As filed with the Securities and Exchange Commission on September 14, 2001.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_X__/
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Pre-Effective Amendment No. __ /____/
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Post-Effective Amendment No. ___ /____/
(Check appropriate box or boxes)
JOHN HANCOCK DECLARATION TRUST
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(Exact name of registrant as specified in charter)
101 Huntington Avenue, Boston, Massachusetts 02199-7603
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(Address of principal executive office) Zip Code
(617) 375-1702
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(Registrant's Telephone Number, including Area Code)
Susan S. Newton, Esq.
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199
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(Name and address of agent for service)
Title of Securities Being Registered: shares of beneficial interest of John
Hancock Declaration Trust.
Approximate Date of Proposed Public Offering: As soon as practicable after the
effectiveness of the registration statement.
No filing fee is required because an indefinite number of shares has previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. This Registration Statement relates to shares previously registered
on Form N-1A (File Nos. 33-64465 and 811-07437).
It is proposed that this filing will become effective on October 15, 2001
pursuant to Rule 488 under the Securities Act of 1933.
JOHN HANCOCK DECLARATION TRUST
CROSS-REFERENCE SHEET
Items Required by Form N-14
PART A
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Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Beginning of Registration COVER PAGE OF REGISTRATION
Statement and Outside Front STATEMENT; FRONT COVER PAGE OF
Cover Page of Prospectus PROSPECTUS
2. Beginning and Outside Back TABLE OF CONTENTS
Cover Page of Prospectus
3. Synopsis and Risk Factors SUMMARY; INVESTMENT RISKS
4. Information About the INTRODUCTION; SUMMARY; INVESTMENT
Transaction RISKS; INFORMATION CONCERNING THE
MEETING; PROPOSAL TO APPROVE THE
AGREEMENT AND PLAN OF REORGANIZATION;
FURTHER INFORMATION ON EACH
REORGANIZATION; CAPITALIZATION
5. Information About the PROSPECTUS COVER PAGE; INTRODUCTION;
Registrant SUMMARY; ADDITIONAL INFORMATION
ABOUT THE FUNDS' BUSINESSES
6. Information About the PROSPECTUS COVER PAGE; INTRODUCTION;
Company Being Acquired SUMMARY; ADDITIONAL INFORMATION
ABOUT THE FUNDS' BUSINESSES
7. Voting Information PROSPECTUS COVER PAGE; NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS;
SUMMARY; INFORMATION CONCERNING
THE MEETING; VOTING RIGHTS AND
REQUIRED VOTE
8. Interest of Certain Persons EXPERTS
and Experts
9. Additional Information NOT APPLICABLE
Required for Reoffering by
Persons Deemed to be
Underwriters
PART B
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Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. Additional Information ADDITIONAL INFORMATION ABOUT
About the Registrant V.A. STRATEGIC INCOME FUND AND
V.A. FINANCIAL INDUSTRIES FUND
13. Additional Information About ADDITIONAL INFORMATION ABOUT
the Company Being Acquired V.A HIGH YIELD BOND FUND AND
V.A. REGIONAL BANK FUND
14. Financial Statements ADDITIONAL INFORMATION ABOUT V.A. STRATEGIC INCOME
FUND; ADDITIONAL INFORMATION ABOUT V.A HIGH YIELD
BOND FUND; PRO FORMA COMBINED FINANCIAL STATEMENTS
ADDITIONAL INFORMATION ABOUT V.A. FINANCIAL
INDUSTRIES FUND; ADDITIONAL INFORMATION ABOUT V.A.
REGIONAL BANK FUND; PRO-FORMA COMBINED FINANCIAL
STATEMENTS.
PART C
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Item No. Item Caption
- -------- ------------
15. Indemnification INDEMNIFICATION
16. Exhibits EXHIBITS
17. Undertakings UNDERTAKINGS
November 1, 2001
Dear Contract or Certificate Owner:
I am writing to ask for your vote on important matters concerning your
investment in certain funds within your John Hancock Variable Annuity.
Your fund's trustees are proposing the merger of two funds in the John Hancock
Declaration Trust (the "Acquired Funds") with two other funds in the same Trust
(the "Acquiring Funds"), as described in the enclosed proxy materials and
summarized in the questions and answers on the following pages.
The Board of Trustees considered the following matters, among others, in
approving the proposals:
| | Each Acquiring Fund's total expenses are lower. As a result, shareholders
may experience a reduction in the total amount of fees, as a percentage of
average net assets, that they indirectly pay. Consolidating your fund's
assets with a similar fund to increase the overall asset base is a logical
path for containing the fund's expense ratios going forward.
| | The Trustees believe that the Acquiring Funds are better positioned to
generate strong returns because of their ability to choose from a broader
range of investment opportunities.
The fund merger proposals have been unanimously approved by each fund's board of
trustees, who believe the mergers will benefit you. The enclosed proxy statement
contains further explanation and important details of the reorganizations, which
I strongly encourage you to read before voting.
Your Vote Makes a Difference!
No matter what size your investment may be, your vote is important. Please
review the enclosed materials and to complete, sign and return the enclosed
proxy ballot(s) to us immediately. Your prompt response will help avoid the need
for additional mailings. For your convenience, we have provided a postage-paid
envelope.
If you have any questions or need additional information, please contact your
Investment Professional or call a John Hancock Service Representative at
1-800-824-0335, Monday through Friday between 8:00 A.M. and 8:00 P.M. Eastern
Time. I thank you for your prompt vote on this matter.
Sincerely,
/s/Maureen R. Ford
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Maureen R. Ford
Chairman and Chief Executive Officer
Declaration Variable Annuity, Patriot Variable Annuity and Revolution Variable
Annuities are issued by John Hancock Life Insurance Company, or its subsidiary
John Hancock Variable Life Insurance Company*, and are distributed by John
Hancock Funds, Inc., 101 Huntington Avenue, Boston, MA 02199-7603, or Signator
Investors Inc., 200 Clarendon Street, Boston, MA 02117.
*Not licensed in New York.
Q&A
---
Q. What are the changes being proposed?
A. Generally, these proposals focus on merging funds into similar funds, which
have significantly larger assets and offer a greater opportunity for future
growth.
Specifically, the trustees of your fund(s) are proposing the following mergers:
- ----------------- --------------------------------------------------------------
Acquired Fund Acquiring Fund
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Proposal 1 V.A. High Yield Bond Fund V.A. Strategic Income Fund
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Proposal 2 V.A. Regional Bank Fund V.A. Financial Industries Fund
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Q. Will this change affect the number of units I currently have? Will there be
any tax implications?
A. No. There will be no impact on the number of units you have invested in your
variable annuity and there are no tax implications (no Form 1099R will be
generated)
Q. Will the transfer count towards the 12 free transfers allowed per contract
year?
A. No, the merger transfer will be free and it will not count toward your
allowable 12 free transfers per year.
Q. What if I do not want to have any units of the acquired fund transferred to
the proposed acquiring fund?
A. Prior to the merger, you may contact an Annuity Service Representative at
1-800-824-0335, Monday through Friday between 8:00 A.M. - 8:00 P.M. Eastern Time
and request a transfer to another investment option or Fixed Account (if
available in your state). Please consult your Investment Professional prior to
reallocating your assets.
Q. How do I vote?
A. Follow two simple steps:
STEP 1: First, read the sections of the proxy statement that apply to your
fund(s). STEP 2: Finally, complete the enclosed voting card for each of your
funds and return it in the enclosed postage-paid envelope. If you have more than
one card, you need to complete, sign and mail each one.
Q. Does my vote make a difference?
A. Whether you are a large or small investor, your vote is important, and we
urge you to participate in this process to ensure that John Hancock represents
your wishes when it casts votes at the shareholder meeting. The Board voted
unanimously to recommend these changes for your fund(s), and your approval is
needed to implement the changes.
JOHN HANCOCK V.A. HIGH YIELD BOND FUND
JOHN HANCOCK V.A. REGIONAL BANK FUND
(each a "Fund", and each a series of John Hancock Declaration Trust)
101 Huntington Avenue
Boston, MA 02199
NOTICE OF MEETING OF SHAREHOLDERS
SCHEDULED FOR DECEMBER 5, 2001
This is the formal agenda for each fund's shareholder meeting. It tells you, as
contract owners, and the insurance companies that are the owners of the funds'
shares, what matters will be voted on and the time and place of the meeting. The
insurance companies will vote their fund shares as instructed by their contract
or certificate owners, who are also referred to in the proxy materials as
"shareholders" for this limited purpose.
To the shareholders of the funds:
A joint shareholder meeting for your fund(s) will be held at 101 Huntington
Avenue, Boston, Massachusetts on Wednesday, December 5, 2001 at 9:00 a.m.,
Eastern time, to consider the following:
1. A proposal to approve an Agreement and Plan of Reorganization between John
Hancock V.A. High Yield Bond Fund ("V.A. High Yield Bond Fund") and John
Hancock V.A. Strategic Income Fund ("V.A. Strategic Income Fund"). Under
this Agreement, V.A. High Yield Bond Fund would transfer all of its assets
to V.A. Strategic Income Fund in exchange for shares of V.A. Strategic
Income Fund. These shares would be distributed proportionately to the
shareholders of V.A. High Yield Bond Fund. V.A. Strategic Income Fund
would also assume V.A. High Yield Bond Fund's liabilities. V.A. High Yield
Bond Fund's Board of Trustees recommends that shareholders vote FOR this
proposal.
2. A proposal to approve an Agreement and Plan of Reorganization between John
Hancock V.A. Regional Bank Fund ("V.A. Regional Bank Fund") and John
Hancock V.A. Financial Industries Fund ("V.A. Financial Industries Fund").
Under this Agreement, V.A. Regional Bank Fund would transfer all of its
assets to V.A. Financial Industries Fund in exchange for shares of V.A.
Financial Industries Fund. These shares would be distributed
proportionately to the shareholders of V.A. Regional Bank Fund. V.A.
Financial Industries Fund would also assume V.A. Regional Bank Fund's
liabilities. V.A. Regional Bank Fund's Board of Trustees recommends that
shareholders vote FOR this proposal.
3. Any other business that may properly come before the meeting.
Shareholders of record as of the close of business on September 20, 2001 are
entitled to vote at the meeting and any related follow-up meetings.
Whether or not you expect to attend the meeting, please complete and return the
enclosed proxy card (voting instruction card). If shareholders do not return
their proxies in sufficient numbers, your fund will incur the cost of extra
solicitations, which is indirectly borne by shareholders.
By order of the Board of Trustees,
Susan S. Newton
Secretary
November 1, 2001
PROXY STATEMENT OF
V.A. HIGH YIELD BOND FUND
V.A. REGIONAL BANK FUND
(each an "Acquired Fund" or "your fund", and each a series of
John Hancock Declaration Trust)
PROSPECTUS FOR
V.A. STRATEGIC INCOME FUND
V.A. FINANCIAL INDUSTRIES FUND
(each an "Acquiring Fund", and each a series of
John Hancock Declaration Trust)
This proxy statement and prospectus contains the information shareholders should
know before voting on the proposed reorganizations. Please read it carefully and
retain it for future reference.
How each Reorganization Will Work
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Acquired Fund Acquiring Fund
--------------------------------------------------------------------------
Proposal 1 V.A. High Yield Bond Fund V.A. Strategic Income Fund
--------------------------------------------------------------------------
Proposal 2 V.A. Regional Bank Fund V.A. Financial Industries Fund
--------------------------------------------------------------------------
o Each Acquired Fund will transfer all of its assets to the respective
Acquiring Fund. Each Acquiring Fund will assume the Acquired Fund's
liabilities.
o Each Acquiring Fund will issue shares to the respective Acquired Fund in
an amount equal to the value of the Acquired Fund's shares. These shares
will be distributed to Acquired Fund shareholders in proportion to their
holdings on the reorganization date.
o The reorganization will be tax-free to shareholders.
o Each Acquired Fund will be liquidated and fund shareholders will become
shareholders of the corresponding Acquiring Fund.
Shares of the Acquiring Funds are not deposits or obligations of, or guaranteed
or endorsed by, any bank or other depository institution. These shares are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency.
Shares of the Acquiring Funds have not been approved or disapproved by the
Securities and Exchange Commission. The Securities and Exchange Commission has
not passed upon the accuracy or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
1
Why each Acquired Fund's Trustees are Recommending the Reorganization
The Acquired Funds' Trustees believe that reorganizing each fund into a larger
fund with similar investment policies will enable the shareholders of the funds
to benefit from increased diversification, the ability to achieve better net
prices on securities trades and economies of scale that may contribute to a
lower expense ratio. Therefore, the Trustees recommend that Acquired Fund
shareholders vote FOR the reorganization.
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Where to Get More Information
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Prospectuses of the Acquired Funds and the Incorporated by reference into this proxy
Acquiring Funds dated May 1, 2001. statement and prospectus and summarized in
Appendices A and B.
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The Acquired Funds' annual and semiannual On file with the Securities and Exchange
reports to shareholders. Commission ("SEC") and available at no
- ---------------------------------------------- charge by calling 1-800-824-0335.
The Acquiring Funds' annual and semiannual Incorporated by reference into this proxy
reports to shareholders. statement and prospectus.
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A statement of additional information dated
November 1, 2001. It contains additional
information about the Acquired Funds and the
Acquiring Funds.
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To ask questions about this proxy statement Call our toll-free telephone
and prospectus. number: 1-800-824-0335.
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The date of this proxy statement and prospectus is November 1, 2001.
2
TABLE OF CONTENTS
Page
INTRODUCTION............................................................ 4
PROPOSAL 1 - V.A. HIGH YIELD BOND FUND.................................. 5
Summary............................................................... 5
Investment Risks...................................................... 10
Proposal to Approve the Agreement and Plan of Reorganization.......... 11
PROPOSAL 2 - V.A. REGIONAL BANK FUND.................................... 13
Summary............................................................... 13
Investment Risks...................................................... 18
Proposal to Approve the Agreement and Plan of Reorganization.......... 18
FURTHER INFORMATION ON EACH REORGANIZATION.............................. 20
CAPITALIZATION.......................................................... 21
ADDITIONAL INFORMATION ABOUT
THE FUNDS' BUSINESSES................................................. 22
BOARDS' EVALUATION AND RECOMMENDATION .................................. 22
VOTING RIGHTS AND REQUIRED VOTE ........................................ 22
INFORMATION CONCERNING THE MEETING...................................... 23
OWNERSHIP OF SHARES OF THE FUNDS........................................ 25
EXPERTS................................................................. 25
AVAILABLE INFORMATION................................................... 25
EXHIBIT A - Form of Agreement and Plan of Reorganization................ 26
APPENDICES
A. BASIC INFORMATION ABOUT THE FUNDS (attached to this document).
B. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: DECEMBER 31, 2000
(attached to this document).
3
INTRODUCTION
This proxy statement and prospectus is being used by the Acquired Funds' Board
of Trustees to solicit proxies to be voted at a special meeting of the Acquired
Funds' shareholders. This meeting will be held at 101 Huntington Avenue, Boston,
Massachusetts on Wednesday, December 5, 2001 at 9:00 a.m., Eastern time. The
purpose of the meeting is to consider proposals to approve Agreements and Plans
of Reorganization providing for the reorganization of the Acquired Funds into
the Acquiring Funds.
Who is Eligible to Vote?
Shareholders of record on September 20, 2001 (record date) are entitled to
attend and vote at the meeting or any adjourned meeting. Each share is entitled
to one vote. As of the record date, the insurance companies, on behalf of the
separate accounts, were shareholders of record of the Acquired Funds. The
insurance companies will vote shares of the Acquired Funds held by them in
accordance with voting instructions received from contract owners for whose
accounts the shares are held. The enclosed voting instruction card will be used
by the insurance companies to receive voting instructions from contract owners.
The notice of meeting, the proxy card (voting instruction card), the proxy
statement and prospectus are being mailed to the insurance companies and
contract owners on or about November 1, 2001.
Summary of each Proposal
For each proposal, this proxy statement and prospectus includes a summary of
more complete information appearing later in the proxy statement. Please read
the entire proxy statement and Exhibit A, as well as Appendices A and B, because
they contain details that are not in the summary. You can obtain information
about rights of a holder of a variable contract from your Annuity Prospectus.
4
PROPOSAL 1
APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION BETWEEN
V.A. HIGH YIELD BOND FUND AND V.A. STRATEGIC INCOME FUND
A proposal to approve an Agreement and Plan of Reorganization between V.A. High
Yield Bond Fund and V.A. Strategic Income Fund. Under this Agreement, V.A. High
Yield Bond Fund would transfer all of its assets to V.A. Strategic Income Fund
in exchange for shares of V.A. Strategic Income Fund. These shares would be
distributed proportionately to the shareholders of V.A. High Yield Bond Fund.
V.A. Strategic Income Fund would also assume V.A. High Yield Bond Fund's
liabilities. V.A. High Yield Bond Fund's Board of Trustees recommends that
shareholders vote FOR this proposal.
SUMMARY
Comparison of V.A. High Yield Bond Fund to V.A. Strategic Income Fund
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V.A. High Yield Bond Fund V.A. Strategic Income Fund
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Business: Each fund is a diversified series of John Hancock Declaration Trust. The trust
is an open-end investment company organized as a Massachusetts business trust.
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Net assets as of June 30, 2001: $6.13 million. $52.81 million.
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Investment adviser and Investment Adviser: Investment Adviser:
portfolio managers: John Hancock Advisers, Inc. John Hancock Advisers, Inc.
Portfolio managers:* Portfolio managers:*
Arthur N. Calavritinos, CFA Frederick L. Cavanaugh, Jr.
-V.P. of adviser -Senior V.P. of adviser
-Joined fund team in 1998 -Joined fund team in 1996
-Joined adviser in 1988 -Joined adviser in 1986
-Began business career in 1986 -Began business career in 1975
Frederick L. Cavanaugh, Jr. Arthur N. Calavritinos, CFA
-Senior V.P. of adviser -V.P. of adviser
-Joined fund team in 1998 -Joined fund team in 1996
-Joined adviser in 1986 -Joined adviser in 1988
-Began business career in 1975 -Began business career in 1986
Janet L. Clay, CFA Janet L. Clay, CFA
-V.P. of adviser -V.P. of adviser
-Joined fund team in 1998 -Joined fund team in 1998
-Joined adviser in 1995 -Joined adviser in 1995
-Began business career in 1990 -Began business career in 1990
Daniel S. Janis
-Second V.P. of adviser
-Joined fund team in 1999
-Joined adviser in 1999
-Began business career in 1984
---------------------------------------------------------------------------------
*Although each portfolio manager is primarily responsible for the day-to-day
management of both funds' portfolios, Mr. Calavritinos is the team leader for
V.A. High Yield Bond Fund and Mr. Cavanaugh is the team leader for V.A.
Strategic Income Fund.
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5
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V.A. High Yield Bond Fund V.A. Strategic Income Fund
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Investment objective: The fund seeks to maximize current income The fund seeks a high level of current
without assuming undue risk. Capital income. This objective can be changed
appreciation is a secondary goal. This without shareholder approval.
objective can be changed without
shareholder approval.
- ----------------------- -------------------------------------------- -------------------------------------------
Primary investments: The fund normally invests at least 65% of The fund invests primarily in:
assets in U.S. and foreign bonds rated o Foreign government and
BBB/Baa or lower and their unrated corporate debt securities from
equivalents. The fund may invest up to developed and emerging markets;
30% of assets in junk bonds rated CC/Ca o U.S. Government and agency
and their unrated equivalents. securities; and
o U.S. junk bonds rated as low as
CC/Ca and their unrated equivalents.
The fund normally invests in all
three categories. However, the
managers may invest up to 100% of
assets in any one category.
- ----------------------- -------------------------------------------- -------------------------------------------
Junk bonds: The fund may invest without limit in junk The fund may invest without limit in junk
bonds. The fund may invest up to 30% of bonds rated as low as CC/Ca and their
assets in junk bonds rated CC/Ca and their unrated equivalents.
unrated equivalents.
- ----------------------- -------------------------------------------- -------------------------------------------
Foreign debt The fund may invest in foreign debt The fund may invest in foreign debt
securities: securities without any percentage limit. securities without any percentage limit.
The fund limits its investments in
government securities of any one
country to 25% of total assets.
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Equity securities: The fund may invest up to 20% of net The fund may invest up to 10% of net
assets in U.S. and foreign equity assets in U.S. and foreign equity
securities. securities.
- ----------------------- ----------------------------------------------------------------------------------------
Average maturity: There is no limit on either fund's average maturity.
- ----------------------- ----------------------------------------------------------------------------------------
Illiquid securities: The fund may invest up to 15% of net assets in illiquid
securities.
- ----------------------- ----------------------------------------------------------------------------------------
Diversification: The fund is diversified and, with respect to 75% of total assets, cannot invest more
than 5% of total assets in securities of a single issuer.
- ----------------------- -------------------------------------------- -------------------------------------------
Industry The fund may invest up to 40% of assets in The fund may not invest more than 25% of
Concentration: electric utilities and telecommunications assets in securities of issuers in any
companies. one industry.
- ----------------------- ----------------------------------------------------------------------------------------
Derivatives: The fund may use certain derivatives (investments whose value is based on indices,
securities or currencies).
- ----------------------- ------------------------------------------- --------------------------------------------
Temporary defensive In abnormal market conditions, the fund In abnormal market conditions, the fund
positions: may temporarily invest more than 35% of may temporarily invest extensively in
assets in investment-grade short-term investment-grade short-term securities.
securities. In these and other cases, In these and other cases, the fund might
the fund might not achieve its goal. not achieve its goal.
- ----------------------- ------------------------------------------- --------------------------------------------
6
The Funds' Expenses
Both funds pay various expenses. The first two expense tables appearing below
show the expenses for the twelve-month period ended June 30, 2001, adjusted to
reflect any changes. Future expenses may be greater or less. The examples
contained in each expense table show what you would pay if you invested $10,000
over the various time periods indicated. Each example assumes that you
reinvested all dividends and that the average annual return was 5%. The examples
do not reflect the fees and expenses associated with variable annuity and
variable life insurance contracts for which the funds serve as investment
vehicles. The examples are for comparison purposes only and are not a
representation of either fund's actual expenses or returns, either past or
future.
7
V.A. High Yield Bond Fund
Shareholder transaction expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) 0.00%
Maximum sales charge imposed on
reinvested dividends none
Maximum deferred sales charge none
Redemption fee none
Exchange fee none
Annual fund operating expenses
(as a % of average net assets)
Management fee 0.60%
Other expenses 0.57%
Total fund operating expenses 1.17%
Expense reimbursement (1) 0.32%
Actual operating expenses 0.85%
Example
Year 1 Year 3 Year 5 Year 10
At end of period $87 $271 $471 $1049
(1) V.A. High Yield Bond Fund's adviser has agreed to limit the fund's
expenses, excluding management fees, to 0.25% until 5/1/02.
V.A. Strategic Income Fund
Shareholder transaction expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) 0.00%
Maximum sales charge imposed on
Reinvested dividends none
Maximum deferred sales charge none
Redemption fee none
Exchange fee none
Annual fund operating expenses
(as a % of average net assets)
Management fee 0.60%
Other expenses 0.11%
Total fund operating expenses 0.71%
Expense reimbursement (1) 0.00%
Actual operating expenses 0.71%
(1) V.A. Strategic Income Fund's adviser has agreed to limit the Fund's
expenses, excluding management fees, to 0.25% until 5/1/02.
Example
Year 1 Year 3 Year 5 Year 10
At end of period $73 $228 $397 $888
8
Pro Forma Expense Table
The following expense table shows the pro forma expenses of V.A. Strategic
Income Fund assuming that a reorganization with V.A. High Yield Bond Fund
occurred on June 30, 2000. The expenses shown in the table are based on fees and
expenses incurred during the twelve months ended June 30, 2001, adjusted to
reflect any changes. V.A. Strategic Income Fund's actual expenses after the
reorganization may be greater or less than those shown. The example contained in
the pro forma expense table shows what you would pay on a $10,000 investment if
the reorganization had occurred on June 30, 2000. The example assumes that you
reinvested all dividends and that the average annual return was 5%. The example
does not reflect the fees and expenses associated with variable annuity and
variable life insurance contracts for which the funds serves as an investment
vehicle. The pro forma example is for comparison purposes only and is not a
representation of V.A. Strategic Income Fund's actual expenses or returns,
either past or future.
V.A. Strategic Income Fund (PRO FORMA)
(Assuming reorganization with V.A. High Yield Bond Fund)
Shareholder transaction expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) 0.00%
Maximum sales charge imposed on
Reinvested dividends none
Maximum deferred sales charge none
Redemption fee none
Exchange fee none
Annual fund operating expenses
(as a % of average net assets)
Management fee 0.60%
Other expenses 0.11%
Total fund operating expenses 0.71%
Expense reimbursement (1) 0.00%
Actual operating expenses 0.71%
Pro Forma Example
Year 1 Year 3 Year 5 Year 10
At end of period $73 $228 $397 $888
(1) V.A. Strategic Income Fund's adviser has agreed to limit the Fund's
expenses, excluding management fees, to 0.25% until 5/1/02.
9
The Reorganization
o The reorganization is scheduled to occur at 5:00 p.m., Eastern time,
on December 14, 2001, but may occur on any later date before June
30, 2002. V.A. High Yield Bond Fund will transfer all of its assets
to V.A. Strategic Income Fund. V.A. Strategic Income Fund will
assume V.A. High Yield Bond Fund's liabilities. The net asset value
of both funds will be computed as of 5:00 p.m., Eastern time, on the
reorganization date.
o V.A. Strategic Income Fund will issue to V.A. High Yield Bond Fund
shares in an amount equal to the aggregate net asset value of V.A.
High Yield Bond Fund's shares. These shares will be distributed
immediately to V.A. High Yield Bond Fund's shareholders in
proportion to their holdings on the reorganization date. As a
result, shareholders of V.A. High Yield Bond Fund will end up as
shareholders of V.A. Strategic Income Fund.
o After the reorganization is over, V.A. High Yield Bond Fund will be
terminated.
o The reorganization will be tax-free and will not take place unless
both funds receive a satisfactory opinion concerning the tax
consequences of the reorganization from Hale and Dorr LLP, counsel
to the funds.
The following diagram shows how the reorganization would be carried out.
V. A. High Yield Bond V. A. High Yield Bond Fund V.A. Strategic Income
Fund transfers assets assets and liabilities Fund receives assets
and liabilities to V.A. ----------->---------- and assumes liabilities
Strategic Income of V.A. High Yield Bond
Fund Fund
Shareholders -----------<---------- Issues Shares
V.A. High Yield Bond Fund receives V.A. Strategic Income Fund shares
and distributes them to its shareholders.
Other Consequences of the Reorganization. Each fund pays monthly advisory fees
equal to the following annual percentage of its average daily net assets: V.A.
High Yield Bond Fund--0.60% and V.A. Strategic Income Fund 0.60%. V.A. Strategic
Income Fund's management fee rate of 0.60% and its pro forma management fee rate
of 0.60% are the same as V.A. High Yield Bond Fund's management fee rate of
0.60%. V.A. High Yield Bond Fund's gross total annual operating expenses of
1.17% are substantially higher than those of V.A. Strategic Income Fund which
are 0.71%. Even after the reduction of each fund's other expenses as a result of
the adviser's voluntary agreement to limit the funds' other expenses, V.A. High
Yield Bond Fund's total annual operating expenses (0.85%) are higher than those
of V.A. Strategic Income Fund (0.71%). After the reorganization, V.A. Strategic
Income Fund's pro forma total annual operating expenses (0.71%) are less than
those of V.A. High Yield Bond Fund's gross total annual operating expenses
(1.17%) and net total annual operating expenses (0.85%).
10
INVESTMENT RISKS
The funds are exposed to various risks that could cause shareholders to lose
money on their investments in the funds. The following table shows that the
risks affecting each fund are similar and compares the risks affecting each
fund.
- ----------------------------------------------------------------------------------------------------------------------
V.A. High Yield Bond Fund V.A. Strategic Income Fund
- ----------------------------------------------------------------------------------------------------------------------
Interest rate risk When interest rates rise, bond prices usually fall. Generally, an increase in the
fund's average maturity will make it more sensitive to interest rate risk.
- ------------------------------- --------------------------------------------------------------------------------------------
Prepayment (call) and If interest rate movements cause the fund's mortgage-related and callable securities to be
extension risks paid off earlier or later than expected, the fund's share price or yield could be hurt.
- ------------------------------- --------------------------------------------------------------------------------------------
Credit risk Credit risk depends largely on the perceived financial health of bond issuers. The
fund could lose money if the credit rating of any bond in its portfolio is downgraded or if
the issuer of the bond defaults on its obligations. In general, lower-rated bonds
involve more credit risk.
- ------------------------------- --------------------------------------------------------------------------------------------
Other junk bond risks Junk bond prices can fall on bad news about the economy, an industry or a company.
- ------------------------------- ---------------------------------------------- ---------------------------------------------
Volatility risk The fund's share price, yield and total The fund's risk profile depends on its
return may fluctuate more than with less sector allocation. Fluctuations in the
aggressive bond funds. fund's share price, yield and total return
are expected to be above average for bond
funds.
- ------------------------------- ---------------------------------------------- ---------------------------------------------
Government securities market Not applicable because the fund does not A fall in worldwide demand for U.S.
risk ordinarily focus on U.S. government government securities could lower the
securities. prices of these securities.
- ------------------------------- ---------------------------------------------- ---------------------------------------------
Industry concentration risk If the fund concentrates in Not applicable because the fund does not
telecommunications or electric utilities, usually concentrate in particular
its performance would be tied more closely industries.
to those industries and could be
worse than that of the overall bond market.
- ------------------------------- --------------------------------------------------------------------------------------------
Manager risk The manager and its strategy may fail to produce the intended results. The fund could
underperform its peers or lose money if the manager's investment strategy does not perform
as expected.
- ------------------------------- --------------------------------------------------------------------------------------------
Foreign securities risk Foreign investments involve additional risks, including potentially
inaccurate financial information and social or political instability. Unfavorable foreign
currency exchange rates could reduce the value of bonds denominated in foreign currencies. The
prices of foreign bonds may also be more volatile and more sensitive to adverse economic
developments occuring outside the U.S. These risks are more severe in emerging markets.
- ------------------------------- --------------------------------------------------------------------------------------------
Stock market risk Stock investments may go down in value due to stock market movements or negative company
or industry events.
- ------------------------------- --------------------------------------------------------------------------------------------
Derivatives risk Certain derivative instruments can produce disproportionate gains or losses and are riskier
than direct investments. Also, in a down market derivatives could become harder to value or sell
at a fair price.
- ------------------------------- --------------------------------------------------------------------------------------------
Liquidity and valuation risks In a down or unstable market, the fund's investments could become
harder to value accurately or to sell at a fair price.
- ------------------------------- --------------------------------------------------------------------------------------------
Turnover risk In general, the greater the volume of buying and selling by a fund (and the higher its
"turnover rate"), the greater the impact that transaction costs will have on the fund's
performance. The fund's turnover rate may exceed 100%, which is considered relatively high.
- ------------------------------- --------------------------------------------------------------------------------------------
11
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION
Description of Reorganization
Shareholders are being asked to approve an Agreement and Plan of Reorganization,
a form of which is attached as Exhibit A. The Agreement provides for a
reorganization on the following terms:
o The reorganization is scheduled to occur at 5:00 p.m., Eastern time,
on December 14, 2001, but may occur on any later date before June
30, 2002. V.A. High Yield Bond Fund will transfer all of its assets
to V.A. Strategic Income Fund and V.A. Strategic Income Fund will
assume all of V.A. High Yield Bond Fund's liabilities. This will
result in the addition of V.A. High Yield Bond Fund's assets to V.A.
Strategic Income Fund's portfolio. The net asset value of both funds
will be computed as of 5:00 p.m., Eastern time, on the
reorganization date.
o V.A. Strategic Income Fund will issue to V.A. High Yield Bond Fund
shares in an amount equal to the aggregate net asset value of V.A.
High Yield Bond Fund's shares. As part of the liquidation of V.A.
High Yield Bond Fund, these shares will be distributed immediately
to shareholders of record of V.A. High Yield Bond Fund in proportion
to their holdings on the reorganization date. As a result,
shareholders of V.A. High Yield Bond Fund will end up as
shareholders of V.A. Strategic Income Fund.
o After the reorganization is over, the existence of V.A. High Yield
Bond Fund will be terminated.
Reasons for the Proposed Reorganization.
The Board of Trustees of V.A. High Yield Bond Fund believes that the proposed
reorganization will be advantageous to the shareholders of V.A. High Yield Bond
Fund for several reasons. The Board of Trustees considered the following
matters, among others, in approving the proposal.
First, V.A. High Yield Bond Fund is no longer being offered to new variable
insurance contract holders, making it increasingly difficult for the fund to
attract assets.
Second, shareholders may be better served by a fund offering more
diversification. V.A. Strategic Income Fund has a larger asset size than V.A.
High Yield Bond Fund and may invest in a broader range of securities.
Furthermore, V.A. High Yield Bond Fund's small size makes it difficult to manage
in a cost effective manner because of the volatility of these bonds and the
resulting trading costs.
Third, V.A. Strategic Income Fund shares have performed better than V.A. High
Yield Bond Fund over the life of both funds. While past performance cannot
predict future results, the Trustees believe that V.A. Strategic Income Fund is
better positioned than V.A. High Yield Bond Fund to continue to generate strong
returns because of its greater flexibility to choose from among a broader range
of investment opportunities.
12
Fourth, a combined fund may offer economies of scale that can lead to better
control over expenses than is possible for V.A. High Yield Bond Fund alone. Both
funds incur substantial costs for accounting, legal, transfer agency services,
insurance, and custodial and administrative services.
Fifth, V.A. Strategic Income Fund's total expenses are lower than V.A. High
Yield Bond Fund's total expenses. As a result of the reorganization,
shareholders of V.A. High Yield Bond Fund may experience a reduction in the
total amount of fees, as a percentage of average net assets, that they pay each
month.
The Trustees believe that V.A. Strategic Income Fund shareholders will also
benefit from improved diversification as a result of the reorganization.
Although V.A. Strategic Income Fund is a larger fund than V.A. High Yield Bond
Fund, the Trustees believe that the addition of V.A. High Yield Bond Fund's
assets may add to the diversification of V.A. Strategic Income Fund's overall
portfolio and therefore provide an economic benefit to V.A. Strategic Income
Fund and its shareholders.
The Boards of Trustees of both funds also considered that the adviser will also
benefit from the reorganization. For example, the adviser might realize time
savings from a consolidated portfolio management effort and from the need to
prepare fewer reports and regulatory filings as well as prospectus disclosure
for one fund instead of two. The Trustees believe, however, that these savings
will not amount to a significant economic benefit to the adviser.
Comparative Fees and Expense Ratios. As discussed above in the Summary, the
advisory fee rate paid by V.A. High Yield Bond Fund is the same as the rate paid
by V.A. Strategic Income Fund. V.A. Strategic Income Fund's management fee rate
of 0.60% and its pro forma management fee rate of 0.60% are the same as V.A.
High Yield Bond Fund's management fee rate of 0.60%.
V.A. High Yield Bond Fund's gross total annual operating expenses of 1.17% are
substantially higher that those of V.A. Strategic Income Fund, which are 0.71%.
Even after the reduction of each fund's other expenses as a result of the
adviser's voluntary agreement to limit the funds' other expenses, V.A. High
Yield Bond Fund's total annual operating expenses (0.85%) are higher than those
of V.A. Strategic Income Fund (0.71%). After the reorganization, V.A. Strategic
Income Fund's pro forma total annual operating expenses (0.71) are less than
those of V.A. High Yield Bond Fund's gross total annual operating expenses
(1.17%) and net total annual operating expenses (0.85%).
V.A. High Yield Bond Fund has not increased its asset size. The Trustees do not
believe, given V.A. High Yield Bond Fund's current size and historical growth
rate, that V.A. High Yield Bond Fund will grow to an asset size that would allow
V.A. High Yield Bond Fund to realize the benefits of economies of scale,
including better control over expenses. The Trustees also do not believe that
V.A. High Yield Bond Fund will reach an asset size which will allow V.A. High
Yield Bond Fund to significantly broaden the diversification of its investment
portfolio.
Comparative Performance. The trustees also took into consideration the relative
performance of V.A. High Yield Bond Fund and V.A. Strategic Income Fund.
13
PROPOSAL 2
APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION BETWEEN
JOHN HANCOCK V.A. REGIONAL BANK FUND AND
JOHN HANCOCK V.A. FINANCIAL INDUSTRIES FUND
A proposal to approve an Agreement and Plan of Reorganization between John
Hancock V.A. Regional Bank Fund and John Hancock V.A. Financial Industries Fund.
Under this Agreement, V.A. Regional Bank Fund would transfer all of its assets
to V.A. Financial Industries Fund in exchange for shares of V.A. Financial
Industries Fund. These shares would be distributed proportionately to the
shareholders of V.A. Regional Bank Fund. V.A. Financial Industries Fund would
also assume V.A. Regional Bank Fund's liabilities. V.A. Regional Bank Fund's
Board of Trustees recommends that shareholders vote FOR this proposal.
SUMMARY
Comparison of V.A. Regional Bank Fund to V.A. Financial Industries Fund
- -------------------------------------------------------------------------------------------------------------------
V.A. Regional Bank Fund V.A. Financial Industries Fund
- -------------------------------------------------------------------------------------------------------------------
Business: Each fund is a diversified series of John Hancock Declaration Trust. The trust is
an open-end investment company organized as a Massachusetts business trust.
- -------------------------------------------------------------------------------------------------------------------
Net assets as of June 30, $11.19 million. $82.0 million.
2001:
- -------------------------------------------------------------------------------------------------------------------
Investment adviser and Investment adviser: Investment adviser:
portfolio managers: John Hancock Advisers, Inc. John Hancock Advisers, Inc.
Portfolio managers: Portfolio managers:
James K. Schmidt, CFA James K. Schmidt, CFA
-Executive V.P. of adviser -Executive V.P. of adviser
-Joined fund team in 1998 -Joined fund team in 1997
-Joined adviser in 1985 -Joined adviser in 1985
-Began business career in 1979 -Began business career in 1979
Thomas M. Finucane Thomas M. Finucane
-V.P. of adviser -V.P. of adviser
-Joined fund team in 1998 -Joined fund team in 1997
-Joined adviser in 1990 -Joined adviser in 1990
-Began business career in 1983 -Began business career in 1983
Thomas C. Goggins Thomas C. Goggins
-Senior V.P. of adviser -Senior V.P. of adviser
-Joined fund team in 1998 -Joined fund team in 1998
-Joined adviser in 1995 -Joined adviser in 1995
-Began business career in 1981 -Began business career in 1981
- -------------------------------------------------------------------------------------------------------------------
14
- ----------------------------------------------------------------------------------------------------------------
V.A. Regional Bank Fund V.A. Financial Industries Fund
- ----------------------------------------------------------------------------------------------------------------
Investment objective: The fund seeks long-term capital The fund seeks capital appreciation. This
appreciation. This objective can be objective can be changed without
changed without shareholder approval. shareholder approval.
