UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

             |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2001

                        Commission File Number: 33-62895

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
                Exact name of registrant as specified in charter

                MASSACHUSETTS                                     04-2664016
(State or other jurisdiction of incorporation                 (I.R.S. Employer
               or organization)                              Identification No.)

                              200 Clarendon Street
                           Boston, Massachusetts 02117
                    (Address of principal executive offices)

                                 (617) 572-6000
              (Registrant's telephone number, including area code)

      Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

      Number of shares outstanding of our only class of common stock as of
November 9, 2001:

                                     50,000


                                       1
<PAGE>

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                              September 30,
                                                                  2001           December 31,
                                                               (Unaudited)          2000
                                                              -------------------------------
                                                                      (in millions)
<S>                                                             <C>               <C>
Assets

Investments
Fixed maturities:
   Held-to-maturity--at amortized cost
   (fair value: September 30--$79.5; December 31--$686.8) ..    $    80.8         $   715.4
   Available-for-sale--at fair value
   (cost: September 30--$2,115.7; December 31--$1,018.8) ...      2,183.7           1,011.8
Equity securities:
   Available-for-sale--at fair value
   (cost: September 30--$13.1; December 31--$7.1) ..........          9.1               8.1
Mortgage loans on real estate ..............................        546.1             554.8
Real estate ................................................         24.4              23.9
Policy loans ...............................................        350.9             334.2
Short-term investments .....................................          6.9              21.7
Other invested assets ......................................         43.5              34.8
                                                              -------------------------------

   Total Investments .......................................      3,245.4           2,704.7

Cash and cash equivalents ..................................        133.1             277.3
Accrued investment income ..................................         62.2              52.1
Premiums and accounts receivable ...........................          3.5               7.0
Deferred policy acquisition costs ..........................      1,038.3             994.1
Reinsurance recoverable ....................................        105.4              48.4
Other assets ...............................................         60.1              28.2
Separate accounts assets ...................................      6,188.5           8,082.9
                                                              -------------------------------

   Total Assets ............................................    $10,836.5         $12,194.7
                                                              ===============================
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
financial statements.


                                       2
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

                   CONSOLIDATED BALANCE SHEETS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                         September 30,
                                                                             2001         December 31,
                                                                          (Unaudited)         2000
                                                                         ------------------------------
                                                                                  (in millions)
<S>                                                                        <C>              <C>
Liabilities and Shareholder's Equity

Liabilities
Future policy benefits ...............................................     $ 3,107.4        $ 2,754.2
Policyholders' funds .................................................           5.7             14.2
Unearned revenue .....................................................         217.4            212.0
Unpaid claims and claim expense reserves .............................          22.6             11.1
Dividends payable to policyholders ...................................           0.2              0.1
Income taxes .........................................................         150.7             64.2
Other liabilities ....................................................         212.1            250.4
Separate accounts liabilities ........................................       6,188.5          8,082.9
                                                                         ------------------------------

   Total Liabilities .................................................       9,904.6         11,389.1

Commitments and contingencies

Shareholder's Equity
Common stock, $50 par value; 50,000 shares authorized; 50,000
   shares issued and outstanding .....................................           2.5              2.5
Additional paid in capital ...........................................         572.4            572.4
Retained earnings ....................................................         330.7            232.9
Accumulated other comprehensive income (loss) ........................          26.3             (2.2)
                                                                         ------------------------------

   Total Shareholder's Equity ........................................         931.9            805.6
                                                                         ------------------------------

   Total Liabilities and Shareholder's Equity ........................     $10,836.5        $12,194.7
                                                                         ==============================
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
financial statements.


                                       3
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

                   UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                Three Months Ended   Nine Months Ended
                                                                                   September 30,       September 30,
                                                                                  2001      2000      2001      2000
                                                                               ----------------------------------------
                                                                                             (in millions)
<S>                                                                              <C>       <C>       <C>       <C>
Revenues
   Premiums ..................................................................   $ 15.0    $  5.6    $ 46.7    $ 20.5
   Universal life and investment-type product charges ........................     87.1      88.0     272.3     256.5
   Net investment income .....................................................     57.6      54.8     168.1     157.9
   Net realized investment and other gains (losses), net of related
     amortization of deferred policy acquisition costs $(1.2) and
     $(0.3) for the three months ended September 30, 2001 and 2000
     and $(0.1) and $(0.9) for the nine months ended September 30,
     2001 and 2000, respectively) ............................................     (3.3)     (1.5)     (2.7)    (13.1)
   Other revenue .............................................................      0.1        --       0.2       0.1
                                                                               ----------------------------------------

     Total revenues ..........................................................    156.5     146.9     484.6     421.9

Benefits and Expenses
   Benefits to policyholders .................................................     81.6      62.8     209.9     178.4
   Other operating costs and expenses ........................................     17.9      32.4      61.5      80.4
   Amortization of deferred policy acquisition costs, excluding
     amounts related to net realized investment gains (losses) $(1.2) and
     $(0.3) for the three months ended September 30, 2001 and 2000 and
     $(0.1) and $(0.9) for the nine months ended September 30, 2001
     and 2000, respectively) .................................................     13.1       8.8      50.6      27.1
   Dividends to policyholders ................................................      5.2       6.7      16.1      19.6
                                                                               ----------------------------------------

     Total benefits and expenses .............................................    117.8     110.7     338.1     305.5
                                                                               ----------------------------------------

Income before income taxes and cumulative
   effect of accounting change ...............................................     38.7      36.2     146.5     116.4
Income taxes .................................................................      7.3      13.5      47.1      38.1
                                                                               ----------------------------------------

Income before cumulative effect of accounting change .........................     31.4      22.7      99.4      78.3

Cumulative effect of accounting change, net of tax - Note 1 ..................       --        --      (1.6)       --
                                                                               ----------------------------------------

Net income ...................................................................   $ 31.4    $ 22.7    $ 97.8    $ 78.3
                                                                               ========================================
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
financial statements.


                                       4
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

      UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
                            AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                            Accumulated
                                                    Additional                 Other            Total       Outstanding
                                           Common    Paid In     Retained  Comprehensive    Shareholder's      Shares
                                            Stock    Capital     Earnings     Income           Equity      (in thousands)
                                         ---------------------------------------------------------------------------------
                                                                       (in millions)
<S>                                          <C>      <C>         <C>         <C>              <C>              <C>
Balance at July 1, 2000 ................     $2.5     $572.4      $189.1      $(12.5)          $751.5           50.0

Comprehensive income:
   Net income ..........................                            22.7                         22.7

Other comprehensive income, net of tax:
   Net unrealized gains ................                                         4.4              4.4
                                                                                            -------------
Comprehensive income ...................                                                         27.1
                                         ---------------------------------------------------------------------------------

Balance at September 30, 2000 ..........     $2.5     $572.4      $211.8       $(8.1)          $778.6           50.0
                                         =================================================================================

<CAPTION>
                                                                            Accumulated
                                                    Additional                 Other            Total       Outstanding
                                           Common    Paid In     Retained  Comprehensive    Shareholder's      Shares
                                            Stock    Capital     Earnings     Income           Equity      (in thousands)
                                         ---------------------------------------------------------------------------------
                                                                       (in millions)
<S>                                          <C>      <C>         <C>          <C>             <C>              <C>
Balance at July 1, 2001 ................     $2.5     $572.4      $299.3       $13.0           $887.2           50.0

Comprehensive income:
   Net income ..........................                            31.4                         31.4

Other comprehensive income, net of tax:
   Net unrealized gains ................                                        13.3             13.3
                                                                                            -------------
Comprehensive income ...................                                                         44.7
                                         ---------------------------------------------------------------------------------

Balance at September 30, 2001 ..........     $2.5     $572.4      $330.7       $26.3           $931.9           50.0
                                         =================================================================================
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
financial statements.


                                       5
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

      UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
                            AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                            Accumulated
                                                    Additional                 Other            Total       Outstanding
                                           Common    Paid In     Retained  Comprehensive    Shareholder's      Shares
                                            Stock    Capital     Earnings     Income           Equity      (in thousands)
                                         ---------------------------------------------------------------------------------
                                                                       (in millions)
<S>                                          <C>      <C>         <C>         <C>              <C>              <C>
Balance at January 1, 2000 .............     $2.5     $572.4      $133.5      $(13.4)          $695.0           50.0

Comprehensive income:
   Net income ..........................                            78.3                         78.3

Other comprehensive income, net of tax:
   Net unrealized gains ................                                         5.3              5.3
                                                                                            -------------
Comprehensive income ...................                                                         83.6
                                         ---------------------------------------------------------------------------------

Balance at September 30, 2000 ..........     $2.5     $572.4      $211.8       $(8.1)          $778.6           50.0
                                         =================================================================================

<CAPTION>
                                                                            Accumulated
                                                    Additional                 Other            Total       Outstanding
                                           Common    Paid In     Retained  Comprehensive    Shareholder's      Shares
                                            Stock    Capital     Earnings     Income           Equity      (in thousands)
                                         ---------------------------------------------------------------------------------
                                                                       (in millions)
<S>                                          <C>      <C>         <C>          <C>             <C>              <C>
Balance at January 1, 2001 .............     $2.5     $572.4      $232.9       $(2.2)          $805.6           50.0

Comprehensive income:
   Net income ..........................                            97.8                         97.8

Other comprehensive income, net of tax:
   Net unrealized gains ................                                        21.3             21.3
                                                                                            -------------
Comprehensive income ...................                                                        119.1
Change in accounting principle .........                                         7.2              7.2
                                         ---------------------------------------------------------------------------------

Balance at September 30, 2001 ..........     $2.5     $572.4      $330.7       $26.3           $931.9           50.0
                                         =================================================================================
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
financial statements.


