,268,531 14,485,240 ----------- ----------- ---------- ------------ ------------ ------------ Net assets at end of period............ $14,990,188 $ 8,262,787 $3,774,075 $ 26,215,728 $ 20,503,106 $ 49,268,531 =========== =========== ========== ============ ============ ============ See accompanying notes. 160 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF CHANGES IN NET ASSETS (continued) Years and periods ended December 31, Mid Cap Value Subaccount Small/ Mid Cap Growth Subaccount ------------------------------------- --------------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ------------ ----------- ------------ ------------ -------------- Increase (decrease) in net assets from operations: Net investment income................... $ 824,979 $ 2,457 $ 19,063 $ 570,559 $ 810,295 $ 66,339 Net realized gains (losses)............. (47,013) (547,518) 74,634 (136,669) 16,952 33,249 Net unrealized appreciation (depreciation) during the period....... 853,987 657,486 (944,401) (2,663) (590,295) 126,465 ---------- ----------- ---------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations............... 1,631,953 112,425 (850,704) 431,227 236,952 226,053 From policyholder transactions: Net premiums from policyholders......... 2,895,543 2,086,192 5,639,732 1,474,342 1,533,102 1,812,713 Net benefits to policyholders........... (830,119) (3,546,814) (775,357) (1,536,191) (1,200,248) (1,214,489) Net increase (decrease) in policy loans.................................. -- -- -- -- -- -- ---------- ----------- ---------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from policyholder transactions........................... 2,065,424 (1,460,622) 4,864,375 (61,849) 332,854 598,224 ---------- ----------- ---------- ----------- ----------- ----------- Net increase (decrease) in net assets.... 3,697,377 (1,348,197) 4,013,671 369,378 569,806 824,277 Net assets at beginning of period........ 4,701,632 6,049,829 2,036,158 5,486,044 4,916,238 4,091,961 ---------- ----------- ---------- ----------- ----------- ----------- Net assets at end of period.............. $8,399,009 $ 4,701,632 $6,049,829 $ 5,855,422 $ 5,486,044 $ 4,916,238 ========== =========== ========== =========== =========== =========== Real Estate Equity Subaccount Growth & Income Subaccount --------------------------------------- ------------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ------------ ------------- ------------- ------------- Increase (decrease) in net assets from operations: Net investment income................... $ 465,264 $ 255,391 $ 327,346 $ 44,427,885 $ 35,556,691 $ 26,835,871 Net realized gains (losses)............. (159,205) (168,994) 158,205 18,300,286 5,502,422 3,223,935 Net unrealized appreciation (depreciation) during the period....... 919,904 (220,380) (1,546,717) (96,829,044) 2,405,417 32,918,552 ----------- ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations............... 1,225,963 (133,983) (1,061,166) (34,100,873) 43,464,530 62,978,358 From policyholder transactions: Net premiums from policyholders......... 1,762,038 968,627 3,382,263 31,462,247 34,593,082 35,108,834 Net benefits to policyholders........... (1,130,179) (2,335,552) (1,663,696) (71,685,409) (34,650,911) (29,649,984) Net increase (decrease) in policy loans................................... 114,851 -- (1,103) 1,310,472 -- 3,672,137 ----------- ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from policyholder transactions........................... 746,710 (1,366,925) 1,717,464 (38,912,690) (57,829) 9,130,987 ----------- ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in net assets.... 1,972,673 (1,500,908) 656,298 (73,013,563) 43,406,701 72,109,345 Net assets at beginning of period........ 4,030,100 5,531,008 4,874,710 340,500,097 297,093,396 224,984,051 ----------- ----------- ----------- ------------ ------------ ------------ Net assets at end of period.............. $ 6,002,773 $ 4,030,100 $ 5,531,008 $267,486,534 $340,500,097 $297,093,396 =========== =========== =========== ============ ============ ============ See accompanying notes. 161 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF CHANGES IN NET ASSETS (continued) Years and periods ended December 31, Managed Subaccount Short-term Bond Subaccount ------------------------------------------ ---------------------------------- 2000 1999 1998 2000 1999 1998 ------------- ------------- ------------- --------- ---------- ----------- Increase (decrease) in net assets from operations: Net investment income............................ $ 11,092,640 $ 10,302,317 $ 9,624,999 $ 15,494 $ 14,042 $ 24,670 Net realized gains (losses)...................... 1,551,519 996,546 791,245 (2,287) (8,638) 265 Net unrealized appreciation (depreciation) during the period................ (12,278,637) (2,108,530) 6,629,458 6,756 (2,442) (4,247) ------------ ------------ ------------ -------- --------- -------- Net increase in net assets resulting from operations........................ 365,522 9,190,333 17,045,702 19,963 2,962 20,688 From policyholder transactions: Net premiums from policyholders.................. 12,192,565 13,430,282 13,116,210 167,135 109,732 420,697 Net benefits to policyholders.................... (19,842,234) (14,305,859) (14,539,301) (69,043) (370,270) (71,999) Net increase in policy loans..................... 630,955 -- 1,134,137 -- -- -- ------------ ------------ ------------ -------- --------- -------- Net increase (decrease) in net assets resulting from policyholder transactions......... (7,018,714) (875,577) (288,954) 98,092 (260,538) 348,698 ------------ ------------ ------------ -------- --------- -------- Net increase (decrease) in net assets............ (6,653,192) 8,314,756 16,756,748 118,055 (257,576) 369,386 Net assets at beginning of period................. 119,129,419 110,814,663 94,057,915 238,913 496,489 127,103 ------------ ------------ ------------ -------- --------- -------- Net assets at end of period....................... $112,476,227 $119,129,419 $110,814,663 $356,968 $ 238,913 $496,489 ============ ============ ============ ======== ========= ======== Small Cap Equity Subaccount International Opportunities Subaccount ------------------------------------ ----------------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ----------- ----------- ------------ ------------ ------------- Increase (decrease) in net assets from operations: Net investment income............................ $ 297,508 $ 61,905 $ 822 $ 564,716 $ 223,214 $ 11,862 Net realized gains (losses)...................... (110,857) (33,134) 29,257 348,813 155,412 33,474 Net unrealized appreciation (depreciation) during the period............................... (668,463) (148,401) (105,331) (2,497,504) 387,412 272,314 ---------- ---------- ---------- ----------- ----------- ---------- Net increase (decrease) in net assets resulting from operations........................ (481,812) (119,630) (75,252) (1,583,975) 766,038 317,650 From policyholder transactions: Net premiums from policyholders.................. 1,608,648 1,483,922 1,644,666 9,284,275 254,681 3,814,201 Net benefits to policyholders.................... (452,404) (447,402) (270,585) (469,272) (3,673,500) (339,134) Net increase (decrease) in policy loans.......... -- -- -- -- -- -- ---------- ---------- ---------- ----------- ----------- ---------- Net increase (decrease) in net assets resulting from policyholder transactions......... 1,156,242 1,036,520 1,374,081 8,815,003 (1,318,819) 3,475,067 ---------- ---------- ---------- ----------- ----------- ---------- Net increase (decrease) in net assets............. 674,430 916,890 1,298,829 7,231,028 (552,781) 3,792,717 Net assets at beginning of period................. 3,467,392 2,550,502 1,251,673 3,628,943 4,181,724 389,007 ---------- ---------- ---------- ----------- ----------- ---------- Net assets at end of period....................... $4,141,822 $3,467,392 $2,550,502 $10,859,971 $ 3,628,943 $4,181,724 ========== ========== ========== =========== =========== ========== See accompanying notes. 162 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF CHANGES IN NET ASSETS (continued) Years and periods ended December 31, Equity Index Subaccount Global Bond Subaccount -------------------------------------- ------------------------------------ 2000 1999 1998 2000 1999 1998 ------------ ------------ ---------- ----------- ---------- ----------- Increase (decrease) in net assets from operations: Net investment income.......................... $ 2,141,880 $ 529,375 $ 158,126 $ 57,408 $ 33,778 $ 17,649 Net realized gains (losses).................... 485,643 271,978 443,879 (14,302) (151) 3,991 Net unrealized appreciation (depreciation) during the period.............. (8,035,375) 1,282,937 585,673 63,359 (52,953) 4,308 ----------- ----------- ---------- ---------- --------- -------- Net increase (decrease) in net assets resulting from operations..................... (5,407,852) 2,084,290 1,187,678 106,465 (19,326) 25,948 From policyholder transactions: Net premiums from policyholders................ 43,728,519 6,697,385 4,822,053 396,099 696,619 381,024 Net benefits to policyholders.................. (2,630,030) (1,623,429) (885,493) (192,421) (317,999) (83,865) Net increase (decrease) in policy loans........ -- -- -- -- -- -- ----------- ----------- ---------- ---------- --------- -------- Net increase in net assets resulting from policyholder transactions...................... 41,098,489 5,073,956 3,936,560 203,678 378,620 297,159 ----------- ----------- ---------- ---------- --------- -------- Net increase in net assets...................... 35,690,637 7,158,246 5,124,238 310,143 359,294 323,107 Net assets at beginning of period.............. 14,406,079 7,247,833 2,123,595 829,718 470,424 147,317 ----------- ----------- ---------- ---------- --------- -------- Net assets at end of period..................... $50,096,716 $14,406,079 $7,247,833 $1,139,861 $ 829,718 $470,424 =========== =========== ========== ========== ========= ======== Brandes International Equity Turner Core Growth Subaccount Subaccount ------------------------------- ----------------------------------- 2000 1999 1998 2000 1999 1998 ---------- --------- -------- ----------- --------- ----------- Increase (decrease) in net assets from operations: Net investment income..................................... $ 50,617 $ 18,189 $ 1,666 $ 87,962 $ 14,188 $ 13,286 Net realized gains........................................ 20,969 26,736 2,780 13,902 11,526 600 Net unrealized appreciation (depreciation) during the period........................................ (120,040) 23,628 22,686 (35,201) 122,734 8,581 --------- -------- -------- ---------- -------- -------- Net increase (decrease) in net assets resulting from operations................................................ (48,454) 68,553 27,132 66,663 148,448 22,467 From policyholder transactions: Net premiums from policyholders........................... 192,556 109,802 39,070 616,308 152,629 141,892 Net benefits to policyholders............................. (31,415) (45,555) (9,835) (39,267) (31,332) (34,941) Net increase (decrease) in policy loans................... -- -- -- -- -- -- ---------- -------- -------- ---------- -------- -------- Net increase in net assets resulting from policyholder transactions................................ 