- ---------------------- ------------------------------------------ ---------------------------------------------
Primary investments: The fund invests at least 65% of assets The fund invests at least 65% of assets in
in stocks of regional banks and lending stocks of U.S. and foreign financial
companies, including commercial and services companies of any size. These
industrial banks, savings and loan companies include banks, thrifts, finance
associations and bank holding companies, brokerage and advisory firms,
companies. Typically, these companies real estate-related firms, insurance
provide full-service banking, have companies and financial holding companies.
primarily domestic assets and are based
outside money centers such as New York
City and Chigaco.
- ---------------------- ------------------------------------------- --------------------------------------------
Other Investments: The fund may invest in other U.S. and The fund may invest in U.S. and foreign
foreign financial services companies, bonds, including up to 5% of net assets in
such as lending companies and money junk bonds (those rated below BBB/Baa and
center banks. The fund may invest up to their unrated equivalents).
5% of net assets in stocks of companies
outside of the financial services sector
and up to 5% of net assets in junk bonds
(those rated below BBB/Baa and their
unrated equivalents).
- ---------------------- ----------------------------------------------------------------------------------------
Short-term The fund may invest up to 15% of net assets in investment-grade short-term securities.
securities:
- ---------------------- ----------------------------------------------------------------------------------------
Foreign securities: The fund may invest in foreign securities, including foreign-denominated securities and sponsored
and unsponsored depositary receipts.
- ---------------------- ----------------------------------------------------------------------------------------
Diversification: The fund is diversified and, with respect to 75% of total assets, cannot invest more
than 5% of total assets in securities of a single issuer.
- ---------------------- ----------------------------------------------------------------------------------------
Derivatives: The fund may make limited use of certain derivatives (investments whose value is based
on indices, securities or currencies).
- ---------------------- -------------------------------------------- -------------------------------------------
Temporary defensive In abnormal market conditions, the fund In abnormal market conditions, the fund
positions: may temporarily invest up to 80% of assets may temporarily invest up to 80% of
in investment-grade short-term assets in investment-grade short-term
securities. In these and other cases, the securities. In these and other cases,
fund might not achieve its goal. the fund might not achieve its goal.
- ---------------------- -------------------------------------------- -------------------------------------------
15
The Funds' Expenses
Both funds pay various expenses. The first two expense tables appearing below
show the expenses for the twelve-month period ended June 30, 2001, adjusted to
reflect any changes. Future expenses may be greater or less. The examples
contained in each expense table show what you would pay if you invested $10,000
over the various time periods indicated. Each example assumes that you
reinvested all dividends and that the average annual return was 5%. The examples
do not reflect the fees and expenses associated with variable annuity and
variable life insurance contracts for which the funds serve as investment
vehicles. The examples are for comparison purposes only and are not a
representation of either fund's actual expenses or returns, either past or
future.
V.A. Regional Bank Fund
Shareholder transaction expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) 0.00%
Maximum sales charge imposed on
reinvested dividends none
Maximum deferred sales charge none
Redemption fee none
Exchange fee none
Annual fund operating expenses
(as a % of average net assets)
Management fee 0.80%
Other expenses 0.22%
Total fund operating expenses 1.02%
Expense reimbursement (1) 0.00%
Actual operating expenses 1.02%
Example
Year 1 Year 3 Year 5 Year 10
At end of period $104 $326 $565 $1252
(1) V.A. Regional Bank Fund's adviser has agreed to limit the fund's expenses,
excluding management fees, to 0.25% until 5/1/02.
16
V.A. Financial Industries Fund
Shareholder transaction expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) 0.00%
Maximum sales charge imposed on
Reinvested dividends none
Maximum deferred sales charge none
Redemption fee none
Exchange fee none
Annual fund operating expenses
(as a % of average net assets)
Management fee 0.80%
Other expenses 0.12%
Total fund operating expenses 0.92%
Expense reimbursement (1) 0.00%
Actual operating expenses 0.92%
(1) V.A. Financial Industries Fund's adviser has agreed to limit the fund's
expenses, excluding management fees, to 0.25% until 5/1/02.
Example
Year 1 Year 3 Year 5 Year 10
At end of period $94 $293 $509 $1131
Pro Forma Expense Table
The following expense table shows the pro forma expenses of V.A. Financial
Industries Fund assuming that a reorganization with V.A. Regional Bank Fund
occurred on June 30, 2000. The expenses shown in the table are based on fees and
expenses incurred during the twelve months ended June 30, 2001, adjusted to
reflect any changes. V.A. Financial Industries Fund's actual expenses after the
reorganization may be greater or less than those shown. The example contained in
the pro forma expense table shows what you would pay on a $10,000 investment if
the reorganization had occurred on June 30, 2000. The example assumes that you
reinvested all dividends and that the average annual return was 5%. The example
does not reflect the fees and expenses associated with variable annuity and
variable life insurance contracts for which the fund serves as an investment
vehicle. The pro forma example is for comparison purposes only and is not a
representation of V.A. Financial Industries Fund's actual expenses or returns,
either past or future.
17
V.A. Financial Industries Fund (PRO FORMA)
(Assuming reorganization with V.A. Regional Bank Fund)
Shareholder transaction expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) 0.00%
Maximum sales charge imposed on
Reinvested dividends none
Maximum deferred sales charge none
Redemption fee none
Exchange fee none
Annual fund operating expenses
(as a % of average net assets)
Management fee 0.80%
Other expenses 0.12%
Total fund operating expenses 0.92%
Expense reimbursement (1) 0.00%
Actual operating expenses 0.92%
Pro Forma Example
Year 1 Year 3 Year 5 Year 10
At end of period $94 $293 $509 $1131
(1) V.A. Financial Industries Fund's adviser has agreed to limit the fund's
expenses, excluding management fees, to 0.25% until 5/1/02.
The Reorganization
o The reorganization is scheduled to occur at 5:00 p.m., Eastern time,
on December 14, 2001, but may occur on any later date before June
30, 2002. V.A. Regional Bank Fund will transfer all of its assets to
V.A. Financial Industries Fund. V.A. Financial Industries Fund will
assume V.A. Regional Bank Fund's liabilities. The net asset value of
both funds will be computed as of 5:00 p.m., Eastern time, on the
reorganization date.
o V.A. Financial Industries Fund will issue to V.A. Regional Bank Fund
shares in an amount equal to the aggregate net asset value of V.A.
Regional Bank Fund's shares. These shares will be distributed
immediately to V.A. Regional Bank Fund's shareholders in proportion
to their holdings on the reorganization date. As a result,
shareholders of V.A. Regional Bank Fund will end up as shareholders
of V.A. Financial Industries Fund.
o After the reorganization is over, V.A. Regional Bank Fund will be
terminated.
o The reorganization will be tax-free and will not take place unless
both funds receive a satisfactory opinion concerning the tax
consequences of the reorganization from Hale and Dorr LLP, counsel
to the funds.
18
The following diagram shows how the reorganization would be carried out.
V. A. Regional Bank V. A. Regional Bank Fund V.A. Financial Industries
Fund transfers assets assets and liabilities Fund receives assets
and liabilities to V.A. ------------>----------- and assumes liabilities
Financial Industries of V.A. Regional Bank
Fund Fund
Shareholders ------------<----------- Issues Shares
V.A. Regional Bank Fund receives V.A. Financial Industries Fund
shares and distributes them to its shareholders.
Other Consequences of the Reorganization. Each fund pays monthly advisory fees
equal to the following annual percentage of its average daily net assets: V.A.
Regional Bank Fund--0.80% and V.A. Financial Industries Fund 0.80%. V.A.
Financial Industries Fund's management fee rate of 0.80% and its pro forma
management fee rate of 0.80% are the same as V.A. Regional Bank Fund's
management fee rate of 0.80%. V.A. Regional Bank Fund's gross total annual
operating expenses of 1.02% are substantially higher that those of V.A.
Financial Industries Fund which are 0.92%. Even after the reduction of each
fund's other expenses as a result of the adviser's voluntary agreement to limit
the funds' other expenses, V.A. Regional Bank Fund's total annual operating
expenses (1.02%) are higher than those of V.A. Financial Industries Fund
(0.92%). After the reorganization, V.A. Financial Industries Fund's pro forma
total annual operating expenses (0.92%) are less than those of V.A. Regional
Bank Fund's gross total annual operating expenses (1.02%) and net total annual
operating expenses (1.02%).
19
INVESTMENT RISKS
The funds are exposed to various risks that could cause shareholders to lose
money on their investments in the funds. The following table shows that the
risks affecting each fund are similar and compares the risks affecting each
fund.
- --------------------------------------------------------------------------------------------------------------------
V.A. Regional Bank Fund V.A. Financial Industries Fund
- --------------------------------------------------------------------------------------------------------------------
Stock market risk The value of securities in the fund may go down in response to overall stock market
movements. Markets tend to move in cycles, with periods of rising prices and periods of falling
prices. Stocks tend to go up and down in value more than bonds.
- ------------------------------- --------------------------------------------------------------------------------------------
Sector concentration risk Because the fund focuses on a single sector of the economy, its performance
depends in large part on the performane of that sector. As a result, the value of your
investment may fluctuate more widely than it would in a fund that is diversified across
sectors. For instance, when interest rates fall or economic conditions deteriorate, the stocks
of banks and financial services companies could suffer losses. Also, rising interest rates can
reduce profits by narrowing the difference between the borrowing and lending rates
available to these banks and companies.
- ------------------------------- ---------------------------------------------- ---------------------------------------------
Regional bank risk A decline in a region's economy could hurt Not applicable because the fund does not
the banks in that region. usually focus on regional banks.
- ------------------------------- --------------------------------------------------------------------------------------------
Investment category risk Stocks of banks and financial services companies as a group could fall out of
favor with the market, causing the fund to underperform funds that focus on other types of
stocks.
- ------------------------------- --------------------------------------------------------------------------------------------
Manager risk The manager and its strategy may fail to produce the intended results. The fund could
underperform its peers or lose money if the manager's investment strategy does not perform
as expected.
- ------------------------------- --------------------------------------------------------------------------------------------
Foreign securities risk Foreign investments involve additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial information and social
or political instability.
- ------------------------------- --------------------------------------------------------------------------------------------
Bond risk The credit rating of any bond in the fund's portfolio could be downgraded or the issuer of a
bond could default on its obligations. Bond prices generally fall when interest rates rise.
This risk is greater for longer maturity bonds. Junk bond prices can fall on bad news about the
economy, an industry or a company.
- ------------------------------- --------------------------------------------------------------------------------------------
Derivatives risk Certain derivative instruments can produce disproportionate gains or losses and are riskier
than direct investments. Also, in a down market derivatives could become harder to value or sell
at a fair price.
- ------------------------------- --------------------------------------------------------------------------------------------
Turnover risk In general, the greater the volume of buying and selling by a fund (and the higher its
"turnover rate"), the greater the impact that transaction costs will have on the fund's
performance. The fund's turnover rate may exceed 100%, which is considered relatively high.
- ------------------------------- --------------------------------------------------------------------------------------------
20
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION
Description of Reorganization
Shareholders are being asked to approve an Agreement and Plan of Reorganization,
a form of which is attached as Exhibit A. The Agreement provides for a
reorganization on the following terms:
o The reorganization is scheduled to occur at 5:00 p.m., Eastern time,
on December 14, 2001, but may occur on any later date before June
30, 2002. V.A. Regional Bank Fund will transfer all of its assets to
V.A. Financial Industries Fund and V.A. Financial Industries Fund
will assume all of V.A. Regional Bank Fund's liabilities. This will
result in the addition of V.A. Regional Bank Fund's assets to V.A.
Financial Industries Fund's portfolio. The net asset value of both
funds will be computed as of 5:00 p.m., Eastern time, on the
reorganization date.
o V.A. Financial Industries Fund will issue to V.A. Regional Bank Fund
shares in an amount equal to the aggregate net asset value of V.A.
Regional Bank Fund's shares. As part of the liquidation of V.A.
Regional Bank Fund, these shares will be distributed immediately to
shareholders of record of V.A. Regional Bank Fund in proportion to
their holdings on the reorganization date. As a result, shareholders
of V.A. Regional Bank Fund will end up as shareholders of V.A.
Financial Industries Fund.
o After the reorganization is over, the existence of V.A. Regional
Bank Fund will be terminated.
Reasons for the Proposed Reorganization
The Board of Trustees of V.A. Regional Bank Fund believes that the proposed
reorganization will be advantageous to the shareholders of V.A. Regional Bank
Fund for several reasons. The Board of Trustees considered the following
matters, among others, in approving the proposal.
First, V.A. Regional Bank Fund is no longer being offered to new variable
insurance contract holders, making it increasingly difficult for the fund to
attract assets.
Second, shareholders may be better served by a fund offering more
diversification. V.A. Financial Industries Fund has a larger asset size than
V.A. Regional Bank Fund and may invest in a broader range of securities.
Combining the funds' assets into a single investment portfolio may broaden
diversification, making investors less vulnerable to weakness in any single
portion of the financial services sector.
Third, V.A. Financial Industries Fund shares have performed better than V.A.
Regional Bank Fund over the life of both funds. While past performance cannot
predict future results, the Trustees believe that V.A. Financial Industries Fund
is better positioned than V.A. Regional Bank Fund to continue to generate strong
returns because it has the ability to choose from a broader range of investment
opportunities.
Fourth, a combined fund may offer economies of scale that can lead to better
control over expenses than is possible for V.A. Regional Bank Fund alone. Both
funds incur substantial costs for accounting, legal, transfer agency services,
insurance, and custodial and administrative services.
Fifth, V.A. Financial Industries Fund's total expenses are lower than V.A.
Regional Bank Fund's total expenses. As a result of the reorganization,
shareholders of V.A. Regional Bank Fund may experience a reduction in the total
amount of fees, as a percentage of average net assets, that they pay each month.
The Trustees believe that V.A. Financial Industries Fund shareholders will also
benefit from improved diversification as a result of the reorganization.
Although V.A. Financial Industries Fund is a larger fund than V.A. Regional Bank
Fund, the Trustees believe that the addition of V.A. Regional Bank Fund's assets
may add to the diversification of V.A. Financial Industries Fund's overall
portfolio and therefore provide an economic benefit to V.A. Financial Industries
Fund and its shareholders.
21
The Boards of Trustees of both funds also considered that the adviser will also
benefit from the reorganization. For example, the adviser might realize time
savings from a consolidated portfolio management effort and from the need to
prepare fewer reports and regulatory filings as well as prospectus disclosure
for one fund instead of two. The Trustees believe, however, that these savings
will not amount to a significant economic benefit to the adviser.
Comparative Fees and Expense Ratios. As discussed above in the Summary, the
advisory fee rate paid by V.A. Regional Bank Fund is the same as the rate paid
by V.A. Financial Industries Fund. V.A. Financial Industries Fund's management
fee rate of 0.80% and its pro forma management fee rate of 0.80% are the same as
V.A. Regional Bank Fund's management fee rate of 0.80%.
V.A. Regional Bank Fund's gross total annual operating expenses of 1.02% are
substantially higher that those of V.A. Financial Industries Fund, which are
0.92%. Even after the reduction of each fund's other expenses as a result of the
adviser's voluntary agreement to limit the funds' other expenses, V.A. Regional
Bank Fund's total annual operating expenses (1.02%) are higher than those of
V.A. Financial Industries Fund (0.92%). After the reorganization, V.A. Financial
Industries Fund's pro forma total annual operating expenses (0.92%) are less
than those of V.A. Regional Bank Fund's gross total annual operating expenses
(1.02%) and net total annual operating expenses (1.02%).
V.A. Regional Bank Fund has not increased its asset size. The Trustees do not
believe, given V.A. Regional Bank Fund's current size and historical growth
rate, that V.A. Regional Bank Fund will grow to an asset size that would allow
V.A. Regional Bank Fund to realize the benefits of economies of scale, including
better control over expenses. The Trustees also do not believe that V.A.
Regional Bank Fund will reach an asset size which will allow V.A. Regional Bank
Fund to significantly broaden the diversification of its investment portfolio.
Comparative Performance. The trustees also took into consideration the relative
performance of V.A. Regional Bank Fund and V.A. Financial Industries Fund.
FURTHER INFORMATION ON EACH REORGANIZATION
Tax Status of Each Reorganization
Each reorganization will be tax-free for federal income tax purposes and will
not take place unless both funds in each respective reorganization receive a
satisfactory opinion from Hale and Dorr LLP, counsel to the Funds, substantially
to the effect that:
o The reorganization described above will be a "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code of 1986
(the "Code"), and each fund will be "a party to a reorganization"
within the meaning of Section 368 of the Code;
o No gain or loss will be recognized by each Acquired Fund upon (1)
the transfer of all of its assets to the respective Acquiring Fund
as described above or (2) the distribution by each Acquired Fund of
Acquiring Fund shares to Acquired Fund shareholders;
o No gain or loss will be recognized by each Acquiring Fund upon the
receipt of each respective Acquired Fund's assets solely in exchange
for the issuance of Acquiring Fund shares and the assumption of all
of Acquired Fund liabilities by each respective Acquiring Fund;
o The basis of the assets of each Acquired Fund acquired by each
respective Acquiring Fund will be the same as the basis of those
assets in the hands of each respective Acquired Fund immediately
before the transfer;
o The tax holding period of the assets of each Acquired Fund in the
hands of each respective Acquiring Fund will include the Acquired
Fund's tax holding period for those assets;
o The shareholders of each Acquired Fund will not recognize gain or
loss upon the exchange of all their shares of the Acquired Funds
solely for Acquiring Fund shares as part of the reorganization;
22
o The basis of Acquiring Fund shares received by Acquired Fund
shareholders in the reorganization will be the same as the basis of
the shares of each Acquired Fund surrendered in exchange; and
o The tax holding period of the Acquiring Fund shares that Acquired
Fund shareholders receive will include the tax holding period of the
shares of the Acquired Fund surrendered in the exchange, provided
that the shares of the Acquired Fund were held as capital assets on
the reorganization date.
Additional Terms of each Agreement and Plan of Reorganization
Conditions to Closing each Reorganization. The obligation of each Acquired Fund
to consummate the reorganization is subject to the satisfaction of certain
conditions, including the performance by the respective Acquiring Fund of all
its obligations under the Agreement and the receipt of all consents, orders and
permits necessary to consummate the reorganization (see Agreement, paragraph 6).
The obligation of each Acquiring Fund to consummate the reorganization is
subject to the satisfaction of certain conditions, including each respective
Acquired Fund's performance of all of its obligations under the Agreement, the
receipt of certain documents and financial statements from each respective
Acquired Fund and the receipt of all consents, orders and permits necessary to
consummate the reorganization (see Agreement, paragraph 7).
The obligations of each respective Acquired Fund and Acquiring Fund are subject
to approval of the Agreement by the necessary vote of the outstanding shares of
the Acquired Fund, in accordance with the provisions of the Acquired Funds'
declaration of trust and by-laws. The funds' obligations are also subject to the
receipt of a favorable opinion of Hale and Dorr LLP as to the federal income tax
consequences of the reorganization. (see Agreement, paragraph 8).
Termination of Agreement. The Board of Trustees of each respective Acquired Fund
or Acquiring Fund may terminate the Agreement (even if the shareholders of an
Acquired Fund have already approved it) at any time before the reorganization
date, if that board believes that proceeding with the reorganization would no
longer be advisable.
Expenses of the Reorganization. John Hancock Advisers, Inc. will pay all the
expenses incurred in connection with entering into and carrying out the
provisions of the Agreement, whether or not the reorganization occurs. The
expenses for each fund are estimated to be approximately $23,250 for V.A.
Regional Bank Fund, $15,750 for V.A. Financial Industries Fund, $17,250 for V.A.
High Yield Bond Fund, and $13,750 for V.A. Strategic Income Fund.
CAPITALIZATION
The following table sets forth the capitalization of each fund as of June 30,
2001, and the pro forma combined capitalization of both funds as if each
reorganization had occurred on that date. If the reorganization is consummated,
the actual exchange ratios on the reorganization date may vary from the exchange
ratios indicated. This is due to changes in the market value of the portfolio
securities of both funds between June 30, 2001 and the reorganization date,
changes in the amount of undistributed net investment income and net realized
capital gains of both funds during that period resulting from income and
distributions, and changes in the accrued liabilities of both funds during the
same period.
It is impossible to predict how many shares of each Acquiring Fund will actually
be received and distributed by each corresponding Acquired Fund on the
reorganization date. The table should not be relied upon to determine the amount
of Acquiring Fund shares that will actually be received and distributed.
If the reorganization of your fund had taken place on June 30, 2001
23
- --------------------------------------------------------------------------------------------------------
V.A. High Yield V.A. Strategic Pro Forma
Bond Fund Income Fund
Bond
- --------------------------------------------------------------------------------------------------------
Net Assets $6.28 million $52.84 million $59.12 million
- --------------------------------------------------------------------------------------------------------
Net Asset Value Per Share $6.45 $8.73 $8.73
- --------------------------------------------------------------------------------------------------------
Shares Outstanding 0.97 million 6.05 million 6.77 million
- --------------------------------------------------------------------------------------------------------
The table reflects pro forma exchange ratios of approximately 0.738 V.A.
Strategic Income Fund shares being issued for each share of V.A. High Yield Bond
Fund.
- --------------------------------------------------------------------------------------------------------
V.A. Regional Bank V.A. Financial Pro Forma
Fund Industries Fund
- --------------------------------------------------------------------------------------------------------
Net Assets $11.89 million $81.99 million $93.88 million
- --------------------------------------------------------------------------------------------------------
Net Asset Value Per Share $10.61 $16.59 $16.59
- --------------------------------------------------------------------------------------------------------
Shares Outstanding 1.12 million 4.94 million 5.66 million
- --------------------------------------------------------------------------------------------------------
The table reflects pro forma exchange ratios of approximately 0.640 V.A.
Financial Industries Fund shares being issued for each share of V.A. Regional
Bank Fund.
ADDITIONAL INFORMATION ABOUT THE FUNDS' BUSINESSES
The following table shows where in each fund's prospectus you can find
additional information about the business of each fund.
- ------------------------------------------------------------------------------------------
Type of Information Headings in Prospectus for each Acquired Fund
and each Acquiring Fund
- ------------------------------------------------------------------------------------------
Investment objective and policies Goal and Strategy
- ------------------------------------------------------------------------------------------
Portfolio Management Portfolio Management
- ------------------------------------------------------------------------------------------
Expenses Financial Highlights
- ------------------------------------------------------------------------------------------
Custodian Business Structure
- ------------------------------------------------------------------------------------------
Dividends, distributions and taxes Dividends and Taxes
- ------------------------------------------------------------------------------------------
BOARDS' EVALUATION AND RECOMMENDATION
With respect to each reorganization, for the reasons described above, the Board
of Trustees of each Acquired Fund, including the Trustees who are not
"interested persons" of either fund or the adviser ("independent trustees"),
approved the reorganization. In particular, the Trustees determined that the
reorganization was in the best interests of each Acquired Fund and that the
interests of each Acquired Fund's shareholders would not be diluted as a result
of the reorganization. Similarly, the Board of Trustees of each Acquiring Fund,
including the independent trustees, approved the reorganization. They also
determined that the reorganization was in the best interests of each Acquiring
Fund and that the interests of the Acquiring Funds' shareholders would not be
diluted as a result of the reorganization.
24
- --------------------------------------------------------------------------------
The trustees of each Acquired Fund recommend that the
shareholders vote for each proposal to
approve the agreement and plan of reorganization.
- --------------------------------------------------------------------------------
VOTING RIGHTS AND REQUIRED VOTE
Each Acquired Fund share is entitled to one vote. Approval of the above proposal
requires the affirmative vote of a majority of the shares of each Acquired Fund
outstanding and entitled to vote. For this purpose, a majority of the
outstanding shares of an Acquired Fund means the vote of the lesser of
(1) 67% or more of the shares present at the meeting, if the holders of more
than 50% of the shares of the fund are present or represented by proxy, or
(2) more than 50% of the outstanding shares of the fund.
Shares of each Acquired Fund represented in person or by proxy, including shares
that abstain or do not vote with respect to the proposal, will be counted for
purposes of determining whether there is a quorum at the meeting. Accordingly,
an abstention from voting has the same effect as a vote against the proposal.
If the required approval of shareholders is not obtained, an Acquired Fund will
continue to engage in business as a separate mutual fund and the Board of
Trustees will consider what further action may be appropriate. This action
could include, among other things, terminating a fund's expense limitation or
closing the fund.
INFORMATION CONCERNING THE MEETING
Voting at the Meeting
Contract owners use the voting instruction card as a ballot to give the
insurance company voting instructions for those shares attributable to the
variable contract as of the record date. When the contract owner completes the
voting instruction card and sends it to the insurance company, the insurance
company votes its proxy in accordance with the contract owner's instructions. If
the contract owner completes and signs the voting instruction card, the shares
attributable to the variable contract will be voted as instructed. If the
contract owner merely signs and returns the card, the life insurance company
will vote those shares in favor of the proposal. If the contract owner does not
return the card, the life insurance company will vote those shares in the same
proportion as shares for which instructions were received from other contract
owners.
Shares of each Acquired Fund which are not attributable to variable contracts
will be represented and voted by one of the insurance companies in the same
proportion as the voting instructions received from contract owners. These
shares include shares purchased with contributions made as seed capital to the
fund by the adviser.
Solicitation of Proxies
In addition to the mailing of these proxy materials, proxies may be solicited by
telephone, by fax or in person by the trustees, officers and employees of the
Acquired Funds and by personnel of the Acquired Funds' investment adviser, John
Hancock Advisers, Inc. and its transfer agent, John Hancock Annuity Servicing
Office. The Annuity Servicing Office, has agreed to provide proxy solicitation
services to each Acquired.
25
Revoking Proxies
Each Acquired Fund shareholder signing and returning a proxy has the power to
revoke it at any time before it is exercised:
o By filing a written notice of revocation with the Acquired Funds'
transfer agent, John Hancock Annuity Servicing Office, 529 Main
Street, Charlestown, Massachusetts 02129, or
o By returning a duly executed proxy with a later date before the time
of the meeting, or
o If a shareholder has executed a proxy but is present at the meeting
and wishes to vote in person, by notifying the secretary of the
respective Acquired Fund (without complying with any formalities) at
any time before it is voted.
Being present at the meeting alone does not revoke a previously executed and
returned proxy.
Contract owners may revoke their voting instructions at any time before the
proxy is voted by the life insurance company by following the procedure outlined
above for revoking proxies.
Outstanding Shares and Quorum
As of September 20, 2001 (record date), the number of shares of beneficial
interest of each Acquired Fund outstanding were as follows:
----------------------------------------------------------------
FUND SHARES OUTSTANDING
----------------------------------------------------------------
V.A. High Yield Bond
----------------------------------------------------------------
V.A. Regional Bank
----------------------------------------------------------------
Only shareholders of record on September 20, 2001 (the "record date") are
entitled to notice of and to vote at the meeting. A majority of the outstanding
shares of each Acquired Fund that are entitled to vote will be considered a
quorum for the transaction of business.
Other Business
The Acquired Funds' Board of Trustees knows of no business to be presented for
consideration at the meeting other than the proposal. If other business is
properly brought before the meeting, proxies will be voted according to the best
judgment of the persons named as proxies.
Adjournments
If a quorum is not present in person or by proxy at the time any session of the
meeting is called to order, the persons named as proxies may vote those proxies
that have been received to adjourn the meeting to a later date. If a quorum is
present but there are not sufficient votes in favor of the proposal, the persons
named as proxies may propose one or more adjournments of the meeting to permit
further solicitation of proxies concerning the proposal. Any adjournment will
require the affirmative vote of a majority of an Acquired Fund's shares at the
session of the meeting to be adjourned. If an adjournment of the meeting is
proposed because there are not sufficient votes in favor of the proposal, the
persons named as proxies will vote those proxies favoring the proposal in favor
of adjournment, and will vote those proxies against the reorganization against
adjournment.
26
OWNERSHIP OF SHARES OF THE FUNDS
As of September 20, 2001, the following companies owned of record or on behalf
of certain separate accounts, more than 5% of the funds' outstanding shares, as
noted on the table below: John Hancock Life Insurance Company ("JHLICO"), 200
Clarendon Street, Boston, Massachusetts 02117; John Hancock Variable Life
Insurance Company ("JHVLICO"), 197 Clarendon Street, Boston, Massachusetts,
02117.
- --------------------------------------------------------------------------------
Name Number of Shares Percentage of Fund
- --------------------------------------------------------------------------------
V.A. High Yield Bond Fund
- --------------------------------------------------------------------------------
JHLICO %
- --------------------------------------------------------------------------------
JHVLICO %
- --------------------------------------------------------------------------------
V.A. Strategic Income Fund
- --------------------------------------------------------------------------------
JHLICO %
- --------------------------------------------------------------------------------
JHVLICO %
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
V.A. Regional Bank Fund
- --------------------------------------------------------------------------------
JHLICO %
- --------------------------------------------------------------------------------
JHVLICO %
- --------------------------------------------------------------------------------
V.A. Financial Industries Fund
- --------------------------------------------------------------------------------
JHLICO %
- --------------------------------------------------------------------------------
JHVLICO %
- --------------------------------------------------------------------------------
However, these companies, on behalf of the separate accounts, will vote their
Fund shares only in accordance with voting instructions received from the
contract or certificate owners. For this reason, the companies do not exercise
control over the funds by virtue of their record ownership of funds shares.
EXPERTS
The financial statements and the financial highlights of each fund as of
December 31, 2000 and for the periods then ended and the unaudited financial
statements and financial highlights of each fund as of June 30, 2001 are
incorporated by reference into this proxy statement and prospectus. The
financial statements and financial highlights as of December 31, 2000 have been
independently audited by Ernst & Young LLP as stated in their report appearing
in the statement of additional information. These financial statements and
financial highlights have been included in reliance on their report given on
their authority as experts in accounting and auditing.
27
AVAILABLE INFORMATION
Each fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 and files reports,
proxy statements and other information with the SEC. These reports, proxy
statements and other information filed by the funds can be inspected and copied
(at prescribed rates) at the public reference facilities of the SEC at 450 Fifth
Street, N.W., Washington, D.C., and at the following regional offices: Chicago
(500 West Madison Street, Suite 1400, Chicago, Illinois); and New York (7 World
Trade Center, Suite 1300, New York, New York). For access to the Washington D.C.
Reference Room, call (202) 942-8090. Copies of this material can also be
obtained by mail from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549-0102 (duplicating fee required). In
addition, copies of these documents may be viewed on-screen or downloaded from
the SEC's Internet site at (http://www.sec.gov), SEC file number 811-07437.
28
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this 13th
day of September, 2001, by and between ___________________________________ (the
"Acquiring Fund") and ___________________________________ (the "Acquired Fund"),
each a series of John Hancock Declaration Trust, a Massachusetts business trust
(the "Trust"), with their principal place of business at 101 Huntington Avenue,
Boston, Massachusetts 02199. The Acquiring Fund and the Acquired Fund are
sometimes referred to collectively herein as the "Funds" and individually as a
"Fund."
This Agreement is intended to be and is adopted as a plan of "reorganization,"
as such term is used in Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization will consist of the transfer of all of
the assets of the Acquired Fund to the Acquiring Fund in exchange solely for the
issuance of shares of beneficial interest of the Acquiring Fund (the "Acquiring
Fund Shares") to the Acquired Fund and the assumption by the Acquiring Fund of
all of the liabilities of the Acquired Fund, followed by the distribution by the
Acquired Fund, on or promptly after the Closing Date hereinafter referred to, of
the Acquiring Fund Shares to the shareholders of the Acquired Fund in
liquidation and termination of the Acquired Fund as provided herein, all upon
the terms and conditions set forth in this Agreement.
In consideration of the premises of the covenants and agreements hereinafter set
forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF
LIABILITIES AND ISSUANCE OF ACQUIRING FUND SHARES; LIQUIDATION OF THE
ACQUIRED FUND
1.1 The Acquired Fund will transfer all of its assets (consisting, without
limitation, of portfolio securities and instruments, dividends and
interest receivables, cash and other assets), as set forth in the
statement of assets and liabilities referred to in Paragraph 5.5 hereof
(the "Statement of Assets and Liabilities"), to the Acquiring Fund free
and clear of all liens and encumbrances, except as otherwise provided
herein, in exchange for (i) the assumption by the Acquiring Fund of the
known and unknown liabilities of the Acquired Fund, including the
liabilities set forth in the Statement of Assets and Liabilities (the
"Acquired Fund Liabilities"), which shall be assigned and transferred to
the Acquiring Fund by the Acquired Fund and assumed by the Acquiring
Fund, and (ii) delivery by the Acquiring Fund to the Acquired Fund, for
distribution pro rata by the Acquired Fund to its shareholders in
proportion to their respective ownership shares of beneficial interest of
the Acquired Fund, as of the close of business on December 14, 2001 (the
"Closing Date"), of a number of the Acquiring Fund Shares having an
aggregate net asset value equal to the value of the assets, less such
liabilities (herein referred to as the "net value of the assets")
assumed, assigned and delivered, all determined as provided in Paragraph
2.1 hereof and as of a date and time as specified therein. Such
transactions shall take place at the closing provided for in Paragraph
3.1 hereof (the "Closing"). All computations with respect to both Funds
shall be provided by Investors Bank & Trust Company (the "Custodian"), as
custodian and pricing agent for both Funds.
1.2 The Acquired Fund has provided the Acquiring Fund with a list of the
current securities holdings of the Acquired Fund as of the date of
execution of this Agreement. The Acquired Fund reserves the right to sell
any of these securities (except to the extent sales may be limited by
representations made in connection with issuance of the tax opinion
provided for in paragraph 8.6 hereof) but will not, without the prior
approval of the Acquiring Fund, acquire any additional securities other
than securities of the type in which the Acquiring Fund is permitted to
invest.
1.3 The Acquiring Fund and the Acquired Fund shall each bear its own expenses
in connection with the transactions contemplated by this Agreement
whether or not these transactions are consummated.
1.4 On or as soon after the Closing Date as is conveniently practicable (the
"Liquidation Date"), the Acquired Fund will liquidate and distribute pro
rata to shareholders of record (the "Acquired Fund shareholders"),
determined as of the close of regular trading on the New York Stock
Exchange on the Closing Date, the Acquiring Fund Shares received by the
Acquired Fund pursuant to Paragraph 1.1 hereof. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund
Shares then credited to the account of the Acquired Fund on the books of
the Acquiring Fund, to open accounts on the share records of the
Acquiring Fund in the names of the Acquired Fund shareholders and
representing the respective pro rata number of Acquiring Fund Shares due
such shareholders. The Acquiring Fund shall not issue certificates
representing Acquiring Fund Shares in connection with such exchange.
1.5 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than the registered holder of the Acquired Fund Shares on the
books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund
Shares are to be issued and transferred.
1.6 The existence of the Acquired Fund shall be terminated as promptly as
practicable following the Liquidation Date.
1.7 Any reporting responsibility of the Acquired Fund, including, but not
limited to, the responsibility for filing of regulatory reports, tax
returns, or other documents with the Securities and Exchange Commission
(the "Commission"), any state securities commissions, and any federal,
state or local tax authorities or any other relevant regulatory
authority, is and shall remain the responsibility of the Acquired Fund.
2. VALUATION
2.1 The net asset values of the Acquiring Fund Shares and the net values of
the assets and liabilities of the Acquired Fund to be transferred shall,
in each case, be determined as of the close of business (4:00 p.m. Boston
time) on the Closing Date. The net asset values of the Acquiring Fund
Shares shall be computed by the Acquiring Fund's Custodian in the manner
set forth in the Acquiring Fund's Declaration of Trust as amended and
restated (the "Declaration"), or By-Laws and the Acquiring Fund's
then-current prospectus and statement of additional information and shall
be computed in each case to not fewer than four decimal places. The net
values of the assets of the Acquired Fund to be transferred shall be
2
computed by the Acquired Fund's Custodian by calculating the value of the
assets transferred by the Acquired Fund and by subtracting therefrom the
amount of the liabilities assigned and transferred to and assumed by the
Acquiring Fund on the Closing Date, said assets and liabilities to be
valued in the manner set forth in the Acquired Fund's then current
prospectus and statement of additional information and shall be computed
in each case to not fewer than four decimal places.
2.2 The number of Acquiring Fund Shares to be issued (including fractional
shares, if any) in exchange for the Acquired Fund's assets shall be
determined by dividing the value of the Acquired Fund's assets less the
liabilities assumed by the Acquiring Fund, by the Acquiring Fund's net
asset value per share, all as determined in accordance with Paragraph 2.1
hereof.
2.3 All computations of value shall be made by the Custodian in accordance
with its regular practice as pricing agent for the Funds.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be December 14, 2001 or such other date on or
before June 30, 2002 as the parties may agree. The Closing shall be held
as of 5:00 p.m. at the offices of the Trust, 101 Huntington Avenue,
Boston, Massachusetts 02199, or at such other time and/or place as the
parties may agree.
3.2 Portfolio securities that are not held in book-entry form in the name of
the Custodian as record holder for the Acquired Fund shall be presented
by the Acquired Fund to the Acquiring Fund's Custodian for examination no
later than five business days preceding the Closing Date. Portfolio
securities which are not held in book-entry form shall be delivered by
the Acquired Fund to the Custodian for the account of the Acquiring Fund
on the Closing Date, duly endorsed in proper form for transfer, in such
condition as to constitute good delivery thereof in accordance with the
custom of brokers, and shall be accompanied by all necessary federal and
state stock transfer stamps or a check for the appropriate purchase price
thereof. Portfolio securities held of record by the Custodian in
book-entry form on behalf of the Acquired Fund shall be delivered to the
Acquiring Fund by the Custodian recording the transfer of beneficial
ownership on its records. The cash delivered shall be in the form of
currency or by the Custodian crediting the Acquiring Fund's account
maintained with the Custodian with immediately available funds.