                                       6
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                Nine Months Ended
                                                                                                  September 30,
                                                                                                 2001       2000
                                                                                              ----------------------
                                                                                                  (in millions)
<S>                                                                                             <C>        <C>
Cash flows from operating activities:
   Net income ..............................................................................    $  97.8    $  78.3
   Adjustments to reconcile net income to net cash provided by operating activities:
     Amortization of discount - fixed maturities ...........................................       (0.1)      (0.9)
     Net realized investment and other gains, net ..........................................        2.7       13.1
     Change in deferred policy acquisition costs ...........................................      (62.8)    (101.8)
     Depreciation and amortization .........................................................        0.5        0.5
     Increase in accrued investment income .................................................      (10.1)     (12.0)
     Decrease in premiums and accounts receivable ..........................................        3.5        5.0
     (Increase) decrease in other assets and other liabilities, net ........................     (131.8)      34.3
     Increase (decrease) in policy liabilities and accruals, net ...........................      272.2     (250.4)
     Increase (decrease) in income taxes ...................................................       71.1      (15.0)
                                                                                              ----------------------

       Net cash provided by (used in) operating activities .................................      243.0     (248.9)

Cash flows from investing activities:
   Sales of:
     Fixed maturities available-for-sale ...................................................       50.9      158.8
     Equity securities available-for-sale ..................................................        4.7        0.7
     Real estate ...........................................................................        0.1        0.1
   Maturities, prepayments and scheduled redemptions of:
     Fixed maturities held-to-maturity .....................................................        3.5       62.0
     Fixed maturities available-for-sale ...................................................      126.9       64.8
     Short-term investments and other invested assets ......................................       36.9       10.1
     Mortgage loans on real estate .........................................................       53.0       36.1
   Purchases of:
     Fixed maturities held-to-maturity .....................................................       (1.2)     (97.0)
     Fixed maturities available-for-sale ...................................................     (654.0)    (342.7)
     Equity securities available-for-sale ..................................................       (1.2)      (0.1)
     Real estate ...........................................................................       (0.5)      (0.3)
     Short-term investments and other invested assets ......................................      (34.2)     (16.2)
     Mortgage loans on real estate issued ..................................................      (43.5)     (83.7)
     Other, net ............................................................................      (22.6)     (39.1)
                                                                                              ----------------------

       Net cash used in investing activities ...............................................     (481.2)    (246.5)

Cash flows from financing activities:
   Universal life and investment-type contract deposits ....................................      813.9      791.9
   Universal life and investment-type contract maturities and withdrawals ..................     (719.9)    (300.2)
                                                                                              ----------------------

       Net cash provided by financing activities ...........................................       94.0      491.7
                                                                                              ----------------------

       Net decrease in cash and cash equivalents ...........................................     (144.2)      (3.7)

Cash and cash equivalents at beginning of period ...........................................      277.3      259.6
                                                                                              ----------------------

       Cash and cash equivalents at end of period ..........................................    $ 133.1    $ 255.9
                                                                                              ======================
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
financial statements.


                                       7
<PAGE>

                  JOHN HANCOCK VARIABLE 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
Variable Life Insurance Company (the Company), a wholly-owned subsidiary of John
Hancock Life Insurance Company (John Hancock or the Parent), have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States 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 and nine month periods ended September 30, 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). 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 for 1999 and 1998 prepared on a statutory-basis are
included in 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 accounting principles generally accepted in the United
States for complete financial statements.

Reorganization and Initial Public Offering

Pursuant to a Plan of Reorganization approved by its 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.

Cumulative Effect of Accounting Change

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." 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 change in
value of the hedged item. If the derivative is accounted for as a hedge,
depending on the nature of the hedge, the change in the fair value of
derivatives is either offset against the change in the fair value of the hedged
asset, liability or firm commitment through earnings or recognized in other
comprehensive income until the change in value of the hedged item is recognized
in earnings. The ineffective portion of a derivative's change in fair value is
recognized immediately in earnings and is included in net realized and other
investment gains. As a result, such amounts are not included in the
determination of the Company's segment after tax operating income. 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.


                                       8
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 1 -- Summary of Significant Accounting Policies - (Continued)

On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended. The Company's risk management
philosophy has not changed as a result of adoption of the Statement. The
adoption of SFAS No. 133, as amended, resulted in a charge to operations of $1.6
million (net of tax of $0.4 million) as of January 1, 2001. In addition, as of
January 1, 2001, a $7.2 million (net of tax of $3.9 million) cumulative effect
of accounting change was recorded in other comprehensive income for the
transition adjustment in the adoption of SFAS No. 133, as amended, and the
reclassification of certain securities from the held-to-maturity category to the
available-for-sale category. The transition adjustment for the adoption of SFAS
No. 133 resulted in an increase in other comprehensive income of $0.8 million
(net of tax of $0.4 million). The adjustment for the reclassification of $0.6
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 $6.4 million (net of tax of $3.4 million) as of January 1, 2001.

New Accounting Pronouncements

In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS No.
141 requires that all business combinations be accounted for under a single
method - the purchase method. Use of the pooling-of-interests method is no
longer permitted. SFAS No. 141 also clarifies the criteria to recognize
intangible assets separately from goodwill. SFAS No. 141 is effective for
business combinations initiated after June 30, 2001.

In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 requires that goodwill and other intangible assets deemed
to have indefinite lives no longer be amortized to earnings, but instead be
reviewed at least annually for impairment. Intangible assets with definite lives
will continue to be amortized over their useful lives. SFAS No. 142 will be
effective January 1, 2002. At September 30, 2001 and 2000, the Company did not
have any indefinite-lived intangible assets.

In September 2001, the FASB's Emerging Issues Task Force reached a consensus on
Issue 01-10, "Accounting for the Impact of the Terrorist Attacks of September
11, 2001." Issue 01-10 presents guidance relative to accounting for and
financial reporting of the events of September 11, 2001 (the Events), including
both how and when to measure, record and report losses and any resulting
liabilities which are directly attributable to the Events. Based on a
comprehensive review of the Company's operations, the Company believes that the
Events had no material financial impact on the earnings or financial position of
the Company.

Codification

In March 1998, the National Association of Insurance Commissioners (NAIC)
adopted codified statutory accounting principles (Codification) that became
effective January 1, 2001. Codification changes prescribed statutory accounting
practices and results in changes to the accounting practices that the Company
uses to prepare its statutory-basis financial statements. The state of domicile
of the Company adopted Codification as the prescribed basis of accounting on
which 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 reduced the Company's
statutory-basis capital and surplus, the Company remains 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 (the parent company service fee) for these services and
facilities based on a number of criteria, which are periodically revised to
reflect continuing changes in the Company's operations. The parent company
service fee is included in other operating costs and expenses within the
Company's income statements. John Hancock charged the Company a service fee of
$40.0 million and $45.0 million for the three month periods ended September 30,
2001 and 2000, respectively, and $120.0 million and $125.6 million for the nine
month periods ended September 30, 2001 and 2000, respectively. As of September
30, 2001, the Company owed John Hancock $12.5 million related to these services,
which is included in other liabilities. John Hancock has


                                       9
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Transactions with Parent - (Continued)

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 also entered into reinsurance agreements with John Hancock which
are further discussed in the Liquidity and Capital Resources section of the Form
10-Q for the period ended September 30, 2001.

Note 3 -- 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, 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.


                                       10
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

      NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 3 -- 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 and other
gains or losses and other unusual or non-recurring events and transactions.
Segment after-tax operating income is determined by adjusting GAAP net income
for net realized investment and other gains and losses 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 net realized investment and other gains (losses), net of related
amortization adjustment for deferred policy acquisition costs; (ii)
restructuring costs related to our distribution systems and retail operations;
(iii) other demutualization related costs; and (iv) the surplus tax.