161,141 64,247 29,235 577,041 121,297 106,951 --------- -------- -------- ---------- -------- -------- Net increase in net assets................................. 112,687 132,800 56,367 643,704 269,745 129,418 Net assets at beginning of period.......................... 257,807 125,007 68,640 525,502 255,757 126,339 --------- -------- -------- ---------- -------- -------- Net assets at end of period................................ $ 370,494 $257,807 $125,007 $1,169,206 $525,502 $255,757 ========= ======== ======== ========== ======== ======== See accompanying notes. 163 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF CHANGES IN NET ASSETS (continued) Years and periods ended December 31, Frontier Capital Appreciation Subaccount Emerging Markets Equity Subaccount ----------------------------------------- ----------------------------------- 2000 1999 1998 2000 1999 1998* ------------ -------------- ------------- ------------- ----------- ------- Increase (decrease) in net assets from operations: Net investment income (loss)..................... $ 130,136 $ 8,771 $ (614) $ 58,591 $ 15,170 $ 1 Net realized gains (losses)...................... 68,311 (59,550) 23,061 19,902 1,838 (1) Net unrealized appreciation (depreciation) during the period.............................. (175,994) 89,369 (840) (571,486) 92,713 (48) --------- ----------- ---------- ---------- -------- ---- Net increase (decrease) in net assets resulting from operations.................................. 22,453 38,590 21,607 (492,993) 109,721 (48) From policyholder transactions: Net premiums from policyholders.................. 219,803 103,675 2,465,299 1,133,676 336,277 784 Net benefits to policyholders.................... (179,523) (2,221,410) (227,386) (337,143) (8,915) (7) Net increase in policy loans..................... -- -- -- -- -- -- --------- ----------- ---------- ---------- -------- ---- Net increase (decrease) in net assets resulting from policyholder transactions................... 40,280 (2,117,735) 2,237,913 796,533 327,362 777 --------- ----------- ---------- ---------- -------- ---- Net increase (decrease) in net assets.............. 62,733 (2,079,145) 2,259,520 303,540 437,083 729 Net assets at beginning of period.................. 453,983 2,533,128 273,608 437,812 729 -- --------- ----------- ---------- ---------- -------- ---- Net assets at end of period........................ $ 516,716 $ 453,983 $2,533,128 $ 741,352 $437,812 $729 ========= =========== ========== ========== ======== ==== Bond Index Subaccount Small /Mid Cap CORE Subaccount ----------------------------- -------------------------------- 2000 1999 1998* 2000 1999 1998* --------- --------- -------- ---------- ---------- -------- Increase (decrease) in net assets from operations: Net investment income (loss)...................... $ 6,712 $ 2,701 $ 285 $ 21,792 $ 6,364 $ (48) Net realized gains (losses)....................... (607) (1,613) (26) 1,505 1,093 (1,957) Net unrealized appreciation (depreciation) during the period................................ 6,100 (1,753) (147) (13,928) 4,719 1,888 -------- -------- ------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations........................................ 12,205 (665) 112 9,369 12,176 (117) From policyholder transactions: Net premiums from policyholders................... 196,240 80,921 16,730 479,768 44,493 52,673 Net benefits to policyholders..................... (16,742) (20,596) (2,293) (6,951) (12,003) (19,857) Net increase in policy loans...................... -- -- -- -- -- -- -------- -------- ------- -------- -------- -------- Net increase in net assets resulting from policyholder transactions......................... 179,498 60,325 14,437 472,817 32,490 32,816 -------- -------- ------- -------- -------- -------- Net increase in net assets.......................... 191,703 59,660 14,549 482,186 44,666 32,699 Net assets at beginning of period................... 74,209 14,549 -- 77,365 32,699 -- -------- -------- ------- -------- -------- -------- Net assets at end of period......................... $265,912 $ 74,209 $14,549 $559,551 $ 77,365 $ 32,699 ======== ======== ======= ======== ======== ======== ________________________ * From May 1, 1998 (commencement of operations). See accompanying notes. 164 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF CHANGES IN NET ASSETS (continued) Years and periods ended December 31, High Yield Bond Subaccount Clifton Enhanced US Equity Subaccount -------------------------------- -------------------------------------- 2000 1999 1998* 2000 1999** ----------- -------- ---------- ------------------ ------------------ Increase (decrease) in net assets from operations: Net investment income................................ $ 78,692 $ 2,791 $ 48 $ 3,190 $ 1,374 Net realized gains (loss)............................ (12,114) (396) (108) 302 11 Net unrealized appreciation (depreciation) during the period......................................... (188,735) (1,172) (19) (5,562) 1,285 ---------- ------- --------- ------- ------- Net increase (decrease) in net assets resulting from operations........................................... (122,157) 1,223 (79) (2,070) 2,670 From policyholder transactions: Net premiums from policyholders...................... 1,514,684 69,375 108,274 16,541 15,505 Net benefits to policyholders........................ (88,711) -- (102,742) (9,351) -- Net increase in policy loans......................... -- -- -- -- -- ---------- ------- --------- ------- ------- Net increase in net assets resulting from policyholder transactions......................................... 1,425,973 69,375 5,532 7,190 15,505 ---------- ------- --------- ------- ------- Net increase in net assets............................. 1,303,816 70,598 5,453 5,120 18,175 Net assets at beginning of period...................... 76,051 5,453 -- 18,175 -- ---------- ------- --------- ------- ------- Net assets at end of period............................ $1,379,867 $76,051 $ 5,453 $23,295 $18,175 ========== ======= ========= ======= ======= Large Cap Aggressive Fundamental AIM V.I. Fidelity VIP Growth Growth Value Growth Fidelity VIP II Subaccount Subaccount Subaccount Subaccount Contrafundsubaccount ---------- ---------- ---------- ---------- ---------------------- 2000*** 2000*** 2000*** 2000*** 2000*** ---------- ---------- ---------- ---------- ---------------------- Increase (decrease) in net assets from operations: Net investment income (loss)................... $ 30 $ 1,351 $ 230 $ (6) $ (12) Net realized (losses).......................... (8) (10) (11) (7) (4) Net unrealized (depreciation) during the period................................... (616) (1,226) (1,068) (525) (366) ------ ----------- ------- ------ ------- Net increase (decrease) in net assets resulting from operations............................... (594) 115 (849) (538) (382) From policyholder transactions: Net premiums from policyholders................ 2,528 9,264,914 12,213 5,160 13,880 Net benefits to policyholders.................. -- (9,251,776) (6,072) (394) (6,991) Net increase in policy loans................... -- -- -- -- -- ------ ----------- ------- ------ ------- Net increase in net assets resulting from policyholder transactions...................... 2,528 13,138 6,141 4,766 6,889 ------ ----------- ------- ------ ------- Net increase in net assets....................... 1,934 13,253 5,292 4,228 6,507 Net assets at beginning of period................ -- -- -- -- -- ------ ----------- ------- ------ ------- Net assets at end of period...................... $1,934 $ 13,253 $ 5,292 $4,228 $ 6,507 ====== =========== ======= ====== ======= _____________________________ * From May 1, 1998 (commencement of operations). ** From May 1, 1999 (commencement of operations). *** From April 24, 2000 (commencement of operations). See accompanying notes. 165 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV STATEMENTS OF CHANGES IN NET ASSETS (continued) Years and periods ended December 31, Janus Aspen Janus Aspen MFS New Global Technical Worldwide Growth Discovery Subaccount Subaccount Series Subaccount ----------------- ---------------- ------------------- 2000**** 2000**** 2000*** ----------------- ---------------- ------------------- Increase (decrease) in net assets from operations: Net investment income (loss)........................... $ 16 $ (7) $ (19) Net realized (losses).................................. (99) (71) (7) Net unrealized appreciation (depreciation) during the period..................................... (1,649) (717) 197 ------------ --------- ---------- Net increase (decrease) in net assets resulting from operations....................................... (1,732) (795) 171 From policyholder transactions: Net premiums from policyholders........................ 5,487 5,929 37,394 Net benefits to policyholders.......................... -- (470) (18,758) Net increase in policy loans........................... -- -- -- ------------ --------- ---------- Net increase in net assets resulting from policyholder transactions........................ 5,487 5,459 18,636 ------------ --------- ---------- Net increase in net assets.............................. 3,755 4,664 18,807 Net assets at beginning of period....................... -- -- -- ------------ --------- ---------- Net assets at end of period............................. $ 3,755 $ 4,664 $ 18,807 ============ ========= ========== _________________________________________ *** From April 24, 2000 (commencement of operations). **** From June 29, 2000 (commencement of operations). See accompanying notes. 166 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV NOTES TO FINANCIAL STATEMENTS December 31, 2000 1. Organization John Hancock Mutual Variable Life Insurance Account UV (the Account) is a separate investment account of John Hancock Mutual Life Insurance Company (JHMVLICO or John Hancock). John Hancock Mutual Variable Life Insurance Account UV was formed to fund variable life insurance policies (Policies) issued by JHMVLICO. The Account is operated as a unit investment trust registered under the Investment Company Act of 1940, as amended, and currently consists of thirty-four subaccounts. The assets of each subaccount are invested exclusively in shares of a corresponding Fund of John Hancock Variable Series Trust I (the Trust) or Outside Trust. New subaccounts may be added as new Funds are added to the Trust or to Outside Trust, or as other investment options are developed, and made available to policyholders. The thirty-four Funds of the Trust and Outside Trust which are currently available are the Large Cap Growth, Active Bond (formerly, Sovereign Bond), International Equity Index, Small Cap Growth, Global Balanced (formerly, 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 Equity (formerly, Small Cap Value), International Opportunities, Equity Index, Global Bond (formerly, Strategic Bond), Turner Core Growth, Brandes International Equity, Frontier Capital Appreciation, Emerging Markets Equity, Bond Index, Small/Mid Cap CORE, High Yield Bond, Clifton Enhanced US Equity, Large Cap Aggressive Growth, Fundamental Growth (formerly, Fundamental Mid Cap Growth), AIM V.I. Value, Fidelity VIP Growth, Fidelity VIP II Contrafund, Janus Aspen Global Technology, Janus Aspen Worldwide Growth, and MFS New Discovery Series subaccounts. Each Fund 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 accounting principles generally accepted in the United States 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 Trust and of Outside Trust are valued at the reported net asset values of the respective Funds. 