3.3 In the event that on the Closing Date (a) the New York Stock Exchange
shall be closed to trading or trading thereon shall be restricted or (b)
trading or the reporting of trading on said Exchange or elsewhere shall
be disrupted so that accurate appraisal of the value of the net assets of
the Acquiring Fund or the Acquired Fund is impracticable, the Closing
Date shall be postponed until the first business day after the day when
trading shall have been fully resumed and reporting shall have been
restored; provided that if trading shall not be fully resumed and
reporting restored on or before June 30, 2002, this Agreement may be
terminated by the Acquiring Fund or by the Acquired Fund upon the giving
of notice to the other party.
3
3.4 The Acquired Fund shall deliver at the Closing a list of the names,
addresses, federal taxpayer identification numbers and backup withholding
and nonresident alien withholding status of the Acquired Fund
shareholders and the number of outstanding shares of beneficial interest
of the Acquired Fund owned by each such shareholder, all as of the close
of business on the Closing Date, certified by its Treasurer, Secretary or
other authorized officer (the "Shareholder List"). The Acquiring Fund
shall issue and deliver to the Acquired Fund a confirmation evidencing
the Acquiring Fund Shares to be credited on the Closing Date, or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund
Shares have been credited to the Acquired Fund's account on the books of
the Acquiring Fund. At the Closing, each party shall deliver to the other
such bills of sale, checks, assignments, stock certificates, receipts or
other documents as such other party or its counsel may reasonably
request.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Trust on behalf of each Fund represents, warrants and covenants as
follows:
(a) The Trust is a business trust, duly organized, validly existing and in
good standing under the laws of The Commonwealth of Massachusetts and
has the power to own all of its properties and assets and, subject to
approval by the shareholders of the Acquired Fund, to carry out the
transactions contemplated by this Agreement. Neither the Trust nor
either Fund is required to qualify to do business in any jurisdiction in
which it is not so qualified or where failure to qualify would subject
it to any material liability or disability. The Trust has all necessary
federal, state and local authorizations to own all of its properties and
assets and to carry on its business as now being conducted;
(b) The Trust is a registered investment company classified as a management
company and its registration with the Commission as an investment
company under the Investment Company Act of 1940, as amended (the "1940
Act"), is in full force and effect. Each Fund is a diversified series of
the Trust;
(c) The Trust and each Fund are not, and the execution, delivery and
performance of their obligations under this Agreement will not result,
in violation of any provision of the Trust's Declaration of Trust, as
amended and restated (the "Trust's Declaration") or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking
to which the Trust or either Fund is a party or by which it is bound;
(d) Except as otherwise disclosed in writing and accepted by either Fund, no
material litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or threatened
against the Trust or either Fund or any of either Fund's properties or
assets. The Trust knows of no facts which might form the basis for the
institution of such proceedings, and neither the Trust nor either Fund
is a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and
adversely affects either Fund's business or its ability to consummate
these transactions;
4
(e) Neither fund has any material contracts or other commitments (other than
this Agreement or agreements for the purchase of securities entered into
in the ordinary course of business and consistent with its obligations
under this Agreement) which will not be terminated without liability to
the respective Fund at or prior to the Closing Date;
(f) The audited statement of assets and liabilities, including the schedule
of investments, of the Acquired Fund as of December 31, 2000 and the
related statement of operations as well as the Acquired Fund's unaudited
statements dated June 30, 2001 (copies of which have been furnished to
the Acquiring Fund) present fairly in all material respects the
financial condition of the Acquired Fund as of December 31, 2000 and
June 30, 2001 and the results of its operations for the period then
ended in accordance with generally accepted accounting principles
consistently applied, and there were no known actual or contingent
liabilities of the Acquired Fund as of those dates not disclosed
therein;
(g) The audited statement of assets and liabilities, including the schedule
of investments, of the Acquiring Fund as of December 30, 2000 and the
related statement of operations as well as the Acquired Fund's unaudited
statements dated June 30, 2001 (copies of which have been furnished to
the Acquired Fund) present fairly in all material respects the financial
condition of the Acquiring Fund as of December 31, 2000 and June 30,
2001 and the results of its operations for the period then ended in
accordance with generally accepted accounting principles consistently
applied, and there were no known actual or contingent liabilities of the
Acquiring Fund as of those dates not disclosed therein;
(h) Since June 30, 2001, there has not been any material adverse change in
either Fund's financial condition, assets, liabilities, or business
other than changes occurring in the ordinary course of business, or any
incurring by either Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the other Fund;
(i) At the date hereof and by the Closing Date, all federal, state and other
tax returns and reports, including information returns and payee
statements, of the Acquired Fund shall have been filed or furnished, and
all federal, state and other taxes, interest and penalties shall have
been paid so far as due, or provision shall have been made for the
payment thereof, and to the best of the Acquired Fund's knowledge no
such return is currently under audit and no assessment has been asserted
with respect to such returns or reports;
(j) Each of the Funds and its predecessors has qualified as a regulated
investment company for each taxable year of its operation and will
qualify as such as of the Closing Date with respect to its taxable year
ending on the Closing Date;
(k)The authorized capital of each Fund consists of an unlimited number of
shares of beneficial interest, no par value. All issued and outstanding
shares of beneficial interest of each Fund are, and at the Closing Date
will be, duly and validly issued and outstanding, fully paid and
nonassessable by the other Fund. All of the issued and outstanding shares
of beneficial interest of the Acquired Fund will, at the time of Closing,
be held by the persons and in the amounts set forth in the Shareholder
List submitted to the Acquiring Fund pursuant to Paragraph 3.4 hereof.
Neither Fund has outstanding any options, warrants or other rights to
subscribe for or purchase any of its shares of beneficial interest, or
any security convertible into any of its shares of beneficial interest;
5
(l) At the Closing Date, the Acquired Fund will have good and marketable
title to the assets to be transferred to the Acquiring Fund pursuant to
Paragraph 1.1 hereof, and full right, power and authority to sell,
assign, transfer and deliver such assets hereunder, and upon delivery
and payment for such assets, the Acquiring Fund will acquire good and
marketable title thereto subject to no restrictions on the full transfer
thereof, including such restrictions as might arise under the Securities
Act of 1933, as amended (the "1933 Act");
(m)The execution, delivery and performance of this Agreement have been duly
authorized by all necessary action on the part of the Trust on behalf of
each Fund, and this Agreement constitutes a valid and binding obligation
of the Trust and each Fund enforceable in accordance with its terms,
subject to the approval of the Acquired Fund's shareholders;
(n) The information to be furnished by each Fund for use in all necessary
documents will be accurate, complete and comply in all material
respects with all applicable laws and regulations;
(o) The proxy statement of the Acquired Fund (the "Proxy Statement") to be
included in the Registration Statement referred to in Paragraph 5.7
hereof, on the effective date of the Registration Statement, on the date
of the meeting of the Acquired Fund shareholders and on the Closing
Date, will not contain any untrue or misleading statement of a material
fact, or omit a required or necessary material fact.
(p) The prospectus (the "Acquiring Fund Prospectus") and statement of
additional information for the Acquiring Fund, each dated May 1, 2001,
and any amendments or supplements thereto on or prior to the Closing
Date, and the Registration Statement on Form N-14 to be filed in
connection with this Agreement (the "Registration Statement") will
conform in all material respects to the applicable requirements of the
1933 Act and the 1940 Act and the rules and regulations of the
Commission thereunder. The Registration Statement will not include any
untrue or misleading statement of material fact, or omit a required or
necessary material fact.
(q) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by either Fund
of the transactions contemplated by this Agreement, except for the
registration of the Acquiring Fund shares under the 1933 Act and the
1940 Act;
(r) All of the issued and outstanding shares of beneficial interest of the
Acquired Fund have been offered for sale and sold in conformity with all
applicable federal and state securities laws;
6
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Except as expressly stated herein to the contrary, each Fund will operate
its respective businesses in the ordinary course between the date hereof
and the Closing Date, including customary dividends and any distributions
that may be advisable.
5.2 The Trust will call a meeting of the Acquired Fund shareholders to
consider and act upon this Agreement and to take all other action
necessary to obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired by the Acquired Fund for the purpose of
making any distribution other than in accordance with the terms of this
Agreement.
5.4 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund each shall take, or cause to be taken, all action, and do
or cause to be done, all things reasonably necessary, proper or advisable
to consummate the transactions contemplated by this Agreement.
5.5 The Acquired Fund shall furnish to the Acquiring Fund on the Closing Date
the Statement of Assets and Liabilities of the Acquired Fund as of the
Closing Date, which statement shall be prepared in accordance with
generally accepted accounting principles consistently applied and shall
be certified by the Acquired Fund's Treasurer or Assistant Treasurer. As
promptly as practicable but in any case within 60 days after the Closing
Date, the Acquired Fund shall furnish to the Acquiring Fund, in such form
as is reasonably satisfactory to the Trust, a statement of the earnings
and profits of the Acquired Fund for federal income tax purposes and of
any capital loss carryovers and other items that will be carried over to
the Acquiring Fund as a result of Section 381 of the Code, and which
statement will be certified by the President or Treasurer of the Acquired
Fund.
5.6 The Trust on behalf of the Acquiring Fund will prepare and file with the
Commission the Registration Statement in compliance with the 1933 Act and
the 1940 Act in connection with the issuance of the Acquiring Fund
Shares.
5.7 The Trust on behalf of the Acquired Fund will prepare a Proxy Statement,
to be included in the Registration Statement in compliance with the 1933
Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"),
and the 1940 Act and the rules and regulations thereunder (collectively,
the "Acts") in connection with the special meeting of shareholders of the
Acquired Fund to consider approval of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF BOTH FUNDS
The obligations of each Fund to complete the transactions provided for herein
shall be subject to the performance by the other Fund of all the obligations to
be performed by it hereunder on or before the Closing Date, and, in addition,
the following conditions:
7
6.1 All representations and warranties of each Fund in this Agreement will be
true and correct in all material respects as of the date of the Agreement
and, unless affected by the transactions contemplated by the Agreement,
on the Closing Date; and each Fund will deliver to the other Fund a
certificate signed by its President or Vice President and its Treasurer
or Assistant Treasurer, dated as of the Closing Date to the effect that
the representations and warranties made in this Agreement are true and
correct as of the Closing Date, except as affected by the transactions
contemplated by this Agreement, and as to any other matters as either
Fund reasonably requests.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund the
Statement of Assets and Liabilities of the Acquired Fund, together with a
list of its portfolio securities showing the federal income tax bases and
holding periods of such securities, as of the Closing Date, certified by
the Treasurer or Assistant Treasurer of the Acquired Fund;
6.3 At or prior to the Closing Date, the Acquired Fund's investment adviser,
or an affiliate thereof, shall have made all payments, or applied all
credits, to the Acquired Fund required by any applicable contractual
expense limitation.
7. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE FUNDS
The obligations hereunder of each Fund are subject to the further conditions
that on or before the Closing Date:
7.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares
of beneficial interest of the Acquired Fund in accordance with the
provisions of the Trust's Declaration and By-Laws, and certified copies
of the resolutions evidencing approval by the Acquired Fund's
shareholders shall have been delivered to the Acquiring Fund;
7.2 The Registration Statement shall have become effective under the 1933 Act
and the 1940 Act and no stop orders suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto,
no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the 1933 Act
or the 1940 Act;
7.3 The Acquired Fund shall have distributed to its shareholders, in a
distribution or distributions qualifying for the deduction for dividends
paid under Section 561 of the Code, all of its investment company taxable
income (as defined in Section 852(b)(2) of the Code determined without
regard to Section 852(b)(2)(D) of the Code) for its taxable year ending
on the Closing Date, all of the excess of (i) its interest income
excludable from gross income under Section 103(a) of the Code over (ii)
its deductions disallowed under Sections 265 and 171(a)(2) of the Code
for its taxable year ending on the Closing Date, and all of its net
capital gain (as such term is used in Sections 852(b)(3)(A) and (C) of
the Code), after reduction by any available capital loss carryforward,
for its taxable year ending on the Closing Date; and
8
7.4 The parties shall have received an opinion of Hale and Dorr LLP,
satisfactory to the Trust on behalf of each Fund, substantially to the
effect that for federal income tax purposes:
(a) The acquisition by the Acquiring Fund of all of the assets of the
Acquired Fund solely in exchange for the issuance of Acquiring Fund
Shares to the Acquired Fund and the assumption of all of the Acquired
Fund Liabilities by the Acquiring Fund, followed by the distribution by
the Acquired Fund, in liquidation of the Acquired Fund, of Acquiring
Fund Shares to the shareholders of the Acquired Fund in exchange for
their shares of beneficial interest of the Acquired Fund and the
termination of the Acquired Fund, will constitute a "reorganization"
within the meaning of Section 368(a) of the Code, and the Acquired Fund
and the Acquiring Fund will each be "a party to a reorganization" within
the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the Acquired Fund upon (i) the
transfer of all of its assets to the Acquiring Fund solely in exchange
for the issuance of Acquiring Fund Shares to the Acquired Fund and the
assumption of all of the Acquired Fund Liabilities by the Acquiring
Fund; and (ii) the distribution by the Acquired Fund of such Acquiring
Fund Shares to the shareholders of the Acquired Fund;
(c) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the
issuance of the Acquiring Fund Shares to the Acquired Fund and the
assumption of all of the Acquired Fund Liabilities by the Acquiring
Fund;
(d) The basis of the assets of the Acquired Fund acquired by the Acquiring
Fund will be, in each instance, the same as the basis of those assets in
the hands of the Acquired Fund immediately prior to the transfer;
(e) The tax holding period of the assets of the Acquired Fund in the hands
of the Acquiring Fund will, in each instance, include the Acquired
Fund's tax holding period for those assets;
(f) The shareholders of the Acquired Fund will not recognize gain or loss
upon the exchange of all of their shares of beneficial interest of the
Acquired Fund solely for Acquiring Fund Shares as part of the
transaction;
(g) The basis of the Acquiring Fund Shares received by the Acquired Fund
shareholders in the transaction will be the same as the basis of the
shares of beneficial interest of the Acquired Fund surrendered in
exchange therefor; and
(h) The tax holding period of the Acquiring Fund Shares received by the
Acquired Fund shareholders will include, for each shareholder, the tax
holding period for the shares of the Acquired Fund surrendered in
exchange therefor, provided that the Acquired Fund shares were held as
capital assets on the date of the exchange.
The Trust agrees to make and provide representations with respect to the
Acquiring Fund and the Acquired Fund, respectively, which are reasonably
necessary to enable Hale and Dorr LLP to deliver an opinion substantially as set
forth in this Paragraph 7.4. Notwithstanding anything herein to the contrary,
the Trust may not waive the conditions set forth in this Paragraph 7.4.
9
8. BROKERAGE FEES AND EXPENSES
8.1 The Trust on behalf of each Fund represents and warrants that there are
no brokers or finders entitled to receive any payments in connection with
the transactions provided for herein.
8.2 Each Fund shall bear its own expenses in connection with carrying out the
terms of this Agreement and if the Agreement is terminated no party will
be liable to another party for damages.
9. TERMINATION
9.1 This Agreement may be terminated by the mutual agreement of the Acquiring
Fund and the Acquired Fund. In addition, either party may terminate this
Agreement at or prior to the Closing Date by resolution of the Trust's
Board of Trustees if, in the good faith opinion of the Board, proceeding
with the Agreement is not in the best interests of the Trust or either
Fund's shareholders.
9.2 The representations, warranties and covenants in the Agreement and
related documents will survive the consummation of the transactions
contemplated by the Agreement.
10. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as may be
mutually agreed upon by the authorized officers of each Fund. However, following
the meeting of the Acquired Fund shareholders held pursuant to Paragraph 5.2 of
this Agreement, no such amendment may have the effect of changing the provisions
for determining the number of Acquiring Fund Shares to be issued to the Acquired
Fund shareholders under this Agreement to the detriment of these shareholders
without their further approval; provided, however, that nothing contained in
this Article 10 shall be construed to prohibit the parties from amending this
Agreement to change the Closing Date.
11. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
11.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
11.3 This Agreement shall be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts.
10
11.4 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made
by any party without the prior written consent of the other party.
Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm or corporation, other than the
parties hereto and their respective successors and assigns, any rights or
remedies under or by reason of this Agreement.
11.5 All persons dealing with the Trust must look solely to the property of
the Trust for the enforcement of any claims against the Trust as the
Trustees, officers, agents and shareholders of the Trust assume no
personal liability for obligations entered into on behalf of the Trust.
None of the other series of the Trust shall be responsible for any
obligations assumed by on or behalf of the Acquired Fund or the Acquiring
Fund under this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed as of the date first set forth above by its President or Vice President
and has caused its corporate seal to be affixed hereto.
JOHN HANCOCK DECLARATION TRUST on behalf of
---------------------------------------------
By:_________________________________________
Maureen R. Ford
President and Chief Executive Officer
JOHN HANCOCK DECLARATION TRUST on behalf of
---------------------------------------------
By:__________________________________________
Susan S. Newton
Senior Vice President and Secretary
s:\agrcont\agreemnt\reorg\merger\Form of VA to VA
11
Appendix A
Basic information about the funds
A-1
PROPOSAL 1
V.A. High Yield Bond Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks to maximize current income without assuming undue
risk. Capital appreciation is a secondary goal. In pursuing these goals, the
fund normally invests at least 65% of assets in U.S. and foreign bonds rated
BBB/Baa or lower and their unrated equivalents. The fund may invest up to 30% of
assets in junk bonds rated CC/Ca and their unrated equivalents. There is no
limit on the fund's average maturity.
In managing the fund's portfolio, the managers concentrate on industry
allocation and securities selection: deciding which types of industries to
emphasize at a given time, and then which individual bonds to buy. The managers
use top-down analysis to determine which industries may benefit from current and
future changes in the economy.
In choosing individual securities, the managers use bottom-up research to find
securities that appear comparatively undervalued. The managers look at the
financial condition of the issuers as well as the collateralization and other
features of the securities themselves.
The managers also look at companies' financing cycles to determine which types
of securities (for example, bonds, preferred stocks or common stocks) to favor.
The fund typically invests in a broad range of industries, although it may
invest up to 40% of assets in electric utilities and telecommunications
companies.
The fund may use certain higher-risk investments, including derivatives
(investments whose value is based on indexes, securities or currencies) and
restricted or illiquid securities. In addition, the fund may invest up to 20% of
net assets in U.S. and foreign stocks.
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
================================================================================
PORTFOLIO MANAGERS
Arthur N. Calavritinos, CFA
- --------------------------------
Vice president of adviser
Joined fund team in 1998
Joined adviser in 1988
Began business career in 1986
Frederick L. Cavanaugh, Jr.
- --------------------------------
Senior vice president of adviser
Joined fund team in 1998
Joined adviser in 1986
Began business career in 1975
Janet L. Clay, CFA
- --------------------------------
Vice president of adviser
Joined fund team in 1998
Joined adviser in 1995
Began business career in 1990
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1998 1999 2000
-9.81% 13.12% -6.08%
2001 total return as of June 30: 1.30%
Best quarter: Q2 `99, 4.51% Worst quarter: Q3 `98, -14.84%
- --------------------------------------------------------------------------------
Average annual total returns-- for periods ending 12/31/00
- --------------------------------------------------------------------------------
Fund Index
1 year -6.08% -5.86%
Life of fund - began 1/6/98 -1.41% -1.81%*
Index: Lehman Brothers U.S. Corporate High Yield Bond Index, an unmanaged index
of high-yield bonds.
*As of December 31, 1997.
A-2
MAIN RISKS
[Clip Art] The major factors in the fund's performance are interest rates and
credit risk. When interest rates rise, bond prices generally fall. Generally, an
increase in the fund's average maturity will make it more sensitive to interest
rate risk.
Credit risk depends largely on the perceived financial health of bond issuers.
In general, lower-rated bonds have higher credit risks. Junk bond prices can
fall on bad news about the economy, an industry or a company. Share price, yield
and total return may fluctuate more than with less aggressive bond funds.
The fund could lose money if any bonds it owns are downgraded in credit rating
or go into default. If certain industries or investments do not perform as the
fund expects, it could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
o If interest rate movements cause the fund's callable securities to be paid
off substantially earlier or later than expected, the fund's share price
or yield could be hurt.
o If the fund concentrates its investments in telecommunications or electric
utilities, its performance could be tied more closely to those industries
than to the market as a whole.
o Stock investments may go down in value due to stock market movements or
negative company or industry events.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
================================================================================
FINANCIAL HIGHLIGHTS
The financial highlights table below is intended to help you understand the
Acquired Fund's financial performance since its inception on January 6, 1998.
Certain information reflects financial results for a single Fund share. The
total returns in the table represent the rate that a shareholder would have
earned (lost) on an investment in the Fund (assuming reinvestment of all divid-
ends and distributions). Except for the information as of June 30, 2001 (which
is unaudited) the information in the below table has been audited by Ernst &
Young LLP, whose report, along with the Fund's financial statements, are in-
cluded in the Trust's Annual Report to Shareholders for the year ended December
31, 2000 (which is available upon request via the phone number or address on the
cover page of this Proxy Statement/Prospectus).
- -------------------------------------------------------------------------------------------------------------------
Period ended: 12/98(1) 12/99 12/00 6/01(9)
- -------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $8.22 $8.31 $6.68
Net investment income(2) 0.90 0.88 0.94 0.36
Net realized and unrealized gain (loss) on investments (1.82) 0.16 (1.40) (0.20)
Total from investment operations (0.92) 1.04 (0.46) 0.16
Less distributions:
Dividends from net investment income (0.84) (0.88) (0.94) (0.39)
Distributions from net realized gain on investments sold -- (0.07) (0.23) --
Tax return of capital (0.02) -- -- --
Total distributions (0.86) (0.95) (1.17) (0.39)
Net asset value, end of period $8.22 $8.31 $6.68 $6.45
Total investment return(3,4) (%) (9.80)(5) 13.12 (6.08) 2.46(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 8,120 9,287 7,219 6,284
Ratio of expenses to average net assets (%) 0.85(6) 0.85 0.85 0.85
Ratio of adjusted expenses to average net assets(7) (%) 1.15(6) 1.03 1.24 1.04
Ratio of net investment income to average net assets (%) 9.85(6) 10.56 12.12 11.18(6,8)
Portfolio turnover rate (%) 102 122 56 33
(1) Began operations on January 6, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) The total returns would have been lower had certain expenses not been
reduced during the period shown.
(5) Not annualized.
(6) Annualized.
(7) Does not take into consideration expense reductions during the periods
shown.
(8) Had the Fund not amortized premiums on debt securities, the annualized
ratio of net investment income to average net assets would have been
11.40%.
(9) Semiannual period from January 1, 2001 through June 30, 2001. Unaudited.
A-3
V.A. Strategic Income Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks a high level of current income. In pursuing this goal,
the fund invests primarily in the following categories of securities:
o foreign government and corporate debt securities from developed and
emerging markets
o U.S. government and agency securities
o U.S. junk bonds
The fund may also invest in preferred stock and other types of debt securities.
Although the fund invests in securities rated as low as CC/Ca and their unrated
equivalents, it generally intends to keep its average credit quality in the
investment-grade range. There is no limit on the fund's average maturity.
In managing the portfolio, the managers allocate assets among the three major
categories based on analysis of economic factors such as projected international
interest rate movements, industry cycles and political trends. However, the
managers may invest up to 100% of assets in any one category.
Within each category, the managers look for securities that are appropriate for
the overall portfolio in terms of yield, credit quality, structure and industry
distribution. In selecting securities, relative yields and risk/reward ratios
are the primary considerations.
The fund may use certain higher-risk investments, including derivatives
(investments whose value is based on indexes, securities or currencies) and
restricted or illiquid securities. In addition, the fund may invest up to 10% of
net assets in U.S. or foreign stocks.
In abnormal market conditions, the fund may temporarily invest extensively in
investment-grade short-term securities. In these and other cases, the fund might
not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
================================================================================
PORTFOLIO MANAGERS
Frederick L. Cavanaugh, Jr.
- ---------------------------------
Senior vice president of adviser
Joined fund team in 1996
Joined adviser in 1986
Began business career in 1975
Arthur N. Calavritinos, CFA
- ---------------------------------
Vice president of adviser
Joined fund team in 1996
Joined adviser in 1988
Began business career in 1986
Janet L. Clay, CFA
- ---------------------------------
Vice president of adviser
Joined fund team in 1998
Joined adviser in 1995
Began business career in 1990
Daniel S. Janis
- ---------------------------------
Second vice president of adviser
Joined fund team in 1999
Joined adviser in 1999
Senior risk manager at
BankBoston (1997-1998)
Manager of forward desk at
Morgan Stanley (1991-1997)
Began business career in 1984
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1997 1998 1999 2000
11.77% 4.92% 4.82% 1.40%
2001 total return as of June 30: 0.77%
Best quarter: Q2 `97, 6.28% Worst quarter: Q3 `98, -2.79%
- --------------------------------------------------------------------------------
Average annual total returns-- for periods ending 12/31/00
- --------------------------------------------------------------------------------
Fund Index
1 year 1.40% 11.85%
Life of fund - began 8/29/96 6.72% 7.70%
Index: Lehman Brothers Government/Credit Bond Index, an unmanaged index of U.S.
government, U.S. corporate and Yankee bonds.
A-4
MAIN RISKS
[Clip Art] The fund's risk profile depends on its sector allocation. In general,
investors should expect fluctuations in share price, yield and total return that
are above average for bond funds.
When interest rates rise, bond prices generally fall. Generally, an increase in
the fund's average maturity will make it more sensitive to interest rate risk.
A fall in worldwide demand for U.S. government securities could also lower the
prices of these securities.
The fund could lose money if any bonds it owns are downgraded in credit rating
or go into default. In general, lower-rated bonds have higher credit risks, and
their prices can fall on bad news about the economy, an industry or a company.
If certain allocation strategies or certain industries or investments do not
perform as the fund expects, it could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability. These risks are greater
in emerging markets.
o If interest rate movements cause the fund's callable securities to be paid
off substantially earlier or later than expected, the fund's share price
or yield could be hurt.
o Stock investments may go down in value due to stock market movements or
negative company or industry events.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
================================================================================
FINANCIAL HIGHLIGHTS
The financial highlights table below is intended to help you understand the
Acquired Fund's financial performance since its inception on August 29, 1996.
Certain information reflects financial results for a single Fund share. The
total returns in the table represent the rate that a shareholder would have
earned (lost) on an investment in the Fund (assuming reinvestment of all divid-
ends and distributions). Except for the information as of June 30, 2001 (which
is unaudited) the information in the below table has been audited by Ernst &
Young LLP, whose report, along with the Fund's financial statements, are in-
cluded in the Trust's Annual Report to Shareholders for the year ended December
31, 2000 (which is available upon request via the phone number or address on the
cover page of this Proxy Statement/Prospectus).
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended: 12/96(1) 12/97 12/98 12/99 12/00 6/01(10)
- ------------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $10.30 $10.47 $10.10 $9.77 $8.97
Net investment income (2) 0.27 0.91 0.85 0.80 0.83 0.33
Net realized and unrealized gain (loss) on investments 0.36 0.26 (0.35) (0.33) (0.71) (0.17)
Total from investment operations 0.63 1.17 0.50 0.47 0.12 0.16
Less distributions:
Dividends from net investment income (0.27) (0.91) (0.85) (0.80) (0.83) (0.40)
Distributions from net realized gain on investments sold (0.06) (0.09) (0.02) -- (0.09) --
Total distributions (0.33) (1.00) (0.87) (0.80) (0.92) (0.40)
Net asset value, end of period $10.30 $10.47 $10.10 $9.77 $8.97 $8.73
Total investment return(3) (%) 6.45(4,5) 11.77(5) 4.92(5) 4.82(5) 1.40 1.79(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 2,131 5,540 15,019 22,282 34,472 52,836
Ratio of expenses to average net assets (%) 0.85(6) 0.85 0.85 0.85 0.76 0.71(6)
Ratio of adjusted expenses to average net assets(7) (%) 2.28(6) 1.37 0.93 0.87 -- --
Ratio of net investment income to average net assets (%) 7.89(6) 8.77 8.19 8.06 8.91 7.60(6,8)
Portfolio turnover rate (%) 73 110 92 53(9) 53 47
(1) Began operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) Not annualized.
(5) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(6) Annualized.
(7) Does not take into consideration expense reductions during the periods
shown.
(8) Had the Fund not amortized premiums on debt securities the annualized
ratio of net investment income to average net assets would have been
9.10%.
(9) Portfolio turnover rate excludes merger activity.
(10) Semiannual period from January 1, 2001 through June 30, 2001. Unaudited.
A-5
PROPOSAL 2
V.A. Regional Bank Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long- term capital appreciation. To pursue this goal,
the fund normally invests at least 65% of assets in stocks of regional banks and
lending companies, including commercial and industrial banks, savings and loan
associations and bank holding companies. Typically, these companies provide
full-service banking, have primarily domestic assets and are based outside of
money centers such as New York City and Chicago.
In managing the portfolio, the managers focus primarily on stock selection.
In choosing individual stocks, the managers use fundamental financial analysis
to identify securities that appear comparatively undervalued. The managers look
for low price/ earnings (P/E) ratios, high-quality assets and sound loan review
processes. Given the industry-wide trend toward consolidation, the managers also
invest in companies that appear to be positioned for a merger. The fund's
portfolio may be concentrated in geographic regions where consolidation activity
is high. The managers generally gather firsthand information about companies
from interviews and company visits.
The fund may also invest in other U.S. and foreign financial services companies,
such as lending companies and money center banks. The fund may invest up to 5%
of net assets in stocks of companies outside the financial services sector and
up to 5% of net assets in junk bonds (those rated below BBB/Baa and their
unrated equivalents).
The fund may make limited use of certain derivatives (investments whose value is
based on indexes, securities or currencies).
In abnormal market conditions, the fund may temporarily invest up to 80% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
================================================================================
PORTFOLIO MANAGERS
James K. Schmidt, CFA
- ------------------------------------
Executive vice president of adviser
Joined fund team in 1998
Joined adviser in 1985
Began business career in 1979
Thomas M. Finucane
- ------------------------------------
Vice president of adviser
Joined fund team in 1998
Joined adviser in 1990
Began business career in 1983
Thomas C. Goggins
- ------------------------------------
Senior vice president of adviser
Joined fund team in 1998
Joined adviser in 1995
Began business career in 1981
PAST PERFORMANCE
[Clip Art] The graph shows the fund's total return has varied from year to year,
while the table shows performance over time (along with a broad-based market
index for reference). This information may help provide an indication of the
fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Total return -- calendar year
- --------------------------------------------------------------------------------
1999 2000
-4.86% 17.91%
2001 total return as of June 30: 9.85%
Best quarter: Q4 `98, 16.10% Worst quarter: Q3 `98, -15.94%
- --------------------------------------------------------------------------------
Average annual total returns-- for periods ending 12/31/00
- --------------------------------------------------------------------------------
Fund Index
1 year 17.91% -9.10%
Life of fund - began 5/1/98 1.83% 7.70%
Index: Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
A-6
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements. The fund's management strategy has a significant influence on
fund performance. Because the fund focuses on a single sector of the economy,
its performance depends in large part on the performance of that sector. For
instance, when interest rates fall or economic conditions deteriorate, regional
bank stocks could suffer losses. Also, rising interest rates can reduce profits
by narrowing the difference between these companies' borrowing and lending
rates.
A decline in a region's economy could hurt the banks in that region. Regional
bank stocks as a group could fall out of favor with the market, causing the fund
to underperform funds that focus on other types of stocks. In addition, if the
managers' security selection strategies do not perform as expected, the fund
could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise. This risk is
greater for longer maturity bonds. Junk bond prices can fall on bad news
about the economy, an industry or a company.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
================================================================================
FINANCIAL HIGHLIGHTS
The financial highlights table below is intended to help you understand the
Acquired Fund's financial performance since its inception on May 1, 1998.
Certain information reflects financial results for a single Fund share. The
total returns in the table represent the rate that a shareholder would have
earned (lost) on an investment in the Fund (assuming reinvestment of all divid-
ends and distributions). Except for the information as of June 30, 2001 (which
is unaudited) the information in the below table has been audited by Ernst &
Young LLP, whose report, along with the Fund's financial statements, are in-
cluded in the Trust's Annual Report to Shareholders for the year ended December
31, 2000 (which is available upon request via the phone number or address on the
cover page of this Proxy Statement/Prospectus).
- ----------------------------------------------------------------------------------------------------------------------
Period ended: 12/98(1) 12/99 12/00 6/01(9)
- ----------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $9.28 $8.56 $9.89
Net investment income (2) 0.09 0.12 0.16 0.07
Net realized and unrealized gain (loss) on investments (0.74) (0.57) 1.34 0.72
Total from investment operations (0.65) (0.45) 1.50 0.79
Less distributions:
Dividends from net investment income (0.07) (0.12) (0.17) (0.07)
Distributions from net realized gain on investments sold --(3) (0.15) -- --
Total distributions (0.07) (0.27) (0.17) (0.07)
Net asset value, end of period $9.28 $8.56 $9.89 $10.61
Total investment return(4) (%) (6.43)(5,6) (4.86) 17.91 8.10(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 20,256 20,295 13,733 11,888
Ratio of expenses to average net assets (%) 1.05(7) 1.00 1.01 1.03(7)
Ratio of adjusted expenses to average net assets(8) (%) 1.14(7) -- -- --
Ratio of net investment income to average net assets (%) 1.39(7) 1.30 1.92 1.44(7)
Portfolio turnover rate (%) 28 49 32 9
(1) Began operations on May 1, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) Not annualized.
(6) The total return would have been lower had certain expenses not been
reduced during the period shown.
(7) Annualized.
(8) Does not take into consideration expense reductions during the period
shown.
(9) Semiannual period from January 1, 2001 through June 30, 2001. Unaudited.
A-7
V.A. Financial Industries Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks capital appreciation. To pursue this goal, the fund
normally invests at least 65% of assets in stocks of U.S. and foreign financial
services companies of any size. These companies include banks, thrifts, finance
companies, brokerage and advisory firms, real estate-related firms, insurance
companies and financial holding companies.
In managing the portfolio, the managers focus primarily on stock selection
rather than industry allocation.
In choosing individual stocks, the managers use fundamental financial analysis
to identify securities that appear comparatively undervalued. Given the
industry-wide trend toward consolidation, the managers also invest in companies
that appear to be positioned for a merger. The managers generally gather
firsthand information about companies from interviews and company visits.
The fund may invest in U.S. and foreign bonds, including up to 5% of net assets
in junk bonds (those rated below BBB/Baa and their unrated equivalents). It may
also invest up to 15% of net assets in investment-grade short-term securities.
The fund may make limited use of certain derivatives (investments whose value is
based on indexes, securities or currencies).
In abnormal market conditions, the fund may temporarily invest up to 80% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
================================================================================
PORTFOLIO MANAGERS
James K. Schmidt, CFA
- ------------------------------------
Executive vice president of adviser
Joined fund team in 1997
Joined adviser in 1985
Began business career in 1979
Thomas M. Finucane
- ------------------------------------
Vice president of adviser
Joined fund team in 1997
Joined adviser in 1990
Began business career in 1983
Thomas C. Goggins
- ------------------------------------
Senior vice president of adviser
Joined fund team in 1998
Joined adviser in 1995
Began business career in 1981
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1998 1999 2000
8.57% 1.23% 27.16%
2001 total return as of June 30: 4.73%
Best quarter: Q4 `98, 16.08% Worst quarter: Q3 `98, -16.76%
- --------------------------------------------------------------------------------
Average annual total returns-- for periods ending 12/31/00
- --------------------------------------------------------------------------------
Fund Index
1 year 27.16% -9.10%
Life of fund - began 4/30/97 18.90% 16.17%
Index: Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
A-8
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements. The fund's management strategy has a significant influence on
fund performance. Because the fund focuses on a single sector of the economy,
its performance depends in large part on the performance of that sector. As a
result, the value of your investment may fluctuate more widely than it would in
a fund that is diversified across sectors. For instance, when interest rates
fall or economic conditions deteriorate, the stocks of banks and financial
services companies could suffer losses. Also, rising interest rates can reduce
profits by narrowing the difference between these companies' borrowing and
lending rates.
Stocks of financial services companies as a group could fall out of favor with
the market, causing the fund to underperform funds that focus on other types of
stocks. In addition, if the managers' stock selection strategy does not perform
as expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise. This risk is
greater for longer maturity bonds. Junk bond prices can fall on bad news
about the economy, an industry or a company.
================================================================================
FINANCIAL HIGHLIGHTS
The financial highlights table below is intended to help you understand the
Acquired Fund's financial performance since its inception on April 30, 1997.
Certain information reflects financial results for a single Fund share. The
total returns in the table represent the rate that a shareholder would have
earned (lost) on an investment in the Fund (assuming reinvestment of all divid-
ends and distributions). Except for the information as of June 30, 2001 (which
is unaudited) the information in the below table has been audited by Ernst &
Young LLP, whose report, along with the Fund's financial statements, are in-
cluded in the Trust's Annual Report to Shareholders for the year ended December
31, 2000 (which is available upon request via the phone number or address on the
cover page of this Proxy Statement/Prospectus).
- ---------------------------------------------------------------------------------------------------------------------------------
Period ended: 12/97(1) 12/98 12/99 12/00 6/01(9)
- ---------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $13.44 $14.45 $14.46 $18.34
Net investment income (2) 0.11 0.18 0.11 0.06 0.05
Net realized and unrealized gain (loss) on investments 3.39 0.97 0.06 3.87 (1.80)
Total from investment operations 3.50 1.15 0.17 3.93 (1.75)
Less distributions:
Dividends from net investment income (0.05) (0.14) (0.10) (0.05) --
Distributions from net realized gain on investments sold (0.01) --(3) (0.05) -- --
Tax return of capital -- -- (0.01) -- --
Total distributions (0.06) (0.14) (0.16) (0.05) --
Net asset value, end of period $13.44 $14.45 $14.46 $18.34 $16.59
Total investment return(4) (%) 35.05(5,6) 8.55 1.23 27.16 (9.54)(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 18,465 54,569 49,312 71,367 81,990
Ratio of expenses to average net assets (%) 1.05(7) 0.92 0.90 0.90 0.90(7)
Ratio of adjusted expenses to average net assets(8) (%) 1.39(7) -- -- -- --
Ratio of net investment income to average net assets (%) 1.32(7) 1.25 0.77 0.36 0.65(7)
Portfolio turnover rate (%) 11 38 72 41 53
(1) Began operations on April 30, 1997.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) Not annualized.
(6) The total return would have been lower had certain expenses not been
reduced during the period shown.
(7) Annualized.
(8) Does not take into consideration expense reductions during the period
shown.
(9) Semiannual period from January 1, 2001 through June 30, 2001. Unaudited.