The following table summarizes selected financial information by segment for the
three and nine month periods ended September 30, 2001 and 2000, respectively,
and reconciles segment revenues and segment after-tax operating income to
amounts reported in the consolidated statements of income (in millions):

<TABLE>
<CAPTION>
                                                                                       Retail
                                                                        Retail         Asset
As of or for the three months ended September 30, 2001:               Protection     Gathering      Consolidated
                                                                      -------------------------------------------
<S>                                                                    <C>            <C>            <C>
Revenues:
   Segment revenues...............................................     $  150.9       $    8.9       $   159.8
   Net realized investment and other losses, net..................         (3.3)            --            (3.3)
                                                                      -------------------------------------------
   Revenues.......................................................     $  147.6       $    8.9       $   156.5
                                                                      ===========================================

   Net investment income..........................................     $   57.9       $   (0.3)      $    57.6
Net Income:
   Segment after-tax operating income.............................     $   26.3       $    2.5       $    28.8
      Net realized investment and other losses, net...............         (2.0)            --            (2.0)
      Surplus tax.................................................          4.6             --             4.6
                                                                      -------------------------------------------
   Net income.....................................................     $   28.9       $    2.5       $    31.4
                                                                      ===========================================
Supplemental Information:
   Equity in net income of investees accounted
     for by the equity method.....................................     $    3.5             --       $     3.5
   Amortization of deferred policy acquisition costs..............         13.0       $    0.1            13.1
   Segment assets.................................................     $9,194.5       $1,642.0       $10,836.5
</TABLE>


                                       11
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 3 -- Segment Information - (Continued)

<TABLE>
<CAPTION>
                                                                                         Retail
                                                                          Retail         Asset
As of or for the three months ended September 30, 2000:                 Protection     Gathering     Consolidated
                                                                      --------------------------------------------
<S>                                                                      <C>           <C>            <C>
Revenues:
   Segment revenues...............................................       $  136.2      $   12.2       $   148.4
   Net realized investment and other losses, net..................           (1.4)         (0.1)           (1.5)
                                                                      --------------------------------------------
   Revenues.......................................................       $  134.8      $   12.1       $   146.9
                                                                      ============================================

   Net investment income..........................................       $   55.4      $   (0.6)      $    54.8
Net Income:
   Segment after-tax operating income.............................       $   24.3      $   (0.7)      $    23.6
      Net realized investment and other losses, net...............           (0.9)         (0.1)           (1.0)
      Surplus tax.................................................             --           0.1             0.1
                                                                      --------------------------------------------
   Net income.....................................................       $   23.4      $   (0.7)      $    22.7
                                                                      ============================================
Supplemental Information:
   Equity in net income of investees accounted
     for by the equity method.....................................       $   (0.1)           --       $    (0.1)
   Amortization of deferred policy
     acquisition costs............................................            5.3      $    3.5             8.8
   Segment assets.................................................       $9,567.1      $3,073.3       $12,640.4

<CAPTION>
                                                                                         Retail
                                                                          Retail         Asset
As of or for the nine months ended September 30, 2001:                  Protection     Gathering     Consolidated
                                                                      --------------------------------------------
<S>                                                                      <C>           <C>            <C>
Revenues:
   Segment revenues...............................................       $  455.9      $   31.4       $   487.3
   Net realized investment and other losses, net..................           (2.7)           --            (2.7)
                                                                      --------------------------------------------
   Revenues.......................................................       $  453.2      $   31.4       $   484.6
                                                                      ============================================

   Net investment income..........................................       $  169.8      $   (1.7)      $   168.1
Net Income:
   Segment after-tax operating income.............................       $   90.7      $    5.9       $    96.6
     Net realized investment and other losses, net................           (1.8)           --            (1.8)
     Surplus tax..................................................            4.6            --             4.6
     Change in accounting principle...............................           (1.6)           --            (1.6)
                                                                      --------------------------------------------
   Net income.....................................................       $   91.9      $    5.9       $    97.8
                                                                      ============================================
Supplemental Information:
   Equity in net income of investees accounted
     for by the equity method.....................................       $    2.2            --       $     2.2
   Amortization of deferred policy acquisition costs..............           41.0      $    9.6            50.6
   Segment assets.................................................       $9,194.5      $1,642.0       $10,836.5
</TABLE>


                                       12
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 3 -- Segment Information - (Continued)

<TABLE>
<CAPTION>
                                                                                      Retail
                                                                        Retail         Asset
As of or for the nine months ended September 30, 2000:                Protection     Gathering      Consolidated
                                                                      -------------------------------------------
<S>                                                                    <C>            <C>            <C>
Revenues:
   Segment revenues...............................................     $  399.3       $   35.7       $   435.0
   Net realized investment and other losses, net..................         (6.8)          (6.3)          (13.1)
                                                                      -------------------------------------------
   Revenues.......................................................     $  392.5       $   29.4       $   421.9
                                                                      ===========================================

   Net investment income..........................................     $  160.1       $   (2.2)      $   157.9
Net Income:
   Segment after-tax operating income.............................     $   80.4       $    5.4       $    85.8
      Net realized investment and other losses, net...............         (4.4)          (4.1)           (8.5)
      Surplus tax.................................................          1.7            0.1             1.8
      Restructuring charges.......................................         (0.2)            --            (0.2)
      Other demutualization related costs.........................         (0.5)          (0.1)           (0.6)
                                                                      -------------------------------------------
   Net income.....................................................     $   77.0       $    1.3       $    78.3
                                                                      ===========================================
Supplemental Information:
   Equity in net income of investees accounted
     for by the equity method.....................................     $    0.5             --       $     0.5
   Amortization of deferred policy acquisition costs..............         14.8       $   12.3            27.1
   Segment assets.................................................     $9,567.1       $3,073.3       $12,640.4
</TABLE>

The Company operates only in the United States and has no reportable major
customers.

Note 4 --  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 of assets and liabilities.

The fair value of derivative instruments classified as assets at September 30,
2001 was $10.9 million, and appears on the Consolidated Balance Sheet in other
assets. The fair value of derivative instruments classified as liabilities at
September 30, 2001 was $17.4 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
No. 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 realized
investment gains and losses. 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, there is no
hedge ineffectiveness because the derivative instrument was constructed such
that all the terms of the derivative exactly match the hedged risk in the hedged
item.

For derivative instruments not designated as hedges, the change in fair value of
the derivative is recorded in realized investment gains and losses.


                                       13
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 4 -- Derivatives and Hedging Instruments - (Continued)

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 realized investment
gains and losses.

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 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 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 and nine month periods ended September 30, 2001, the Company
recognized net losses of $3.7 million and $3.8 million, respectively, related to
the ineffective portion of its fair value hedges, and a net gain of $0.1 million
and a net loss of $0.1 million, respectively, related to the portion of the
hedging instruments that were excluded from the assessment of hedge
effectiveness. For the three months ended September 30, 2001, all of the
Company's hedged firm commitments qualified as fair value hedges.

Cash Flow Hedges

The Company used interest rate cap floor and agreements to hedge the interest
rate risk associated with minimum interest rate guarantees in certain of its
life insurance and annuity businesses.

For the three and nine month periods ended September 30, 2001, the Company
recognized no gains or losses related to the ineffective portion of its cash
flow hedges, and a net gain of $2.9 million and $0.4 million, respectively,
related to the portion of the hedging instruments that was excluded from the
assessment of hedge effectiveness. For the three and nine month periods ended
September 30, 2001, all of the Company's hedged forecasted transactions
qualified as cash flow hedges.

For the three and nine month periods ended September 30, 2001, no amounts were
reclassified from other accumulated comprehensive income to earnings and it is
anticipated that no amounts will be reclassified from other accumulated
comprehensive income to earnings within the next twelve months. The Company does
not enter into hedging transactions for variable cash flows thus the Company
currently has no maximum length for which variable cash flows are hedged.

For the three and nine month periods ended September 30, 2001, none of the
Company's cash flow hedges have been discontinued because of the probability
that the original forecasted transaction would not occur by the end of the
originally specified time period documented at inception of the hedging
relationship.

There was no transition adjustment for the adoption of SFAS No.133 representing
the accumulation in other comprehensive income of the effective portion of the
Company's cash flow hedges as of January 1, 2001. There


                                       14
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 4 -- Derivatives and Hedging Instruments - (Continued)

were no losses incurred for the effective portion of the change in fair value of
derivative instruments designated as cash flow hedges and added to accumulated
other comprehensive income.

Derivatives Not Designated as Hedging Instruments

The Company enters into 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 Hedges without designating
the derivatives as hedging instruments.


                                       15
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

ITEM 2. MANAGEMENT'S DISCUSSION and ANALYSIS OF FINANCIAL CONDITION and RESULTS
of OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) addresses the financial condition of John Hancock Variable
Life Insurance Company (the Company) as of September 30, 2001, compared with
December 31, 2000, and its consolidated results of operations for the three and
nine month periods ended September 30, 2001 and September 30, 2000 and, where
appropriate, factors that may affect future financial performance. This
discussion should be read in conjunction with the Company's MD&A and 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).
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 for 1999 and 1998 prepared on
a statutory-basis are included in the Company's 2000 Form 10-K.

Statements, analyses, and other information contained in this report relating to
trends in the Company's operations and financial results, the markets for the
Company's products, the future development of the Company's business, and the
contingencies and uncertainties to which the Company may be subject, as well as
other statements including words such as "anticipate," "believe," "plan,"
"estimate," "intend," "will," "should," "may," and other similar expressions,
are "forward-looking statements" under the Private Securities Litigation Reform
Act of 1995. Such statements are made based upon management's current
expectations and beliefs concerning future events and their effects on the
Company, which may not be those anticipated by management. The Company's actual
results may differ materially from the results anticipated in these
forward-looking statements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Important Factors that May Affect
Future Results" included herein for a discussion of factors that could cause or
contribute to such material differences.

Overview

We are a leading life insurance company providing a broad range of products and
services in the retail market, which offers insurance protection and asset
gathering products and services, primarily to retail consumers.

Our revenues are derived principally from:

      o     premiums on individual life insurance and annuities with life
            contingencies;

      o     product charges from variable and universal life insurance products
            and annuities;

      o     net investment income and realized investment gains on general
            account assets.

Our expenses consist principally of insurance benefits provided to
policyholders, interest credited on policyholders' general account balances,
dividends to policyholders, other operating costs and expenses, which include
commissions and general business expenses, net of expenses deferred,
amortization of deferred policy acquisition costs, and premium and income taxes.