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 Fund shares are determined on the basis of identified cost. 167 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV NOTES TO FINANCIAL STATEMENTS (continued) Federal Income Taxes The operations of the Account are included in the federal income tax return of JHVLICO, which is taxed as a life insurance company under the Internal Revenue Code. JHVLICO has the right to charge the Account any federal income taxes, or provision for federal income taxes, attributable to the operations of the Account or to the Policies funded in the Account. Currently, JHVLICO does not make a charge for income or other taxes. Charges for state and local taxes, if any, attributable to the Account may also be made. Expenses JHVLICO assumes mortality and expense risks of the variable life insurance policies for which asset charges are deducted at various rates ranging from .50% to .625%, depending on the type of policy, of net assets (excluding policy loans) of the Account. Additionally, a monthly charge at varying levels for the cost of extra insurance is deducted from the net assets of the Account. JHVLICO makes certain deductions for administrative expenses and state premium taxes from premium payments before amounts are transferred to the Account. 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. 3. Transactions with Affiliates JHVLICO acts as the distributor, principal underwriter and investment advisor for the Fund. Certain officers of the Account are officers and directors of JHVLICO or the Fund. 168 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV NOTES TO FINANCIAL STATEMENTS (continued) 4. Details of Investments The details of the shares owned and cost and value of investments in the Subaccounts of the Trust and of Outside Trusts at December 31, 2000 were as follows: Subaccount Shares Owned Cost Value - ------------------------------------------------------------------------ Large Cap Growth 2,134,279 $ 49,726,695 $ 40,309,354 Active Bond 9,220,332 89,132,947 87,068,487 International Equity Index 418,581 7,018,825 6,443,455 Small Cap Growth 469,884 7,618,520 6,381,819 Global Balanced 18,730 195,343 173,721 Mid Cap Growth 940,768 21,821,280 14,676,946 Large Cap Value 1,042,527 14,485,880 14,990,188 Money Market 2,396,674 23,979,125 23,979,125 Mid Cap Value 573,188 7,672,317 8,399,009 Small/Mid Cap Growth 427,288 6,411,225 5,855,422 Real Estate Equity 410,488 5,654,057 5,654,199 Growth & Income 16,464,612 264,186,266 233,488,134 Managed 7,151,246 101,360,593 98,868,851 Short-Term Bond 36,191 357,048 356,968 Small Cap Equity 453,079 5,074,119 4,141,822 International Opportunities 916,359 12,702,732 10,859,971 Equity Index 2,839,312 56,110,489 50,096,716 Global Bond 109,624 1,123,879 1,139,861 Turner Core Growth 21,099 436,949 370,494 Brandes International Equity 78,208 1,075,621 1,169,206 Frontier Capital Appreciation 29,955 570,395 516,716 Emerging Markets 110,662,958 1,220,174 741,352 Bond Index 27,296 261,716 265,912 Small/Mid Cap CORE 57,007 566,872 559,551 High Yield Bond 182,888 1,569,793 1,379,867 Clifton Enhanced U.S. Equity 1,427 27,572 23,295 Large Cap Aggressive Growth 203 2,550 1,934 Fundamental Growth 1,059 14,479 13,253 AIM V.I. Value 194 6,361 5,292 Fidelity VIP Growth 97 4,753 4,228 Fidelity VIP II Contrafund 275 6,874 6,507 Janus Aspen Global Technology 573 5,404 3,755 Janus Aspen Worldwide Growth 127 5,380 4,664 MFS New Discovery Series 1,132 18,610 18,807 169 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV NOTES TO FINANCIAL STATEMENTS (continued) 4. Details of Investments (continued) Purchases, including reinvestment of dividend distributions and proceeds from the sales of shares in the Subaccounts of the Trust and of Outside Trusts during 2000 were as follows: Subaccount Purchases Sales - ------------------------------------------------------------------ Large Cap Growth $18,258,586 $ 4,179,799 Active Bond 21,683,388 8,059,756 International Equity Inde 1,819,131 600,051 Small Cap Growth 4,728,339 363,705 Global Balanced 73,877 74,938 Mid Cap Growth 15,044,085 4,179,188 Large Cap Value 8,324,134 2,404,233 Money Market 25,074,870 19,446,917 Mid Cap Value 3,589,187 698,784 Small/Mid Cap Growth 1,603,684 1,094,974 Real Estate Equity 1,807,284 703,801 Growth & Income 57,305,890 53,160,381 Managed 15,768,185 12,350,769 Short-Term Bond 168,738 55,151 Small Cap Equity 1,883,002 429,250 International Opportunities 11,983,910 2,604,191 Equity Index 46,207,986 2,967,617 Global Bond 456,473 195,388 Turner Core Growth 260,382 48,624 Brandes International Equity 707,500 42,497 Frontier Capital Appreciation 364,918 194,503 Emerging Markets 1,122,971 267,846 Bond Index 332,405 146,196 Small/Mid Cap CORE 504,485 9,875 High Yield Bond 1,777,756 273,092 Clifton Enhanced U.S. Equity 19,876 9,496 Large Cap Aggressive Growth 2,611 52 Fundamental Growth 14,558 69 AIM V.I. Value 6,455 83 Fidelity VIP Growth 4,825 65 Fidelity VIP II Contrafund 6,967 89 Janus Aspen Global Technology. 