A-9
A-10
Appendix B
Management's discussion of fund performance:
December 31, 2000
B-1
PROPOSAL 1
John Hancock V.A. High Yield Bond Fund
BY ARTHUR N. CALAVRITINOS, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
JANET L. CLAY, CFA, FREDERICK L. CAVANAUGH, JR. AND DANIEL S. JANIS,
PORTFOLIO MANAGERS
It was a difficult year for high-yield bonds. The impact of rising
interest rates in the first half of 2000 finally began to take hold in
the shape of a slowing economy. A growing number of companies began to
miss their earnings targets, sending shock waves through the financial
markets, especially the technology-heavy NASDAQ Composite Index. The
number of defaults among high-yield companies, defined as those rated
below investment grade, also rose. Telecommunications companies, whose
prices had risen to stratospheric levels, were particularly hard hit. As
these companies fell short in their business plans and faced diminished
prospects for getting their next round of funding in the equity market,
their prices tumbled. Since this sector makes up the largest component
of the high-yield market, its downfall was a significant drag on the
group. High-yield companies also were hurt by a growing lack of
liquidity, or ease of trading, that was caused by the mergers of several
investment-banking firms.
The struggles of these higher-risk bonds stood in marked contrast to
U.S. government bonds, which benefited from stabilizing rates, reduced
supply, the prospects of a slowing economy and their status as a safe
haven in the face of growing stock-market and presidential election
uncertainties. By the end of the year, the difference in yield between
high-yield bonds and Treasury bonds had widened significantly.
High-yield bond yields averaged 14.12%, as measured by the Merrill Lynch
High Yield Master II Index, compared with the 5.11% yield of the 10-year
Treasury bond.
FUND PERFORMANCE
For the year ended December 31, 2000, John Hancock V.A. High Yield Bond
Fund posted a total return of -6.08% at net asset value. By comparison,
the average variable annuity high current yield fund returned -7.03%,
according to Lipper, Inc. Historical performance information can be
found on the next page.
TELECOMMUNICATIONS CUT
Although telecommunications is the Fund's largest sector concentration,
we continue to maintain an underweighting compared to our peers since so
many high-yield telecom companies are only several years old and have
yet to deliver results. During the year, we became increasingly
convinced that the telecom market was reaching a point of too much
capacity and not enough demand -- for everything from equipment to
services. As a result, we pared our stake from 23% a year ago to 14% at
the end of December. We sold Internet Web-hosting companies PSI Net and
Exodus Communications and sold the common stock of Viatel, a competitive
local exchange carrier (CLEC) in Europe. Although we sold these and
other names before their prices fell even more, we still had some
disappointments. KMC Telecom Holdings was a prime example of the
problems facing many telecom start-ups. A CLEC serving the Southeast, it
provides telephone, cable and Internet access to companies in direct
competition with the Baby Bells. While it has a good set of assets, it
also has a large amount of debt, needs more money to grow, and is being
pinched in its ability to access capital to continue executing its
business plan.
CREDIT SPECIFIC ISSUES HURT
Our biggest disappointments came from several company-specific problems,
such as Asia Pulp & Paper (APP) which sparked market concerns and lost
credibility when it announced that it needed to extend its debt
maturities. Cargo operator Fine Air Services filed for bankruptcy
protection after failing to execute its business plan because of
operational difficulties.
ENERGY GROWS
With fuel prices spiking, we increased our weighting in oil and gas and
related service companies. We are particularly interested in the natural
gas market, since that is where we see the biggest potential for further
exploration and development, as well as price gains, given the low
supply and growing demand. We added to our stakes in oil drilling
company Grey Wolf and Gothic Production, a natural gas exploration and
production company that was recently acquired by Chesapeake. Key Energy
Services, the major player in the well-servicing business, has performed
admirably. We sold our Key Energy stock, but still hold a significant
stake in its bonds. We also added a stake in CHC Helicopter, a Canadian
company that provides helicopter service to offshore rigs and coastal
rescue operations.
B-2
OUTLOOK
We remain cautious about the near-term prospects for high-yield bonds.
It's likely that we could see more failures in the telecommunications
group in 2001. We are also waiting for liquidity to return to the
high-yield market, which should eventually happen. But we also see a
silver lining. As investors recover from the "irrational exuberance"
that gripped high-yield telecommunications bonds as well as stocks, we
believe they will reassess the risks and rewards of investing in various
asset classes. While this takes time, a return to a more rational mode
of investing will inevitably serve us well, especially if the stock
market remains dicey. With high-yield bond prices low and their yields
at very high levels compared to Treasuries, investors are soon bound to
recognize the value that exists in the high-yield sector.
See the prospectus for the risks of investing in high-yield bonds.
International investing involves special risks such as political,
economic and currency risks and differences in accounting standards and
financial reporting.
A LOOK AT PERFORMANCE
For the period ended December 31, 2000
SINCE
ONE INCEPTION
YEAR (1/6/98)
---------- ----------
Cumulative Total Returns (6.08%) (4.16%)
Average Annual Total Returns(1) (6.08%) (1.41%)
YIELD
For the period ended December 31, 2000
SEC 30-DAY
YIELD
----------
John Hancock V.A. High Yield Bond Fund(1) 14.03%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them.
(1) The Adviser has agreed to limit the Fund's expenses to 0.25%
(excluding management fee) of the Fund's daily average net assets.
Without the limitation of expenses, the average annual total return for
the one-year period and since inception would have been (6.47%) and
(1.70%), respectively, and the yield would have been 13.64%.
[Pie chart at bottom left-hand column with heading "Portfolio
Diversification." The chart is divided into six sections
(from top to left): Common Stock 9%, Short-Term Investments &
Other 25%, Convertible Bonds 3%, Preferred Stock 3%, Foreign
Corporate Bonds 16% and U.S. Corporate Bonds 44%. A note
below the chart reads "As a percentage of net assets on
December 31, 2000."]
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. High Yield Bond Fund would be worth, assuming all distributions
were reinvested for the period indicated. For comparison, we've shown
the same $10,000 investment in the Lehman Brothers High Yield Bond Index
- -- an unmanaged index of fixed-income securities that are similar, but
not identical, to the bonds in the Fund's portfolio. It is not possible
to invest in an index.
Line chart with the heading John Hancock V.A. High Yield Bond
Fund, representing the growth of a hypothetical $10,000
investment over the life of the fund. Within the chart are
two lines. The first line represents the Lehman Brothers High
Yield Bond Index and is equal to $9,819 as of December 31,
2000. The second line represents the value of the
hypothetical $10,000 investment made in the John Hancock V.A.
High Yield Bond Fund on January 6, 1998 and is equal to
$9,591 as of December 31, 2000.
B-3
John Hancock V.A. Strategic Income Fund
BY FREDERICK CAVANAUGH, MANAGEMENT TEAM LEADER,
AND ARTHUR N. CALAVRITINOS, CFA, JANET L. CLAY, CFA, AND DANIEL S. JANIS,
PORTFOLIO MANAGERS
The past year was a good one for U.S. Treasury securities, which were
boosted initially by the government's debt buyback program and later by
expanding signs that the U.S. economy was slowing. Despite the Federal
Reserve's effort to stave off inflation by raising interest rates
through May 2000, Treasury prices rose as the government scaled back the
frequency and size of its auctions of new debt and bought back billions
of dollars of outstanding debt. Continued debt reduction efforts,
coupled with mounting evidence that economic growth had slacked off and
inflation was non-existent, added steam to the Treasury market in the
second half. By year's end, the market increasingly anticipated that the
Fed would stop raising interest rates in recognition of receding
inflationary pressures, and perhaps even cut them in the near future.
Meanwhile, concern about the outlook for the economy and corporate
profits eroded investor confidence in the high-yield sector. That was
particularly true among high-yield bonds in the telecommunications
sector.
For the most part, foreign government bond markets remained relatively
uninteresting from our standpoint. Western Europe and Asia didn't offer
a lot of value, since their bond yields typically were lower than those
offered in the United States. One foreign bright spot was Canada, which
benefited from relatively low and stable inflation. There also was some
good news out of some Latin American countries, which enjoyed improving
credit fundamentals thanks to the rise in oil prices.
FUND PERFORMANCE
For the 12 months ended December 31, 2000, John Hancock V.A. Strategic
Income Fund posted a total return of 1.40% at net asset value, compared
with the 4.64% return of the average variable annuity general bond fund
income fund, according to Lipper Inc. Historical performance information
can be found on the next page.
DEFENSIVE STANCE
Given the ongoing difficulties suffered by the high-yield market and our
view that more problems may be in store over the near-term, we
continually expanded our defensive posture throughout 2000. By year-end,
we had reduced our exposure to high-yield bonds to about 23% of net
assets, and increasingly gravitated toward more stable, high-quality
investments. Our position in cash and other short-term securities rose
to 10% by the end of the period, up from 1% at the beginning of the
year.
We also increased our Treasury holdings to 49% at the end of the year,
up from 35% at the end of June 2000. We emphasized a combination of
short- and long-term holdings, which was a plus for performance.
Short-term securities rallied on expectations that the Fed would lower
short-term interest rates, while long-term Treasuries turned in strong
performance thanks to the government's buyback program and expectations
for lower interest rates.
HIGH-YIELD LEADERS AND LAGGARDS
The high-yield market's slump was difficult to escape, although some of
our holdings held up much better than the others. Packaging company
Kappa Beheer, for example, surprised Wall Street with much better than
expected financial results. Natural gas service company Universal
Compression was lifted by the rising price of that fuel. Finally, French
billboard company Go Outdoors Systems Holding and British newspaper
company Regional Independent Media Group each benefited from reasonably
strong advertising and economic growth.
On the flip side, many of our biggest disappointments were
telecommunications holdings. As we mentioned earlier, this sector
stumbled because investors were worried about telecom companies' ability
to raise money to continue the build-out of their networks. Within that
group, the bond prices of Viatel, Primus Telecommunications Group and
Esprit Telecom Group all suffered substantial losses during 2000.
CHANGES IN FOREIGN HOLDINGS
Our increase in foreign securities basically was a function of our
purchases of Canadian and Venezuelan government bonds. Canadian bonds,
which were the best performers among foreign bond markets, offered
interest rates competitive with those of U.S. Treasuries and afforded us
the opportunity to increase our holdings in a high-quality market
characterized by low and stable inflation. Our Venezuelan holdings,
which we view as a short-term play, were boosted by the country's
improving creditworthiness as oil prices rose.
B-4
A LOOK AHEAD
We expect to maintain our defensive stance for the time being.
High-yield bonds offer some very attractive values, including some bonds
carrying yields of nearly nine full percentage points more than U.S.
Treasuries. But we don't believe investors will rush back into the
market. We believe they'll take a "wait and see" attitude about how much
the economy will eventually slow and how much the Federal Reserve will
cut interest rates, which it began to do January 3 with a one-half
percentage point cut. But since no one can pinpoint the exact timing of
the next high-yield bond market rally, we'll continue to hold onto some
high-yield bonds that we think have good fundamental prospects and can
perform better once market sentiment turns more favorable. We are
prepared to move even more into lower-quality investments when we think
the time is right. Finally, we'll continue to look for attractive yields
in foreign markets, although we believe Canada still offers the best
value.
International investing involves special risks such as political,
economic and currency risks and differences in accounting standards and
financial reporting.
A LOOK AT PERFORMANCE
For the period ended December 31, 2000
SINCE
ONE INCEPTION
YEAR (8/29/96)
---------- ----------
Cumulative Total Returns 1.40% 32.63%
Average Annual Total Returns(1) 1.40% 6.72%
YIELD
For the period ended December 31, 2000
SEC 30-DAY
YIELD
----------
John Hancock V.A. Strategic Income Fund(1) 7.94%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them.
(1) The Adviser has agreed to limit the Fund's expenses to 0.25%
(excluding management fee) of the Fund's daily average net assets.
Without the limitation of expenses, the average annual total return
since inception would have been 6.30%. The expense limitation did not
impact the one-year performance.
[Table at bottom left-hand column entitled "Top Five
Sectors." The first listing is U.S. Government 49%, the
second is Telecommunications 14%, the third Foreign
Governments 10%, the fourth Utilities 3% and the fifth Media
2%. A note below the table reads "As a percentage of net
assets on December 31, 2000."]
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Strategic Income Fund would be worth, assuming all distributions
were reinvested for the period indicated. For comparison, we've shown
the same $10,000 investment in the Lehman Brothers Government/Corporate
Bond Index -- an unmanaged index that measures the performance of U.S.
government bonds, U.S. corporate bonds and Yankee bonds. It is not
possible to invest in an index.
Line chart with the heading John Hancock V.A. Strategic
Income Fund, representing the growth of a hypothetical
$10,000 investment over the life of the fund. Within the
chart are two lines. The first line represents the Lehman
Brothers Government/Corporate Bond Index and is equal to
$13,760 as of December 31, 2000. The second line represents
the value of the hypothetical $10,000 investment made in the
John Hancock V.A. Strategic Income Fund on August 29, 1996
and is equal to $13,271 as of December 31, 2000.
B-5
PROPOSAL 2
John Hancock V.A. Regional Bank Fund
BY JAMES K. SCHMIDT, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
THOMAS M. FINUCANE AND THOMAS C. GOGGINS, PORTFOLIO MANAGERS
Bank stocks did an about-face in 2000 and far surpassed the broader
market's results, finally re-gaining investors' attention as interest
rates stopped going up and technology stocks tanked. In the first three
months of the year, investors only had eyes for technology. But starting
in March, with the first hint of cracks in the robust economy, investors
saw the light and moved out of the technology and telecommunications
sectors, where stock prices had reached the stratosphere. Financial
stocks of all stripes were the beneficiaries of this important market
shift, as investors sought out more attractively valued companies. This
interest-rate sensitive group was also boosted by a growing sense that
the Federal Reserve was done raising rates to cool the economy.
Even with their rally, bank stocks had a few setbacks along the way as
earnings shortfalls and increases in non-performing loans were announced
at some prominent banks. But regional banks and thrifts came on strong
in November and December, when continued signs that the economy had
rapidly slowed convinced investors that the Fed's next move would be a
rate cut to prevent the economy from stalling. Three days after the year
ended, the Fed did just that in a surprising and aggressive move, and
also signaled more cuts could be coming. With the favorable turn in
financial stocks' fortunes this year, the Standard & Poor's Financial
Index rose 26.1% for the year ended December 31, 2000, while the broader
market, as measured by the Standard & Poor's 500 Index, lost 9.1%.
FUND PERFORMANCE
For the year ended December 31, 2000, John Hancock V.A. Regional Bank
Fund posted a strong return of 17.91% at net asset value, due largely to
its second-half rally when it rose 30%. In comparison, the average
open-end financial services fund returned 26.56% and the average
sector/miscellaneous fund returned 0.63% for the year, according to
Lipper, Inc. See the next page for historical performance information.
While significantly outperforming the broad market, the Fund lagged the
Lipper group of financial services funds, many of which invested in the
securities brokers, asset managers and larger diversified financial
firms, which were the better performers until the last two months of the
year. Furthermore, although most of our holdings posted earnings results
in line with our expectations, we did experience earnings shortfalls
among some of our larger holdings. The problems either stemmed from an
increase in non-performing loans -- at such banks as UnionBanCal Corp.,
Bank of America, Marshal & Ilsley, Bank of the Ozarks and Lamar Capital
- -- and/or from merger integration issues.
FOCUS ON ASSET QUALITY
As we mentioned in our last report, after a lengthy period of an
expanding economy and a favorable lending environment, it is no surprise
that as the economy slowed this year there was a pickup in the level of
non-performing assets. But even with the increase, the level of problem
loans still remains low at 0.70% of total assets, according to FDIC
statistics. The area experiencing much of the deteriorating credit
quality is syndicated loans -- large loans shared among a consortium of
banks. While the non-performing loan rate could rise some more, we
expect that it should remain at a low level (below 1% of total assets)
and that the banking industry is establishing adequate loan loss
reserves. On an ongoing basis, our team continues to carefully
scrutinize the credit risks and prospects of our banks.
FUNDAMENTALS INTACT; MERGERS STILL A TREND
Even with an increase in non-performing assets, a slowdown in loan
growth and flat net interest margins, we still anticipate average 2001
bank earnings growth to be about 8% higher than this year's. This year,
our biggest contributor to the Fund's performance was Texas bank
Southwest Bancorp. The largest bank left headquartered in Texas, it
gained significant market share and benefited from the state's
energy-induced boom. Texas bank Cullen Frost also rode this wave, and we
sold it to lock in profits during the year.
Although bank merger activity slowed in 2000, the consolidation trend
remains solidly in place. More recently there was a resurgence of
activity, with FleetBoston Financial's announced purchase of Summit
Bank, and Firstar's acquisition of U.S. Bancorp. Both of these
transactions were priced at more realistic levels, thus boosting the
chances of success. We could see more consolidation as banks, struggling
to increase revenues, use mergers as a means of improving profits
through gained operating efficiencies.
B-6
A LOOK AHEAD
We are encouraged by the recent turn of events for bank stocks. Even
though further asset- quality announcements could roil the group, there
are several factors working in our favor. Interest rates have started to
come down, which tends to boost investors' confidence in bank stocks,
and prospects for further merger activity are good. While it's still not
clear that the Fed has achieved the sought-after soft landing, we
believe the potential for this not-too-fast, not-too-slow outcome for
the economy remains quite real, as the Fed has made clear -- with its
interest-rate cut days after the year's end -- that it is intent on
preventing an economic meltdown. Finally, even though the stocks have
outperformed the market by a wide margin lately, their valuations remain
reasonable, which means there's more room for them to advance.
Sector investing is subject to greater risks than the market as a whole.
A LOOK AT PERFORMANCE
For the period ended December 31, 2000
SINCE
ONE INCEPTION
YEAR (5/1/98)
---------- ----------
Cumulative Total Returns 17.91% 4.96%
Average Annual Total Returns(1) 17.91% 1.83%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them.
(1) The Adviser has agreed to limit the Fund's expenses to 0.25%
(excluding management fee) of the Fund's daily average net assets.
Without the limitation of expenses, the average annual total return
since inception would have been 1.80%. The expense limitation did not
impact the one-year performance.
[Table at bottom left hand column entitled "Top Five Stock
Holdings." The first listing is Mid-State Bancshares 3.9%,
the second is Valley National Bancorp 3.8%, the third Fifth
Third Bancorp 3.7%, the fourth Commerce Bancshares 3.7% and
the fifth Independent Bank Corp. 3.4%. A note below the table
reads "As a percentage of net assets on December 31, 2000."]
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Regional Bank Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the
same $10,000 investment in the Standard & Poor's 500 Index -- an
unmanaged index that includes 500 widely traded common stocks and is
often used as a measure of stock market performance. It is not possible
to invest in an index.
Line chart with the heading John Hancock V.A. Regional Bank
Fund, representing the growth of a hypothetical $10,000
investment over the life of the fund. Within the chart are
two lines. The first line represents the Standard & Poor's
500 Index and is equal to $12,291 as of December 31, 2000.
The second line represents the value of the hypothetical
$10,000 investment made in the John Hancock V.A. Regional
Bank Fund on May 1, 1998 and is equal to $10,496 as of
December 31, 2000.
B-7
John Hancock V.A. Financial Industries Fund
BY JAMES K. SCHMIDT, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
THOMAS M. FINUCANE AND THOMAS C. GOGGINS, PORTFOLIO MANAGERS
After struggling in 1999, financial stocks produced some of the market's
best results in 2000, as market leadership changed dramatically and
high-flying technology stocks fell sharply beginning in March. With
growing signs that the economy was slowing from its torrid pace,
investors became increasingly concerned that the business fundamentals
of many technology and telecommunications companies didn't justify their
sky-high valuations. Financial stocks were the beneficiaries of this
important market change, as investors sought out more attractively
valued companies. This interest-rate sensitive group also benefited from
the growing perception that the Federal Reserve was nearing the end of
its cycle of raising interest rates. A summer wave of merger activity in
the wake of financial reform legislation also lifted the group.
For the first 10 months of the year, the best performers in the
financial group were the asset managers and brokerage houses, while some
banks reported earnings disappointments. But as the year progressed and
less expensive value stocks became even more desirable as market turmoil
grew, the more growth-oriented broker and asset managers gave back some
of their gains and banks moved into the lead. With the favorable turn in
financial stocks' fortunes this year, the Standard & Poor's Financial
Index rose 26.1% for the year ended December 31, 2000, while the broader
market, as measured by the Standard & Poor's 500 Index, lost 9.1%.
FUND PERFORMANCE AND STRATEGY UPDATE
John Hancock V.A. Financial Industries Fund benefited fully from the
upswing in financial stocks, producing a total return of 27.16% at net
asset value for the year ended December 31, 2000. That compared with the
26.56% return of the average open-end financial services fund and the
0.63% return of the average variable annuity sector/miscellaneous fund,
according to Lipper, Inc. See the next page for historical performance
information.
The Fund continues to seek capital appreciation by investing in a broad
range of U.S. and foreign financial services companies of any size.
During the year, shareholders voted to eliminate a restriction that had
required the Fund to invest more than 25% of its assets in the banking
industry. This change provides the Fund with added flexibility.
BROKERS, ASSET MANAGERS STRONG
Some of our biggest contributors to performance were our brokerage and
asset manager stocks. They rode a wave of high-priced takeovers that
emerged in the wake of the Gramm-Leach-Bliley Act -- legislation that
dropped the barriers preventing banks, brokers and insurers from
affiliating. Over the summer, Chase Manhattan bank bought J.P. Morgan,
UBS announced plans to buy investment banker PaineWebber and Credit
Suisse Group bought Donaldson, Lufkin and Jenrette.
We also benefited from having shifted away from the regional brokers
last year to the wire house brokerage names like Morgan Stanley Dean
Witter and Merrill Lynch, which were top performers for the year despite
their pullback in the last two months. Although it was our belief that
underwriting, trading and merger activity would slow in the next several
quarters, we are still positive on the group because the level of
investment banking activity is still very good and the underwriting
calendar should pick up again once the market firms up. The top
contributor to the Fund's performance was Amvescap, an asset manager
that increased its stature this year through the success of asset
gathering at its AIM and Invesco subsidiaries. The stalwart insurance
broker Marsh & McLennan also served us well, partly because of the
upturn in the property and casualty insurance business, and also because
of its strong mutual fund arm.
PROPERTY AND CASUALTY MAKES A COMEBACK
For much of the year, our life insurance companies, including AXA
Financial and AFLAC were better performers than the property and
casualty insurers, which have struggled for the last five years in a
very competitive pricing environment. But in the latter part of the
year, the global pricing cycle for property and casualty companies
finally began to turn upward, so we started to shift some of our
insurance assets back to this group.
B-8
BANK SELECTIONS MOSTLY HELP
For the most part, we focused on the trust banks like State Street
Corp., Bank of New York and Northern Trust Corp. which did well because
of their recurring revenue streams from their main advisory and custody
businesses. Our regional banks were mixed. Wells Fargo and FleetBoston
Financial did well, as they successfully navigated their way through
acquisitions. On the other hand, First Tennessee and Marshal & Ilsley
were tarnished by earnings disappointments. During the year we upped our
stake in several attractively priced regionals, such as Fifth Third
Bancorp and Wells Fargo, and that served us well toward the end of the
year.
A LOOK AHEAD
The prospects for financial stocks remain bright. With the economy
slowing dramatically in the fourth quarter, the Fed moved just days into
the new year to cut interest rates in an aggressive signal that it
intended to prevent an economic stall. Investors tend to favor financial
stocks more in an environment of lower rates and slower, steadier
economic growth. It remains to be seen if the Fed will succeed in
pulling off another soft landing for the economy, but we believe it's
the most likely outcome. What's more, we have only just begun to see the
powerful results of the merger trend spawned by financial reform
legislation and we expect more consolidation to follow.
Sector investing is subject to greater risks than the market as a whole.
A LOOK AT PERFORMANCE
For the period ended December 31, 2000
SINCE
ONE INCEPTION
YEAR (4/30/97)
---------- ----------
Cumulative Total Returns 27.16% 88.73%
Average Annual Total Returns(1) 27.16% 18.90%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them.
(1) The Adviser has agreed to limit the Fund's expenses to 0.25%
(excluding management fee) of the Fund's daily average net assets.
Without the limitation of expenses, the average annual total return
since inception would have been 18.84%. The expense limitation did not
impact the one-year performance.
[Table at bottom left-hand column entitled "Top Five Stock
Holdings." The first listing is Fifth Third Bancorp 4.1%, the
second is AFLAC 3.7%, the third Ambac Financial Group 3.7%,
the fourth Wells Fargo 3.6% and the fifth American
International Group 3.5%. A note below the table reads "As a
percentage of net assets on December 31, 2000."]
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Financial Industries Fund would be worth, assuming all
distributions were reinvested for the period indicated. For comparison,
we've shown the same $10,000 investment in the Standard & Poor's 500
Index -- an unmanaged index that includes 500 widely traded common
stocks and is often used as a measure of stock market performance. It is
not possible to invest in an index.
Line chart with the heading John Hancock V.A. Financial
Industries Fund, representing the growth of a hypothetical
$10,000 investment over the life of the fund. Within the
chart are two lines. The first line represents the value of
the hypothetical $10,000 investment made in the John Hancock
V.A. Financial Industries Fund on April 30, 1997 and is equal
to $18,873 as of December 31, 2000. The second line
represents the Standard & Poor's 500 Index and is equal to
$17,339 as of December 31, 2000.
B-9
John Hancock
Declaration Funds
Prospectus
May 1, 2001
- --------------------------------------------------------------------------------
Equity
V.A. Core Equity Fund
V.A. 500 Index Fund
V.A. Large Cap Growth Fund
V.A. Mid Cap Growth Fund
V.A. Relative Value Fund
V.A. Small Cap Growth Fund
V.A. Sovereign Investors Fund
International
V.A. International Fund
Sector
V.A. Financial Industries Fund
V.A. Regional Bank Fund
Income
V.A. Bond Fund
V.A. High Yield Bond Fund
V.A. Money Market Fund
V.A. Strategic Income Fund
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these funds or determined whether the information in
this prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
[LOGO](R)
------------------
JOHN HANCOCK FUNDS
Contents
- --------------------------------------------------------------------------------
General information about Overview 3
the Declaration funds.
A fund-by-fund summary Equity
of goals, strategies, risks,
performance and financial V.A. Core Equity Fund 4
highlights. V.A. 500 Index Fund 6
V.A. Large Cap Growth Fund 8
V.A. Mid Cap Growth Fund 10
V.A. Relative Value Fund 12
V.A. Small Cap Growth Fund 14
V.A. Sovereign Investors Fund 16
International
V.A. International Fund 18
Sector
V.A. Financial Industries Fund 20
V.A. Regional Bank Fund 22
Income
V.A. Bond Fund 24
V.A. High Yield Bond Fund 26
V.A. Money Market Fund 28
V.A. Strategic Income Fund 30
Transaction policies and Account information
other information affecting
your fund investment. Buying and selling fund shares 32
Valuing fund shares 32
Fund expenses 32
Dividends and taxes 32
Further information on the Fund details
Declaration funds.
Business structure 33
For more information back cover
Overview
- --------------------------------------------------------------------------------
JOHN HANCOCK DECLARATION FUNDS
These funds offer investment choices for the variable annuity and variable life
insurance contracts of certain insurance companies. You should read this
prospectus together with the attached prospectus of the insurance product you
are considering.
RISKS OF MUTUAL FUNDS
Mutual funds are not bank deposits and are not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Because
you could lose money by investing in these funds, be sure to read all risk
disclosure carefully before investing.
THE MANAGEMENT FIRM
All John Hancock Declaration funds are managed by John Hancock Advisers, Inc.
Founded in 1968, John Hancock Advisers is a wholly owned subsidiary of John
Hancock Financial Services, Inc. and manages more than $30 billion in assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[Clip Art] Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[Clip Art] Main risks The major risk factors associated with the fund.
[Clip Art] Past performance The fund's total return, measured year-by-year and
over time.
[Clip Art] Financial highlights A table showing the fund's financial performance
for up to five years.
3
V.A. Core Equity Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks above-average total return (capital appreciation plus
income). To pursue this goal, the fund normally invests at least 65% of assets
in a diversified portfolio of equities which are primarily large-capitalization
stocks. The portfolio's risk profile is similar to that of the Standard & Poor's
500 Index.
The managers select from a menu of stocks of approximately 550 companies that
evolves over time. Approximately 70% to 80% of these companies also are included
in the Standard & Poor's 500 Index. The subadviser's investment research team is
organized by industry and tracks these companies to develop earnings estimates
and five-year projections for growth. A series of proprietary computer models
use this in-house research to rank the stocks according to their combination of:
o value, meaning they appear to be underpriced
o improving fundamentals, meaning they show potential for strong growth
This process, together with a risk/ return analysis against the Standard &
Poor's 500 Index, results in a portfolio of approximately 100 to 130 of the
stocks from the top 60% of the menu. The fund generally sells stocks that fall
into the bottom 20% of the menu.
In normal market conditions, the fund is almost entirely invested in stocks. The
fund may invest in dollar-denominated foreign securities and make limited use of
certain derivatives (investments whose value is based on indexes or securities).
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
================================================================================
SUBADVISER
Independence Investment LLC
- ---------------------------
Team responsible for day-to-day
investment management
A subsidiary of John Hancock
Financial Services, Inc.
Founded in 1982
Supervised by the adviser
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1997 1998 1999 2000
30.68% 28.42% 13.89% -7.11%
2001 total return as of March 31: -10.46%
Best quarter: Q4 '98, 23.16% Worst quarter: Q3 '98, -13.01%
- --------------------------------------------------------------------------------
Average annual total returns-- for periods ending 12/31/00
- --------------------------------------------------------------------------------
Fund Index
1 year -7.11% -9.10%
Life of fund - began 8/29/96 17.11% 19.18%
Index: Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
4
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform funds that focus on smallor
medium-capitalization stocks.
The fund's management strategy has a significant influence on fund performance.
If the investment research team's earnings estimates or projections turn out to
be inaccurate, or if the proprietary computer models do not perform as expected,
the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including potentially
inadequate or inaccurate financial information and social or political
instability.
================================================================================
FINANCIAL HIGHLIGHTS
[Clip Art] This table details the performance of the fund's shares, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Figures audited by Ernst & Young LLP.
- -------------------------------------------------------------------------------------------------------------------------------
Period ended: 12/96(1) 12/97 12/98 12/99 12/00
- -------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $11.11 $14.11 $17.74 $19.70
Net investment income (loss)(2) 0.06 0.16 0.10 0.09 0.08
Net realized and unrealized gain (loss) on investments 1.12 3.23 3.90 2.36 (1.48)
Total from investment operations 1.18 3.39 4.00 2.45 (1.40)
Less distributions:
Dividends from net investment income (0.06) (0.14) (0.10) (0.09) (0.09)
Distributions in excess of net investment income -- -- -- --(3) --
Distributions from net realized gain on investments sold (0.01) (0.25) (0.27) (0.40) (0.31)
Distributions in excess of net realized gain on investments sold -- -- -- -- (0.38)
Total distributions (0.07) (0.39) (0.37) (0.49) (0.78)
Net asset value, end of period $11.11 $14.11 $17.74 $19.70 $17.52
Total investment return (4) (%) 11.78(5,6) 30.68(6) 28.42 13.89 (7.11)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,149 8,719 26,691 44,991 40,673
Ratio of expenses to average net assets (%) 0.95(7) 0.95 0.95 0.83 0.85
Ratio of adjusted expenses to average net assets(8) (%) 4.23(7) 1.59 -- -- --
Ratio of net investment income (loss) to average net assets (%) .. 1.60(7) 1.24 0.65 0.47 0.45
Portfolio turnover rate (%) 24 53 55 77 97
(1) Began operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) Not annualized.
(6) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(7) Annualized.
(8) Does not take into consideration expense reductions during the periods
shown.
5
V.A. 500 Index Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks to provide investment results that correspond to the
total return performance of the Standard & Poor's 500 Stock Price Index. To
pursue this goal, the fund normally invests at least 80% of assets in common
stocks of S&P 500(R) companies, in approximately the same proportions as they
are represented in the index.
This fund is passively managed, meaning that the manager does not use any broad
economic or fundamental financial analysis to select investments. The manager
monitors the portfolio daily and rebalances periodically to maintain the
proportions of the index. The fund also invests in futures contracts, exchange
traded funds and options based on S&P 500 stocks.
Under normal circumstances, the fund is fully invested -- directly or through
futures and options contracts -- in all 500 stocks represented in the index. It
may, however, invest in fewer stocks or in stocks of non-S&P 500 companies. The
fund normally maintains less than 1% of assets in cash or cash equivalents.
================================================================================
PORTFOLIO MANAGER
James D. Schantz, CFA
- --------------------------------------
Vice president of adviser
Joined fund team in 2000
Joined adviser in 1998
Executive vice president and
director of quantitative research
at Hagler, Mastrovita & Hewitt
(1994-1998)
Began business career in 1970
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1997 1998 1999 2000
29.51% 28.44% 20.81% -9.28%
2001 total return as of March 31: -11.95%
Best quarter: Q4 '98, 21.39% Worst quarter: Q3 '98, -10.01%
- --------------------------------------------------------------------------------
Average annual total returns-- for periods ending 12/31/00
- --------------------------------------------------------------------------------
Fund Index
1 year -9.28% -9.10%
Life of fund - began 8/29/96 17.75% 19.18%
Index: Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
6
MAIN RISKS
[Clip Art] The value of your investment will fluctuate with the index. The fund
does not attempt to temper volatility or avoid losses associated with a decline
in the index.
The large-capitalization stocks that make up the index could fall out of favor
with the market, causing the fund to underperform funds that focus on smallor
medium-capitalization stocks.
Certain investment practices may cause the fund to track the index less closely:
o Transaction expenses can reduce fund performance.
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
o The performance of S&P futures, exchange traded funds or options could
correlate less strongly with the index than investments in the underlying
securities.
o The relative proportions of stocks in the fund's portfolio could drift
over time, which could increase tracking error.
Other factors may affect performance, such as the liquidity of S&P 500 stocks
and the timing of the fund's cash flows. You could lose money by investing in
the fund.
Note: "Standard & Poor's(R)" and "S&P 500(R)" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by the adviser. Standard & Poor's
does not sell or promote the fund or advise whether you should invest in the
fund. A description of this license is provided in the statement of additional
information.
================================================================================
FINANCIAL HIGHLIGHTS
[Clip Art] This table details the performance of the fund's shares, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Figures audited by Ernst & Young LLP.
- -----------------------------------------------------------------------------------------------------------------------
Period ended: 12/96(1) 12/97 12/98 12/99 12/00
- -----------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $10.44 $12.62 $15.23 $18.09
Net investment income (loss)(2) 0.17 0.30 0.20 0.17 0.14
Net realized and unrealized gain (loss) on investments 0.98 2.72 3.37 2.98 (1.81)
Total from investment operations 1.15 3.02 3.57 3.15 (1.67)
Less distributions:
Dividends from net investment income (0.16) (0.30) (0.20) (0.17) (0.15)
Distributions from net realized gain on investments sold (0.55) (0.54) (0.76) (0.11) (0.06)
Distributions in excess of net realized gain on investments sold -- -- -- (0.01) --
Total distributions (0.71) (0.84) (0.96) (0.29) (0.21)
Net asset value, end of period $10.44 $12.62 $15.23 $18.09 $16.21
Total investment return(3,4) (%) 11.49(5) 29.51 28.44 20.81 (9.28)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,049 20,008 26,457 37,953 25,094
Ratio of expenses to average net assets (%) 0.60(6) 0.36 0.35 0.35 0.35
Ratio of adjusted expenses to average net assets(7) (%) 1.31(6) 0.83 0.92 0.75 0.93
Ratio of net investment income (loss) to average net assets (%) 4.57(6) 2.45 1.44 1.06 0.86
Portfolio turnover rate (%) -- 9 47 5 7
(1) Began operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Does not take into consideration expense reductions during the periods
shown.
7
V.A. Large Cap Growth Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund normally invests at least 65% of assets in stocks of
large-capitalization companies (companies in the capitalization range of the
Russell Top 200 Growth Index, which was $0.88 billion to $415.8 billion as of
March 31, 2001).
In choosing individual stocks, the managers use fundamental financial analysis
to identify companies with:
o strong cash flows
o secure market franchises
o sales growth that outpaces their industries
The fund generally invests in a diversified portfolio of U.S. companies. The
fund has tended to emphasize, or overweight, certain sectors such as health
care, technology or consumer goods. These weightings may change in the future.
The management team uses various means to assess the depth and stability of
companies' senior management, including interviews and company visits. The fund
favors companies for which the managers project an above-average growth rate.
The fund may invest in preferred stocks and other types of equities, and may
invest up to 15% of assets in foreign securities. The fund may also make limited
use of certain derivatives (investments whose value is based on indexes,
securities or currencies).
In abnormal market conditions, the fund may temporarily invest extensively in
investment-grade short-term securities. In these and other cases, the fund might
not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
================================================================================
PORTFOLIO MANAGERS
William L. Braman
- -----------------------------------
Executive vice president and chief
investment officer of adviser
Joined fund team in 2000
Joined adviser in 2000
Chief investment officer
at Baring Asset Management
(London 1998-2000)
Head of U.S. equity team at
Baring Asset Management
(Boston 1989-1998)
Began business career in 1977
Robert J. Uek, CFA
- -----------------------------------
Vice president of adviser
Joined fund team in 2000
Joined adviser in 1997
Corporate finance manager
at Ernst & Young (1994-1997)
Began business career in 1990
Paul J. Berlinguet
- -----------------------------------
Vice president of adviser
Joined fund team in 2001
Joined adviser in 2001
U.S. equity investment manager
at Baring America Asset
Management (1989-2001)
Began business career in 1986
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with broad-based market
indexes for reference). This information may help provide an indication of the
fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1997 1998 1999 2000
14.27% 24.60% 20.71% -31.30%
2001 total return as of March 31: -31.74%
Best quarter: Q3 '97, 22.53% Worst quarter: Q1 '97, -15.55%
- --------------------------------------------------------------------------------
Average annual total returns-- for periods ending 12/31/00
- --------------------------------------------------------------------------------
Fund Index 1 Index 2
1 year -31.30% -9.10% -24.53%
Life of fund - began 8/29/96 2.41% 19.18% 19.57%
Index 1: Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
Index 2: Russell Top 200 Growth Index, an unmanaged index containing
growth-oriented stocks from the Russell Top 200 Index.
In the future, the adviser will compare the fund's performance only to the
Russell Top 200 Growth Index since it more closely represents the fund's
investment strategy.
8
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements.