Our profitability depends in large part upon: (1) the adequacy of our product
pricing, which is primarily a function of competitive conditions, our ability to
assess and manage trends in mortality and morbidity experience, our ability to
generate investment earnings and our ability to maintain expenses in accordance
with pricing assumptions and (2) the maintenance of our target spreads between
the rate of earnings on our investments and rates credited on policyholders'
general account balances.


                                       16
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

Results of Operations

The table below presents the consolidated results of operations for the three
and nine month periods ended September 30, 2001 and 2000, respectively.

<TABLE>
<CAPTION>
                                                            Three months ended          Nine months ended
                                                              September 30,               September 30,
                                                       --------------------------------------------------------
                                                            2001           2000          2001          2000
                                                            ----           ----          ----          ----
                                                                            (in millions)
<S>                                                        <C>            <C>           <C>           <C>
Revenues............................................       $156.5         $146.9        $484.6        $421.9

Benefits and expenses...............................        117.8          110.7         338.1         305.5
                                                       --------------------------------------------------------

Income before income taxes and
   cumulative effect of accounting
   change...........................................         38.7           36.2         146.5         116.4

Income taxes........................................          7.3           13.5          47.1          38.1

Cumulative effect of accounting change, net of tax..           --             --          (1.6)           --
                                                       --------------------------------------------------------

Net income..........................................       $ 31.4         $ 22.7        $ 97.8        $ 78.3
                                                       ========================================================
</TABLE>

Three Months Ended September 30, 2001 Compared to Three Months Ended September
30, 2000

Consolidated income before income taxes and cumulative effect of accounting
change of $38.7 million, for the three months ended September 30, 2001 increased
by $2.5 million, or 6.9%, from that reported in the comparable prior year
period. The Protection Segment's income before income taxes and cumulative
effect of accounting change increased $1.0 million, or 2.8%, for the three
months ended September 30, 2001 compared to the three months ended September 30,
2000 primarily due to an increase in universal life and investment-type product
charges of $2.7 million, or 3.6%. Income before income taxes and cumulative
effect of accounting change in the Asset Gathering Segment was $2.4 million, an
increase of $1.5 million, or 166.7%, for the three months ended September 30,
2001 from that reported in the comparable prior year period. The increase in
Asset Gathering was primarily due to lower amortization of deferred policy
acquisition costs in the current period and a decrease in other operating costs
and expenses.

Revenues of $156.5 million for the three months ended September 30, 2001
increased $9.6 million, or 6.5%, compared to the three months ended September
30, 2000, primarily due to a $12.8 million, or 9.5%, increase in revenues in the
Protection Segment. The Protection Segment's increase in revenues was primarily
driven by a $9.4 million increase in premiums and an increase in universal life
and investment-type product charges. Growth in premiums and universal life and
investment-type product charges is being driven by growth in the in-force and an
increase in fees on variable life insurance products. Revenues in the Asset
Gathering Segment decreased $3.2 million, or 26.4%, primarily due to lower
investment-type product charges on variable annuity products, which decreased
$3.6 million from the prior period due to deteriorating market conditions for
the separate accounts.

Benefits and expenses of $117.8 million for the three months ended September 30,
2001 increased $7.1 million, or 6.4%, compared to the three months ended
September 30, 2000, primarily due to an increase of $11.8 million, or 11.9%, in
the Protection Segment. The increase in Protection was driven by an $18.2
million increase in benefits to policyholders and a $7.7 million increase in the
amortization of deferred policy acquisition costs driven by growth in the
in-force. Protection's increase in benefits to policyholders was partially
offset by a $12.6 million decrease in other operating costs and expenses due to
our on going cost reduction programs. Benefits and expenses in the Asset
Gathering Segment decreased $4.7 million, or 42.0%, for the quarter ended
September 30, 2001, primarily due to a $3.4 million decrease in amortization of
deferred policy acquisition costs and a decrease in other operating costs and
expenses. The Company's effective tax rate on income before income taxes and
cumulative effect accounting change was 18.9% and 37.3% for the three month
periods ended September 30, 2001 and 2000, respectively. The decrease in the
Company's effective tax rate is primarily due to the implementation of a tax
strategy to calculate separate account dividends received deduction and the
adjustment of the prior year's equity-based tax to actual rates.


                                       17
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000

Consolidated income before income taxes and cumulative effect of accounting
change of $146.5 million, for the nine months ended September 30, 2001 increased
by $30.1 million, or 25.9%, from that reported in the comparable prior year
period. The Protection Segment's income before income taxes and cumulative
effect of accounting change increased $24.6 million, or 21.6%, for the nine
months ended September 30, 2001 compared to the nine months ended September 30,
2000 due to an increase in universal life and investment-type product charges of
$20.6 million, or 9.4%, and an increase in net investment income of $9.7
million, or 6.1%. Partially offsetting this increased revenue was an increase in
benefits to policyholders and amortization of deferred policy acquisition costs;
however, operating expenses decreased $15.4 million. Income before income taxes
and cumulative effect of accounting change in the Asset Gathering Segment
increased $5.5 million, or 220.0% for the nine months ended September 30, 2001
from that reported in the comparable prior year period. The increase in Asset
Gathering was primarily due to $6.3 million in net realized investment and other
losses in the prior year while no such losses were incurred in 2001.

Revenues of $484.6 million for the nine months ended September 30, 2001
increased $62.7 million, or 14.9%, compared to the nine months ended September
30, 2000, primarily due to a $60.7 million, or 15.5%, increase in revenues in
the Protection Segment. The Protection Segment's increase in revenues was
primarily driven by a $26.2 million increase in premiums, a $20.6 million
increase in universal life and investment-type product charges, and a $9.7
million increase in net investment income. Growth in universal life and
investment-type product charges and premiums was driven by growth in the
in-force and an increase in fees on variable life insurance products. Revenues
in the Asset Gathering Segment increased $2.0 million, or 6.8%, primarily due to
net realized investment and other losses of approximately $6.3 million in the
comparable prior year period while no such losses were incurred in for the nine
months ended September 30, 2001.

Benefits and expenses of $338.1 million for the nine months ended September 30,
2001 increased $32.6 million, or 10.7%, compared to the nine months ended
September 30, 2000, primarily due to an increase of $36.1 million, or 13.0%, in
the Protection Segment. The increase in Protection was driven by a $28.8 million
increase in benefits to policyholders and a $26.2 million increase in
amortization of deferred policy acquisition costs due to lower separate account
performance and revised estimate relating to the implementation of new modeling
systems during the period. Protection's increases in benefits and amortization
was partially offset by a $15.4 million decrease in operating expenses due to
our on going cost reduction programs. Benefits and expenses in the Asset
Gathering Segment decreased $3.5 million, or 13.0%, for the nine months ended
September 30, 2001, primarily due to a $3.5 million decrease in other operating
costs and expenses and $2.7 million decrease in amortization of deferred policy
acquisition costs. The decreases were partially offset by an increase in
benefits to policyholders of $2.7 million, primarily due to payments to
policyholders under the guaranteed minimum death benefit feature of the variable
annuity products.

Results of Operations by Segment

We operate our business in two business segments, the Protection Segment and the
Asset Gathering Segment. Both of our business segments primarily serve retail
customers. The Company's reportable segments are strategic business units
offering different products and services, and 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, 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.

We evaluate segment performance on segment after-tax operating income, which
excludes the effect of net realized investment and other gains and losses and
other unusual or non-recurring events and transactions. Segment after-tax
operating income is determined by adjusting GAAP net income for net realized
investment and other gains and


                                       18
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

losses, cumulative effect of accounting changes, and certain other items which
we believe are not indicative of overall operating trends. While these items may
be significant components in understanding and assessing our consolidated
financial performance, we believe that the presentation of segment after-tax
operating income enhances the understanding of our results of operations by
highlighting net income attributable to the normal, recurring operations of the
business. However, segment after-tax operating income is not a substitute for
net income determined in accordance with GAAP.

A discussion of the adjustments to GAAP reported income, many of which affect
each operating segment, follows the table below. A reconciliation of segment
after-tax operating income, as adjusted, to GAAP reported net income precedes
each segment discussion.

<TABLE>
<CAPTION>
                                                             Three months ended      Nine months ended
                                                                September 30,          September 30,
                                                           -----------------------------------------------
                                                               2001       2000        2001        2000
                                                           -----------------------------------------------
<S>                                                           <C>        <C>         <C>         <C>
Segment Data: (1)                                                          (in millions)
Segment after-tax operating income:
   Protection Segment..................................       $ 26.3     $ 24.3      $ 90.7      $ 80.4
   Asset Gathering Segment.............................          2.5       (0.7)        5.9         5.4
                                                           -----------------------------------------------
   Total segment after-tax operating income............         28.8       23.6        96.6        85.8

After-tax adjustments: (1)
   Net realized investment and
     other losses, net.................................         (2.0)      (1.0)       (1.8)       (8.5)
   Surplus tax.........................................          4.6        0.1         4.6         1.8
   Other demutualization related costs.................           --         --          --        (0.6)
   Restructuring charges...............................           --         --          --        (0.2)
                                                           -----------------------------------------------
   Total after-tax adjustments.........................          2.6       (0.9)        2.8        (7.5)
                                                           -----------------------------------------------

GAAP Reported:
   Income before cumulative effect
     of accounting change..............................         31.4       22.7        99.4        78.3
   Cumulative effect of accounting change, net of tax..          --         --        (1.6)         --
                                                           -----------------------------------------------
   Net income..........................................       $ 31.4     $ 22.7      $ 97.8      $ 78.3
                                                           ===============================================
</TABLE>

(1) See "Adjustments to GAAP Reported Net Income" set forth below.