5,776 273 Janus Aspen Worldwide Growth 5,930 479 MFS New Discovery Series 18,733 116 170 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV 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, 2000 were as follows: UV VLI Class #1 UV VLI Class #2 UV MVL Class #3 ------------------------------------------------------------------------------------------- Accumulation Accumulation Accumulation Accumulation Accumulation Accumulation Subaccount Shares Share Values Shares Share Values Shares Share Values - ------------------------------------------------------------------------------------------------------------------------------- Large Cap Growth 301,994 $ 71 -- -- 47,403 $65.04 Active Bond 301,994 62 301,994 $ 62.65 19,396 26.01 International Equity Index 301,994 23 -- -- 21,835 22.61 Small Cap Growth -- -- -- -- 84,323 16.94 Global Balanced -- -- -- -- 6,978 12.01 Mid Cap Growth -- -- -- -- 150,842 22.69 Large Cap Value -- -- -- -- 69,602 18.15 Money Market 301,994 33 301,994 33.36 149,377 19.12 Mid Cap Value -- -- -- -- 81,913 17.95 Small/Mid Cap Growth -- -- -- -- 27,289 21.50 Real Estate Equity 301,994 29 -- -- 20,927 29.12 Growth & Income 301,994 162 301,994 162.20 134,966 58.85 Managed 301,994 46 -- -- 52,738 39.43 Short-Term Bond -- -- -- -- 5,572 16.94 Small Cap Equity -- -- -- -- 38,204 11.15 International Opportunities -- -- -- -- 34,841 13.75 Equity Index -- -- -- -- 266,104 20.84 Global Bond -- -- -- -- 23,292 13.54 Turner Core Growth -- -- -- -- 4,834 23.25 Brandes International Equity -- -- -- -- 19,563 17.87 Frontier Capital Appreciation -- -- -- -- 2,760 22.59 Emerging Markets Equity -- -- -- -- 17,441 7.62 Bond Index -- -- -- -- 5,016 11.49 Small/Mid Cap CORE -- -- -- -- 3,381 11.19 High Yield Bond -- -- -- -- 31,917 8.95 Clifton Enhanced US Equity -- -- -- -- 1,965 11.85 Large Cap Aggressive Growth -- -- -- -- -- -- Fundamental Growth -- -- -- -- -- -- AIM V.I. Value -- -- -- -- -- -- Fidelity VIP Growth -- -- -- -- -- -- Fidelity VIP II Contrafund -- -- -- -- -- -- Janus Aspen Global Technology -- -- -- -- -- -- Janus Aspen Worldwide Growth -- -- -- -- -- -- MFS New Discovery Series -- -- -- -- -- -- 171 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV NOTES TO FINANCIAL STATEMENTS (continued) 5. Net Assets (continued) UV Flex Class #4 UV Flex II Class #5 UV Flex Class #9 --------------------------------------------------------------------------------------------- Accumulation Accumulation Accumulation Accumulation Accumulation Accumulation Subaccount Shares Share Values Shares Share Values Shares Share Values - ----------------------------------------------------------------------------------------------------------------------------- Large Cap Growth 355,536 $65.04 27,727 $65.04 2,052 $28.09 Active Bond 1,688,399 26.01 12,973 26.01 -- 15.25 International Equity Index 151,89 22.61 11,943 22.61 -- -- Small Cap Growth 240,785 16.94 35,289 16.94 -- 17.00 Global Balanced 3,671 12.01 3,495 12.01 -- 12.05 Mid Cap Growth 417,189 22.69 45,217 22.69 -- 22.77 Large Cap Value 681,933 18.15 44,769 18.15 -- 18.22 Money Market 639,493 19.12 9,562 19.12 -- 13.91 Mid Cap Value 325,982 17.95 30,538 17.95 -- 18.01 Small/Mid Cap Growth 225,097 21.50 9,052 21.50 -- 21.61 Real Estate Equity 109,667 29.11 8,662 29.11 -- 19.07 Growth & Income 1,397,476 58.85 72,875 58.85 3,195 26.87 Managed 1,120,465 39.43 34,455 39.42 -- 20.90 Short-Term Bond 14,895 13.94 3,097 13.94 -- 14.01 Small Cap Equity 290,429 11.15 26,171 11.15 -- 11.19 International Opportunities 711,861 13.75 13,887 13.75 4,650 13.79 Equity Index 1,994,107 20.84 71,508 20.84 -- 20.91 Global Bond 47,066 13.54 9,112 13.54 -- 13.58 Turner Core Growth 11,094 23.25 -- 23.25 -- 25.11 Brandes International Equity 34,475 17.87 525 17.87 -- 17.72 Frontier Capital Appreciation 14,908 22.59 275 22.59 4,318 24.40 Emerging Markets Equity 62,103 7.62 7,993 7.62 -- 7.62 Bond Index 17,515 11.49 279 11.49 131 11.50 Small/Mid Cap CORE 30,190 11.19 1,187 11.19 619 11.20 High Yield Bond 119,207 8.95 2,037 8.95 150 8.96 Clifton Enhanced US Equity -- 11.85 -- 11.85 -- 15.66 Large Cap Aggressive Growth -- -- -- -- -- 8.15 Fundamental Growth -- -- -- -- -- 10.29 AIM V.I. Value -- -- -- -- -- 8.43 Fidelity VIP Growth -- -- -- -- -- 9.00 Fidelity VIP II Contrafund -- -- -- -- -- 9.64 Janus Aspen Global Technology -- -- -- -- -- 6.75 Janus Aspen Worldwide Growth -- -- -- -- -- 8.33 MFS New Discovery Series -- -- -- -- -- 10.01 172 JOHN HANCOCK VARIABLE LIFE INSURANCE ACCOUNT UV NOTES TO FINANCIAL STATEMENTS (continued) 5. Net Assets (continued) UV Flex Class #7 UV Flex Class #8 ------------------------------------------------------------------------ Accumulation Accumulation Accumulation Accumulation Subaccount Shares Share Values Shares Share Values - ----------------------------------------------------------------------------------------------------------------------- Large Cap Growth 19,225 $27.90 15,279 $28.00 Active Bond 16,904 15.14 5,716 15.20 International Equity Index 16,614 14.38 6,359 14.43 Small Cap Growth 13,382 16.92 2,435 16.96 Global Balanced 306 12.00 -- 12.02 Mid Cap Growth 18,928 22.66 13,296 22.72 Large Cap Value 16,837 18.13 11,888 18.17 Money Market 39,349 13.82 41,887 13.86 Mid Cap Value 25,905 17.93 739 17.97 Small/Mid Cap Growth 5,259 21.47 5,994 21.54 Real Estate Equity 994 18.94 -- 18.90 Growth & Income 76,640 26.69 31,028 26.78 Managed 18,772 20.76 11,996 20.83 Short-Term Bond 1,913 13.92 -- 13.96 Small Cap Equity 14,147 11.14 2,300 11.17 