The fund's management strategy has a significant influence on fund performance.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform investments that focus on smallor medium-
capitalization stocks. Similarly, growth stocks could underperform value stocks.
To the extent the fund invests in a given industry, its performance will be hurt
if that industry performs poorly. In addition, if the managers' security
selection strategies do not perform as expected, the fund could underperform its
peers or lose money.
To the extent that the fund makes investments with additional risks, these risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
================================================================================
FINANCIAL HIGHLIGHTS
[Clip Art] This table details the performance of the fund's shares, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Figures audited by Ernst & Young LLP.
- --------------------------------------------------------------------------------------------------------------------------------
Period ended: 12/96(1) 12/97 12/98 12/99 12/00
- --------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $9.39 $10.73 $13.37 $15.77
Net investment income (loss)(2) (0.01) (0.04) (0.00)(3) (0.04) (0.08)
Net realized and unrealized gain (loss) on investments (0.60) 1.38 2.64 2.80 (4.85)
Total from investment operations (0.61) 1.34 2.64 2.76 (4.93)
Less distributions:
Distributions from net realized gain on investments sold -- -- -- (0.36) (0.57)
Net asset value, end of period $9.39 $10.73 $13.37 $15.77 $10.27
Total investment return(4) (%) (6.10)(5,6) 14.27(6) 24.60(6) 20.71(6) (31.30)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 994 3,733 10,372 21,872 12,304
Ratio of expenses to average net assets (%) 1.00(7) 1.00 1.00 1.00 0.96
Ratio of adjusted expenses to average net assets(8) (%) 4.76(7) 2.37 1.33 1.02 --
Ratio of net investment income (loss) to average net assets (%) (0.23)(7) (0.39) (0.00) (0.25) (0.59)
Portfolio turnover rate (%) 68 136 176 172 170
(1) Began operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) Not annualized.
(6) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(7) Annualized.
(8) Does not take into consideration expense reductions during the periods
shown.
9
V.A. Mid Cap Growth Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund normally invests at least 80% of assets in stocks of medium-
capitalization companies (companies in the capitalization range of the Russell
Midcap Growth Index, which was $0.02 billion to $19.37 billion as of March 31,
2001).
The manager conducts fundamental financial analysis to identify companies with
above-average earnings growth.
In choosing individual securities, the manager looks for companies with growth
stemming from a combination of gains in market share and increasing operating
efficiency. Before investing, the manager identifies a specific catalyst for
growth, such as a new product, business reorganization or merger.
The management team generally maintains personal contact with the senior
management of the companies the fund invests in.
The manager considers broad economic trends, demographic factors, technological
changes, consolidation trends and legislative initiatives.
The fund generally invests in more than 100 companies. The fund may not invest
more than 5% of assets in any one security.
The fund may invest up to 10% of assets in foreign securities. The fund may also
make limited use of certain derivatives (investments whose value is based on
indexes or currencies).
In abnormal conditions, the fund may temporarily invest in U.S. government
securities with maturities of up to three years and more than 10% of assets in
cash or cash equivalents. In these and other cases, the fund might not achieve
its goal.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
================================================================================
PORTFOLIO MANAGERS
Barbara C. Friedman, CFA
- ---------------------------------
Senior vice president of adviser
Joined fund team in 1998
Joined adviser in 1998
Head of mid-cap equity group
at Fleet Investment Advisors
(1996-1997)
Began business career in 1973
Timothy N. Manning
- ---------------------------------
Joined fund team in 2000
Joined adviser in 2000
Analyst at State Street Research
(1999-2000)
Equity research associate at
State Street Research (1996-1999)
Began business career in 1993
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with broad-based market
indexes for reference). This information may help provide an indication of the
fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1998 1999 2000
10.35% 56.18% -11.73%
2001 total return as of March 31: -30.42%
Best quarter: Q4 '99, 41.78% Worst quarter: Q3 '98, -19.74%
- --------------------------------------------------------------------------------
Average annual total returns-- for periods ending 12/31/00
- --------------------------------------------------------------------------------
Fund Index 1 Index 2
1 year -11.73% -9.10% -11.75%
Life of fund - began 1/7/98 15.12% 12.58% 17.28%
Index 1: Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
Index 2: Russell Midcap Growth Index, an unmanaged index containing those stocks
from the Russell Midcap Index with a greater-than-average growth orientation.
10
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements.
The fund's management strategy has a significant influence on fund performance.
Medium-capitalization stocks tend to be more volatile than stocks of larger
companies, and as a group could fall out of favor with the market, causing the
fund to underperform investments that focus either on smallor
large-capitalization stocks. Similarly, growth stocks could underperform value
stocks. To the extent the fund invests in a given industry, its performance will
be hurt if that industry performs poorly. In addition, if the managers' security
selection strategies do not perform as expected, the fund could underperform its
peers or lose money.
To the extent that the fund makes investments with additional risks, these risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
================================================================================
FINANCIAL HIGHLIGHTS
[Clip Art] This table details the performance of the fund's shares, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Figures audited by Ernst & Young LLP.
- -------------------------------------------------------------------------------------------------
Period ended: 12/98(1) 12/99 12/00
- -------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $11.03 $17.21
Net investment income (loss)(2) 0.01 (0.03) (0.08)
Net realized and unrealized gain (loss) on investments 1.03 6.23 (1.94)
Total from investment operations 1.04 6.20 (2.02)
Less distributions:
Dividends from net investment income (0.01) -- --
Distributions from net realized gain on investments sold -- (0.02) (0.10)
Tax return of capital --(3) -- --
Total distributions (0.01) (0.02) (0.10)
Net asset value, end of period $11.03 $17.21 $15.09
Total investment return(4,5) (%) 10.35(6) 56.18 (11.73)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,779 6,363 11,482
Ratio of expenses to average net assets (%) 1.00(7) 1.00 1.00
Ratio of adjusted expenses to average net assets(8) (%) 4.23(7) 2.36 1.10
Ratio of net investment income (loss) to average net assets (%) 0.06(7) (0.23) (0.42)
Portfolio turnover rate (%) 103 136 155
(1) Began operations on January 7, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(6) Not annualized.
(7) Annualized.
(8) Does not take into consideration expense reductions during the periods
shown.
11
V.A. Relative Value Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks the highest total return (capital appreciation plus
current income) that is consistent with reasonable safety of capital. To pursue
this goal, the fund invests in a diversified portfolio of stocks, bonds and
money market securities. Although the fund may concentrate in any of these asset
classes, under normal circumstances it invests primarily in stocks.
In managing the portfolio, the managers emphasize a value- oriented approach to
individual stock selection. With the aid of proprietary financial models, the
management team looks for companies that are selling at what appear to be
substantial discounts to their long-term intrinsic and "franchise" values. These
companies often have identifiable catalysts for growth, such as new products,
business reorganizations or mergers.
The fund manages risk by typically holding between 50 and 150 large companies
that are diversified across industry sectors. The management team also uses
fundamental financial analysis to identify individual companies with substantial
cash flows, reliable revenue streams, superior competitive positions and strong
management.
The fund may attempt to take advantage of short-term market volatility by
investing in corporate restructurings or pending acquisitions.
In selecting bonds of any maturity, the manager looks for the most favorable
risk/return ratios. The fund may invest up to 15% of net assets in junk bonds
rated as low as CC/Ca and their unrated equivalents.
The fund may invest up to 25% of assets in foreign securities (35% during
adverse U.S. market conditions). The fund may also make limited use of certain
derivatives (investments whose value is based on indexes, securities or
currencies).
In abnormal market conditions, the fund may temporarily invest extensively in
investment-grade short-term securities. In these and other cases, the fund might
not achieve its goal.
================================================================================
PORTFOLIO MANAGERS
Timothy E. Quinlisk, CFA
- ---------------------------------
Senior vice president of adviser
Joined fund team in 1998
Joined adviser in 1998
Analyst at Hagler, Mastrouita
& Hewitt (1997-1998)
Analyst at State Street Global
Advisors (1995-1997)
Began business career in 1985
James S. Yu, CFA
- ---------------------------------
Vice president of adviser
Joined fund team in 2000
Joined adviser in 2000
Analyst at Merrill Lynch Asset
Management (1998-2000)
Analyst at Gabelli & Company
(1995-1998)
Began business career in 1990
R. Scott Mayo, CFA
- ---------------------------------
Second vice president of adviser
Joined fund team in 2000
Joined adviser in 1998
Analyst at Morgan Stanley
(1998)
Analyst at Grantham, Mayo &
Van Otterloo (1993-1996)
Began business career in 1993
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1998 1999 2000
21.39% 56.65% -4.80%
2001 total return as of March 31: -9.92%
Best quarter: Q4 `99, 43.25% Worst quarter: Q3 `98, -16.61%
- --------------------------------------------------------------------------------
Average annual total returns-- for periods ending 12/31/00
- --------------------------------------------------------------------------------
Fund Index
1 year -4.80% -9.10%
Life of fund - began 1/6/98 22.01% 12.47%
Index: Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
12
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock and
bond market movements. The fund's management strategy has a significant
influence on fund performance. Large-capitalization stocks as a group could fall
out of favor with the market, causing the fund to underperform investments that
focus on smallor medium-capitalization stocks. Similarly, value stocks could
underperform growth stocks. In addition, if the managers' securities selection
strategies do not perform as expected, the fund could underperform its peers or
lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise and longer
maturity will increase volatility. Junk bond prices can fall on bad news
about the economy, an industry or a company.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
================================================================================
FINANCIAL HIGHLIGHTS
[Clip Art] This table details the performance of the fund's shares, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Figures audited by Ernst & Young LLP.
- ------------------------------------------------------------------------------------------------------
Period ended: 12/98(1) 12/99 12/00
- ------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $12.03 $18.03
Net investment income (loss)(2) 0.11 0.10 0.02
Net realized and unrealized gain (loss) on investments 2.02 6.65 (0.80)
Total from investment operations 2.13 6.75 (0.78)
Less distributions:
Dividends from net investment income (0.10) (0.10) (0.02)
Distributions from net realized gain on investments sold -- (0.65) (6.59)
Total distributions (0.10) (0.75) (6.61)
Net asset value, end of period $12.03 $18.03 $10.64
Total investment return(3) (%) 21.39(4,5) 56.65 (4.80)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 17,368 38,766 39,043
Ratio of expenses to average net assets (%) 0.85(6) 0.77 0.79
Ratio of adjusted expenses to average net assets(7) (%) 1.03(6) -- --
Ratio of net investment income (loss) to average net assets (%) 1.17(6) 0.66 0.13
Portfolio turnover rate (%) 242 166 164
(1) Began operations on January 6, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) Not annualized.
(5) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(6) Annualized.
(7) Does not take into consideration expense reductions during the periods
shown.
13
V.A. Small Cap Growth Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund normally invests at least 80% of assets in stocks of
small-capitalization companies (companies in the capitalization range of the
Russell 2000 Growth Index, which was $10 million to $4.20 billion as of March
31, 2001).
The managers look for companies in the emerging growth phase of development that
are not yet widely recognized. The fund also may invest in established companies
that, because of new management, products or opportunities, offer the
possibility of accelerating earnings.
To manage risk, the fund typically invests in 150 to 220 companies across many
industries, and does not invest more than 5% of assets in any one security.
In choosing individual securities, the managers use fundamental financial
analysis to identify rapidly growing companies. The managers favor companies
that dominate their market niches or are poised to become market leaders. They
look for strong senior management teams and coherent business strategies. They
generally maintain personal contact with the senior management of the companies
the fund invests in.
The fund may invest in preferred stocks and other types of equities, and may
invest up to 10% of assets in foreign securities. The fund may also make limited
use of certain derivatives (investments whose value is based on indexes or
currencies).
In abnormal conditions, the fund may temporarily invest in U.S. government
securities with maturities of up to three years and more than 10% of assets in
cash and cash equivalents. In these and other cases, the fund might not achieve
its goal.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
================================================================================
PORTFOLIO MANAGERS
Bernice S. Behar, CFA
- ---------------------------------
Senior vice president of adviser
Joined fund team in 1996
Joined adviser in 1991
Began business career in 1986
Anurag Pandit, CFA
- ---------------------------------
Vice president of adviser
Joined fund team in 1996
Joined adviser in 1996
Equity analyst at Loomis Sayles
(1992-1996)
Began business career in 1984
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with broad-based market
indexes for reference). This information may help provide an indication of the
fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1997 1998 1999 2000
11.06% 15.94% 68.52% -22.33%
2001 total return as of March 31: -21.81%
Best quarter: Q4 `99, 44.55% Worst quarter: Q3 `98, -21.42%
- --------------------------------------------------------------------------------
Average annual total returns-- for periods ending 12/31/00
- --------------------------------------------------------------------------------
Fund Index 1 Index 2
1 year -22.33% -3.02% -22.43%
Life of fund - began 8/29/96 11.02% 10.29% 6.88%
Index 1: Russell 2000 Index, an unmanaged index of 2,000 U.S.
small-capitalization stocks.
Index 2: Russell 2000 Growth Index, an unmanaged index containing those stocks
from the Russell 2000 Index with a greater-than-average growth orientation.
14
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements.
The fund's management strategy has a significant influence on fund performance.
Small-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform investments that focus on mediumor
large-capitalization stocks. Similarly, growth stocks could underperform value
stocks. To the extent the fund invests in a given industry, its performance will
be hurt if that industry performs poorly. In addition, if the managers' security
selection strategies do not perform as expected, the fund could underperform its
peers or lose money.
Stocks of smaller companies are more volatile than stocks of larger companies.
Many smaller companies have short track records, narrow product lines or niche
markets, making them highly vulnerable to isolated business setbacks.
To the extent that the fund makes investments with additional risks, these risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price; this risk could also affect
small-capitalization stocks, especially those with low trading volumes.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
================================================================================
FINANCIAL HIGHLIGHTS
[Clip Art] This table details the performance of the fund's shares, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Figures audited by Ernst & Young LLP.
- ---------------------------------------------------------------------------------------------------------------------------
Period ended: 12/96(1) 12/97 12/98 12/99 12/00
- ---------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $9.32 $10.35 $12.00 $19.76
Net investment income (loss)(2) 0.02 (0.02) (0.06) (0.10) (0.13)
Net realized and unrealized gain (loss) on investments (0.68) 1.05 1.71 8.29 (4.33)
Total from investment operations (0.66) 1.03 1.65 8.19 (4.46)
Less distributions:
Dividends from net investment income (0.02) --(3) -- -- --
Distributions from net realized gain on investments sold -- -- -- (0.43) (0.90)
Total distributions (0.02) -- -- (0.43) (0.90)
Net asset value, end of period $9.32 $10.35 $12.00 $19.76 $14.40
Total investment return(4,5) (%) (6.62)(6) 11.06 15.94 68.52 (22.33)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 975 3,841 8,232 20,867 19,772
Ratio of expenses to average net assets (%) 1.00(7) 1.00 1.00 1.00 1.00
Ratio of adjusted expenses to average net assets(8) (%) 5.19(7) 2.72 1.63 1.38 1.10
Ratio of net investment income (loss) to average net assets (%) 0.62(7) (0.16) (0.59) (0.76) (0.68)
Portfolio turnover rate (%) 31 79 93 120 104
(1) Began operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(6) Not annualized.
(7) Annualized.
(8) Does not take into consideration expense reductions during the periods
shown.
15
V.A. Sovereign Investors Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital and income without
assuming undue market risks. To pursue these goals, the fund normally invests at
least 80% of its stock investments in a diversified portfolio of companies with
market capitalizations within the range of the Standard & Poor's 500 Index. On
March 31, 2001, that range was $0.67 billion to $415.8 billion.
At least 65% of the fund's stock investments are "dividend performers" --
companies whose dividend payments have increased steadily for ten years. The
managers use fundamental financial analysis to identify individual companies
with high-quality income statements, substantial cash reserves and identifiable
catalysts for growth, which may be new products or benefits from industry-wide
growth. The managers generally visit companies to evaluate the strength and
consistency of their management strategy. Finally, the managers look for stocks
that are reasonably priced relative to their earnings and industry.
Historically, companies that meet these criteria have tended to have large or
medium market capitalizations.
The fund may not invest more than 5% of assets in any one security. The fund may
invest in bonds of any maturity, with up to 5% of assets in junk bonds rated as
low as C and their unrated equivalents.
The fund typically invests in U.S. companies but may invest in
dollar-denominated foreign securities. It may also make limited use of certain
derivatives (investments whose value is based on indexes).
Under normal conditions, the fund may not invest more than 10% of assets in cash
or cash equivalents.
In abnormal market conditions, the fund may temporarily invest extensively in
investment-grade short-term securities. In these and other cases, the fund might
not achieve its goal.
================================================================================
PORTFOLIO MANAGERS
John F. Snyder III
- ------------------------------------
Executive vice president of adviser
Joined fund team in 1996
Joined adviser in 1991
Began business career in 1971
Barry H. Evans, CFA
- ------------------------------------
Senior vice president of adviser
Joined fund team in 1996
Joined adviser in 1986
Began business career in 1986
Peter M. Schofield, CFA
- ------------------------------------
Vice president of adviser
Joined fund team in 1996
Joined adviser in 1996
Portfolio manager at Geewax,
Terker & Co. (1984-1996)
Began business career in 1984
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1997 1998 1999 2000
28.43% 16.87% 3.84% -0.33%
2001 total return as of March 31: -9.03%
Best quarter: Q4 `98, 15.75% Worst quarter: Q3 `99, -7.43%
- --------------------------------------------------------------------------------
Average annual total returns-- for periods ending 12/31/00
- --------------------------------------------------------------------------------
Fund Index
1 year -0.33% -9.10%
Life of fund - began 8/29/96 12.73% 19.18%
Index: Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
16
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock and
bond market movements.
The fund's management strategy will influence performance significantly. Large
or medium-capitalization stocks as a group could fall out of favor with the
market, causing the fund to underperform funds that focus on
small-capitalization stocks. Medium-capitalization stocks tend to be more
volatile than stocks of larger companies. In addition, if the managers'
securities selection strategies do not perform as expected, the fund could
underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise and longer
maturity will increase volatility. Junk bond prices can fall on bad news
about the economy, an industry or a company.
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including inadequate or
inaccurate financial information and social or political instability.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
================================================================================
FINANCIAL HIGHLIGHTS
[Clip Art] This table details the performance of the fund's shares, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Figures audited by Ernst & Young LLP.
- ---------------------------------------------------------------------------------------------------------------------------
Period ended: 12/96(1) 12/97 12/98 12/99 12/00
- ---------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $10.74 $13.59 $15.61 $15.96
Net investment income (loss)(2) 0.07 0.22 0.27 0.24 0.21
Net realized and unrealized gain (loss) on investments 0.76 2.82 2.00 0.35 (0.27)
Total from investment operations 0.83 3.04 2.27 0.59 (0.06)
Less distributions:
Dividends from net investment income (0.07) (0.18) (0.25) (0.24) (0.21)
Distributions in excess of net investment income -- -- -- --(3) --
Distributions from net realized gain on investments sold (0.02) (0.01) -- -- --
Tax return of capital -- -- -- --(3) --
Total distributions (0.09) (0.19) (0.25) (0.24) (0.21)
Net asset value, end of period $10.74 $13.59 $15.61 $15.96 $15.69
Total investment return(4) (%) 8.30(5,6) 28.43(6) 16.88 3.84 (0.33)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,111 12,187 34,170 50,254 55,328
Ratio of expenses to average net assets (%) 0.85(7) 0.85 0.74 0.70 0.72
Ratio of adjusted expenses to average net assets(8) (%) 3.78(7) 1.16 -- -- --
Ratio of net investment income (loss) to average net assets (%) 1.90(7) 1.81 1.88 1.57 1.37
Portfolio turnover rate (%) 17 11 19 26 46
(1) Began operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) Not annualized.
(6) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(7) Annualized.
(8) Does not take into consideration expense reductions during the periods
shown.
17
V.A. International Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital. To pursue this goal, the
fund normally invests at least 80% of assets in stocks of foreign companies. The
fund may invest up to 30% of assets in emerging markets as classified by Morgan
Stanley Capital International (MSCI). The fund does not maintain a fixed
allocation of assets, either with respect to securities type or geography.
In managing the portfolio, the managers focus on a "bottom-up" analysis on the
financial conditions and competitiveness of individual foreign companies. In
analyzing specific companies for possible investment, the managers ordinarily
look for several of the following characteristics that will enable the companies
to compete successfully in their respective markets:
o above-average per share earnings growth
o high return on invested capital
o a healthy balance sheet
o sound financial and accounting policies and overall financial strength
o strong competitive advantages
o effective research, product development and marketing.
The managers consider whether to sell a particular security when any of those
factors materially changes. The managers allocate the fund's assets among
securities of countries that are expected to provide the best opportunities for
meeting the fund's investment objective. To manage risk, the fund does not
invest more than 5% of assets in any one security.
The fund may use certain derivatives (investments whose value is based on
indexes, securities or currencies).
In abnormal conditions, the fund may temporarily invest more than 20% of assets
in investment-grade short-term securities. In these and other cases, the fund
might not achieve its goal.
================================================================================
SUBADVISER
Nicholas-Applegate
Capital Management
- ----------------------------------
U.S.-based team responsible for
day-to-day investment manage-
ment since December 2000
Founded in 1984
Supervised by the adviser
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1997 1998 1999 2000
-0.54% 16.76% 31.55% -25.17%
2001 total return as of March 31: -19.07%
Best quarter: Q4 `99, 25.38% Worst quarter: Q3 `98, -17.11%
- --------------------------------------------------------------------------------
Average annual total returns-- for periods ending 12/31/00
- --------------------------------------------------------------------------------
Fund Index
1 year -25.17% -16.34%
Life of fund - began 8/29/96 6.02% 5.25%
Index: MSCI All Country World Ex-U.S. Free Index, an unmanaged index of freely
traded stocks of foreign companies.
18
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements.
Foreign investments are more risky than domestic investments. Investments in
foreign securities may be affected by fluctuations in currency exchange rates,
incomplete or inaccurate financial information on companies, social instability
and political actions ranging from tax code changes to governmental collapse.
These risks are more significant in emerging markets.
The fund's management strategy has a significant influence on fund performance.
If the fund invests in countries or regions that experience economic downturns,
performance could suffer. In addition, if certain investments or industries do
not perform as expected, or if the managers' security selection strategies do
not perform as expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o In a down market, emerging market securities, other higher-risk securities
and derivatives could become harder to value or to sell at a fair price.
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
================================================================================
FINANCIAL HIGHLIGHTS
[Clip Art] This table details the performance of the fund's shares, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Figures audited by Ernst & Young LLP.
- ---------------------------------------------------------------------------------------------------------------------------
Period ended: 12/96(1) 12/97 12/98 12/99 12/00
- ---------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $11.23 $10.50 $12.18 $15.45
Net investment income (loss)(2) 0.07 0.05 0.07 0.07 0.03
Net realized and unrealized gain (loss) on investments 1.20 (0.13) 1.69 3.75 (3.93)
Total from investment operations 1.27 (0.08) 1.76 3.82 (3.90)
Less distributions:
Dividends from net investment income (0.04) (0.01) (0.07) (0.08) (0.17)
Dividends in excess of net investment income -- -- (0.01) (0.02) --
Distributions from net realized gain on investments sold -- (0.64) -- (0.45) (0.37)
Total distributions (0.04) (0.65) (0.08) (0.55) (0.54)
Net asset value, end of period $11.23 $10.50 $12.18 $15.45 $11.01
Total investment return(3,4) (%) 12.75(5) (0.54) 16.75 31.55 (25.17)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 2,267 3,792 7,201 9,375 7,330
Ratio of expenses to average net assets (%) 1.15(6) 1.15 1.15 1.15 1.15
Ratio of adjusted expenses to average net assets(7) (%) 3.13(6) 2.04 3.13 2.51 3.24
Ratio of net investment income (loss) to average net assets (%) 2.03(6) 0.43 0.59 0.52 0.19
Portfolio turnover rate (%) 14 273 89 116 177
(1) Began operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Does not take into consideration expense reductions during the periods
shown.
19
V.A. Financial Industries Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks capital appreciation. To pursue this goal, the fund
normally invests at least 65% of assets in stocks of U.S. and foreign financial
services companies of any size. These companies include banks, thrifts, finance
companies, brokerage and advisory firms, real estate-related firms, insurance
companies and financial holding companies.
In managing the portfolio, the managers focus primarily on stock selection
rather than industry allocation.
In choosing individual stocks, the managers use fundamental financial analysis
to identify securities that appear comparatively undervalued. Given the
industry-wide trend toward consolidation, the managers also invest in companies
that appear to be positioned for a merger. The managers generally gather
firsthand information about companies from interviews and company visits.
The fund may invest in U.S. and foreign bonds, including up to 5% of net assets
in junk bonds (those rated below BBB/Baa and their unrated equivalents). It may
also invest up to 15% of net assets in investment-grade short-term securities.
The fund may make limited use of certain derivatives (investments whose value is
based on indexes, securities or currencies).
In abnormal market conditions, the fund may temporarily invest up to 80% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
================================================================================
PORTFOLIO MANAGERS
James K. Schmidt, CFA
- ------------------------------------
Executive vice president of adviser
Joined fund team in 1997
Joined adviser in 1985
Began business career in 1979
Thomas M. Finucane
- ------------------------------------
Vice president of adviser
Joined fund team in 1997
Joined adviser in 1990
Began business career in 1983
Thomas C. Goggins
- ------------------------------------
Senior vice president of adviser
Joined fund team in 1998
Joined adviser in 1995
Began business career in 1981
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1998 1999 2000
8.57% 1.23% 27.16%
2001 total return as of March 31: -13.63%
Best quarter: Q4 `98, 16.08% Worst quarter: Q3 `98, -16.76%
- --------------------------------------------------------------------------------
Average annual total returns-- for periods ending 12/31/00
- --------------------------------------------------------------------------------
Fund Index
1 year 27.16% -9.10%
Life of fund - began 4/30/97 18.90% 16.17%
Index: Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
20
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements. The fund's management strategy has a significant influence on
fund performance. Because the fund focuses on a single sector of the economy,
its performance depends in large part on the performance of that sector. As a
result, the value of your investment may fluctuate more widely than it would in
a fund that is diversified across sectors. For instance, when interest rates
fall or economic conditions deteriorate, the stocks of banks and financial
services companies could suffer losses. Also, rising interest rates can reduce
profits by narrowing the difference between these companies' borrowing and
lending rates.
Stocks of financial services companies as a group could fall out of favor with
the market, causing the fund to underperform funds that focus on other types of
stocks. In addition, if the managers' stock selection strategy does not perform
as expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise. This risk is
greater for longer maturity bonds. Junk bond prices can fall on bad news
about the economy, an industry or a company.
================================================================================
FINANCIAL HIGHLIGHTS
[Clip Art] This table details the performance of the fund's shares, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Figures audited by Ernst & Young LLP.
- ---------------------------------------------------------------------------------------------------------------
Period ended: 12/97(1) 12/98 12/99 12/00
- ---------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $13.44 $14.45 $14.46
Net investment income (loss)(2) 0.11 0.18 0.11 0.06
Net realized and unrealized gain (loss) on investments 3.39 0.97 0.06 3.87
Total from investment operations 3.50 1.15 0.17 3.93
Less distributions:
Dividends from net investment income (0.05) (0.14) (0.10) (0.05)
Distributions from net realized gain on investments sold (0.01) --(3) (0.05) --
Tax return of capital -- -- (0.01) --
Total distributions (0.06) (0.14) (0.16) (0.05)
Net asset value, end of period $13.44 $14.45 $14.46 $18.34
Total investment return(4) (%) 35.05(5,6) 8.55 1.23 27.16
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 18,465 54,569 49,312 71,367
Ratio of expenses to average net assets (%) 1.05(7) 0.92 0.90 0.90
Ratio of adjusted expenses to average net assets(8) (%) 1.39(7) -- -- --
Ratio of net investment income (loss) to average net assets (%) 1.32(7) 1.25 0.77 0.36
Portfolio turnover rate (%) 11 38 72 41
(1) Began operations on April 30, 1997.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) Not annualized.
(6) The total return would have been lower had certain expenses not been
reduced during the period shown.
(7) Annualized.
(8) Does not take into consideration expense reductions during the period
shown.
21
V.A. Regional Bank Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long- term capital appreciation. To pursue this goal,
the fund normally invests at least 65% of assets in stocks of regional banks and
lending companies, including commercial and industrial banks, savings and loan
associations and bank holding companies. Typically, these companies provide
full-service banking, have primarily domestic assets and are based outside of
money centers such as New York City and Chicago.
In managing the portfolio, the managers focus primarily on stock selection.
In choosing individual stocks, the managers use fundamental financial analysis
to identify securities that appear comparatively undervalued. The managers look
for low price/ earnings (P/E) ratios, high-quality assets and sound loan review
processes. Given the industry-wide trend toward consolidation, the managers also
invest in companies that appear to be positioned for a merger. The fund's
portfolio may be concentrated in geographic regions where consolidation activity
is high. The managers generally gather firsthand information about companies
from interviews and company visits.
The fund may also invest in other U.S. and foreign financial services companies,
such as lending companies and money center banks. The fund may invest up to 5%
of net assets in stocks of companies outside the financial services sector and
up to 5% of net assets in junk bonds (those rated below BBB/Baa and their
unrated equivalents).
The fund may make limited use of certain derivatives (investments whose value is
based on indexes, securities or currencies).
In abnormal market conditions, the fund may temporarily invest up to 80% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
================================================================================
PORTFOLIO MANAGERS
James K. Schmidt, CFA
- ------------------------------------
Executive vice president of adviser
Joined fund team in 1998
Joined adviser in 1985
Began business career in 1979
Thomas M. Finucane
- ------------------------------------
Vice president of adviser
Joined fund team in 1998
Joined adviser in 1990
Began business career in 1983
Thomas C. Goggins
- ------------------------------------
Senior vice president of adviser
Joined fund team in 1998
Joined adviser in 1995
Began business career in 1981
PAST PERFORMANCE
[Clip Art] The graph shows the fund's total return has varied from year to year,
while the table shows performance over time (along with a broad-based market
index for reference). This information may help provide an indication of the
fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Total return -- calendar year
- --------------------------------------------------------------------------------
1999 2000
-4.86% 17.91%
2001 total return as of March 31: -1.59%
Best quarter: Q4 `98, 16.10% Worst quarter: Q3 `98, -15.94%
- --------------------------------------------------------------------------------
Average annual total returns-- for periods ending 12/31/00
- --------------------------------------------------------------------------------
Fund Index
1 year 17.91% -9.10%
Life of fund - began 5/1/98 1.83% 7.70%
Index: Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
22
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements. The fund's management strategy has a significant influence on
fund performance. Because the fund focuses on a single sector of the economy,
its performance depends in large part on the performance of that sector. For
instance, when interest rates fall or economic conditions deteriorate, regional
bank stocks could suffer losses. Also, rising interest rates can reduce profits
by narrowing the difference between these companies' borrowing and lending
rates.
A decline in a region's economy could hurt the banks in that region. Regional
bank stocks as a group could fall out of favor with the market, causing the fund
to underperform funds that focus on other types of stocks. In addition, if the
managers' security selection strategies do not perform as expected, the fund
could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise. This risk is
greater for longer maturity bonds. Junk bond prices can fall on bad news
about the economy, an industry or a company.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
================================================================================
FINANCIAL HIGHLIGHTS
[Clip Art] This table details the performance of the fund's shares, including
total return information showing how much an investment in the fund has
increased or decreased during the year.
Figures audited by Ernst & Young LLP.
- -----------------------------------------------------------------------------------------------------
Period ended: 12/98(1) 12/99 12/00
- -----------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $9.28 $8.56
Net investment income (loss)(2) 0.09 0.12 0.16
Net realized and unrealized gain (loss) on investments (0.74) (0.57) 1.34
Total from investment operations (0.65) (0.45) 1.50
Less distributions:
Dividends from net investment income (0.07) (0.12) (0.17)
Distributions from net realized gain on investments sold --(3) (0.15) --
Total distributions (0.07) (0.27) (0.17)
Net asset value, end of period $9.28 $8.56 $9.89
Total investment return(4) (%) (6.43)(5,6) (4.86) 17.91
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 20,256 20,295 13,733
Ratio of expenses to average net assets (%) 1.05(7) 1.00 1.01
Ratio of adjusted expenses to average net assets(8) (%) 1.14(7) -- --
Ratio of net investment income (loss) to average net assets (%) 1.39(7) 1.30 1.92
Portfolio turnover rate (%) 28 49 32
(1) Began operations on May 1, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) Not annualized.
(6) The total return would have been lower had certain expenses not been
reduced during the period shown.
(7) Annualized.
(8) Does not take into consideration expense reductions during the period
shown.
23
V.A. Bond Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks to generate a high level of current income consistent
with prudent investment risk. In pursuing this goal, the fund normally invests
at least 65% of assets in a diversified portfolio of debt securities. These
include corporate bonds and debentures as well as U.S. government and agency
securities. Most of these securities are investment grade, although the fund may
invest up to 25% of assets in junk bonds rated as low as CC/Ca and their unrated
equivalents. There is no limit on the fund's average maturity.
In managing the fund's portfolio, the managers concentrate on sector allocation,
industry allocation and securities selection: deciding which types of bonds and
industries to emphasize at a given time, and then which individual bonds to buy.
When making sector and industry allocations, the managers try to anticipate
shifts in the business cycle, using top-down analysis to determine which sectors
and industries may benefit over the next 12 months.
In choosing individual securities, the managers use bottom-up research to find
securities that appear comparatively undervalued. The managers look at bonds of
all different quality levels and maturities from many different issuers,
potentially including foreign governments and corporations.
The fund intends to keep its exposure to interest rate movements generally in
line with those of its peers. The fund may invest in mortgage-related securities
and certain other derivatives (investments whose value is based on indexes,
securities or currencies).
Under normal conditions, the fund may not invest more than 10% of assets in cash
or cash equivalents.
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
================================================================================
PORTFOLIO MANAGERS
James K. Ho, CFA
- ------------------------------------
Executive vice president of adviser
Joined fund team in 1996
Joined adviser in 1985
Began business career in 1977
Benjamin A. Matthews
- ------------------------------------
Vice president of adviser
Joined fund team in 1998
Joined adviser in 1995
Began business career in 1970
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1997 1998 1999 2000
9.31% 9.41% -0.51% 11.89%
2001 total return as of March 31: 2.85%
Best quarter: Q3 `98, 4.76% Worst quarter: Q1 `97, -0.96%
- --------------------------------------------------------------------------------
Average annual total returns-- for periods ending 12/31/00
- --------------------------------------------------------------------------------
Fund Index
1 year 11.89% 9.39%
Life of fund - began 8/29/96 7.88% 7.28%
Index: Lehman Brothers Credit Bond Index, an unmanaged index of corporate bonds
and Yankee bonds.
24
MAIN RISKS
[Clip Art] The major factors in this fund's performance are interest rates and
credit risk. When interest rates rise, bond prices generally fall. Generally, an
increase in the fund's average maturity will make it more sensitive to interest
rate risk.
The fund could lose money if any bonds it owns are downgraded in credit rating
or go into default. In general, lower-rated bonds have higher credit risks. If
certain sectors or investments do not perform as the fund expects, it could
underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Junk bonds and foreign securities may make the fund more sensitive to
market or economic shifts in the U.S. and abroad.
o If interest rate movements cause the fund's mortgage-related and callable
securities to be paid off substantially earlier or later than expected,
the fund's share price or yield could be hurt.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
Any U.S. government guarantees on portfolio securities do not apply to these
securities' market value or current yield, or to fund shares.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
================================================================================
FINANCIAL HIGHLIGHTS
[Clip Art] This table details the performance of the fund's shares, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Figures audited by Ernst & Young LLP.
- --------------------------------------------------------------------------------------------------------------------------
Period ended: 12/96(1) 12/97 12/98 12/99 12/00
- --------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $10.19 $10.36 $10.51 $9.81
Net investment income (loss)(2) 0.23 0.68 0.63 0.64 0.64
Net realized and unrealized gain (loss) on investments 0.21 0.24 0.32 (0.70) 0.50
Total from investment operations 0.44 0.92 0.95 (0.06) 1.12
Less distributions:
Dividends from net investment income (0.23) (0.68) (0.63) (0.64) (0.64)
Distributions from net realized gain on investments sold (0.02) (0.07) (0.17) -- --
Total distributions (0.25) (0.75) (0.80) (0.64) (0.64)
Net asset value, end of period $10.19 $10.36 $10.51 $9.81 $10.29
Total investment return(3,4) (%) 4.42(5) 9.30 9.41 (0.51) 11.89
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,056 3,682 10,669 12,531 25,173
Ratio of expenses to average net assets (%) 0.75(6) 0.75 0.75 0.75 0.75
Ratio of adjusted expenses to average net assets(7) (%) 4.15(6) 2.53 1.34 1.01 0.92
Ratio of net investment income (loss) to average net assets (%) 6.69(6) 6.57 5.93 6.39 6.47
Portfolio turnover rate (%) 45 193 367 307 298
(1) Began operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Does not take into consideration expense reductions during the periods
shown.
25
V.A. High Yield Bond Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks to maximize current income without assuming undue
risk. Capital appreciation is a secondary goal. In pursuing these goals, the
fund normally invests at least 65% of assets in U.S. and foreign bonds rated
BBB/Baa or lower and their unrated equivalents. The fund may invest up to 30% of
assets in junk bonds rated CC/Ca and their unrated equivalents. There is no
limit on the fund's average maturity.
In managing the fund's portfolio, the managers concentrate on industry
allocation and securities selection: deciding which types of industries to
emphasize at a given time, and then which individual bonds to buy. The managers
use top-down analysis to determine which industries may benefit from current and
future changes in the economy.
In choosing individual securities, the managers use bottom-up research to find
securities that appear comparatively undervalued. The managers look at the
financial condition of the issuers as well as the collateralization and other
features of the securities themselves.
The managers also look at companies' financing cycles to determine which types
of securities (for example, bonds, preferred stocks or common stocks) to favor.
The fund typically invests in a broad range of industries, although it may
invest up to 40% of assets in electric utilities and telecommunications
companies.
The fund may use certain higher-risk investments, including derivatives
(investments whose value is based on indexes, securities or currencies) and
restricted or illiquid securities. In addition, the fund may invest up to 20% of
net assets in U.S. and foreign stocks.
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
================================================================================
PORTFOLIO MANAGERS
Arthur N. Calavritinos, CFA
- --------------------------------
Vice president of adviser
Joined fund team in 1998
Joined adviser in 1988
Began business career in 1986
Frederick L. Cavanaugh, Jr.