Adjustments to GAAP Reported Net Income

Our GAAP reported net income was affected by net realized investment gains and
losses and other unusual or non-recurring events and transactions presented in
the reconciliation of GAAP reported net income to segment after-tax operating
income in Note 3 - Segment Information in the notes to the unaudited
consolidated financial statements. A description of these adjustments follows.

In both periods, net realized investment and other gains and losses have been
excluded from segment after-tax operating income due to their volatility between
periods and because such data are often excluded by analysts and investors when
evaluating the overall financial performance of insurers. The volatility between
periods can be impacted by fluctuations in the market, as well as by changes in
the volume of activity, which can be influenced by us and our investment
decisions.

Net realized investment and other gains and losses have been reduced by
amortization of deferred policy acquisition costs to the extent that such
amortization results from such gains and losses. We believe presenting realized
investment and other gains and losses in this format provides information useful
in evaluating our operating performance. This presentation may not be comparable
to presentations made by other insurers. Summarized below is a reconciliation of
(a) net realized investment and other gains per the unaudited consolidated
financial statements and (b) the adjustment made for net realized investment
gains to calculate segment after-tax operating income for the three and nine
month periods ended September 30, 2001 and 2000.


                                       19
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

<TABLE>
<CAPTION>
                                                              Three months ended             Nine months ended
                                                                September 30,                  September 30,
                                                             2001            2000           2001           2000
                                                        --------------------------------------------------------------
                                                                                (in millions)
<S>                                                        <C>              <C>            <C>           <C>
Net realized investment and other gains (losses) ......    $ (4.5)          $ (1.8)        $ (2.8)       $ (14.0)

Less amortization of deferred policy acquisition
    costs related to net realized investment and other
    gains .............................................       1.2              0.3            0.1            0.9
                                                        --------------------------------------------------------------
Net realized investment and other gains,
    net of related amortization of deferred policy
    acquisition costs per unaudited consolidated
    financial statements ..............................      (3.3)            (1.5)          (2.7)         (13.1)

Less income tax effect ................................       1.3              0.5            0.9            4.6
                                                        --------------------------------------------------------------
Net realized investment and other gains (losses),
    net - after-tax adjustment to calculate segment
    operating income ..................................    $ (2.0)          $ (1.0)        $ (1.8)       $  (8.5)
                                                        ==============================================================
</TABLE>

As part of John Hancock's on-going Competitive Position Project the Company has
incurred restructuring charges to reduce costs and increase future operating
efficiency by consolidating portions of its operations. After-tax restructuring
costs were $0.2 million for the nine month period ended September 30, 2000. No
such costs were incurred in the three months ended September 30, 2001 and 2000,
or the nine months ended September 30, 2001, respectively.

During 2000, the Company incurred expenses to improve its financial analysis and
financial reporting abilities which were made in conjunction with the
demutualization of John Hancock. These charges primarily included consulting
fees and planning and expense management costs. After-tax charges for these
other demutualization related costs were $0.6 million for the nine month period
ended September 30, 2000. No such costs were incurred in 2001.

Effective within the year 2000, the Company is no longer subject to the surplus
tax imposed on mutual life insurance companies and their wholly-owned stock
subsidiaries. During the three month period ended September 30, 2001 and 2000,
the Company recognized a reduction in equity based taxes of $4.6 million and
$0.1 million, respectively, and during the nine month period end September 30,
2001 and 2000 the Company recognized a reduction in equity based taxes of $4.6
million and $1.8 million, respectively, resulting from a revised estimate
related to prior years. This after-tax credit was excluded from after-tax
operating income for these periods.


                                       20
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

Retail-Protection Segment

The following table presents certain summary financial data relating to the
Protection Segment for the periods indicated.

<TABLE>
<CAPTION>
                                                                 Three months ended      Nine months ended
                                                                    September 30,          September 30,
                                                                  2001        2000       2001        2000
                                                             -------------------------------------------------
                                                                               (in millions)
<S>                                                              <C>         <C>        <C>         <C>
Revenues................................................         $150.9      $136.2     $455.9      $399.3

Benefits and expenses...................................          111.3        99.6      314.7       277.5

Income taxes............................................           13.3        12.3       50.5        41.4
                                                             -------------------------------------------------

Segment after-tax operating income (1) .................           26.3        24.3       90.7        80.4
                                                             -------------------------------------------------

After-tax adjustments: (1)
   Net realized investment and other gains
      (losses), net.....................................           (2.0)       (0.9)      (1.8)       (4.4)
   Surplus tax..........................................            4.6          --        4.6         1.7
   Restructuring charges................................             --          --         --        (0.2)
   Other demutualization related costs..................                                              (0.5)
                                                             -------------------------------------------------
Total after-tax adjustments.............................            2.6        (0.9)       2.8        (3.4)

GAAP Reported:
Income before cumulative effect of accounting
   change...............................................           28.9        23.4       93.5        77.0
   Cumulative effect of accounting
      change, net of tax................................             --          --       (1.6)         --
                                                             -------------------------------------------------
Net income..............................................         $ 28.9      $ 23.4     $ 91.9      $ 77.0
                                                             =================================================
</TABLE>

(1) See "Adjustments to GAAP Reported Net Income" included in this MD&A.

Three Months Ended September 30, 2001 Compared to Three Months Ended September
30, 2000

Segment after-tax operating income was $26.3 million for the three months ended
September 30, 2001, an increase of $2.0 million, or 8.2%, from $24.3 million for
the three months ended September 30, 2000. The increase in the Protection
Segment's after-tax operating income is primarily due to a $12.7 million
decrease in other operating costs and expenses and a $9.4 million increase in
premiums. Partially offsetting this was an increase in benefits to policyholders
of $18.2 million due to growth in the in-force.

Revenues were $150.9 million for the three months ended September 30, 2001, an
increase of $14.7 million, or 10.8%, from $136.2 million for the three months
ended September 30, 2000. Revenue growth was driven by a $9.4 million increase
in premiums, a $2.7 million increase in universal life and investment-type
product charges and a $2.5 million increase in net investment income. The
increase in premiums, universal life and investment-type product charges, and
net investment income is driven by growth in the in-force and, with respect to
product charges, an increase in fees on variable life insurance products.

Benefits and expenses were $111.3 million for the three months ended September
30, 2001, an increase of $11.7 million, or 11.7%, from $99.6 million for the
three months ended September 30, 2000. Benefits to policyholders increased $18.2
million, or 29.5% primarily due to growth in the in-force. Amortization of
deferred policy acquisition costs increased $7.7 million primarily due to growth
in the in-force. Partially offsetting the increases was a $12.7 million decrease
in other operating costs and expenses driven by our on going cost reduction
programs.


                                       21
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000

Segment after-tax operating income was $90.7 million for the nine months ended
September 30, 2001, an increase of $10.3 million, or 12.8%, from $80.4 million
for the nine months ended September 30, 2000. The increase in the Protection
Segment's after-tax operating income is primarily due to a $26.2 million
increase in premiums, a $20.6 million increase in universal life and
investment-type product charges, and a $14.3 million decrease in other operating
costs and expenses. Partially offsetting these items were an increase in
benefits to policyholders of $28.8 million, and an increase in amortization of
deferred policy acquisition costs of $26.2 million.

Revenues were $455.9 million for the nine months ended September 30, 2001, an
increase of $56.6 million, or 14.2%, from $399.3 million for the nine months
ended September 30, 2000. Revenue growth was primarily driven by a $26.2 million
increase in premiums, a $20.6 million increase in universal life and
investment-type product charges, and a $9.7 million increase in net investment
income. The increase in premiums, universal life and investment-type product
charges, and net investment income is driven by growth in the in-force and, with
respect to product charges, an increase in fees on variable life insurance
products.

Benefits and expenses were $314.7 million for the nine months ended September
30, 2001, an increase of $37.2 million, or 13.4%, from $277.5 million for the
nine months ended September 30, 2000. Benefits to policyholders increased $28.8
million, primarily due to growth in the in-force. In addition, amortization of
deferred policy acquisition costs increased $26.2 million, or 177.0%, due to a
decline in separate account performance. Offsetting these increases was a
decrease in other operating costs and expenses of $14.3 million due to our on
going cost reduction programs.

Retail-Asset Gathering Segment

The following table presents certain summary financial data relating to the
Asset Gathering Segment for the periods indicated.

<TABLE>
<CAPTION>
                                                           Three months ended      Nine months ended
                                                              September 30,          September 30,
                                                            2001        2000       2001        2000
                                                         --------------------------------------------
                                                                         (in millions)
<S>                                                        <C>         <C>         <C>        <C>
Revenues.............................................      $ 8.9       $12.2       $31.4      $35.7

Benefits and expenses ...............................        6.5        11.2        23.4       26.8

Income taxes ........................................       (0.1)        1.7         2.1        3.5
                                                         --------------------------------------------

Segment after-tax operating income (1) ..............        2.5        (0.7)        5.9        5.4
                                                         --------------------------------------------

After-tax adjustments: (1)
   Net realized investment and other losses, net ....         --        (0.1)         --       (4.1)
   Other demutualization related costs ..............         --          --          --       (0.1)
   Surplus tax ......................................         --         0.1          --        0.1
                                                         --------------------------------------------
Total after-tax adjustments .........................         --          --          --       (4.1)

GAAP Reported:
                                                         --------------------------------------------
Net income (loss) ...................................      $ 2.5       $(0.7)      $ 5.9      $ 1.3
                                                         ============================================
</TABLE>

(1) See "Adjustments to GAAP Reported Net Income" included in this MD&A.