International Opportunities 15,888 13.73 8,391 13.76 Equity Index 43,161 20.82 28,088 20.87 Global Bond 4,702 13.52 -- 13.55 Turner Core Growth -- 24.98 -- 25.05 Brandes International Equity 723 17.63 10,258 17.67 Frontier Capital Appreciation -- 24.46 225 24.34 Emerging Markets Equity -- 7.63 8,858 7.61 Bond Index -- 11.51 194 11.49 Small/Mid Cap CORE -- 11.22 14,619 11.19 High Yield Bond -- 8.97 829 8.95 Clifton Enhanced US Equity -- 15.69 -- 15.64 Large Cap Aggressive Growth -- 8.15 238 8.14 Fundamental Growth -- 10.30 1,288 10.29 AIM V.I. Value -- 8.43 628 8.42 Fidelity VIP Growth -- 9.00 470 9.00 Fidelity VIP II Contrafund -- 9.65 675 9.64 Janus Aspen Global Technology -- 6.75 556 6.75 Janus Aspen Worldwide Growth -- 8.33 560 8.33 MFS New Discovery Series -- 10.02 1,879 10.01 173 ALPHABETICAL INDEX OF KEY WORDS AND PHRASES This index should help you locate more information about many of the important concepts in this prospectus. Key Word or Phrase Page Key Word or Phrase Page Account................................... 30 modified endowment......................... 38 account value............................. 8 monthly deduction date..................... 32 Additional Sum Insured.................... 15 Option A; Option B......................... 15 asset-based risk charge................... 9 optional rider benefits.................... 16 attained age.............................. 9 owner...................................... 5 Basic Sum Insured......................... 15 partial withdrawal......................... 14 beneficiary............................... 41 partial withdrawal charge.................. 10 business day.............................. 30 payment options............................ 18 changing Option A or B.................... 17 Planned Premium............................ 6 changing the Total Sum Insured............ 17 policy anniversary......................... 31 charges................................... 8 policy year................................ 31 Code...................................... 37 premium; premium payment................... 5 cost of insurance rates................... 9 premium sales charge....................... 9 date of issue............................. 31 prospectus................................. 3 death benefit............................. 5 receive; receipt........................... 20 deductions................................ 8 reinstate; reinstatement................... 7 expenses of the Series Funds.............. 10 SEC........................................ 2 fixed investment option................... 30 Separate Account UV........................ 30 full surrender............................ 13 Series Funds............................... 2 fund...................................... 2 Servicing Office........................... 2 grace period.............................. 7 special loan account....................... 14 guaranteed death benefit feature.......... 7 subaccount................................. 30 Guaranteed Death Benefit Premium.......... 7 surrender.................................. 5 insurance charge.......................... 9 surrender value............................ 13 insured person............................ 5 Target Premium............................. 9 investment options........................ 1 tax considerations......................... 36 John Hancock.............................. 30 telephone transfers........................ 21 lapse..................................... 7 Total Sum Insured.......................... 15 loan...................................... 14 transfers of account value................. 13 loan interest............................. 14 variable investment options................ 1 maximum premiums.......................... 6 we; us..................................... 30 Maximum Initial Premium................... 31 withdrawal................................. 14 minimum insurance amount.................. 15 withdrawal charges......................... 10 minimum premiums.......................... 6 you; your.................................. 5 174 PART II UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that Section. REPRESENTATION OF REASONABLENESS John Hancock Life Insurance Company represents that the fees and charges deducted under the Policies, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company. UNDERTAKING REGARDING INDEMNIFICATION Pursuant to Article 8 of John Hancock's Bylaws and Section 67 of the Massachusetts Business Corporation Law, John Hancock indemnifies each director, former director, officer, and former officer, and his heirs and legal representatives from liability incurred or imposed in connection with any legal action in which he may be involved by reason of any alleged act or omission as an officer or a director of John Hancock. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. CONTENTS OF REGISTRATION STATEMENT This Registration Statement comprises the following Papers and Documents: The facing sheet. The prospectus containing 174 pages. The undertaking to file reports. The undertaking regarding indemnification. The signatures. The following exhibits: I.A. (1) John Hancock Board Resolution establishing the separate account incorporated by reference to Post-Effective Amendment No. 3 to (File No. 33-63842) Form S-6 Registration Statement, filed March 5, 1996. (2) Not Applicable (3) (a) Form of Distribution Agreement by and among Signator Investors Inc., (formerly known as "John Hancock Distributors, Inc.",) John Hancock Life Insurance Company (formerly known as "John Hancock Mutual Life Insurance Company"), and John Hancock Variable Life Insurance Company, incorporated by reference from Pre-Effective Amendment No. 2 to Form S-6 Registration Statement of John Hancock Variable Life Account S (File No. 333-15075) filed April 18, 1997. (b) Specimen Variable Contracts Selling Agreement between Signator Investors, Inc. and selling broker-dealers, incorporated by reference from Pre-Effective Amendment No. 2 to Form S-6 Registration Statement of John Hancock Variable Life Account S (File No. 333-15075) filed April 18, 1997. (c) Schedule of sales commissions included in Exhibit 1.A.