- --------------------------------
Senior vice president of adviser
Joined fund team in 1998
Joined adviser in 1986
Began business career in 1975
Janet L. Clay, CFA
- --------------------------------
Vice president of adviser
Joined fund team in 1998
Joined adviser in 1995
Began business career in 1990
Daniel S. Janis
- --------------------------------
Second vice president of adviser
Joined fund team in 1999
Joined adviser in 1999
Senior risk manager at
BankBoston (1997-1998)
Manager of forward desk at
Morgan Stanley (1991-1997)
Began business career in 1984
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1998 1999 2000
-9.81% 13.12% -6.08%
2001 total return as of March 31: 1.15%
Best quarter: Q2 `99, 4.51% Worst quarter: Q3 `98, -14.84%
- --------------------------------------------------------------------------------
Average annual total returns-- for periods ending 12/31/00
- --------------------------------------------------------------------------------
Fund Index
1 year -6.08% -5.86%
Life of fund - began 1/6/98 -1.41% -1.81%*
Index: Lehman Brothers U.S. Corporate High Yield Bond Index, an unmanaged index
of high-yield bonds.
*As of December 31, 1997.
26
MAIN RISKS
[Clip Art] The major factors in the fund's performance are interest rates and
credit risk. When interest rates rise, bond prices generally fall. Generally, an
increase in the fund's average maturity will make it more sensitive to interest
rate risk.
Credit risk depends largely on the perceived financial health of bond issuers.
In general, lower-rated bonds have higher credit risks. Junk bond prices can
fall on bad news about the economy, an industry or a company. Share price, yield
and total return may fluctuate more than with less aggressive bond funds.
The fund could lose money if any bonds it owns are downgraded in credit rating
or go into default. If certain industries or investments do not perform as the
fund expects, it could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
o If interest rate movements cause the fund's callable securities to be paid
off substantially earlier or later than expected, the fund's share price
or yield could be hurt.
o If the fund concentrates its investments in telecommunications or electric
utilities, its performance could be tied more closely to those industries
than to the market as a whole.
o Stock investments may go down in value due to stock market movements or
negative company or industry events.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
================================================================================
FINANCIAL HIGHLIGHTS
[Clip Art] This table details the performance of the fund's shares, including
total return information showing how much an investment in the fund has
increased or decreased during the year.
Figures audited by Ernst & Young LLP.
- -------------------------------------------------------------------------------------------------
Period ended: 12/98(1) 12/99 12/00
- -------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $8.22 $8.31
Net investment income (loss)(2) 0.90 0.88 0.94
Net realized and unrealized gain (loss) on investments (1.82) 0.16 (1.40)
Total from investment operations (0.92) 1.04 (0.46)
Less distributions:
Dividends from net investment income (0.84) (0.88) (0.94)
Distributions from net realized gain on investments sold -- (0.07) (0.23)
Tax return of capital (0.02) -- --
Total distributions (0.86) (0.95) (1.17)
Net asset value, end of period $8.22 $8.31 $6.68
Total investment return(3,4) (%) (9.80)(5) 13.12 (6.08)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 8,120 9,287 7,219
Ratio of expenses to average net assets (%) 0.85(6) 0.85 0.85
Ratio of adjusted expenses to average net assets(7) (%) 1.15(6) 1.03 1.24
Ratio of net investment income (loss) to average net assets (%) 9.85(6) 10.56 12.12
Portfolio turnover rate (%) 102 122 56
(1) Began operations on January 6, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) The total returns would have been lower had certain expenses not been
reduced during the period shown.
(5) Not annualized.
(6) Annualized.
(7) Does not take into consideration expense reductions during the periods
shown.
27
V.A. Money Market Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks the maximum current income that is consistent with
maintaining liquidity and preserving capital. The fund intends to maintain a
stable $1 share price.
The fund invests only in dollar-denominated securities rated within the two
highest short-term credit categories and their unrated equivalents. These
securities may be issued by:
o U.S. and foreign companies
o U.S. and foreign banks
o U.S. and foreign governments
o U.S. agencies, states and municipalities
o International organizations such as the World Bank and the International
Monetary Fund
The fund may also invest in repurchase agreements based on these securities.
The fund maintains an average dollar-weighted maturity of 90 days or less, and
does not invest in securities with remaining maturities of more than 13 months.
In managing the portfolio, the management team searches aggressively for the
best values on securities that meet the fund's credit and maturity requirements.
The team tends to favor corporate securities and looks for relative yield
advantages between, for example, a company's secured and unsecured short-term
debt obligations.
================================================================================
PORTFOLIO MANAGERS
Team of money market research analysts and portfolio managers
YIELD INFORMATION
For the fund's 7-day effective yield, call 1-800-824-0335
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time. This information may help
provide an indication of the fund's risks. All figures assume dividend
reinvestment but do not include variable contract charges (see attached variable
product prospectus). Past performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1997 1998 1999 2000
4.90% 4.90% 4.60% 5.90%
2001 total return as of March 31: 1.30%
Best quarter: Q1 `98, 1.25% Worst quarter: Q1 `99, 1.06%
- --------------------------------------------------------------------------------
Average annual total returns-- for periods ending 12/31/00
- --------------------------------------------------------------------------------
Fund
1 year 5.90%
Life of fund - began 8/29/96 5.00%
28
MAIN RISKS
[Clip Art] The value of your investment will be most affected by short-term
interest rates. If interest rates rise sharply, the fund could underperform its
peers or lose money.
An issuer of securities held by the fund could default or have its credit rating
downgraded.
Foreign investments carry additional risks, including inadequate or inaccurate
financial information and social or political instability.
An investment in the fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the fund seeks to
preserve the value of your investment at $1 per share, it is possible to lose
money by investing in the fund.
================================================================================
FINANCIAL HIGHLIGHTS
[Clip Art] This table details the performance of the fund's shares, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Figures audited by Ernst & Young LLP.
- ---------------------------------------------------------------------------------------------------------------------------
Period ended: 12/96(1) 12/97 12/98 12/99 12/00
- ---------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income (loss)(2) 0.02 0.05 0.05 0.05 0.06
Less distributions:
Dividends from net investment income (0.02) (0.05) (0.05) (0.05) (0.06)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
Total investment return(3) (%) 1.61(4,5) 4.88(5) 4.87 4.58 5.90
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 207 8,377 16,519 32,952 73,917
Ratio of expenses to average net assets (%) 0.75(6) 0.75 0.74 0.66 0.60
Ratio of adjusted expenses to average net assets(7) (%) 27.48(6) 1.27 -- -- --
Ratio of net investment income (loss) to average net assets (%) 4.68(6) 4.86 4.70 4.55 5.86
(1) Began operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) Not annualized.
(5) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(6) Annualized.
(7) Does not take into consideration expense reductions during the periods
shown.
29
V.A. Strategic Income Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks a high level of current income. In pursuing this goal,
the fund invests primarily in the following categories of securities:
o foreign government and corporate debt securities from developed and
emerging markets
o U.S. government and agency securities
o U.S. junk bonds
The fund may also invest in preferred stock and other types of debt securities.
Although the fund invests in securities rated as low as CC/Ca and their unrated
equivalents, it generally intends to keep its average credit quality in the
investment-grade range. There is no limit on the fund's average maturity.
In managing the portfolio, the managers allocate assets among the three major
categories based on analysis of economic factors such as projected international
interest rate movements, industry cycles and political trends. However, the
managers may invest up to 100% of assets in any one category.
Within each category, the managers look for securities that are appropriate for
the overall portfolio in terms of yield, credit quality, structure and industry
distribution. In selecting securities, relative yields and risk/reward ratios
are the primary considerations.
The fund may use certain higher-risk investments, including derivatives
(investments whose value is based on indexes, securities or currencies) and
restricted or illiquid securities. In addition, the fund may invest up to 10% of
net assets in U.S. or foreign stocks.
In abnormal market conditions, the fund may temporarily invest extensively in
investment-grade short-term securities. In these and other cases, the fund might
not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
================================================================================
PORTFOLIO MANAGERS
Frederick L. Cavanaugh, Jr.
- ---------------------------------
Senior vice president of adviser
Joined fund team in 1996
Joined adviser in 1986
Began business career in 1975
Arthur N. Calavritinos, CFA
- ---------------------------------
Vice president of adviser
Joined fund team in 1996
Joined adviser in 1988
Began business career in 1986
Janet L. Clay, CFA
- ---------------------------------
Vice president of adviser
Joined fund team in 1998
Joined adviser in 1995
Began business career in 1990
Daniel S. Janis
- ---------------------------------
Second vice president of adviser
Joined fund team in 1999
Joined adviser in 1999
Senior risk manager at
BankBoston (1997-1998)
Manager of forward desk at
Morgan Stanley (1991-1997)
Began business career in 1984
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1997 1998 1999 2000
11.77% 4.92% 4.82% 1.40%
2001 total return as of March 31: 1.06%
Best quarter: Q2 `97, 6.28% Worst quarter: Q3 `98, -2.79%
- --------------------------------------------------------------------------------
Average annual total returns-- for periods ending 12/31/00
- --------------------------------------------------------------------------------
Fund Index
1 year 1.40% 11.85%
Life of fund - began 8/29/96 6.72% 7.70%
Index: Lehman Brothers Government/Credit Bond Index, an unmanaged index of U.S.
government, U.S. corporate and Yankee bonds.
30
MAIN RISKS
[Clip Art] The fund's risk profile depends on its sector allocation. In general,
investors should expect fluctuations in share price, yield and total return that
are above average for bond funds.
When interest rates rise, bond prices generally fall. Generally, an increase in
the fund's average maturity will make it more sensitive to interest rate risk.
A fall in worldwide demand for U.S. government securities could also lower the
prices of these securities.
The fund could lose money if any bonds it owns are downgraded in credit rating
or go into default. In general, lower-rated bonds have higher credit risks, and
their prices can fall on bad news about the economy, an industry or a company.
If certain allocation strategies or certain industries or investments do not
perform as the fund expects, it could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability. These risks are greater
in emerging markets.
o If interest rate movements cause the fund's callable securities to be paid
off substantially earlier or later than expected, the fund's share price
or yield could be hurt.
o Stock investments may go down in value due to stock market movements or
negative company or industry events.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
================================================================================
FINANCIAL HIGHLIGHTS
[Clip Art] This table details the performance of the fund's shares, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Figures audited by Ernst & Young LLP.
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended: 12/96(1) 12/97 12/98 12/99 12/00
- ------------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $10.30 $10.47 $10.10 $9.77
Net investment income (loss)(2) 0.27 0.91 0.85 0.80 0.83
Net realized and unrealized gain (loss) on investments 0.36 0.26 (0.35) (0.33) (0.71)
Total from investment operations 0.63 1.17 0.50 0.47 0.12
Less distributions:
Dividends from net investment income (0.27) (0.91) (0.85) (0.80) (0.83)
Distributions from net realized gain on investments sold (0.06) (0.09) (0.02) -- (0.09)
Total distributions (0.33) (1.00) (0.87) (0.80) (0.92)
Net asset value, end of period $10.30 $10.47 $10.10 $9.77 $8.97
Total investment return(3) (%) 6.45(4,5) 11.77(5) 4.92(5) 4.82(5) 1.40
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 2,131 5,540 15,019 22,282 34,472
Ratio of expenses to average net assets (%) 0.85(6) 0.85 0.85 0.85 0.76
Ratio of adjusted expenses to average net assets(7) (%) 2.28(6) 1.37 0.93 0.87 --
Ratio of net investment income (loss) to average net assets (%) 7.89(6) 8.77 8.19 8.06 8.91
Portfolio turnover rate (%) 73 110 92 53(8) 53
(1) Began operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) Not annualized.
(5) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(6) Annualized.
(7) Does not take into consideration expense reductions during the periods
shown.
(8) Porfolio turnover rate excludes merger activity.
31
Account information
- --------------------------------------------------------------------------------
BUYING AND SELLING FUND SHARES
When you invest in a Declaration fund through a variable contract, your premium
payments are used to buy units of an insurance company separate account that
then buys shares of the fund. The shares are purchased at net asset value (NAV)
and are generally credited to the separate account immediately after the fund
accepts payment from the insurance company. In unusual circumstances or to
protect shareholders, a fund may refuse a purchase order, especially when the
adviser believes the order might be large enough to disrupt the fund's
management. A fund may also temporarily suspend the offering of its shares.
Shares are sold at the next NAV to be determined after the fund accepts the sell
request. The sales proceeds are normally forwarded by bank wire to the insurance
company on the next business day. In unusual circumstances, the fund may
temporarily suspend the processing of sell requests. It may also postpone the
payment of sales proceeds for up to seven days or longer, as allowed by federal
securities laws.
- --------------------------------------------------------------------------------
VALUING FUND SHARES
The NAV for each fund is determined each business day at the close of business
on the New York Stock Exchange (typically 4:00 P.M. Eastern Time). The Exchange
is typically open Monday through Friday.
Except for V.A. Money Market Fund, which values its securities at amortized
cost, securities in a fund's portfolio are generally valued on the basis of
market quotations and valuations provided by independent pricing services. The
funds may also value securities at fair value, especially if market quotations
are not readily available or if the securities' value has been materially
affected by events following the close of a foreign market. Fair value is
determined according to procedures approved by the funds' board of trustees. If
a fund uses this method, the securities' prices may be higher or lower than the
same securities held by another fund using market quotations.
- --------------------------------------------------------------------------------
FUND EXPENSES
Management fees The management fees paid to the investment adviser by the John
Hancock Declaration funds last year are as follows:
- --------------------------------------------------------------------------------
Equity Funds % of net assets
- --------------------------------------------------------------------------------
V.A. Core Equity Fund 0.70%
V.A. 500 Index Fund 0.10%
V.A. Large Cap Growth Fund 0.75%
V.A. Mid Cap Growth Fund 0.75%
V.A. Relative Value Fund 0.60%
V.A. Small Cap Growth Fund 0.75%
V.A. Sovereign Investors Fund 0.60%
- --------------------------------------------------------------------------------
International Funds
- --------------------------------------------------------------------------------
V.A. International Fund 0.90%
- --------------------------------------------------------------------------------
Sector Funds
- --------------------------------------------------------------------------------
V.A. Financial Industries Fund 0.80%
V.A. Regional Bank Fund 0.80%
- --------------------------------------------------------------------------------
Income Funds
- --------------------------------------------------------------------------------
V.A. Bond Fund 0.50%
V.A. High Yield Bond Fund 0.60%
V.A. Money Market Fund 0.50%
V.A. Strategic Income Fund 0.60%
The adviser pays subadvisory fees out of its own assets, and no fund is
responsible for paying a fee to its subadviser.
Expense limitation The adviser may reduce its fee or make other arrangements to
limit each fund's expenses to a specified percentage of average daily net
assets. The adviser has agreed to limit temporarily each fund's expenses to
0.25% of average net assets, excluding management fees, at least until April 30,
2002. If annual expenses fall below this limitation at the end of any fund's
fiscal year, the adviser can impose the full fee and recover any other payments
up to the amount of the limitation.
- --------------------------------------------------------------------------------
DIVIDENDS AND TAXES
All income and capital gain distributions are automatically reinvested in
additional shares of the fund at net asset value and are includable in the
separate accounts holding these shares. For a discussion of the tax status of
your variable contract, including the tax consequences of withdrawals or other
payments, refer to the prospectus of your insurance company's separate account.
32 ACCOUNT INFORMATION
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the Declaration
funds. The funds' board of trustees oversees the funds' business activities and
retains the services of the various firms that carry out the funds' operations.
The trustees of the Declaration funds have the power to change the funds'
investment goals without shareholder or contract holder approval.
------------------------
Variable
contract holders
------------------------
------------------------
Insurance company
separate accounts
------------------------
------------------------
Declaration
funds
------------------------
---------------------------------------------------
Subadvisers
Independence Investment LLC
53 State Street
Boston, MA 02109
Nicholas-Applegate
Capital Management
600 West Broadway
San Diego, California 92101
Provide portfolio management
to certain funds.
---------------------------------------------------
---------------------------------------------------
Investment adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Manages the funds' business and
investment activities.
---------------------------------------------------
---------------------------------------------------
Custodians
Investors Bank & Trust Co.
State Street Bank and Trust Company
Hold the funds' assets, settle all
portfolio trades and collect most of
the valuation data required for
calculating each fund's NAV.
---------------------------------------------------
---------------------------------------------------
Trustees
Oversee the funds' activities.
---------------------------------------------------
FUND DETAILS 33
For more information
- --------------------------------------------------------------------------------
This prospectus should be used with the variable contract/product prospectus.
Two documents are available that offer further information on the John Hancock
Declaration funds:
Annual/Semiannual Report to Shareholders
Includes financial statements, a discussion of the market conditions and
investment strategies that significantly affected performance, as well as the
auditors' report (in annual report only).
Statement of Additional Information (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into (is legally a part of) this prospectus.
To request a free copy of the current annual/semiannual report or the SAI,
please contact John Hancock:
By mail:
John Hancock Annuity Servicing Office
529 Main St. (X-4)
Charlestown, MA 02129
By phone: 1-800-824-0335
On the Internet: www.jhfunds.com
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public
Reference Room in Washington, DC.
For access to the Reference Room call
1-202-942-8090
By mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-0102
(duplicating fee required)
By electronic request:
publicinfo@sec.gov
(duplicating fee required)
On the Internet: www.sec.gov
SEC file number 811-07437
[LOGO](R)
John Hancock Funds, Inc.
MEMBER NASD
101 Huntington Avenue
Boston, MA 02199-7603
Mutual Funds
Institutional Services
Private Managed Accounts
Retirement Plans
Insurance Services
(C)2001 JOHN HANCOCK FUNDS, INC. VA00P 5/01
The latest report from your
Fund's management team
ANNUAL REPORT
Declaration Trust
Equity V.A. Core Equity Fund
V.A. 500 Index Fund
V.A. Large Cap Growth Fund
V.A. Mid Cap Growth Fund
V.A. Relative Value Fund
(formerly V.A. Large Cap Value Fund)
V.A. Small Cap Growth Fund
V.A. Sovereign Investors Fund
- ------------------------------------------------------
International V.A. International Fund
- ------------------------------------------------------
Sector V.A. Financial Industries Fund
V.A. Regional Bank Fund
V.A. Technology Fund
- ------------------------------------------------------
Income V.A. Bond Fund
V.A. High Yield Bond Fund
V.A. Money Market Fund
V.A. Strategic Income Fund
DECEMBER 31, 2000
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS".]
Table of Contents
Page
1) CEO Corner 3
2) Portfolio Manager Commentary
This commentary reflects the views of the portfolio managers or
portfolio management teams through the end of the period discussed in
this report. Of course, the managers' or team's views are subject to
change as market and other conditions warrant.
Equity
V.A. Core Equity Fund 4
V.A. 500 Index Fund 7
V.A. Large Cap Growth Fund 10
V.A. Mid Cap Growth Fund 13
V.A. Relative Value Fund 16
V.A. Small Cap Growth Fund 19
V.A. Sovereign Investors Fund 22
International
V.A. International Fund 25
Sector
V.A. Financial Industries Fund 28
V.A. Regional Bank Fund 31
V.A. Technology Fund 34
Income
V.A. Bond Fund 37
V.A. High Yield Bond Fund 40
V.A. Money Market Fund 43
V.A. Strategic Income Fund 45
3) Financial Statements 48
4) Notes to Financial Statements 121
TRUSTEES
Dennis S. Aronowitz*
Stephen L. Brown
Richard P. Chapman, Jr.
William J. Cosgrove*
Leland O. Erdahl
Richard A. Farrell
Maureen R. Ford
Gail D. Fosler
William F. Glavin
Dr. John A. Moore
Patti McGill Peterson
John W. Pratt*
* Members of the Audit Committee
OFFICERS
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman, President and
Chief Executive Officer
William L. Braman
Executive Vice President and
Chief Investment Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIANS
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
V.A. Bond Fund
V.A. Core Equity Fund
V.A. Financial Industries Fund
V.A. High Yield Bond Fund
V.A. Large Cap Growth Fund
V.A. Mid Cap Growth Fund
V.A. Regional Bank Fund
V.A. Relative Value Fund
V.A. Small Cap Growth Fund
V.A. Sovereign Investors Fund
V.A. Strategic Income Fund
V.A. Technology Fund
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
V.A. 500 Index Fund
V.A. International Fund
V.A. Money Market Fund
TRANSFER AGENT
John Hancock Annuity Servicing Office
529 Main Street (X-4)
Charlestown, Massachusetts 02129
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
SUB-INVESTMENT ADVISERS
American Fund Advisors, Inc.
1415 Kellum Place
Garden City, New York 11530
V.A. Technology Fund
Nicholas-Applegate Capital Management LP
600 West Broadway
San Diego, California 92101
V.A. International Fund
Independence Investment Associates, Inc.
53 State Street
Boston, Massachusetts 02109
V.A. Core Equity Fund
ISSUER
John Hancock Life Insurance Company
John Hancock Variable Life Insurance Company*
200 Clarendon Street
Boston, Massachusetts 02117
*Not Licensed in New York
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
CEO CORNER
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive
Officer, flush right next to second paragraph.]
DEAR SHAREHOLDERS:
After providing investors with positive returns since 1991, and
double-digit returns since 1995, the stock market brought investors down
to earth in 2000. High-priced technology stocks plunged from their
record highs, and rising interest rates produced a slowing economy by year
end. The tech-heavy NASDAQ Composite Index ended the year losing 39.29%,
while the Standard & Poor's 500 Index fell 9.10%.
If nothing else, the year 2000 served as a reminder for investors to set
more realistic expectations, especially given how unusual the string of
strong returns was between 1995 and 1999. It also highlighted the
importance of having a diversified portfolio and maintaining a long-term
perspective, particularly during tempestuous market times, to avoid
making emotional, perhaps costly, investment decisions.
We begin 2001 with a new U.S. president, new possibilities and lingering
uncertainties. Questions remain about how successful the Federal Reserve
will be in achieving the sought-after "soft landing" for the economy. As
this story unfolds, the impact of a slower-growing economy on corporate
profits will emerge. Even though the Fed remains a key driver of the
market's direction, we are also watching Washington, D.C. as President
George W. Bush takes control and attempts to enact tax cuts.
Market moves aside, this is a time of year when many investors' thoughts
often turn to more taxing matters. As part of your tax-planning
strategy, we encourage you to work with your investment professional to
consider the various options for minimizing and deferring tax payments
- -- in an effort to maximize results. These include focusing on
tax-exempt funds, contributing the maximum to retirement plans,
establishing or adding to IRAs and funding a variable annuity. These
concrete steps, coupled with a rededication to the tenets of long-term
investing, are good ways to get the new year off to the right start.
Sincerely,
/S/ MAUREEN R. FORD
MAUREEN R. FORD, VICE CHAIRMAN CHIEF EXECUTIVE OFFICER
BY PAUL MCMANUS FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
V.A. Core Equity Fund
Slowing economy, dimming earnings prospects sink stocks
The year 2000 was marked by unprecedented volatility, as the markets
fell sharply in the spring, rallied over the summer and plunged again
during the final four months of the year. The Federal Reserve Board,
which had already hiked interest rates three times in 1999, added three
more increases in the first half of 2000, including a 0.50% increase in
May. With share prices in technology, telecommunications and
biotechnology stocks reflecting unrealistically optimistic expectations,
the Fed's actions were enough to puncture the speculative bubble and
bring the popular market averages lower. The tech-heavy NASDAQ Composite
Index was particularly vulnerable, shedding a whopping 39.29% in 2000.
"On a relative
basis, we
were helped
by our
holdings in
health
care..."
At the time of the Fed's final increase on May 16, there was scant
evidence of decelerating growth in corporate earnings or the overall
economy. Accordingly, the markets rallied during the summer, buoyed by
investors' belief that interest rates were stabilizing and their hope
that higher rates would cool the economy without doing significant
damage to earnings.
[Table at bottom left-hand column entitled "Top Five Stock
Holdings." The first listing is General Electric 4.6%, the
second is Citigroup 4.4%, the third Pfizer 3.6%, the fourth
Merck 3.2% and the fifth ExxonMobil 3.0%. A note below the
table reads "As a percentage of net assets on December 31,
2000."]
That hope was shattered in the fall. Prominent companies in a broad
variety of sectors issued warnings that fourth-quarter profits would be
substantially lower than previously expected. At the same time, data on
industrial production, retail sales, employment and consumer confidence
all gave evidence of a slowing economy. As a result, sellers took
control and the markets plummeted. Defensive sectors like health care,
consumer nondurables and financial services managed to buck the trend,
as did energy, but growth stocks in most sectors had an extremely
difficult year in 2000.
Performance summary
The Fund continued to implement its strategy of buying undervalued
stocks of companies with improving fundamentals. In sectors such as
technology, however, it was more a question of identifying the companies
that appeared to suffer the least deterioration in fundamentals. The
Fund had a losing year but finished ahead of the S&P 500 Index,
primarily due to favorable stock selection. For the 12 months ended
December 31, 2000, John Hancock V.A. Core Equity Fund had a return of
- -7.11% at net asset value. In comparison, the S&P 500 returned -9.10%,
including reinvested dividends. However, the Fund trailed the 1.15%
return of the average variable annuity growth and income fund, according
to Lipper, Inc. Many funds in the Lipper average have a heavier emphasis
on value-oriented investments, which were the place to be, especially
during the second half of the period. Longer-term performance
information can be found on page six.
Health care, financials help returns
On a relative basis, we were helped by our holdings in health care, a
sector we steadily increased throughout the year. Compared with
companies in other sectors, health-care firms, especially pharmaceutical
companies, had generally superior earnings growth prospects. One of the
best performers, Warner-Lambert, rose sharply as a result of being the
target of a bidding war between Pfizer and American Home Products
(Pfizer ultimately won). Merck, Pharmacia, Bristol-Myers Squibb and
Schering-Plough were other drug stocks that made meaningful
contributions to performance.
[Bar chart at the top of left-hand column with heading "Fund
Performance." Under the heading is a note that reads "For the
year ended December 31, 2000." The chart is scaled in
increments of 2% with -10% at the bottom and 2% at the top.
The first bar represents the -7.11% total return for John
Hancock V.A. Core Equity Fund. The second bar represents the
1.15% total return for Average variable annuity growth and
income fund. A note below the chart reads "The total return
for John Hancock V.A. Core Equity Fund is at net asset value
with all distributions reinvested. The average variable
annuity growth and income fund is tracked by Lipper, Inc. See
the following page for historical performance information."]
Financial stocks were another area of strength, helped by the growing
consensus that a weakening economy would bring lower interest rates.
Both stock selection and a marginal overweighting aided performance
relative to our benchmark. One of our top performers, Fannie Mae, also
benefited when Congress lost interest in an initiative that would have
removed the competitive advantages Fannie Mae enjoys because of its
status as a quasi-government organization. Another holding in the sector
meriting mention is Citigroup, which continued to post consistently good
earnings growth through its favorable mix of banking, brokerage and
insurance businesses.
Technology and telecommunications hit the skids
Leading the list of negative contributors were many names that made
positive contributions a year ago. Microsoft was hurt earlier in the
year by the Justice Department's antitrust lawsuit, then by slowing
demand for personal computers. We reduced the position to below market
weight in the first half of the period, but the stock still hurt
performance substantially. Lucent Technologies was a different story. We
liked the stock for the first half of the year, but it subsequently
became apparent to us that the company was slipping behind competitors
in some key technological areas. Consequently, we sold the entire
position in the fourth quarter. Long-distance provider WorldCom
reflected the intense competition for telephone services of all kinds,
as did Sprint and AT&T, two other lackluster performers. Despite the
carnage, we maintained roughly a market weighting in technology. The
Fund stresses diversification and attempts to keep its risk profile
similar to that of the S&P 500 Index.
"...we would
not be
surprised to
see a
series of
interest-rate
reductions."
Looking ahead
Amid considerable pessimism about stocks, the Fed surprised investors by
cutting interest rates on January 3, just after the period ended. It
appears that the primary challenge facing investors over the short term
will be balancing the positive effects of lower rates with the negative
ramifications of slower earnings growth. Through its actions, the Fed
has served notice that it intends to be aggressive about addressing the
current slowdown, so we would not be surprised to see a series of
interest-rate reductions. Furthermore, history has shown that the stock
market responds well to multiple rate cuts by the Fed. We will consider
these and many other factors as we continue our search for undervalued
stocks of companies with improving fundamentals.
A LOOK AT PERFORMANCE
For the period ended December 31, 2000
SINCE
ONE INCEPTION
YEAR (8/29/96)
---------- ----------
Cumulative Total Returns (7.11%) 98.43%
Average Annual Total Returns(1) (7.11%) 17.11%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them.
Note to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25%
(excluding management fee) of the Fund's daily average net assets.
Without the limitation of expenses, the average annual total return
since inception would have been 16.69%. The expense limitation did not
impact the one-year performance.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Core Equity Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the
same $10,000 investment in the Standard & Poor's 500 Index -- an
unmanaged index that includes 500 widely traded common stocks and is
often used as a measure of stock market performance. It is not possible
to invest in an index.
Line chart with the heading John Hancock V.A. Core Equity
Fund, representing the growth of a hypothetical $10,000
investment over the life of the fund. Within the chart are
two lines. The first line represents the Standard & Poor's
500 Index and is equal to $22,043 as of December 31, 2000.
The second line represents the value of the hypothetical
$10,000 investment made in the John Hancock V.A. Core Equity
Fund on August 29, 1996 and is equal to $19,844 as of
December 31, 2000.
BY ROGER HAMILTON, CFA, PORTFOLIO MANAGER
[A 1 1/2" x 3" photo at bottom right side of page of John Hancock
V.A. 500 Index Fund. Caption below reads "Roger Hamilton."]
John Hancock
V.A. 500 Index Fund
Tech stock sell-off causes S&P 500 Index
to post weak performance
During 2000, the Standard & Poor's 500 Index posted one of its largest
losses in more than a decade, declining 9.10% for the year. But the
Index's losses seem worse than they really were. While technology and
telecommunications stocks -- two of the most influential groups within
the Index -- suffered painful declines during the year, more than 249
out of 444 stocks that were in the Index at the start of 2000 actually
posted gains for the year. Among the year's bright spots were groups
like drugs, electric utilities, energy, insurance, food and thrifts.
Possibly the most notable trend in 2000 was the shift away from
high-growth tech and telecommunications companies into more defensive,
value-oriented stocks. After bidding up their prices in 1998, 1999 and
the first quarter of 2000, investors suddenly and dramatically soured on
both tech and telecom as they became increasingly concerned that the
business fundamentals of most of these companies didn't justify their
sky-high valuations. That's not to say that tech and telecom stocks were
the year's only disappointments. Retailers, automotive companies and
basic-material producers also posted losses as concerns about a slowing
economy weighed heavily on these groups.
"...the biggest
story of
2000 was the
reversal of
fortune of
tech and
telecommuni-
cations
stocks."
[Table at bottom left-hand column entitled "Top Five Stock
Holdings." The first listing is General Electric 4.1%, the
second is ExxonMobil 2.5%, the third Pfizer 2.4%, the fourth
Cisco Systems 2.2% and the fifth Citigroup 2.1%. A note below
the table reads "As a percentage of net assets on December
31, 2000."]
Fund performance
John Hancock V.A. 500 Index Fund had a total return of -9.28% at net
asset value. By comparison, the average variable annuity S&P 500 Index
objective fund had a total return of -9.32%, according to Lipper, Inc.
Historical performance information can be found on page nine.
In managing the Fund, our goal is to have our holdings closely track
those of the S&P 500 Index, while minimizing the costs associated with
buying and selling shares of stocks. Although there are frequent changes
in the composition of the Index, we re-balance the Fund's holdings less
frequently to minimize transaction costs. When we get additional money
into the Fund that cannot immediately be deployed into Index components,
we buy S&P 500 Index futures, which allow us to participate in the
Index's performance without incurring the higher transaction costs of
buying stocks.
Incidentally, 2000 was one of those years when there were many changes
in the composition of the Index. As a result of a variety of factors,
including mergers and acquisitions, financial failures or others, more
than 56 new companies were added to the Index during the year.
[Bar chart at the top of left hand column with heading "Fund
Performance." Under the heading is a note that reads "For the
year ended December 31, 2000." The chart is scaled in
increments of 5% with -10% at the bottom and 0% at the top.
The first bar represents the -9.28% total return for John
Hancock V.A. 500 Index Fund. The second bar represents the
- -9.10% total return for S&P 500 Index. The third bar
represents the -9.32% total return for Average variable
annuity S&P 500 Index objective fund. A note below the chart
reads "The total return for John Hancock V.A. 500 Index Fund
is at net asset value with all distributions reinvested. The
average variable annuity S&P 500 Index objective fund is
tracked by Lipper, Inc. See the following page for historical
performance information."]
"Given the
slowing
economy,
we could
see more
disappointing
earnings
results."
Leaders and laggards
Undoubtedly, the biggest story of 2000 was the reversal of fortune of
tech and telecommunications stocks. After posting eye-popping gains in
1999 and the first quarter of 2000, the tech stock mania stalled. From
Internet-related companies to software makers to hardware manufacturers,
investors increasingly sold tech stocks as evidence mounted that the
slowing economy was eating away at profits. Losses suffered by Internet
access providers Yahoo! and AOL took a big toll on the Index's
performance on a capitalization weighted basis, losing more than 85% and
54%, respectively, for the year. Lucent Technologies posted a loss of
nearly 81%. Shares of the beleaguered e-tailer Amazon.com slid almost
80% as investors worried that holiday sales would weaken. WorldCom and
AT&T both suffered losses in excess of 65% in the wake of falling
long-distance prices. Dell Computer and Intel lost 65% and 27%,
respectively, due to slower-than-expected demand for personal computers.
Microsoft tumbled more than 62% on worries about the antitrust suit
against the company, coupled with weaker demand for its software.
But outside the tech and telecommunications sectors, nowhere was the S&P
500 Index's health more evident than in the financial and drug sectors.
Finance company Washington Mutual and insurance giant American
International Group posted gains of 105% and 36% in response to
expectations that falling interest rates in 2001 would boost their
financial results. Likewise, Fannie Mae got a lift from the prospect of
falling rates, and posted a gain of more than 38%. Citigroup, up 22%,
was also boosted by the prospect of lower interest rates. Within the
drug sector, Pfizer and Merck each rose about 40% on investors' growing
desire for defensive stocks and on expectations that the demand for
established drugs will remain steady. Higher oil prices lifted energy
stocks, particularly Enron, which rose more than 87% during the year.
Rounding out the Index's top 10 biggest contributors for 2000 were two
consumer products companies nearly left for dead in 1999. Philip Morris
surged more than 91% and PepsiCo gained roughly 40%.
Outlook
The first half of 2001 could continue to be a difficult period for the
stock market. Given the slowing economy, we could see more disappointing
earnings results. But after the Fed's surprise move to cut rates just
days after the year ended, and with the prospect of more rate cuts in
the offing, we are hopeful that it could provide the impetus for better
stock-market performance in the second half of the year. No matter what
the direction of the market, our goal will be to closely track the
performance of the S&P 500 Index, and our performance will be dictated
by the Index. The past year has served as a useful reminder that S&P 500
Index funds are susceptible to market downturns, and, as a result, the
Fund's share price will rise and fall in response to gains or losses
posted by the underlying stocks in the Index.
A LOOK AT PERFORMANCE
For the period ended December 31, 2000
SINCE
ONE INCEPTION
YEAR (8/29/96)
---------- ----------
Cumulative Total Returns (9.28%) 103.25%
Average Annual Total Returns(1) (9.28%) 17.75%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them.
Note to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25%
(excluding management fee) and the management fee to 0.l0% of the Fund's
daily average net assets. Without the limitation of expenses, the
average annual total return for the one-year period and since inception
would have been (9.86%) and 17.20%, respectively.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. 500 Index Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the
same $10,000 investment in the Standard & Poor's 500 Index -- an
unmanaged index that includes 500 widely traded common stocks and is
often used as a measure of stock market performance. It is not possible
to invest in an index.
Line chart with the heading John Hancock V.A. 500 Index Fund,
representing the growth of a hypothetical $10,000 investment
over the life of the fund. Within the chart are two lines.
The first line represents the Standard & Poor's 500 Index and
is equal to $22,043 as of December 31, 2000. The second line
represents the value of the hypothetical $10,000 investment
made in the John Hancock V.A. 500 Index Fund on August 29,
1996 and is equal to $20,326 as of December 31, 2000.
BY WILLIAM L. BRAMAN AND ROBERT UEK FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
V.A. Large Cap Growth Fund
Tough going for Fund and stock market in 2000
[A 1 1/2" x 3" photo at bottom right side of page of John Hancock
V.A. Large Cap Growth Fund. Caption below reads "Will Braman."]
The bears were out in full force during the past 12 months, particularly
in the technology arena. Volatility began early on and continued in
prolonged bouts as the period progressed. Speculation about the
economy's direction and the sustainability of corporate profits
dominated investors' concerns. By year's end, all the major stock
indexes were down considerably, as was John Hancock V.A. Large Cap
Growth Fund.
"...all the
major stock
indexes were
down..."
Fund performance
For the 12 months ended December 31, 2000, the Fund produced a total
return of -31.30% at net asset value. By comparison, the Fund's
benchmark index, the Russell Top 200 Growth Index, returned -24.53%,
the tech-heavy NASDAQ Composite Index returned -39.29% and the broader
market, as measured by the Standard & Poor's 500 Index, returned
- -9.10%. In the same period, the average variable annuity growth fund
returned -9.22%, according to Lipper, Inc. Historical performance
information can be found on page 12. The Fund's performance lagged its
peers primarily because of our heavy stake in technology, particularly
the more aggressive companies, which we maintained throughout much of
the year. As the earnings of many technology companies decelerated,
their stock prices came back down to earth.
[Table at bottom left-hand column entitled "Top Five Stock
Holdings." The first listing is Pfizer 5.3%, the second is
General Electric 4.7%, the third Cisco Systems 4.1%, the
fourth Oracle Systems 3.6% and the fifth Tyco International
3.6%. A note below the table reads "As a percentage of net
assets on December 31, 2000."]
Technology struggles
For a long time, we have been espousing the dynamic long-term growth
prospects of many technology stocks and, indeed, the sector itself. We
firmly believe technology companies will continue to drive not only the
United States' economy but the world's as well, thereby providing
investors with considerable long-term growth potential. The strength of
the technology stock sector in recent years is certainly a testament to
this belief. However, with each interest rate increase by the Federal
Reserve Board this past spring -- and then with each new economic report
suggesting a slowdown -- investors began to question the ability of
companies, particularly technology firms, to continue meeting the very
high earnings expectations of the past few years. Consequently, it grew
increasingly difficult for many investors to justify the high stock
prices in exchange for the potential payback. When a company posted
disappointing earnings -- as many did -- the stock price was pummeled.