Three Months Ended September 30, 2001 Compared to Three Months Ended September
30, 2000

Segment after-tax operating income was $2.5 million for the three months ended
September 30, 2001, an increase of $3.2 million, or 457.1%, from the comparable
prior year period. The increase in Asset Gathering was primarily due to $1.9
million, or 28.8%, decrease in other operating costs and expenses and a $3.4
million, or 97.1%, decrease in


                                       22
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

amortization of deferred policy acquisition costs. Investment-type product
charges decreased $3.6 million, or 28.1%, from the comparable prior year period.

Revenues were $8.9 million for the three months ended September 30, 2001 a
decrease of $3.3 million, or 27.0%, from the comparable prior year period.
Revenue consisted primarily of $9.2 million in investment-type product charges
on variable annuity products, which decreased $3.6 million from the prior
period. Investment-type product charges on variable annuity products decreased
due to deteriorating market conditions for the separate accounts. Partially
offsetting the impact of a decline in average variable annuity reserves, the
Company increased its product fees in the fourth quarter of 2000, which were
effective for the entire three month period ended September 30, 2001.

Benefits and expenses decreased $4.7 million, or 42.0%, to $6.5 million for the
three months ended September 30, 2001 from $11.2 million reported in the
comparable prior year period. The decrease in benefits and expenses is primarily
due to a $1.9 million decrease in other operating cost and expenses resulting
from our on going cost reduction programs. In addition, amortization of deferred
policy acquisition costs decreased $3.4 million.

Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000

Segment after-tax operating income was $5.9 million for the nine months ended
September 30, 2001, an increase of $0.5 million, or 9.3%, from the comparable
prior year period. The increase was primarily due to lower operating expenses
resulting from our on going cost reduction programs.

Revenues were $31.4 million for the nine months ended September 30, 2001, a
decrease of $4.3 million, or 12.0%, from the comparable prior year period.
Revenue consisted primarily of $33.1 million in investment-type product charges
on variable annuity products, which decreased $4.8 million from the prior
period. Partially offsetting a decline in average variable annuity reserves, the
Company increased its product fees in the fourth quarter of 2000, which were
effective for the entire nine month period ended September 30, 2001.

Benefits and expenses decreased $3.4 million, or 12.7%, to $23.4 million for the
nine months ended September 30, 2001 from $26.8 million reported in the
comparable prior year period. The decrease in benefits and expenses is primarily
due to a $3.4 million decrease in other operating costs and expenses due to our
on going cost reduction programs and a $2.7 million decrease in amortization of
deferred policy acquisition costs on lower account balances. Partially
offsetting these decreases in expenses was an increase in benefits to
policyholders from payments to policyholders under the guaranteed minimum death
benefit feature of the variable annuity products.


                                       23
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

General Account Investments

Overall Composition of the General Account

Invested assets, excluding separate accounts, totaled $3.4 billion and $3.0
billion as of September 30, 2001 and December 31, 2000, respectively. The
portfolio composition has not significantly changed at September 30, 2001 as
compared to December 31, 2000. The following table shows the composition of
investments in our general account portfolio.

<TABLE>
<CAPTION>
                                           As of September 30,           As of December 31,
                                                   2001                         2000
                                      -----------------------------------------------------------
                                        Carrying         % of           Carrying        % of
                                          Value          Total           Value         Total
                                      -----------------------------------------------------------
                                      (in millions)                  (in millions)
<S>                                     <C>              <C>            <C>            <C>
Fixed maturity securities (1)           $ 2,264.5         67.0%         $1,727.2        57.9%
Mortgage loans (2)                          546.1         16.2             554.8        18.6
Real estate                                  24.4          0.7              23.9         0.8
Policy loans (3)                            350.9         10.4             334.2        11.2
Equity securities                             9.1          0.3               8.1         0.3
Other invested assets                        43.5          1.3              34.8         1.2
Short-term investments                        6.9          0.2              21.7         0.7
Cash and cash equivalents (4)               133.1          3.9             277.3         9.3
                                      -----------------------------------------------------------

   Total invested assets (5)            $ 3,378.5        100.0%         $2,982.0       100.0%
                                      ===========================================================
</TABLE>

(1)   In addition to bonds, the fixed maturity security portfolio contains
      redeemable preferred stock with a carrying value of $43.9 million and
      $42.4 million as of September 30, 2001 and December 31, 2000,
      respectively. Carrying value is composed of investments categorized as
      held-to-maturity, which are carried at amortized cost, and investments
      categorized as available-for-sale, which are carried at fair value. The
      total fair value of the fixed maturity security portfolio was $2,263.2 and
      $1,698.6 million, at September 30, 2001 and December 31, 2000,
      respectively.

(2)   The fair value of the mortgage loan portfolio was $582.1 million and
      $467.3 million as of September 30, 2001 and December 31, 2000,
      respectively.

(3)   Policy loans are secured by the cash value of the underlying life
      insurance policies and do not mature in a conventional sense, but expire
      in conjunction with the related policy liabilities.

(4)   Cash and cash equivalents are included in total invested assets for the
      purposes of calculating yields on the income producing assets for the
      Company. Cash and cash equivalents are not considered part of Total
      Investments as shown on the consolidated balance sheet of the Company of
      $3,245.4 million and $2,704.7 million at September 30, 2001 and December
      31, 2000, respectively.

(5)   Total Investments on the Company's Consolidated Balance Sheet excludes
      amounts for cash and cash equivalents of $133.1 million and $277.3 million
      as of September 30, 2001 and December 31, 2000, respectively.

Consistent with the nature of the Company's product liabilities, assets are
heavily oriented toward fixed maturity securities. The Company determines the
allocation of assets primarily on the basis of cash flow and return requirements
of its products and by the level of investment risk.

Fixed Maturity Securities. The fixed maturity securities portfolio is
predominantly comprised of low risk, investment grade, publicly and privately
traded corporate bonds and senior tranches of asset-backed securities (ABS) and
mortgage-backed securities (MBS), with the balance invested in government bonds.
The fixed maturity securities portfolio also includes redeemable preferred
stock. As of September 30, 2001, fixed maturity securities represented 67.0% of
general account investment assets with a carrying value of $2.3 billion, roughly
comprised of 60% public securities and 40% private securities. Each year the
Company directs the majority of its net cash inflows into investment grade fixed
maturity securities. Typically between 5% and 15% of funds allocated to fixed
maturity securities are invested in below-investment-grade bonds with the
majority of that balance in BB category. The Company is subject to a policy
limiting the overall level of these bonds to no more than 10% of total John
Hancock US Life Insurance Company statutory invested assets. Allocations are
based on an assessment of relative value and the likelihood of enhancing
risk-adjusted portfolio returns. While the Company has profited from the
below-investment-grade asset class in the past, care is taken to manage its
growth strategically by limiting its size relative to the Company's total
assets.


                                       24
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

The following table shows the composition by issuer of the fixed maturity
securities portfolio.

                     Fixed Maturity Securities -- By Issuer

<TABLE>
<CAPTION>
                                              As of September 30,        As of December 31,
                                                      2001                      2000
                                            ---------------------------------------------------
                                               Carrying      % of      Carrying        % of
                                                 Value       Total       Value        Total
                                            ---------------------------------------------------
                                             (in millions)          (in millions)
<S>                                            <C>           <C>       <C>            <C>
Corporate securities....................       $1,831.7       80.9%    $1,428.6        82.7%
MBS/ABS.................................          299.8       13.2        268.2        15.5
U.S. Treasury securities and obligations
   of U.S. government agencies..........          120.2        5.3         16.7         1.0
Debt securities issued by foreign
   governments..........................           10.9        0.5         10.9         0.6
Obligations of states and political
   subdivisions.........................            1.9        0.1          2.8         0.2
                                            ---------------------------------------------------
Total...................................       $2,264.5      100.0%    $1,727.2       100.0%
                                            ===================================================
</TABLE>

In keeping with the investment philosophy of tightly managing interest rate
risk, the Company's MBS & ABS holdings are heavily concentrated in commercial
MBS where the underlying loans are largely call protected, which means they are
not pre-payable without penalty prior to maturity at the option of the issuer.
By investing in MBS and ABS securities with relatively predictable repayments,
the Company adds high quality, liquid assets to the portfolios without incurring
the risk of cash flow variability.

The Securities Valuation Office (SVO) of the National Association of Insurance
Commissioners evaluates all public and private bonds purchased as investments by
insurance companies. The SVO assigns one of nine investment categories to each
security it reviews. Category 1 is the highest quality rating, and Category 6 is
the lowest. Categories 1 and 2 are the equivalent of investment grade debt as
defined by rating agencies such as Standard & Poors (S&P) and Moody's (i.e.,
BBB-/Baa3 or higher), while Categories 3-6 are the equivalent of
below-investment grade securities. SVO ratings are reviewed and may be revised
at least once a year.