(3)(a) above. (d) Form of Marketing and Distribution Agreement between John Hancock Life Insurance Company, and John Hancock Funds, Inc., incorporated by reference to John Hancock Variable Annuity Account H Initial Registration Statement (File No. 811-0711), filed on July 18, 1996 (e) Form of Soliciting Dealer Agreement between John Hancock Funds, Inc., and soliciting broker-dealers or financial institutions participating in distribution of Contracts, incorporated by reference to Form S-1 Registration Statment for John Hancock Variable Life Insurance Company (File No. 33-64945), filed electronically on April 23, 1997. (f) Schedule of sales commissions included in Exhibit 1.A.(3)(d) above. (4) Not Applicable (5) Form of flexible premium variable life insurance policy, filed herewith. (6) Restated Articles of Organization and Restated and Amendment of By- Laws are incorporated by reference from Form S-6 to Post-Effective Amendment No. 10 (File 333-76662), filed on March 7, 2001. (7) Not Applicable. (8) (a) Participation Agreement Among Variable Insurance Products Fund II, Fidelity Distributors Corporation and John Hancock Mutual Life Insurance Company, filed in Post-Effective Amendment No. 1 to file No. 333-81127, filed May 4, 2000. (b) Participation Agreement Among Variable Insurance Products Fund, Fidelity Distributors Corporation and John Hancock Mutual Life Insurance Company, filed in Post-Effective Amendment No. 1 to file No. 333-81127, filed May 4, 2000. (c) Participation Agreement Among MFS Variable Insurance Trust, John Hancock Mutual life Insurance Company and Massachusetts Financial Services Company, filed in Post-Effective Amendment No. 1 to file No. 333-81127, filed May 4, 2000. (d) Participation Agreement By And Among AIM Variable Insurance Funds, Inc., AIM Distributors, Inc., John Hancock Mutual Life Insurance Company and Certain Of Its Affiliated Insurance Companies, Each On Behalf Of Itself And Its Separate Accounts, And John Hancock Funds, Inc., filed in Post-Effective Amendment No. 1 to file No. 333-81127, filed May 4, 2000. (e) Participation Agreement between Janus Aspen Series, Janus Capital Corp., and John Hancock Variable Life Insurance Company, incorporated by reference to File 333-425, filed on Form S-6 on November 1, 2001. (9) Not Applicable. (10) Form of application for Policy, filed herewith. (11) Not applicable. The Registrant invests only in shares of open-end Funds. 2. Included as exhibit 1.A(5) above 3. Opinion and consent of counsel as to securities being registered to be filed by pre-effective amendment. 4. Not Applicable 5. Not Applicable 6. Opinion and consent of actuary, filed herewith. 7. Consent of independent auditors to be filed by pre-effective amendment. 8. Memorandum describing John Hancock's issuance, transfer and redemption procedures for the policy pursuant to Rule 6e-2(b)(l2)(ii)included in Post- Effective Amendment No. 3 to this Form S-6 Registration Statement, incorporated by reference to this file, filed March 5, 1996. 9. Power of attorney for David F. D'Alessandro, Foster L. Aborn, I. MacAllister Booth, Wayne A. Budd, John M. Gifford, Michael C. Hawley, Edward H. Linde, Judith A. McHale, R. Robert Popeo, Richard F. Syron and Robert J. Tarr are incorporated by reference to File No. 333-45862, Pre-Effective Amendment No. 1, filed on December 27, 2000. Pursuant to the requirements of the Securities Act of 1933, the John Hancock Life Insurance Company has duly caused this Initial Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, and attested, all in the City of Boston and Commonwealth of Massachusetts on the 22nd day of June, 2001. On behalf of the Registrant By John Hancock Life Insurance Company (Depositor) By /s/ DAVID F. D'ALESSANDRO --------------------------------- David F. D'Alessandro Chairman, President and Chief Executive Officer Attest: /s/ RONALD J. BOCAGE ---------------------- Ronald J. Bocage Vice President and Counsel Pursuant to the requirements of the Securities Act of 1933, this Initial Registration Statement has been signed below by the following persons in the capacities with John Hancock Life Insurance Company and on the dates indicated. SIGNATURE TITLE DATE - --------- ----- ---- /s/ THOMAS E. MOLONEY Chief Financial Officer ---------------------- (Principal Financial Officer Thomas E. Moloney and Principal Accounting Officer) June 22, 2001 Chairman, President and Chief Executive Officer /s/ DAVID F. D'ALESSANDRO (Principal Executive Officer) ------------------------ David F. D'Alessandro June 22, 2001 for himself and as Attorney-in-Fact FOR: Foster L. Aborn Director Samuel W. Bodman Director I. MacAllister Booth Director Wayne A. Budd Director John M. Connors, Jr. Director Robert E. Fast Director Kathleen Foley Feldstein Director Nelson F. Gifford Director Michael C. Hawley Director Edward H. Linde Director Judith A. McHale Director R. Robert Popeo Director Richard F. Syron Director Robert J. Tarr, Jr. Director