As the stock prices in the tech and biotech sec tors dropped, fears
arose about the possible price declines of other richly valued stocks.
Investors harvested whatever profits they could and ran for cover in the
United States Treasury market.
[Bar chart at the top of left-hand column with heading "Fund
Performance." Under the heading is a note that reads "For the
year ended December 31, 2000." The chart is scaled in
increments of 5% with -35% at the bottom and 0% at the top.
The first bar represents the -31.30% total return for John
Hancock V.A. Large Cap Growth Fund. The second bar represents
the -9.22% total return for Average variable annuity growth
fund. A note below the chart reads "The total return for John
Hancock V.A. Large Cap Growth Fund is at net asset value with
all distributions reinvested. The average variable annuity
growth fund is tracked by Lipper, Inc. See the following page
for historical performance information."]
Tech holdings reduced
Throughout the period, a large amount of the Fund's net assets remained
in the technology sector, with the weighting peaking in September at
around 60% of net assets. By period's end, however, the stake was
reduced to 43%. While the sector's downturn had a hand in bringing that
figure down, we also eliminated many holdings from the Fund. Our reasons
had more to do with the possibility of further stock price volatility
than with any concerns we had about the business fundamentals or
long-term growth prospects of many of the companies we sold.
In trimming the Fund's weighting, we targeted many names relating to
personal computer hardware. Issues we sold included IBM, Microsoft,
Gateway, Dell and Hewlett Packard. We also eliminated positions in
commodity semiconductors and semiconductor equipment by selling Intel,
Texas Instruments, Applied Materials and Micron. Other high-priced
stocks that demonstrated an increased risk of price declines were sold
as well. In the biotechnology sector, we moved out of Immunex and Amgen.
We held on to, and even purchased, some stocks in the computer
networking and communications sub sectors as stock prices became
increasingly attractive. We bought such issues as Juniper Networks,
CIENA, JDS Uniphase and Nortel Networks.
Health care, finance increased
As the period progressed, we added to the Fund's weighting in
health-care and financial stocks. In health care, it was the
pharmaceuticals we sought. This past year, investors prized the earnings
predictability of large drug companies. These steady growers are also
defensive in nature, as they are relatively insulated from economic
changes. We increased the size of our stakes in Pfizer, Pharmacia and
Johnson & Johnson and initiated a new position in Merck. As technology
stock prices dropped, drug stocks soared.
"...we are
mindful that
plenty of
volatility may
well lie
ahead."
Our financial focus has been fairly broad-based, though we emphasized
insurance names slightly. In addition to the relatively attractive stock
prices, the business cycle and pricing environment among property
casualty and insurance companies has been improving. We also thought it
prudent for the Fund to have exposure to the mortgage-lending and
consumer-lending sub sectors. The stocks that caught our attention
include AFLAC, American General, Wells Fargo, Fannie Mae, MBNA,
Citigroup and State Street Corp.
Outlook
Shortly after the close of the period, the Fed cut the fed funds rate by
one-half a percent. As encouraged as we are by the Fed's recent actions,
we are mindful that plenty of volatility may well lie ahead. In our
opinion, investors will need quite a bit more convincing before
returning to growth stocks. First-quarter earnings reports will be
somewhat of a guidepost. The good news is that tech stock prices are now
more attractive than they have been in years. While the stock prices of
many companies have been taken down by 60% to 70%, many are still
growing their earnings by anywhere from 30% to 50%. With that in mind,
we are now inclined to selectively increase the Fund's technology
exposure and position for what we believe will be an eventual rebound.
A LOOK AT PERFORMANCE
For the period ended December 31, 2000
SINCE
ONE INCEPTION
YEAR (8/29/96)
---------- ----------
Cumulative Total Returns (31.30%) 10.87%
Average Annual Total Returns(1) (31.30%) 2.41%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them.
Note to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25%
(excluding management fee) of the Fund's daily average net assets.
Without the limitation of expenses, the average annual total return
since inception would have been 1.72%. The expense limitation did not
impact the one-year performance.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Large Cap Growth Fund would be worth, assuming all distributions
were reinvested for the period indicated. For comparison, we've shown
the same $10,000 investment in the Russell Top 200 Growth Index -- an
unmanaged index which measures the performance of the Russell Top 200
companies with higher price-to-book ratios and higher forecasted growth
values. It is not possible to invest in an index.
Line chart with the heading John Hancock V.A. Large Cap
Growth Fund, representing the growth of a hypothetical
$10,000 investment over the life of the fund. Within the
chart are two lines. The first line represents the Russell
Top 200 Growth Index and is equal to $22,269 as of December
31, 2000. The second line represents the value of the
hypothetical $10,000 investment made in the John Hancock V.A.
Large Cap Growth Fund on August 29, 1996 and is equal to
$11,087 as of December 31, 2000.
BY BARBARA C. FRIEDMAN, CFA, PORTFOLIO MANAGEMENT TEAM LEADER
[A 1 1/2" x 3" photo at bottom right side of page of John Hancock
V.A. Mid Cap Growth Fund. Caption below reads "Barbara Friedman."]
John Hancock
V.A. Mid Cap Growth Fund
Mid caps sink along with market
Mid-cap growth stocks held up well in the volatile first half of 2000,
but eventually faltered amid a sharp slowdown in economic growth. Early
in the year, mid-cap stocks, with their strong earnings and more
reasonable valuations, remained in favor. In March, however, investors
abandoned technology stocks, concerned that they had reached
unsustainably high prices in light of rising interest rates and a
potential deceleration in the economy. Growth stocks of all sizes
suffered, while safer haven sectors like finance, health care, energy
and utilities took off. By the fourth quarter, there was evidence of
much slower economic growth. Weaker consumer and corporate spending hurt
sales in many sectors. Stock prices fell, with the Russell Midcap Growth
Index returning -11.75% for 2000.
[Table at bottom left hand column entitled "Top Five Stock
Holdings." The first listing is Waters Corp. 2.3%, the second
is Millennium Pharmaceuticals 1.9%, the third Aeroflex 1.8%,
the fourth AFLAC, Inc. 1.8% and the fifth McLeodUSA 1.8%. A
note below the table reads "As a percentage of net assets on
December 31, 2000."]
Strategy and performance review
In this difficult environment, John Hancock V.A. Mid Cap Growth Fund
maintained its long-term focus on mid-size companies with strong
earnings growth prospects and market capitalizations in the range of the
Russell Midcap Growth Index. The Fund's above-average stake in both
technology and telecommunications stocks, along with weak performance
among radio stocks, resulted in a -11.73% return at net asset value for
the year ended December 31, 2000. By comparison, the average variable
annuity mid-cap fund, which includes funds that invest in both mid-cap
growth and value stocks, returned 5.21%, according to Lipper, Inc.
Historical performance information appears on page 15.
"We lightened
up on
technology
over the
summer, but
kept a market
weighting..."
Telecom and radio disappointments
The Fund maintained a high stake in competitive local exchange carriers
(CLECs) such as Global Crossing, McLeodUSA, XO Communi cations (formerly
NEXTLINK) and Allegiance Telecom. Concerns that some CLECs would be
unable to obtain funding to build out their systems hurt the entire
sector, sending stock prices down 50% or more for the year. We held on
to CLECs that were fully funded through 2001 and, in many cases, beyond.
In addition, most of our companies ended the year in better shape
fundamentally than a year earlier, having added new customers and access
lines faster than anticipated. Radio stocks also declined significantly
last year, as investors anticipated a huge slowdown in advertising
spending in 2001. We sold smaller, specialized names like Radio One last
summer. But during the fall, we added shares of leading broadcasters
like Clear Channel Com munications and His panic Broadcasting, believing
that inves tors had overreacted to what should be a less precipitous
drop in ad spending.
[Bar chart at the top of left-hand column with heading "Fund
Performance." Under the heading is a note that reads "For the
year ended December 31, 2000." The chart is scaled in
increments of 5% with -15% at the bottom and 10% at the top.
The first bar represents the -11.73% total return for John
Hancock V.A. Mid Cap Growth Fund. The second bar represents
the 5.21% total return for Average variable annuity mid-cap
fund. A note below the chart reads "The total return for John
Hancock V.A. Mid Cap Growth Fund is at net asset value with
all distributions reinvested. The average variable annuity
mid-cap fund is tracked by Lipper, Inc. See the following
page for historical performance information."]
"...we have
distributed
the Fund's
assets across
a wider array
of sectors..."
Technology bright spots
We lightened up on technology over the summer, but kept a market
weighting because we expect technology spending to continue to outpace
the growth rate of the overall economy. We focused on stocks in the
fast-growing areas of data storage and fiber optics. Companies like
Brocade Communications Systems, which provides switches for storage
systems, benefited as the Internet explosion increased data storage
demands. Many top performers for the year were fiber-optics-related
businesses, including Corning, a leading fiber supplier, which we sold
mid-year; E-Tek Dynamics, an equipment manufacturer, which was bought
out; and Applied Micro Circuits, which sells integrated circuits.
Comverse Technology also did quite well as demand grew for the
profitable, value-added services (like voice mail) that it provides to
telephone companies. Unfortunately, we had our share of technology
disappointments, including Lexmark International, which makes printers.
As PC demand failed to pick up this fall, the stock got hammered,
causing us to sell.
Strength in finance and health care
We used the proceeds from our technology sales to add to our finance and
health-care investments. Finance stocks climbed largely in anticipation
of declining interest rates. Concord EFS, a company that specializes in
electronic transaction processing for credit cards, also soared as
demand for its services increased. USA Education (formerly Sallie Mae),
which makes student loans, benefited from a favorable competitive
environment and a recent acquisition. Other strong performers included
Ambac Financial Group, a municipal bond insurer that is expanding
internationally, and Golden West Financial, a California savings and
loan with a sizable mortgage business. In the health-care area, Waters
Corp. and Applera Corp.--Applied Biosystems Group posted strong gains as
demand increased for the analytical equipment they supply to biotech
companies. We added health-care service names like Community Health
Systems, a well-managed chain of rural hospitals that took off after
going public this summer. Allergan, a drug company that specializes in
eye diseases, also boosted performance as investors looked for
safer-haven investments.
Outlook for 2001
As we start 2001, we believe the environment will be one of uncertainty,
continued volatility and more modest gains. We expect more companies to
announce earnings disappointments related to the rapid deceleration in
economic growth. But economic growth, though low, should remain
positive, as business in many sectors remains strong. Inflation should
also remain under control. The fact that the Federal Reserve acted
quickly after year end to cut interest rates bodes well for the economy
- -- and for the market. Going forward, we expect a variety of sectors to
participate in any market upturn, although there will also be more
distinct winners and losers within each sector. For this reason, we have
distributed the Fund's assets across a wider array of sectors with a
focus on the strongest mid-cap stocks in each sector -- names that
should be among the first to rebound in an economic recovery.
A LOOK AT PERFORMANCE
For the period ended December 31, 2000
SINCE
ONE INCEPTION
YEAR (1/7/98)
---------- ----------
Cumulative Total Returns (11.73%) 52.13%
Average Annual Total Returns(1) (11.73%) 15.12%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them.
Note to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25%
(excluding management fee) of the Fund's daily average net assets.
Without the limitation of expenses, the average annual total return for
the one-year period and since inception would have been (11.83%) and
13.55%, respectively.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Mid Cap Growth Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the
same $10,000 investment in both the Standard & Poor's 500 Index and the
Russell Midcap Growth Index. The Standard & Poor's 500 Index is an
unmanaged index that includes 500 widely traded common stocks and is a
commonly used measure of stock market performance. The Russell Midcap
Growth Index is an unmanaged index that contains those securities from
the Russell Midcap Index with a greater-than-average growth orientation.
It is not possible to invest in an index.
Line chart with the heading John Hancock V.A. Mid Cap Growth
Fund, representing the growth of a hypothetical $10,000
investment over the life of the fund. Within the chart are
three lines. The first line represents the Russell Midcap
Growth Index and is equal to $15,737 as of December 31, 2000.
The second line represents the value of the hypothetical
$10,000 investment made in the John Hancock V.A. Mid Cap
Growth Fund on January 7, 1998 and is equal to $15,213 as of
December 31, 2000. The third line represents the Standard &
Poor's 500 Index and is equal to $14,148 as of December 31,
2000.
BY TIMOTHY E. QUINLISK, CFA, PORTFOLIO MANAGEMENT TEAM LEADER,
AND R. SCOTT MAYO, CFA, PORTFOLIO MANAGER
[A 1 1/2" x 3" photo at bottom right side of page of John Hancock
V.A. Relative Value Fund. Caption below reads "Timothy
Quinlisk."]
John Hancock
V.A. Relative Value Fund
Stock market declines as economic growth slows
The past year was a difficult one for stock investors. Early on,
technology and telecommunications stocks -- the leading growth sectors
- -- reached what seemed to be unsustainable prices, while investors
ignored value sectors like finance and utilities. This situation began
to reverse in March, when signs of slower economic growth raised
concerns about whether the high-fliers would be able to meet earnings
expectations. Investors bolted out of technology in search of safer
havens, boosting finance, energy, health-care and utilities stocks.
Throughout the summer and into the fall, value stocks continued to lead.
The market remained volatile and took a sharp downturn in the fourth
quarter amid increasing signs that the economy might be headed for a
hard landing. As consumer and corporate spending slowed, the Standard &
Poor's 500 Index tumbled, returning -9.10% in 2000.
"We're
especially
interested in
companies
where there
is a catalyst
...that can
unlock the
stock's
intrinsic
value."
Fund stays the course
A weak stock market gives us more opportunities to buy great businesses
that have the ability to grow and create value over a long period at a
time when their stocks are selling at bargain prices. We're especially
interested in companies where there is a catalyst -- such as a
restructuring, new management or new product -- that can unlock the
stock's intrinsic value. For the year ended December 31, 2000, John
Hancock V.A. Relative Value Fund stayed ahead of the market, returning
- -4.80% at net asset value. However, the Fund's above-average investment
in beaten-down technology stocks caused us to lag the average variable
annuity growth and income fund, which returned 1.15%, according to
Lipper, Inc. For historical performance information, please see page 18.
[Table at bottom left-hand column entitled "Top Five Stock
Holdings." The first listing is Parametric Technology Corp.
5.3%, the second is AT&T-Liberty Media Group 5.1%, the third
Hughes Electronics 5.0%, the fourth Tyco International 4.9%
and the fifth Sprint Corp. 4.4%. A note below the table reads
"As a percentage of net assets on December 31, 2000."]
Technology nosedives
The Fund's largest stake was in the technology sector, where nearly all
stocks -- strong and weak alike -- posted significant declines. Our
biggest disappointments included Lucent Technologies, which failed to
meet investors' expectations regarding a new product launch; Conexant
Systems, which experienced weakening demand from personal computer
manufacturers that buy its semiconductors; and Computer Associates
International, which saw demand soften as mainframe software customers
waited for IBM's newest mainframe product to come out. We held on
because we believe these stocks will be among the first to benefit once
corporations step up spending again. In a related area, Hughes
Electronics, a direct television operator, also saw its stock price sink
as subscriber growth weakened.
[Bar chart at the top of left hand column with heading "Fund
Performance." Under the heading is a note that reads "For the
year ended December 31, 2000." The chart is scaled in
increments of 5% with -5% at the bottom and 5% at the top.
The first bar represents the -4.80% total return for John
Hancock V.A. Relative Value Fund. The second bar represents
the 1.15% total return for Average variable annuity growth
and income fund. A note below the chart reads "The total
return for John Hancock V.A. Relative Value Fund is at net
asset value with all distributions reinvested. The average
variable annuity growth and income fund is tracked by Lipper,
Inc. See the following page for historical performance
information."]
Finance and capital goods deliver
Fortunately, our sizable investments in finance and capital goods helped
buoy the Fund. In the finance area, we focused on names with strong
earnings growth, including Ace, Ltd. and XL Capital, Ltd., property and
casualty insurers that benefited as investors anticipated improved
pricing. Ambac Financial Group, a municipal bond insurer, also did well,
thanks to new market opportunities abroad and growing demand. In the
capital goods sector, many of our investments profited from strong
demand, including PerkinElmer, a company that supplies health-care
testing equipment; Millipore, which provides filtration products for the
pharmaceutical, biotechnology, and semiconductor markets; Corning, the
leading provider of fiber for fiber-optic networks; and Amphenol, an
electronics company that makes connectors for the aerospace, cable and
wireless industries. As these stocks reached full valuations, we took
profits.
Diverse operations gain
Our investments in multi-industry companies like Tyco International and
Honeywell International also bolstered performance. Tyco, a company with
a diverse mix of businesses and strong execution, spun off some assets
in the second half of the year, which helped unlock the stock's value.
Honeywell, whose management was under tremendous pressure to better
integrate its Allied-Signal acquisition, benefited when General Electric
announced it was buying the company late in the year. ACNielsen, which
provides market research to retailers, and Etec Systems, a semiconductor
equipment provider, also were strong performers, thanks to buyouts
during the period. Finally, local telephone providers CenturyTel and
Verizon Communications did well as investors began to focus on the value
of their core local telephone businesses.
"We are
positioning
the Fund for
a recovery,
but think
it will be
different from
the past."
Volatility yields opportunity
As we head into 2001, the economic slowdown most likely means more
companies will miss earnings expectations, causing increased market
volatility. Fortunately, shortly after the new year began, the Federal
Reserve began lowering interest rates. Any further rate cuts, along with
tax decreases under the new administration, could help re-ignite
economic growth. We are positioning the Fund for a recovery, but think
it will be different from the past. Typically, the first stocks to
benefit are early cyclicals -- retailers, home builders and auto parts
stocks, for example, that do well once consumers start spending again.
This time, because there is little pent-up consumer demand, we expect
more corporate-oriented businesses to be among the first to move. With
that in mind, we've begun taking money out of finance and shifting it
into beaten-down media, telecom and technology stocks. We've added to
our stakes in names like Parametric Technology, a mechanical design
maker, and AT&T Corp. -- Liberty Media Group, the largest cable
television provider in the United States. We've also made some new
purchases including Viacom, the leading media company worldwide, and
Sprint, a telephone company with strong local assets as well as long
distance and wireless services. We believe our focus on great businesses
that are selling at bargain prices will continue to benefit the Fund.
A LOOK AT PERFORMANCE
For the period ended December 31, 2000
SINCE
ONE INCEPTION
YEAR (1/6/98)
---------- ----------
Cumulative Total Returns (4.80%) 81.03%
Average Annual Total Returns(1) (4.80%) 22.01%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them.
Note to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25%
(excluding management fee) of the Fund's daily average net
assets.Without the limitation of expenses, the average annual total
return since inception would have been 21.92%. The expense limitation
did not impact the one-year performance.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Relative Value Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the
same $10,000 investment in the Standard & Poor's 500 Index -- an
unmanaged index that includes 500 widely traded common stocks and is
often used as a measure of stock market performance. It is not possible
to invest in an index.
Line chart with the heading John Hancock V.A. Relative Value
Fund, representing the growth of a hypothetical $10,000
investment over the life of the fund. Within the chart are
two lines. The first line represents the value of the
hypothetical $10,000 investment made in the John Hancock V.A.
Relative Value Fund on January 6, 1998 and is equal to
$18,103 as of December 31, 2000. The second line represents
the Standard & Poor's 500 Index and is equal to $14,148 as of
December 31, 2000.
BY BERNICE S. BEHAR, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
ANURAG PANDIT, CFA, PORTFOLIO MANAGER
[A 1 1/2" x 3" photo at bottom right side of page of John Hancock
V.A. Small Cap Growth Fund. Caption below reads "Bernice Behar."]
John Hancock
V.A. Small Cap Growth Fund
Growth stocks fall from favor as technology stumbles in 2000
After a very strong 1999, small-cap growth stocks sank under the weight
of falling technology and telecommunications stocks in 2000. Rising
interest rates and growing earnings concerns in the face of a slowing
economy caused investors to flee these high-priced sectors that had held
their undivided attention until mid March. This reversal sent the
tech-heavy NASDAQ Composite Index down 39.29% for the year, as investors
became more focused on less expensive and more defensive segments of the
market like health care, financial and energy stocks. Value stocks
replaced growth stocks as the place to be. The result was a huge gap in
performance between two of the major indexes that track small-cap
stocks, with the Russell 2000 Value Index gaining 22.83% and the Russell
2000 Growth Index losing 22.43% for the year ended December 31, 2000.
[Table at bottom left-hand column entitled "Top Five Stock
Holdings." The first listing is Newfield Exploration 1.5%,
the second is Corporate Executive Board 1.5%, the third
Bindley Western Industries 1.4%, the fourth AmeriSource
Health Corp. 1.4% and the fifth LifePoint Hospitals 1.3%. A
note below the table reads "As a percentage of net assets on
December 31, 2000."]
Fund performance
John Hancock V.A. Small Cap Growth Fund performed in line with its
benchmark Russell 2000 Growth Index, posting a total return of -22.33%
at net asset value for the year ended December 31, 2000. That compared
with the 0.24% return of the average variable annuity small-cap fund,
according to Lipper, Inc. Our relative underperformance stems from the
fact that this Lipper group includes funds that were able to invest in
more value-oriented stocks. Furthermore, while we were underweight in
technology versus our benchmark index, we remained overweighted versus
the peer group. We also suspect that some of our peers held on to more
of the stocks that recently graduated from small-cap to mid-cap status
on their strong performance, since mid-cap companies produced some of
the best relative earnings growth. In contrast, we typically sell
companies once they grow too big for our small-cap focus.
"...we built
our weighting
across a
number of
health-care
industries..."
Individual tech standouts
Despite the tech and telecom group's difficult run this year, good
individual stock picking provided us with some standouts, including
Internet software company Interwoven and telecommunications equipment
companies Virata and Powerwave. While these helped us to outperform the
index in the technology category, the group's results were still
negative and held us back, especially in the Internet area. Some big
detractors were Mediaplex and Broadbase Software, both of which help
companies develop their Web sites and target their advertising; they
were hurt as the Internet advertising model started to come into
question. At appropriate times we sold some of these stocks.
[Bar chart at the top of left hand column with heading "Fund
Performance." Under the heading is a note that reads "For the
year ended December 31, 2000." The chart is scaled in
increments of 5% with -25% at the bottom and 5% at the top.
The first bar represents the -22.33% total return for John
Hancock V.A. Small Cap Growth Fund. The second bar represents
the 0.24% total return for Average variable annuity small-cap
fund. A note below the chart reads "The total return for John
Hancock V.A. Small Cap Growth Fund is at net asset value with
all distributions reinvested. The average variable annuity
small-cap fund is tracked by Lipper, Inc. See the following
page for historical performance information."]
"Even with
a slowing
economy, we
remain confi-
dent in our
ability to find
good small
companies..."
Going defensive: health care, financials, energy
As questions arose over the year about the strength of user demand
across all technology and telecom subsectors, we pared our stakes and
put the proceeds into more defensive areas where we felt the relative
earnings growth potential appeared more certain for the foreseeable
future. These included health care, financials and energy.
A large piece of our health-care stake was in biotechnology companies,
where a string of good news -- from the completion of the Human Genome
Project, to a flood of new products, increased spending and a favorable
capital markets environment -- bodes well for the group. Although
biotech stocks have a tendency to be volatile, many of our biotech
companies served us well on balance for the year, including CV
Therapeutics, COR Therapeutics, NPS Pharmaceuticals and Alkermes. In
fact, by the end of the year, we took some profits in our biotech stake
not only to lock in gains, but also to position the Fund more
defensively and reduce our risk level.
In addition to biotech, we built our weighting across a number of
health-care industries, including medical device companies such as
Wilson Greatbatch Technologies and distributors such as AmeriSource
Health and Bindley Western Industries, which received a takeover
proposal from one of the largest health-care distributors. We also upped
our stake in rural hospital companies LifePoint Hospitals and Province
Healthcare. Their results have improved, and their stock prices too,
through a combination of aggressive management of the hospitals they run
and positive pricing trends.
We brought our weighting in financial stocks up to our benchmark's level
by buying several regional banks with strong growth rates, such as Texas
banks Southwest Bancorp and Sterling Bancshares. We also added several
specialty property and casualty companies like HCC Insurance and title
insurance company Fidelity National, all of which we believe will
benefit from a lower interest-rate environment.
With rising oil prices and a pickup in exploration, we added to energy
companies like Lone Star Technologies, Pride International and Newfield
Exploration. Companies serving the natural gas industry, like Universal
Compression, did especially well.
A look ahead
In the short term, we expect small-cap stocks to remain volatile while
the economy continues to slow and companies adjust their earnings
downward. We're more optimistic about later in the year, however, as
small-cap growth stock valuation levels are more attractive now and
companies will have a better chance of beating lowered expectations.
This is especially true in the wake of the Fed's surprise cut in
short-term interest rates just days after the year ended to prevent the
economy from stalling. Even with a slowing economy, we remain confident
in our ability to find good small companies with accelerating and
sustainable earnings growth, dominant positions and strong management.
We believe we will be rewarded for holding such companies over the long
term.
- ----------------------------------------------------------------
See the prospectus for a discussion of the risks of investing in
small-cap stocks.
A LOOK AT PERFORMANCE
For the period ended December 31, 2000
SINCE
ONE INCEPTION
YEAR (8/29/96)
---------- ----------
Cumulative Total Returns (22.33%) 57.38%
Average Annual Total Returns(1) (22.33%) 11.02%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them.
Note to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25%
(excluding management fee) of the Fund's daily average net assets.
Without the limitation of expenses, the average annual total return for
the one-year period and since inception would have been (22.43)% and
10.03%, respectively.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Small Cap Growth Fund would be worth, assuming all distributions
were reinvested for the period indicated. For comparison, we've shown
the same $10,000 investment in the Russell 2000 Index and the Russell
2000 Growth Index. The Russell 2000 Index is an unmanaged small-cap
index that is comprised of 2,000 U.S. stocks. The Russell 2000 Growth
Index is an unmanaged index that contains Russell 2000 Index stocks with
a greater-than-average growth orientation. It is not possible to invest
in an index.
Line chart with the heading John Hancock V.A. Small Cap
Growth Fund, representing the growth of a hypothetical
$10,000 investment over the life of the fund. Within the
chart are three lines. The first line represents the Russell
2000 Index and is equal to $16,219 as of December 31, 2000.
The second line represents the value of the hypothetical
$10,000 investment made in the John Hancock V.A. Small Cap
Growth Fund on August 29, 1996 and is equal to $15,738 as of
December 31, 2000. The third line represents the Russell 2000
Growth Index and is equal to $14,370 as of December 31, 2000.
BY JOHN F. SNYDER, III, PORTFOLIO MANAGEMENT TEAM LEADER, AND
BARRY H. EVANS, CFA, AND PETER M. SCHOFIELD, PORTFOLIO MANAGERS
[A 1 1/2" x 3" photo at bottom right side of page of John Hancock
V.A. Sovereign Investors Fund. Caption below reads "John Snyder."]
John Hancock
V.A. Sovereign Investors Fund
A significant shift in the market bolsters the Fund's approach
The stock market experienced a significant shift at the end of the first
quarter of 2000. In the first quarter, market averages skyrocketed,
bolstered by a very narrow group of technology and telecommunications
stocks that many investors believed were immune to the vicissitudes of
the economy. Lulled into complacency, many investors ignored the kind of
fundamental research that is the foundation of our approach -- looking
for growth at a reasonable price. Instead, they looked for growth at any
price, choosing to pay extremely high prices for a clique of tech and
telecom stocks based only on the speculation that these companies would
continue to promise or offer vibrant growth.
"As of July 1,
2000, the
Fund has
been able to
invest up to
35% of its
stocks in
non-dividend
performers."
[Table at bottom left-hand column entitled "Top Five Stock
Holdings." The first listing is Citigroup 2.7%, the second is
Chevron 2.6%, the third Interpublic Group 2.6%, the fourth
Chase Manhattan 2.5% and the fifth Minnesota Mining &
Manufacturing 2.4%. A note below the table reads "As a
percentage of net assets on December 31, 2000."]
All of that changed during the second quarter and as we progressed
through the year. The economy softened, the speculative bubble burst,
issues of credit quality plagued the financial markets and corporate
spending fell sharply. Corporate announcements of earnings shortfalls
became more widespread. In response, there was a dramatic selloff in the
overvalued technology and telecommunications sectors, and the market
began to broaden as investor attitudes changed. No longer cavalier about
risk, investors turned toward attractively valued companies with steady
growth that are perceived to be havens safe from an economic downturn --
precisely the kinds of stocks that populated the Fund. When all was said
and done, the Standard & Poor's 500 Index, a common proxy for stock
market performance, suffered a loss in value of 9.10% for the year ended
December 31, 2000.
Understanding performance
John Hancock V.A. Sovereign Investors Fund produced better results than
the broad market, remaining essentially flat, with a total return of
- -0.33% at net asset value for the year ended December 31, 2000. By
comparison, the average variable annuity equity income fund returned
6.74% for the same period, according to Lipper, Inc. Historical
performance information can be found on page 24.
The Fund lagged its competitors because of its lack of technology
holdings during the first quarter in a tech-driven market. However, the
market shift that started in the second quarter of 2000, combined with
the Fund's newly implemented flexibility, helped it begin to outpace
its peer group. As more reasonably valued stocks rebounded, so did many
of the stocks in the Fund, including consumer staple stocks like PepsiCo
and Anheuser-Busch, health-care firms like Baxter International and
Abbott Laboratories, and financials like Fannie Mae, Freddie Mac and
supplemental insurance company AFLAC. On the other hand, even though we
reduced the Fund's retail exposure, we did suffer some losses from our
holdings in Target, Home Depot and Lowe's. With consumer spending down,
advertising revenues fell off, hurting our investments in Gannett and
Interpublic Group. An underweighted position in the solid-performing
electric utilities sector also ate into the Fund's performance relative
to its peers.
[Bar chart at the top of left hand column with heading "Fund
Performance." Under the heading is a note that reads "For the
year ended December 31, 2000." The chart is scaled in
increments of 2% with -2% at the bottom and 8% at the top.
The first bar represents the -0.33% total return for John
Hancock V.A. Sovereign Investors Fund. The second bar
represents the 6.74% total return for Average variable
annuity equity income fund. A note below the chart reads "The
total return for John Hancock V.A. Sovereign Investors Fund
is at net asset value with all distributions reinvested. The
average variable annuity equity income fund is tracked by
Lipper, Inc. See the following page for historical
performance information."]
Enhancing the Fund's investment flexibility
Earlier in the year, the Fund's Board of Trustees approved an amendment
that we believe will enhance the Fund's investment flexibility. As
shareholders know, since inception the Fund has invested 100% of its
stock investments in what we call "dividend performers" -- companies
that have increased their dividends for at least ten consecutive years.
As of July 1, 2000, the Fund has been able to invest up to 35% of its
stocks in non-dividend performers.
The reason for this modification is simple. Historically, companies have
been measured largely on their ability to consistently produce and
increase dividends. Today, however, many companies have different views
on the importance of dividends as a measure of corporate health. In
fact, the number of companies that raise their dividends year after year
is shrinking. Instead of paying for dividend increases, many companies
are using cash flow to reinvest in their businesses through stock
buybacks, acquisitions or restructurings. The rising-dividend
requirement that has served shareholders so well is still valid.
However, as the market has evolved, blind adherence to it would threaten
our ability to deliver returns.
We want to stress that this modification will not change the Fund's
fundamental objective. However, it will give us the flexibility to keep
the stocks we like even if their rising-dividend pattern is interrupted.
In addition, we will now have the opportunity to consider a broader
universe of attractive companies that fit our fundamental criteria --
strong management, financial soundness, stable earnings and
profitability, brand-name recognition and reasonable valuations -- even
if they do not meet our ten-year rising dividend test.
"We expect
continued
weakening in
the U.S.
economy
during the
first part of
2001..."
Outlook 2001
We expect continued weakening in the U.S. economy during the first part
of 2001 due in part to reduced capital spending, a softening global
economy, weakening offshore demand for U.S. products and lower consumer
spending. In fact, the combination of these factors in an environment of
very low inflation led the Federal Reserve Board to cut short-term
interest rates just days into 2001. Since economic growth slowed so
quickly in late 2000, we anticipate that the Fed will continue to be
aggressive, looking to once again achieve the maestro touch of
successfully engineering another soft landing.
A LOOK AT PERFORMANCE
For the period ended December 31, 2000
SINCE
ONE INCEPTION
YEAR (8/29/96)
---------- ----------
Cumulative Total Returns (0.33%) 68.23%
Average Annual Total Returns(1) (0.33%) 12.73%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them.
Note to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25%
(excluding management fee) of the Fund's daily average net assets.
Without the limitation of expenses, the average annual return since
inception would have been 12.42%. The expense limitation did not impact
the one-year performance.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Sovereign Investors Fund would be worth, assuming all distributions
were reinvested for the period indicated. For comparison, we've shown
the same $10,000 investment in the Standard & Poor's 500 Index -- an
unmanaged index that includes 500 widely traded common stocks and is
often used as a measure of stock market performance. It is not possible
to invest in an index.
Line chart with the heading John Hancock V.A. Sovereign
Investors Fund, representing the growth of a hypothetical
$10,000 investment over the life of the fund. Within the
chart are two lines. The first line represents the Standard &
Poor's 500 Index and is equal to $22,043 as of December 31,
2000. The second line represents the value of the
hypothetical $10,000 investment made in the John Hancock V.A.
Sovereign Investors Fund on August 29, 1996 and is equal to
$16,824 as of December 31, 2000.
John Hancock
V.A. International Fund
Overseas markets stumble in 2000
On December 14, 2000, Nicholas-Applegate Capital Management assumed
management responsibility for the Fund under a new subadvisory agreement
that shareholders will be asked to formally approve in an upcoming proxy
solicitation. Founded in 1984, Nicholas-Applegate is a recognized leader
in U.S. equity, global and international equity management and currently
manages more that $35 billion for institutional and individual
investors.
The discussion below provides a summary of the Fund's performance for
the year, followed by commentary from the new managers on their
investment style and strategies going forward.
The year 2000 was a difficult one for foreign stock markets as a group,
led by a significant downturn in Japan, where economic problems
prevailed, its currency fell and its main market index -- the Nikkei --
suffered from a reshuffling that upped the technology weighting. The
year began on the same high that closed out 1999, as the "TMT" sectors
- -- technology, media and telecommunications -- were soaring. But the
tide turned in March, when TMT stocks worldwide began a dramatic plunge
as fears grew that many of these stocks were far too expensive in the
face of a potential slowdown in the global economy and earnings growth.
In a major reversal of fortunes, the more cyclical, attractively valued
old-economy stocks began to make a comeback.
[Pie chart at bottom left-hand column with heading "Portfolio
Diversification." The chart is divided into seven sections
(from top to left): Pacific Rim ex-Japan 8%, Short-Term
Investments & Other 28%, Latin America 1%, U.K. & Ireland
11%, Continental Europe 26%, Canada 5% and Japan 21%. A note
below the chart reads "As a percentage of net assets on
December 31, 2000."]
"Our
bottom-up
process
guided us
to begin
cutting the
Fund's stake
in Japan..."
A number of factors continued to keep overseas markets volatile -- and
their results contained -- through the year's end. These included rising
oil prices, rising interest rates -- first in the United States and then
in Europe and elsewhere -- a slowdown in the U.S. economy later in the
year and the growing downturn in the U.S. stock market. What's more,
declines in many of emerging Asia's currencies and the continuing drop
in the value of the euro hurt U.S.-based investors. Overall, overseas
markets, as measured by the Fund's benchmark, the MSCI All Country World
Free Ex-U.S. Index, lost ground, returning -16.34% for the year ended
December 31, 2000.
Fund performance
For the year ended December 31, 2000, John Hancock V.A. International
Fund posted a total return of -25.17% at net asset value, compared with
the -14.72% return of the average variable annuity international fund,
according to Lipper, Inc. Historical performance information can be
found on page 27.
The Fund's relative underperformance came mainly from its timing in the
volatile TMT sectors. Although overweight versus the MSCI index, the
Fund had a lighter weighting than its peers when the tech group
skyrocketed early in the year. After boosting the TMT stake, the Fund
was hit by having an overweighted position -- particularly in Japan and
Europe -- as the stocks came back down to earth in the tumultuous months
of March and April. Some of the Fund's biggest detractors came from the
tech and telecom sectors, including Japanese companies Sony, Hikari
Tsushin and NTT DoCoMo Communications. The Fund was also hurt by its
large stake in European telecom giant Vodafone, which was pounded after
its announced plan to acquire Mannesman, although Mannesman's stock rose
on the news and was one of the Fund's best performers. Nortel Networks
and British Telecom were two telecom companies that plunged following
profit warnings.
[Bar chart at the top of left-hand column with heading "Fund
Performance." Under the heading is a note that reads "For the
year ended December 31, 2000." The chart is scaled in
increments of 5% with -30% at the bottom and 0% at the top.
The first bar represents the -25.17% total return for John
Hancock V.A. International Fund. The second bar represents
the -14.72% total return for Average variable annuity
international fund. A note below the chart reads "The total
return for John Hancock V.A. International Fund is at net
asset value with all distributions reinvested. The average
international fund is tracked by Lipper, Inc. See the
following page for historical performance information."]
"Many of the
uncertainties
haunting
the world's
markets in
2000 may
linger in
2001."
New management: strategies and changes
By Randall Kahn, CFA, and Loretta Morris,
for the Portfolio Management Team
On December 14, 2000, Nicholas-Applegate Capital Management assumed
management of the Fund. The cornerstone of our investment philosophy
rests on identifying investment opportunities that have three core
attributes. We look for companies that are poised to benefit from
positive change -- such as innovation, new leadership or
higher-than-expected earnings; that are in a position to sustain this
positive change over time; and that are beginning to be recognized by
the market through rising stock prices. When all three criteria are met,
we seek to invest in a timely fashion to maximize gains.
We are first and foremost bottom-up stock pickers, focusing on selecting
individual stocks with superior earnings potential. But we also have a
strict process in place to regularly assess political, economic,
monetary and technology factors in each country. This active approach to
country allocation guides our decisions on whether to overweight or
underweight specific countries in the portfolio.
Upon assuming management of the Fund on December 14, 2000, we began to
gradually transition the portfolio to be consistent with our investment
approach. We moved to pare the number of holdings in order to maintain
larger positions in fewer names and to make the Fund less country and
sector neutral. We also further reduced the Fund's exposure to the
volatile technology sector. Our bottom-up process guided us to begin
cutting the Fund's stake in Japan -- particularly in the construction
and banking sectors -- as we foresee little growth in that country in
the coming months. The shift out of Japan will continue in the new year.