The following table sets forth the SVO ratings for the Company's bond portfolio
along with an equivalent S&P rating agency designation. The majority of bonds
are investment grade, with 86.6% invested in Category 1 and 2 securities as of
September 30, 2001. Below investment grade bonds were 8.8% of total invested
assets as of September 30, 2001. This allocation reflects the Company's strategy
of avoiding the unpredictability of interest rate risk in favor of relying on
the bond analysts' ability to better predict credit or default risk. The bond
analysts operate in an industry-based, team-oriented structure that permits the
evaluation of a wide range of below investment grade offerings in a variety of
industries resulting in a well-diversified high yield portfolio. A majority
67.1% of below investment grade bonds are in category 3, the highest quality
below investment grade. Category 6 bonds, those in or near default, represent
securities that were originally acquired as long-term investments, but
subsequently became distressed. The fair value of bonds in or near default was
$15.9 million and $18.3 million as of September 30, 2001 and December 31, 2000,
respectively.


                                       25
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

                 Fixed Maturity Securities -- By Credit Quality

<TABLE>
<CAPTION>
                                                                  As of September 30,           As of December 31,
                                                             ------------------------------------------------------------
                                                                         2001                          2000
                                                             ------------------------------------------------------------
       SVO                      S&P Equivalent                   Carrying         % of        Carrying         % of
    Rating (1)                 Designation (2)                   Value (3)       Total        Value (3)        Total
-------------------------------------------------------------------------------------------------------------------------
                                                              (in millions)                (in millions)
<S>              <C>                                             <C>             <C>          <C>              <C>
        1        AAA/AA/A............................            $  902.3         40.6%       $  634.2          37.6%
        2        BBB.................................             1,019.5         46.0           774.5          46.0
        3        BB..................................               200.4          9.1           187.2          11.1
        4        B...................................                55.7          2.5            61.4           3.7
        5        CCC and lower.......................                26.8          1.2             9.2           0.5
        6        In or near default..................                15.9          0.7            18.3           1.1
                                                             ------------------------------------------------------------
                 Total...............................            $2,220.6        100.0%       $1,684.8         100.0%
                                                             ============================================================
</TABLE>

(1)   With respect to securities that are awaiting an SVO rating, the Company
      has assigned a rating based on an analysis that it believes is equivalent
      to that used by the SVO.

(2)   Comparisons between SVO and S&P ratings are published by the National
      Association of Insurance Commissioners.

(3)   Does not include redeemable preferred stock with a carrying value of $43.9
      million and $42.4 million as of September 30, 2001 and December 31, 2000,
      respectively.

Investment Results

The following table summarizes the Company's investment results for the periods
indicated. Overall, the yield, net of investment expenses, on the general
account portfolio decreased from the three month and the nine month periods
ended September 30, 2000. The lower yield was the result of scheduled maturities
rolling over into new investments with less favorable interest rates and
narrower acquisition spreads than those present in our 2000 fixed maturity
portfolio. The inflow of new cash was invested at rates that were less than the
overall portfolio earnings rate during the first nine months of 2000. Indicative
of this environment, between September 2000 and September 2001, the 10-year U.S.
Treasury rate fell 132 basis points, while Moody's seasoned BAA spreads fell by
9 basis points.

<TABLE>
<CAPTION>
                                               Three Months Ended                        Nine Months Ended
                                            As of                As of                As of                As of
                                     September 30, 2001    September 30, 2000  September 30, 2001   September 30, 2000
                                    -------------------------------------------------------------------------------------
                                      Yield    Amount       Yield    Amount     Yield     Amount    Yield      Amount
                                    -------------------------------------------------------------------------------------
                                            (in millions)        (in millions)         (in millions)        (in millions)
<S>                                    <C>    <C>            <C>    <C>          <C>     <C>         <C>      <C>
General account assets-excluding
policy loans
   Gross income                        7.55%  $   54.6       8.04%  $   52.3     7.41%   $  158.0    8.03%    $  151.0
   Ending assets-excluding policy
     Loans                                     3,027.6               2,091.7              3,027.6              2,603.5
Policy loans
   Gross income                        5.65%       4.9       5.85%       4.6     6.21%       16.0    5.69%        13.0
   Ending assets                                 350.9                 320.2                350.9                320.2

     Total gross income                7.35%      59.5       7.81%      56.9     7.28%      174.0    7.78%       164.0
     Less: investment expenses                    (1.9)                 (2.1)                (5.9)                (6.1)
                                             -----------           -----------         ------------         ------------
       Net investment income           7.11%  $   57.6       7.51%  $   54.8     7.03%   $  168.1    7.48%    $  157.9
                                             ===========           ===========         ============         ============
</TABLE>

Liquidity and Capital Resources

Liquidity describes the ability of a company to generate sufficient cash flows
to meet the cash requirements of business operations. Historically, our
principal cash flow sources have been premiums, deposits and charges on
policies, investment income, maturing investments and proceeds from sales of
investment assets. In addition to the need for cash flow to meet operating
expenses, our liquidity requirements relate principally to the liabilities
associated with our various life insurance and annuity products and to the
funding of investments in new products, processes and technologies.


                                       26
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

Sources of cash for the Company are premiums, deposits and charges on policies
and contracts, investment income, maturing investments, and proceeds from sales
of investment assets. In addition to the need for cash flow to meet operating
expenses, our liquidity requirements relate principally to the liabilities
associated with various life insurance and annuities and to the funding of
investments in new products, processes, and technologies. Product liabilities
include the payment of benefits under life insurance, policies and annuity
contracts and the payment of policy surrenders, withdrawals and policy loans.
The Company periodically adjusts its investment policy to respond to changes in
short-term and long-term cash requirements and provide adequate funds to pay
benefits without forced sales of investments.

The liquidity of our insurance operations is also related to the overall quality
of our investments. As of September 30, 2001, $1,921.8 million, or 86.6% of the
fixed maturity securities held by us and rated by Standard & Poor's Ratings
Services, a division of the McGraw-Hill Companies, Inc. (S&P) or the National
Association of Insurance Commissioners were rated investment grade (BBB or
higher by S&P or 1 or 2 by the National Association of Insurance Commissioners).
The remaining $298.8 million, or 13.4%, of fixed maturity investments, and 8.8%
of invested assets, were rated non-investment grade. For additional discussion
of our investment portfolio see the General Account Investments section above in
this Management's Discussion and Analysis of Financial Condition and Results of
Segment Operations.

We employ an asset/liability management approach tailored to the specific
requirements of each of our product lines. Each product line has an investment
strategy based on the specific characteristics of the liabilities in the product
line. As part of this approach, we develop investment policies and operating
guidelines for each portfolio based upon the return objectives, risk tolerance,
liquidity, and tax and regulatory requirements of the underlying products and
business segments.

Net cash provided by (used in) operating activities was $243.0 million and
($248.9) million for the nine months ended September 30, 2001 and 2000,
respectively. The increase in 2001 compared to 2000 resulted primarily due to an
increase in policy liabilities of $522.6 million and an increase in income
taxes. These increases were partially offset by increases in other assets net of
other liabilities.

Net cash used in investing activities was $481.2 million and $246.5 million for
the nine months ended September 30, 2001 and 2000, respectively. The increase in
cash used in investing activities in 2001 as compared to 2000 resulted from
fewer sales and increased acquisitions of fixed maturities during the nine
months ended September 30, 2001, an increase in net purchases of $323.4 million,
as compared to prior period. Partially offsetting these uses of cash was a small
increase in maturities, prepayments and scheduled redemptions of fixed
maturities, short-term investments and mortgage loans.

Net cash provided by financing activities was $94.0 million and $491.7 million,
for the nine months ended September 30, 2001 and 2000, respectively. The
decrease in 2001 as compared to 2000 resulted from an increase in cash payments
made on maturities and withdrawals of universal life insurance and
investment-type contracts and minimal growth in cash payments received as
deposits of universal life insurance and investment-type contracts. Maturities
and withdrawals on universal life insurance and investment-type contracts grew
by $419.7 million for the nine months ended September 30, 2001, as compared to
prior period.

We maintain reinsurance programs designed to protect against large or unusual
losses. Based on our review of our reinsurers' financial statements and
reputations in the reinsurance marketplace, we believe that our reinsurers are
financially sound, and, therefore, that we have no significant exposure to
uncollectable reinsurance in excess of uncollectable amounts already recognized
in our unaudited consolidated financial statements. The Company has also entered
into reinsurance agreements which transfers risks and profits to John Hancock
Life Insurance Company, the parent. The reinsurance agreements provide
reinsurance expense allowances to reimburse the Company for the related
expenses. The agreements cover variable annuity, variable life insurance and
term life insurance contracts issued by the Company.

Given our historical cash flows and that of our wholly owned subsidiary and
current financial results, management believes that the cash flow from the
operating activities over the next year will provide sufficient liquidity for
our operations and pay other operating expenses. Although we anticipate that we
will be able to meet our cash requirements, we can give no assurances in this
regard.


                                       27
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

Important Factors that May Affect Future Results

The statements, analyses, and other information contained herein relating to
trends in the Company's operations and financial results, the markets for the
Company's products, the future development of the Company's business, and the
contingencies and uncertainties to which the Company may be subject, as well as
other statements including words such as "anticipate," "believe," "plan,"
"estimate," "expect," "intend," "will," "should," "may," and other similar
expressions, are "forward-looking statements" under the Private Securities
Litigation Reform Act of 1995. Such statements are made based upon management's
current expectations and beliefs concerning future events and their effects on
the Company, which may not be those anticipated by management. Our actual
results may differ materially from the results anticipated in these
forward-looking statements.

These forward-looking statements are subject to risks and uncertainties
including, but not limited to, the following: (1) a significant downgrade in our
ratings for claims-paying ability and financial strength may lead to policy and
contract withdrawals and materially harm our ability to market our products; (2)
elimination of Federal tax benefits for our products and other changes in laws
and regulations that could adversely affect sales of our life insurance and
annuity products; (3) we face increasing competition from mutual fund companies,
banks and investment management firms as well as from other insurance companies;
(4) a decline or increased volatility in the securities markets, and other
changes in general economic conditions, may adversely affect variable life
insurance and variable annuity businesses; (5) our life insurance sales are
highly dependent on a third party distribution relationship; (6) customers may
not be responsive to new or existing products or distribution channels, (7)
interest rate volatility may adversely affect our profitability; (8) our net
income and revenues will suffer if customers surrender annuities and variable
and universal life insurance policies; (9) we will face losses if the claims on
our insurance products, or reductions in rates of mortality on our annuity
products, are greater than we projected; (10) we face risks relating to our
investment portfolio; (11) we may experience volatility in net income due to
changes in standards for accounting for derivatives and other changes; (12) we
are subject to risk-based capital requirements and possible guaranty fund
assessments; (13) the National Association of Insurance Commissioners'
codification of statutory accounting practices adversely affected our statutory
surplus; (14) John Hancock may be unable to retain personnel who are key to our
business; (15) litigation and regulatory proceedings may result in financial
losses, harm our reputation and divert management resources, and (16) we face
unforeseen liabilities arising from our acquisitions and dispositions of
businesses.

Readers are also directed to other risks and uncertainties discussed, as well as
to further discussion of the risks described above, in other documents filed by
the Company with the United States Securities and Exchange Commission. The
Company specifically disclaims any obligation to update or revise any
forward-looking information, whether as a result of new information, future
developments, or otherwise.

ITEM 3. QUANTITATIVE and QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Capital Markets Risk Management

The Company maintains a disciplined, comprehensive approach to managing capital
market risks inherent in its business operations. To mitigate these risks, and
effectively support Company objectives, investment operations are organized and
staffed to focus investment management expertise on specific classes of
investments, with particular emphasis placed on private placement markets. In
addition, a dedicated unit of asset / liability risk management (ALM)
professionals centralizes the implementation of its interest rate risk
management program. As an integral component of its ALM program, derivative
instruments are used in accordance with risk reduction techniques established
through Company policy. The Company's use of derivative instruments is monitored
on a regular basis by the Parent's Investment Compliance Department and reviewed
quarterly with senior management and the Parent's Committee of Finance.

The Company's principal capital market exposures are credit and interest rate
risk, although we have certain exposures to changes in equity prices and foreign
currency exchange rates. Credit risk pertains to the uncertainty associated with
the ability of an obligor or counterparty to continue to make timely and
complete payments of contractual principal and/or interest. Interest rate risk
pertains to the market value fluctuations that occur within fixed maturity
securities or liabilities as market interest rates move. Equity and foreign
currency risk pertain to price fluctuations, associated with the Company's
ownership of equity investments or non-US dollar denominated investments, driven
by dynamic market environments.


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<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

Credit Risk

The Company manages the credit risk inherent in its fixed maturity securities by
applying strict credit and underwriting standards, with specific limits
regarding the proportion of permissible below investment grade holdings. We also
diversify our fixed maturity securities with respect to investment quality,
issuer, industry, geographical, and property-type concentrations. Where
possible, consideration of external measures of creditworthiness, such as
ratings assigned by nationally recognized rating agencies, supplement our
internal credit analysis. The Company uses simulation models to examine the
probability distribution of credit losses to ensure that it can readily
withstand feasible adverse scenarios. In addition, the Company periodically
examines, on various levels of aggregation, its actual default loss experience
on significant asset classes to determine if the losses are consistent with the
levels assumed in product pricing and rating agencies' quality-specific cohort
default data. These tests have generally found the Company's aggregate
experience to be favorable relative to these external benchmarks and consistent
with priced-for levels.

As of September 30, 2001, the Company's fixed maturity portfolio was comprised
of 86.6% investment grade securities and 13.4% below-investment-grade
securities. These percentages are consistent with recent experience and
indicative of the Company's long-standing investment philosophy of pursuing
moderate amounts of credit risk in return for higher expected returns. We
believe that credit risk can be successfully managed given our proprietary
credit evaluation models and experienced personnel.

Interest Rate Risk

The Company maintains a tightly controlled approach to managing its potential
interest rate risk. Interest rate risk arises from many of our primary
activities, as we invest substantial funds in interest-sensitive assets to
support the issuance of our various interest-sensitive liabilities within our
Protection and Asset Gathering Segments.

The Company manages interest rate sensitive segments of the business, and the
supporting investments, under one of two broadly defined risk management methods
designed to provide an appropriate matching of assets and liabilities. For
guaranteed rate products, where contractual liability cash flows are highly
predictable (e.g., immediate annuities) sophisticated duration-matching
techniques are utilized to manage the segment's exposure to both parallel and
non-parallel yield curve movements. Typically this type of management is
expressed as a duration tolerance of only +/- .05 years, with other measures
used for limiting exposure to non-parallel risk. For non-guaranteed rate
products, such as whole life insurance or single premium deferred annuities,
liability cash flows are less predictable. Therefore, a conventional
duration-matching strategy is less effective at managing the inherent risk. For
these products, we manage interest rate risk based on scenario-based portfolio
modeling that seeks to identify the most appropriate investment strategy given
probable policyholder behavior and liability crediting needs under a wide range
of interest rate environments.

As of September 30, 2001, there have been no material changes to the interest
rate exposures as reported in the Company's 2000 Form 10-K.

Derivative Instruments

The Company uses a variety of derivative financial instruments, including swaps,
caps, floors, and exchange traded futures contracts, in accordance with Company
policy. Permissible derivative applications include the reduction of economic
risk (i.e., hedging) related to changes in yields, price, cash flows, and
currency exchange rates. In addition, certain limited applications of "income
generation" are allowed. Examples of this type of use include the purchase of
call options to offset the sale of embedded options in Company liability
issuance or the purchase of swaptions to offset the purchase of embedded put
options in certain investments. The Company does not make a market or trade
derivatives for the purpose of speculation.

The Parent's Investment Compliance Unit monitors all derivatives activity for
consistency with internal policies and guidelines. All derivatives trading
activity is reported monthly to the Parent's Committee of Finance for review,
with a comprehensive governance report provided jointly each quarter by the
Parent's Derivatives Supervisory Officer and Chief Investment Compliance
Officer. The table below reflects the Company's derivative positions as of
September 30, 2001. The notional amounts in the table represent the basis on
which pay or receive amounts are


                                       29
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

calculated and are not reflective of credit risk. These exposures represent only
a point in time and will be subject to change as a result of ongoing portfolio
and risk management activities.

<TABLE>
<CAPTION>
                                                               As of September 30, 2001
                                    -------------------------------------------------------------------------------
                                                                                    Fair Value
                                                                 --------------------------------------------------
                                                     Weighted
                                       Notional    Average Term     -100 Basis                      +100 Basis
                                        Amount        (Years)      Point Change    As of 9/30/01   Point Change
                                    -------------------------------------------------------------------------------
                                                   (in millions, except for Weighted Average Term)
<S>                                     <C>             <C>           <C>              <C>             <C>
Interest rate swaps............         $1,364.5        4.1           $(35.5)          $(15.2)         $ 3.4
Interest rate caps.............            239.4        6.1              0.8              1.9            3.8
Interest rate floors...........            485.4        8.8             13.8              6.5            3.0
                                    ---------------              --------------------------------------------------
     Totals....................         $2,089.3        5.4           $(20.9)          $ (6.8)         $10.2
                                    ===============              ==================================================
</TABLE>

Our non-exchange-traded derivatives are exposed to the possibility of loss from
a counterparty failing to perform its obligations under terms of the derivative
contract. We believe the risk of incurring losses due to nonperformance by our
counterparties is remote. To manage this risk, Company procedures include the
(a) on-going evaluation of each counterparty's credit ratings, (b) the
application of credit limits and monitoring procedures based on an internally
developed, scenario-based, risk assessment system, (c) monthly reporting of each
counterparty's "potential exposure", (d) master netting agreements and, where
appropriate, (e) collateral agreements.


                                       30
<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

ITEM 6. EXHIBITS and REPORTS on FORM 8-K

(a) Exhibits


Exhibit
Number                                                        Description
-------                                                       -----------

NONE


b) Reports on Form 8-K.

There were no reports on Form 8-K required to be filed during the period covered
by this report.


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<PAGE>

                  JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the dates indicated.

JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY


By: /s/ Michele G. Van Leer                                    November 14, 2001
    ----------------------------------------
      Michele G. Van Leer
      Vice Chairman and President


By: /s/ Earl W. Baucom                                         November 14, 2001
    ----------------------------------------
      Earl W. Baucom
      Controller
      (Principal Accounting Officer)


                                       32