In its place, we have identified more attractive opportunities in the
United Kingdom and have begun to shift some assets there. Due to
year-end liquidity issues, these moves are being made with deliberate
slowness.
A look ahead
Many of the uncertainties haunting the world's markets in 2000 may
linger in 2001. Technology stocks may remain under pressure in the
coming quarters, as valuations for many technology leaders remain high.
In addition, although global central banks seem to be done hiking
interest rates, the lagged effects of their tightenings will continue to
slow world activity well into 2001, according to International Strategy
and Investment. Going forward, we are focusing on companies that are
posting strong earnings, and we will take a more defensive stance by
investing in the food, pharmaceutical, utilities, financials and
energy/oil service sectors.
- -----------------------------------------------------------------------
International investing involves special risks such as political,
economic and currency risks and differences in accounting standards and
financial reporting.
A LOOK AT PERFORMANCE
For the period ended December 31, 2000
SINCE
ONE INCEPTION
YEAR (8/29/96)
---------- ----------
Cumulative Total Returns (25.17%) 28.90%
Average Annual Total Returns(1) (25.17%) 6.02%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them.
Note to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25%
(excluding management fee) of the Fund's daily average net assets.
Without the limitation of expenses, the average annual total return for
the one-year period and since inception would have been (27.26%) and
4.40%, respectively.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. International Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the
same $10,000 investment in the Morgan Stanley Capital International
(MSCI) All Country World Free Ex-U.S. Index, which measures the
performance of a broad range of developed and emerging stock markets.
The index represents securities that are freely traded on a variety of
equity exchanges around the world. It is not possible to invest in an
index.
Line chart with the heading John Hancock V.A. International
Fund, representing the growth of a hypothetical $10,000
investment over the life of the fund. Within the chart are
two lines. The first line represents the MSCI All Country
World Free Ex-U.S. Index and is equal to $13,601 as of
December 31, 2000. The second line represents the value of
the hypothetical $10,000 investment made in the John Hancock
V.A. International Fund on August 29, 1996 and is equal to
$12,889 as of December 31, 2000.
BY JAMES K. SCHMIDT, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
THOMAS M. FINUCANE AND THOMAS C. GOGGINS, PORTFOLIO MANAGERS
[A 1 1/2" x 3" photo at bottom right side of page of John Hancock
V.A. Financial Industries Fund. Caption below reads "Jim Schmidt."]
John Hancock
V.A. Financial Industries Fund
Financial stocks rebound as rates stabilize and mergers pick up
After struggling in 1999, financial stocks produced some of the market's
best results in 2000, as market leadership changed dramatically and
high-flying technology stocks fell sharply beginning in March. With
growing signs that the economy was slowing from its torrid pace,
investors became increasingly concerned that the business fundamentals
of many technology and telecommunications companies didn't justify their
sky-high valuations. Financial stocks were the beneficiaries of this
important market change, as investors sought out more attractively
valued companies. This interest-rate sensitive group also benefited from
the growing perception that the Federal Reserve was nearing the end of
its cycle of raising interest rates. A summer wave of merger activity in
the wake of financial reform legislation also lifted the group.
"Some of our
biggest con-
tributors to
performance
were our
brokerage and
asset manager
stocks."
For the first 10 months of the year, the best performers in the
financial group were the asset managers and brokerage houses, while some
banks reported earnings disappointments. But as the year progressed and
less expensive value stocks became even more desirable as market turmoil
grew, the more growth-oriented broker and asset managers gave back some
of their gains and banks moved into the lead. With the favorable turn in
financial stocks' fortunes this year, the Standard & Poor's Financial
Index rose 26.1% for the year ended December 31, 2000, while the broader
market, as measured by the Standard & Poor's 500 Index, lost 9.1%.
[Table at bottom left-hand column entitled "Top Five Stock
Holdings." The first listing is Fifth Third Bancorp 4.1%, the
second is AFLAC 3.7%, the third Ambac Financial Group 3.7%,
the fourth Wells Fargo 3.6% and the fifth American
International Group 3.5%. A note below the table reads "As a
percentage of net assets on December 31, 2000."]
Fund performance and strategy update
John Hancock V.A. Financial Industries Fund benefited fully from the
upswing in financial stocks, producing a total return of 27.16% at net
asset value for the year ended December 31, 2000. That compared with the
26.56% return of the average open-end financial services fund and the
0.63% return of the average variable annuity sector/miscellaneous fund,
according to Lipper, Inc. See page 30 for historical performance
information.
The Fund continues to seek capital appreciation by investing in a broad
range of U.S. and foreign financial services companies of any size.
During the year, shareholders voted to eliminate a restriction that had
required the Fund to invest more than 25% of its assets in the banking
industry. This change provides the Fund with added flexibility.
Brokers, asset managers strong
Some of our biggest contributors to performance were our brokerage and
asset manager stocks. They rode a wave of high-priced takeovers that
emerged in the wake of the Gramm-Leach-Bliley Act -- legislation that
dropped the barriers preventing banks, brokers and insurers from
affiliating. Over the summer, Chase Manhattan bank bought J.P. Morgan,
UBS announced plans to buy investment banker PaineWebber and Credit
Suisse Group bought Donaldson, Lufkin and Jenrette.
[Bar chart at the top of left hand column with heading "Fund
Performance." Under the heading is a note that reads "For the
year ended December 31, 2000." The chart is scaled in
increments of 5% with 0% at the bottom and 0% at the top. The
first bar represents the 27.16% total return for John Hancock
V.A. Financial Industries Fund. The second bar represents the
26.56% total return for Average open-end financial services
fund. The third bar represents the 0.63% total return for
Average variable annuity sector/miscellaneous fund. A note
below the chart reads "The total return for John Hancock V.A.
Financial Industries Fund is at net asset value with all
distributions reinvested. The average open-end financial
services fund and variable annuity sector/miscellaneous fund
are tracked by Lipper, Inc. See the following page for
historical performance information."]
We also benefited from having shifted away from the regional brokers
last year to the wire house brokerage names like Morgan Stanley Dean
Witter and Merrill Lynch, which were top performers for the year despite
their pullback in the last two months. Although it was our belief that
underwriting, trading and merger activity would slow in the next several
quarters, we are still positive on the group because the level of
investment banking activity is still very good and the underwriting
calendar should pick up again once the market firms up. The top
contributor to the Fund's performance was Amvescap, an asset manager
that increased its stature this year through the success of asset
gathering at its AIM and Invesco subsidiaries. The stalwart insurance
broker Marsh & McLennan also served us well, partly because of the
upturn in the property and casualty insurance business, and also because
of its strong mutual fund arm.
Property and casualty makes a comeback
For much of the year, our life insurance companies, including AXA
Financial and AFLAC were better performers than the property and
casualty insurers, which have struggled for the last five years in a
very competitive pricing environment. But in the latter part of the
year, the global pricing cycle for property and casualty companies
finally began to turn upward, so we started to shift some of our
insurance assets back to this group.
Bank selections mostly help
For the most part, we focused on the trust banks like State Street
Corp., Bank of New York and Northern Trust Corp. which did well because
of their recurring revenue streams from their main advisory and custody
businesses. Our regional banks were mixed. Wells Fargo and FleetBoston
Financial did well, as they successfully navigated their way through
acquisitions. On the other hand, First Tennessee and Marshal & Ilsley
were tarnished by earnings disappointments. During the year we upped our
stake in several attractively priced regionals, such as Fifth Third
Bancorp and Wells Fargo, and that served us well toward the end of the
year.
"The prospects
for financial
stocks remain
bright."
A look ahead
The prospects for financial stocks remain bright. With the economy
slowing dramatically in the fourth quarter, the Fed moved just days into
the new year to cut interest rates in an aggressive signal that it
intended to prevent an economic stall. Investors tend to favor financial
stocks more in an environment of lower rates and slower, steadier
economic growth. It remains to be seen if the Fed will succeed in
pulling off another soft landing for the economy, but we believe it's
the most likely outcome. What's more, we have only just begun to see the
powerful results of the merger trend spawned by financial reform
legislation and we expect more consolidation to follow.
- ------------------------------------------------------------------------
Sector investing is subject to greater risks than the market as a whole.
A LOOK AT PERFORMANCE
For the period ended December 31, 2000
SINCE
ONE INCEPTION
YEAR (4/30/97)
---------- ----------
Cumulative Total Returns 27.16% 88.73%
Average Annual Total Returns(1) 27.16% 18.90%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them.
Note to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25%
(excluding management fee) of the Fund's daily average net assets.
Without the limitation of expenses, the average annual total return
since inception would have been 18.84%. The expense limitation did not
impact the one-year performance.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Financial Industries Fund would be worth, assuming all
distributions were reinvested for the period indicated. For comparison,
we've shown the same $10,000 investment in the Standard & Poor's 500
Index -- an unmanaged index that includes 500 widely traded common
stocks and is often used as a measure of stock market performance. It is
not possible to invest in an index.
Line chart with the heading John Hancock V.A. Financial
Industries Fund, representing the growth of a hypothetical
$10,000 investment over the life of the fund. Within the
chart are two lines. The first line represents the value of
the hypothetical $10,000 investment made in the John Hancock
V.A. Financial Industries Fund on April 30, 1997 and is equal
to $18,873 as of December 31, 2000. The second line
represents the Standard & Poor's 500 Index and is equal to
$17,339 as of December 31, 2000.
BY JAMES K. SCHMIDT, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
THOMAS M. FINUCANE AND THOMAS C. GOGGINS, PORTFOLIO MANAGERS
[A 1 1/2" x 3" photo at bottom right side of page of John Hancock
V.A. Regional Bank Fund. Caption below reads "Jim Schmidt."]
John Hancock
V.A. Regional Bank Fund
Bank stocks stage a rebound in second half of 2000
Bank stocks did an about-face in 2000 and far surpassed the broader
market's results, finally re-gaining investors' attention as interest
rates stopped going up and technology stocks tanked. In the first three
months of the year, investors only had eyes for technology. But starting
in March, with the first hint of cracks in the robust economy, investors
saw the light and moved out of the technology and telecommunications
sectors, where stock prices had reached the stratosphere. Financial
stocks of all stripes were the beneficiaries of this important market
shift, as investors sought out more attractively valued companies. This
interest-rate sensitive group was also boosted by a growing sense that
the Federal Reserve was done raising rates to cool the economy.
Even with their rally, bank stocks had a few setbacks along the way as
earnings shortfalls and increases in non-performing loans were announced
at some prominent banks. But regional banks and thrifts came on strong
in November and December, when continued signs that the economy had
rapidly slowed convinced investors that the Fed's next move would be a
rate cut to prevent the economy from stalling. Three days after the year
ended, the Fed did just that in a surprising and aggressive move, and
also signaled more cuts could be coming. With the favorable turn in
financial stocks' fortunes this year, the Standard & Poor's Financial
Index rose 26.1% for the year ended December 31, 2000, while the broader
market, as measured by the Standard & Poor's 500 Index, lost 9.1%.
[Table at bottom left hand column entitled "Top Five Stock
Holdings." The first listing is Mid-State Bancshares 3.9%,
the second is Valley National Bancorp 3.8%, the third Fifth
Third Bancorp 3.7%, the fourth Commerce Bancshares 3.7% and
the fifth Independent Bank Corp. 3.4%. A note below the table
reads "As a percentage of net assets on December 31, 2000."]
"...we still
anticipate
average 2001
bank earnings
growth to be
about 8%
higher than
this year's."
Fund performance
For the year ended December 31, 2000, John Hancock V.A. Regional Bank
Fund posted a strong return of 17.91% at net asset value, due largely to
its second-half rally when it rose 30%. In comparison, the average
open-end financial services fund returned 26.56% and the average
sector/miscellaneous fund returned 0.63% for the year, according to
Lipper, Inc. See page 33 for historical performance information.
While significantly outperforming the broad market, the Fund lagged the
Lipper group of financial services funds, many of which invested in the
securities brokers, asset managers and larger diversified financial
firms, which were the better performers until the last two months of the
year. Furthermore, although most of our holdings posted earnings results
in line with our expectations, we did experience earnings shortfalls
among some of our larger holdings. The problems either stemmed from an
increase in non-performing loans -- at such banks as UnionBanCal Corp.,
Bank of America, Marshal & Ilsley, Bank of the Ozarks and Lamar Capital
- -- and/or from merger integration issues.
[Bar chart at the top of left-hand column with heading "Fund
Performance." Under the heading is a note that reads "For the
year ended December 31, 2000." The chart is scaled in
increments of 5% with 0% at the bottom and 30% at the top.
The first bar represents the 17.91% total return for John
Hancock V.A. Regional Bank Fund. The second bar represents
the 26.56% total return for Average open-end financial
services fund. The third bar represents the 0.63% total
return for Average variable annuity sector/miscellaneous
fund. A note below the chart reads "The total return for John
Hancock V.A. Regional Bank Fund is at net asset value with
all distributions reinvested. The average open-end financial
services fund and variable annuity sector/miscellaneous fund
are tracked by Lipper, Inc. See the following page for
historical performance information."]
"Interest rates
have started
to come
down, which
tends to
boost
investors'
confidence
in bank
stocks...."
Focus on asset quality
As we mentioned in our last report, after a lengthy period of an
expanding economy and a favorable lending environment, it is no surprise
that as the economy slowed this year there was a pickup in the level of
non-performing assets. But even with the increase, the level of problem
loans still remains low at 0.70% of total assets, according to FDIC
statistics. The area experiencing much of the deteriorating credit
quality is syndicated loans -- large loans shared among a consortium of
banks. While the non-performing loan rate could rise some more, we
expect that it should remain at a low level (below 1% of total assets)
and that the banking industry is establishing adequate loan loss
reserves. On an ongoing basis, our team continues to carefully
scrutinize the credit risks and prospects of our banks.
Fundamentals intact; mergers still a trend
Even with an increase in non-performing assets, a slowdown in loan
growth and flat net interest margins, we still anticipate average 2001
bank earnings growth to be about 8% higher than this year's. This year,
our biggest contributor to the Fund's performance was Texas bank
Southwest Bancorp. The largest bank left headquartered in Texas, it
gained significant market share and benefited from the state's
energy-induced boom. Texas bank Cullen Frost also rode this wave, and we
sold it to lock in profits during the year.
Although bank merger activity slowed in 2000, the consolidation trend
remains solidly in place. More recently there was a resurgence of
activity, with FleetBoston Financial's announced purchase of Summit
Bank, and Firstar's acquisition of U.S. Bancorp. Both of these
transactions were priced at more realistic levels, thus boosting the
chances of success. We could see more consolidation as banks, struggling
to increase revenues, use mergers as a means of improving profits
through gained operating efficiencies.
A look ahead
We are encouraged by the recent turn of events for bank stocks. Even
though further asset- quality announcements could roil the group, there
are several factors working in our favor. Interest rates have started to
come down, which tends to boost investors' confidence in bank stocks,
and prospects for further merger activity are good. While it's still not
clear that the Fed has achieved the sought-after soft landing, we
believe the potential for this not-too-fast, not-too-slow outcome for
the economy remains quite real, as the Fed has made clear -- with its
interest-rate cut days after the year's end -- that it is intent on
preventing an economic meltdown. Finally, even though the stocks have
outperformed the market by a wide margin lately, their valuations remain
reasonable, which means there's more room for them to advance.
- ------------------------------------------------------------------------
Sector investing is subject to greater risks than the market as a whole.
A LOOK AT PERFORMANCE
For the period ended December 31, 2000
SINCE
ONE INCEPTION
YEAR (5/1/98)
---------- ----------
Cumulative Total Returns 17.91% 4.96%
Average Annual Total Returns(1) 17.91% 1.83%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them.
Note to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25%
(excluding management fee) of the Fund's daily average net assets.
Without the limitation of expenses, the average annual total return
since inception would have been 1.80%. The expense limitation did not
impact the one-year performance.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Regional Bank Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the
same $10,000 investment in the Standard & Poor's 500 Index -- an
unmanaged index that includes 500 widely traded common stocks and is
often used as a measure of stock market performance. It is not possible
to invest in an index.
Line chart with the heading John Hancock V.A. Regional Bank
Fund, representing the growth of a hypothetical $10,000
investment over the life of the fund. Within the chart are
two lines. The first line represents the Standard & Poor's
500 Index and is equal to $12,291 as of December 31, 2000.
The second line represents the value of the hypothetical
$10,000 investment made in the John Hancock V.A. Regional
Bank Fund on May 1, 1998 and is equal to $10,496 as of
December 31, 2000.
BY BARRY GORDON, MARC H. KLEE, CFA, AND ALAN LOEWENSTEIN, CFA,
PORTFOLIO MANAGERS
[A 3" x 2" photo at bottom right side of page of John Hancock
V.A. Technology Fund. Caption below reads "Technology Fund
management team members (l-r): Barry Gordon, Marc Klee and
Alan Loewenstein."]
John Hancock
V.A. Technology Fund
Tech stocks stumble in 2000 following eye-popping gains in 1999
"Even some
of the
technology
sector's
first-half
stalwarts
gave way in
the final
months..."
After skyrocketing throughout 1998, 1999 and the first calendar quarter
of 2000, technology stocks came plunging back to earth from March
through December 2000. In 1998, the technology-laden NASDAQ Composite
Index posted an impressive 40% gain, followed by an 86% rise in 1999 and
another 24% gain from January 1 through March 10, 2000. But after
peaking in mid-March, tech stocks suffered a tumble that would last
until the end of the year. The downtrend was prompted by a number of
difficulties, including the prospects for a slowing economy brought on
by higher interest rates, weaker corporate profitability and investors'
growing dislike of Internet-related stocks. Those stocks led the tech
selloff, although they were later joined in the fourth quarter by many
other technology segments. Once it became clear that consumers were
buying fewer personal computers and corporations were cutting spending
on technology and telecommunications products from servers to switches
to software, the selling accelerated. From the Fund's inception on May 1
through the end of 2000, the NASDAQ Composite Index fell 26%.
[Table at bottom left-hand column entitled "Top Five Stock
Holdings." The first listing is Mercury Interactive 4.0%, the
second is BEA Systems 3.1%, the third Solectron Corp. 3.1%,
the fourth EMC Corp. 3.1% and the fifth Cisco Systems 2.9%. A
note below the table reads "As a percentage of net assets on
December 31, 2000."]
Fund performance
John Hancock V.A. Technology Fund posted a total return of -26.56% at
net asset value from its May 1 inception through December 31, 2000. In
the same period, the average open-end science and technology fund
returned -36.72% and the average variable annuity sector/miscellaneous
fund returned -4.64%, according to Lipper, Inc.
Few places to hide
Semiconductor and related companies, which suffered a major retrenchment
in the second half of 2000 in response to slowing demand for computers,
were among our hardest hit during the period. In the early stages of the
Fund's operations, our view was that the demand for chips -- driven
primarily by the strength in the personal computer and
telecommunications sectors -- would remain robust. That proved to be the
case early on, when chip manufacturers posted strong profit gains and
were among our best performers.
Beginning in late summer, however, chip demand contracted in response to
worries over slower economic growth. Chip makers such as Micron
Technology, Integrated Device Technology and Cypress Semiconductor Corp.
were hit fairly hard. The stocks of companies that make the machines
and tools needed to make a chip, including KLA-Tencor and PRI
Automation, also were disappointments.
[Bar chart at the top of left-hand column with heading "Fund
Performance." Under the heading is a note that reads "From inception
May 1, 2000 through December 31, 2000." The chart is scaled in
increments of 5% with -40% at the bottom and 0% at the top.
The first bar represents the -26.56% total return for John
Hancock V.A. Technology Fund. The second bar represents the
- -36.72% total return for Average open-end science and
technology fund. The third bar represents the -4.64% total
return for Average variable annuity sector/miscellaneous
fund. A note below the chart reads "The total return for John
Hancock V.A. Technology Fund is at net asset value with all
distributions reinvested. The average open-end science and
technology fund and variable annuity sector/miscellaneous
fund are tracked by Lipper, Inc. See the following page for
historical performance information."]
Even some of the technology sector's first-half stalwarts gave way in
the final months of 2000 to concerns about weakening demand for
computers and related products. After exiting the summer months in
reasonably good shape, PC makers including Dell Computer and Gateway
Inc., network company Cisco Systems and on-line company America Online
all had succumbed to the market's worries by year end.
Bright spots emerge
Despite the gloom and doom, a few of our holdings posted significant
gains during the period. The stock of BEA Systems rose more than 45%.
The company is a leader in an industry known as application services, a
provider of a middle layer of software that companies use to develop
Web-based programs that work with many types of hardware and software.
We also saw strong gains from our holdings in fiber-optical networking
company CIENA Corp. It was buoyed by rapidly expanding demand for
long-haul, high-speed bandwidth. Also strong were the stocks of Web
performance management program maker Mercury Interactive and software
maker i2 Technologies.
Another plus for performance was our decision to hold onto any new money
that came into the Fund in the final months of the year. While we did
make some new investments as we saw compelling values, we sidelined some
cash to wait for a time when we think that most of the pain is behind
us. That's why our cash position stood at an unusually high 30% of
assets at year end.
"...tech stocks
are priced
much more
attractively."
Outlook
We're optimistic about tech stocks' prospects in the year 2001. Although
the initial impact of a slowing economy on tech stocks was
overwhelmingly negative, we believe its ultimate effect will be
positive. History suggests that during periods of slow, but positive,
economic growth, tech stocks fare well because investors look to them
for better-than-average earnings growth. We are also encouraged by the
Federal Reserve's intent to cut interest rates. Just after the period
ended, the Fed surprised most market observers by cutting interest rates
one-half of a percentage point on January 3, 2001. We think that further
interest-rate cuts are in store and that they will stimulate economic
growth. Looking at 1995, the technology sector was the
third-best-performing sector in the market after the Fed had
successfully engineered a "soft landing" through a series of
interest-rate cuts the previous year. Now that a lot of the excessive
valuation that existed in the tech sector in late 1999 and early 2000
has been wrung out, tech stocks are priced much more attractively. Not
that lower valuations, per se, are a reason to own tech stocks. But
coupled with potential strong earnings gains, they give us plenty of
reason for optimism. Also, because many tech companies provide
productivity enhancements, we think they are poised to benefit from the
need by corporate America to be leaner in a slower economy.
- ------------------------------------------------------------------------
Sector investing is subject to greater risks than the market as a whole.
A LOOK AT PERFORMANCE
For the period ended December 31, 2000
SINCE
INCEPTION
(5/1/00)
----------
Cumulative Total Return (26.56%)
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them.
Note to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25%
(excluding management fee) of the Fund's daily average net assets.
Without the limitation of expenses, the total return since inception
would have been (27.55%).
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Technology Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the
same $10,000 investment in the Standard & Poor's 500 Index -- an
unmanaged index that includes 500 widely traded common stocks and is
often used as a measure of stock market performance. It is not possible
to invest in an index.
Line chart with the heading John Hancock V.A. Technology
Fund, representing the growth of a hypothetical $10,000
investment over the life of the fund. Within the chart are
two lines. The first line represents the Standard & Poor's
500 Index and is equal to $9,162 as of December 31, 2000. The
second line represents the value of the hypothetical $10,000
investment made in the John Hancock V.A. Technology Fund on
May 1, 2000 and is equal to $7,344 as of December 31, 2000.
BY JAMES K. HO, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
BENJAMIN A.MATTHEWS, PORTFOLIO MANAGER
[A 1 1/2" x 3" photo at bottom right side of page of John Hancock
V.A. Bond Fund. Caption below reads "James Ho."]
John Hancock
V.A. Bond Fund
Fund closes year on strength as interest rates fall
and Treasury bonds soar
The broad fixed-income market had a better time of it this year than
last, although corporate bonds experienced a fair amount of volatility
and uncertainty. John Hancock V.A. Bond Fund's heavy weighting in U.S.
government and agency issues was the primary driver of Fund performance,
as this fixed-income segment produced the best results. Selectivity and
in-depth research proved essential in the corporate area as well,
particularly given the turbulence caused by the slowing economy.
Overall, it was flexibility in asset allocation that enabled the Fund to
post solid gains.
Fund performance
For the year ended December 31, 2000, John Hancock V.A. Bond Fund
produced a total return of 11.89% at net asset value. This compares
favorably with the 9.79% return of the average variable annuity
corporate debt A-rated fund, according to Lipper, Inc. For historical
performance information, please turn to page 39.
[Table at bottom left-hand column entitled "Top Five
Sectors." The first listing is U.S. Government 37%, the
second is U.S. Agencies 24%, the third Mortgage Banking 6%,
the fourth Utilities 6% and the fifth Finance 4%. A note below
the table reads "As a percentage of net assets on December
31, 2000."]
Defensive approach defines portfolio composition
Early in the year, we began to build in some more defensive
characteristics into the Fund's portfolio and further enhanced that
approach as the period progressed. Calendar 2000 was the year in which
the Treasury market was king. The run on Treasury securities,
particularly longer-term issues, began in February and continued
unabated through period's end. The U.S. government's budget surplus
prompted the Treasury to propose a buyback of millions of dollars worth
of bonds in coming years, jumpstarting a dramatic rally in its long-term
bonds. The Federal Reserve Board continued to raise interest rates
through mid-May, further strengthening the rally as investors looked
past the rate hikes to their intended effect -- a slowdown in the
economy. Stock market volatility simply stoked the fire as investors
rushed to the relatively safe haven of U.S. government securities.
"We focused
more on
industries
that tend to
be relatively
stable and
insulated
from an
economic
slowdown."
Our strategy in the Treasury arena was at first to cluster assets at
both the long-end and short-end of the Treasury yield curve, reflecting
our belief that the yield curve would flatten. (The yield curve is a
plotting of yields across the maturity spectrum.) By early summer, with
the curve having flattened, we not only increased the Fund's exposure to
Treasury securities but moved some assets into intermediate-term issues
so that by period's end we had a laddered approach in place. We also
bolstered the Fund's weighting in mortgage-backed and agency securities.
All performed extremely well.
[Bar chart at the top of left-hand column with heading "Fund
Performance." Under the heading is a note that reads "For the
year ended December 31, 2000." The chart is scaled in
increments of 5% with 0% at the bottom and 15% at the top.
The first bar represents the 11.89% total return for John
Hancock V.A. Bond Fund. The second bar represents the 9.79%
total return for Average variable annuity corporate debt A-
rated fund. A note below the chart reads "The total return
for John Hancock V.A. Bond Fund is at net asset value with
all distributions reinvested. The average variable annuity
corporate debt A-rated fund is tracked by Lipper, Inc. See
the following page for historical performance information."]
"While nothing
is guaranteed,
the outlook
for corporate
bonds
appears much
improved."
Upgraded credit quality
Credit quality concerns played a big role in investor sentiment this
past year. As the economy showed concrete signs of not only slowing, but
perhaps slowing too much, investors became increasingly skittish about
the creditworthiness of corporate issuers. This fear, combined with the
strength of the Treasury market, caused credit yield spreads to widen
dramatically. As you may know, credit spreads represent the difference
in yield between bonds of different credit quality. The more credit
sensitive an issue was, the greater the downward pressure. Over the
period, we focused our attention on higher-quality issues within both
the investment-grade and high-yield arenas. One such holding is General
Electric Capital Corp. For the most part, we held smaller positions in
the longer-maturity securities represented in the Fund, though at times
we swapped into the shorter-term debt of corporate issuers that we
already owned.
Decreased high-yield exposure
The high-yield sector suffered the most. Any corporate issuer that had
even a hint of difficulty in meeting earnings projections witnessed the
floor dropping out from under its bond prices. Defaults increased
substantially. We trimmed the portfolio's exposure to high-yield debt by
selling among other bonds those issued by telecommunication companies.
These included Global Crossing, NEXTLINK Communications and Focal
Communications.
Troubled names sold early
Thorough research and daily monitoring of securities proved vital to
performance as the economy weakened. We were able to move out of several
troubled names before the brunt of negative sentiment and price declines
were realized. Holdings we sold included Dillard's Inc., Conseco, FINOVA
Capital Group and two beaten down California utility companies --
Pacific Gas & Electric and Southern California Edison.
Utilities, defense, healthcare, energy emphasized
We focused more on industries that tend to be relatively stable and
insulated from an economic slowdown. These include utility, defense,
healthcare, and energy-related issues, such as Verizon, Keyspan,
CalEnergy, NRG, Lockheed Martin, Raytheon, Tenet Healthcare, Hospital
Corporation of America, Amerada Hess and Apache. We also maintained
sizable positions in high-demand media names such as Continental
Cablevision.
Outlook
Shortly after the close of 2000, the Fed cut short-term interest rates
by one-half a percentage point. Bond prices rose and corporate spreads
narrowed. While nothing is guaranteed, the outlook for corporate bonds
appears much improved. Investors seem to be now anticipating the
possibility of economic strengthening and greater corporate
profitability down the road. Though we are encouraged, we will watch the
economy closely to determine whether or not too much weakness has
already set in. We shall move ahead with cautious optimism and consider
opportunities to add selectively to high-yield and cyclical issues. Our
duration, or interest rate sensitivity, remains relatively neutral,
though we have begun to shorten it slightly, believing that yields in
the government sector don't have much room to fall further.
A LOOK AT PERFORMANCE
For the period ended December 31, 2000
SINCE
ONE INCEPTION
YEAR (8/29/96)
---------- ----------
Cumulative Total Returns 11.89% 38.98%
Average Annual Total Returns(1) 11.89% 7.88%
YIELD
For the period ended December 31, 2000
SEC 30-DAY
YIELD
----------
John Hancock V.A. Bond Fund(1) 5.84%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them.
Note to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25%
(excluding management fee) of the Fund's daily average net assets.
Without the limitation of expenses, the average annual total return for
the one-year period and since inception would have been 11.72% and
6.95%, respectively, and the yield would have been 5.63%.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Bond Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the
same $10,000 investment in the Lehman Brothers Corporate Bond Index --
an unmanaged index that mirrors the investment objectives and
characteristics of the Fund. It is not possible to invest in an index.
Line chart with the heading John Hancock V.A. Bond Fund,
representing the growth of a hypothetical $10,000 investment
over the life of the fund. Within the chart are two lines.
The first line represents the value of the hypothetical
$10,000 investment made in the John Hancock V.A. Bond Fund on
August 29, 1996 and is equal to $13,897 as of December 31,
2000. The second line represents the Lehman Brothers
Corporate Bond Index and is equal to $13,466 as of December
31, 2000.
BY ARTHUR N. CALAVRITINOS, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
JANET L. CLAY, CFA, FREDERICK L. CAVANAUGH, JR. AND DANIEL S. JANIS,
PORTFOLIO MANAGERS
[A 1 1/2" x 3" photo at bottom right side of page of John Hancock
V.A. High Yield Bond Fund. Caption below reads "Arthur
Calavritinos."]
John Hancock
V.A. High Yield Bond Fund
Slowing economy, liquidity woes hurt high-yield bonds
It was a difficult year for high-yield bonds. The impact of rising
interest rates in the first half of 2000 finally began to take hold in
the shape of a slowing economy. A growing number of companies began to
miss their earnings targets, sending shock waves through the financial
markets, especially the technology-heavy NASDAQ Composite Index. The
number of defaults among high-yield companies, defined as those rated
below investment grade, also rose. Telecommunications companies, whose
prices had risen to stratospheric levels, were particularly hard hit. As
these companies fell short in their business plans and faced diminished
prospects for getting their next round of funding in the equity market,
their prices tumbled. Since this sector makes up the largest component
of the high-yield market, its downfall was a significant drag on the
group. High-yield companies also were hurt by a growing lack of
liquidity, or ease of trading, that was caused by the mergers of several
investment-banking firms.
"With fuel
prices
spiking, we
increased our
weighting in
oil and gas
and related
service
companies."
[Pie chart at bottom left-hand column with heading "Portfolio
Diversification." The chart is divided into six sections
(from top to left): Common Stock 9%, Short-Term Investments &
Other 25%, Convertible Bonds 3%, Preferred Stock 3%, Foreign
Corporate Bonds 16% and U.S. Corporate Bonds 44%. A note
below the chart reads "As a percentage of net assets on
December 31, 2000."]
The struggles of these higher-risk bonds stood in marked contrast to
U.S. government bonds, which benefited from stabilizing rates, reduced
supply, the prospects of a slowing economy and their status as a safe
haven in the face of growing stock-market and presidential election
uncertainties. By the end of the year, the difference in yield between
high-yield bonds and Treasury bonds had widened significantly.
High-yield bond yields averaged 14.12%, as measured by the Merrill Lynch
High Yield Master II Index, compared with the 5.11% yield of the 10-year
Treasury bond.
Fund performance
For the year ended December 31, 2000, John Hancock V.A. High Yield Bond
Fund posted a total return of -6.08% at net asset value. By comparison,
the average variable annuity high current yield fund returned -7.03%,
according to Lipper, Inc. Historical performance information can be
found on page 42.
Telecommunications cut
Although telecommunications is the Fund's largest sector concentration,
we continue to maintain an underweighting compared to our peers since so
many high-yield telecom companies are only several years old and have
yet to deliver results. During the year, we became increasingly
convinced that the telecom market was reaching a point of too much
capacity and not enough demand -- for everything from equipment to
services. As a result, we pared our stake from 23% a year ago to 14% at
the end of December. We sold Internet Web-hosting companies PSI Net and
Exodus Communications and sold the common stock of Viatel, a competitive
local exchange carrier (CLEC) in Europe. Although we sold these and
other names before their prices fell even more, we still had some
disappointments. KMC Telecom Holdings was a prime example of the
problems facing many telecom start-ups. A CLEC serving the Southeast, it
provides telephone, cable and Internet access to companies in direct
competition with the Baby Bells. While it has a good set of assets, it
also has a large amount of debt, needs more money to grow, and is being
pinched in its ability to access capital to continue executing its
business plan.
[Bar chart at the top of left-hand column with heading "Fund
Performance." Under the heading is a note that reads "For the
year ended December 31, 2000." The chart is scaled in
increments of 5% with -10% at the bottom and 0% at the top.
The first bar represents the -6.08% total return for John
Hancock V.A. High Yield Bond Fund. The second bar represents
the -7.03% total return for Average variable annuity high
current yield fund. A note below the chart reads "The total
return for John Hancock V.A. High Yield Bond Fund is at net
asset value with all distributions reinvested. The average
variable annuity high current yield fund is tracked by
Lipper, Inc. See the following page for historical
performance information."]
Credit specific issues hurt
Our biggest disappointments came from several company-specific problems,
such as Asia Pulp & Paper (APP) which sparked market concerns and lost
credibility when it announced that it needed to extend its debt
maturities. Cargo operator Fine Air Services filed for bankruptcy
protection after failing to execute its business plan because of
operational difficulties.
Energy grows
With fuel prices spiking, we increased our weighting in oil and gas and
related service companies. We are particularly interested in the natural
gas market, since that is where we see the biggest potential for further
exploration and development, as well as price gains, given the low
supply and growing demand. We added to our stakes in oil drilling
company Grey Wolf and Gothic Production, a natural gas exploration and
production company that was recently acquired by Chesapeake. Key Energy
Services, the major player in the well-servicing business, has performed
admirably. We sold our Key Energy stock, but still hold a significant
stake in its bonds. We also added a stake in CHC Helicopter, a Canadian
company that provides helicopter service to offshore rigs and coastal
rescue operations.
"...investors
are soon
bound to
recognize
the value
that exists in
the high-yield
sector."
Outlook
We remain cautious about the near-term prospects for high-yield bonds.
It's likely that we could see more failures in the telecommunications
group in 2001. We are also waiting for liquidity to return to the
high-yield market, which should eventually happen. But we also see a
silver lining. As investors recover from the "irrational exuberance"
that gripped high-yield telecommunications bonds as well as stocks, we
believe they will reassess the risks and rewards of investing in various
asset classes. While this takes time, a return to a more rational mode
of investing will inevitably serve us well, especially if the stock
market remains dicey. With high-yield bond prices low and their yields
at very high levels compared to Treasuries, investors are soon bound to
recognize the value that exists in the high-yield sector.
- ------------------------------------------------------------------------
See the prospectus for the risks of investing in high-yield bonds.
International investing involves special risks such as political,
economic and currency risks and differences in accounting standards and
financial reporting.
A LOOK AT PERFORMANCE
For the period ended December 31, 2000
SINCE
ONE INCEPTION
YEAR (1/6/98)
---------- ----------
Cumulative Total Returns (6.08%) (4.16%)
Average Annual Total Returns(1) (6.08%) (1.41%)
YIELD
For the period ended December 31, 2000
SEC 30-DAY
YIELD
----------
John Hancock V.A. High Yield Bond Fund(1) 14.03%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them.
Note to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25%
(excluding management fee) of the Fund's daily average net assets.
Without the limitation of expenses, the average annual total return for
the one-year period and since inception would have been (6.47%) and
(1.70%), respectively, and the yield would have been 13.64%.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. High Yield Bond Fund would be worth, assuming all distributions
were reinvested for the period indicated. For comparison, we've shown
the same $10,000 investment in the Lehman Brothers High Yield Bond Index
- -- an unmanaged index of fixed-income securities that are similar, but
not identical, to the bonds in the Fund's portfolio. It is not possible
to invest in an index.
Line chart with the heading John Hancock V.A. High Yield Bond
Fund, representing the growth of a hypothetical $10,000
investment over the life of the fund. Within the chart are
two lines. The first line represents the Lehman Brothers High
Yield Bond Index and is equal to $9,819 as of December 31,
2000. The second line represents the value of the
hypothetical $10,000 investment made in the John Hancock V.A.
High Yield Bond Fund on January 6, 1998 and is equal to
$9,591 as of December 31, 2000.
BY DAWN BAILLIE FOR THE PORTFOLIO MANAGEMENT TEAM
[A 1 1/2" x 3" photo at bottom middle of page of John Hancock
V.A. Money Market Fund. Caption below reads "Dawn Baillie."]
John Hancock
V.A. Money Market Fund
Short-term interest rates rise through May,
then stabilize as the economy starts to slow
It was a good year for money-market fund investors, who saw their yields
rise and their returns beat those of most stock-fund investors. In the
first half of the year, money-market yields rose along with interest
rates. This occurred after all signs pointed to a very robust U.S.
economy in January, with soaring consumer confidence and a booming stock
market sparking concerns of an uptick in inflation. As a result, the
Federal Reserve switched to its inflation-fighting mode again, raising
the federal funds rate that banks charge each other for overnight loans
by one-quarter percentage point in February and again in March in an
effort to cool the economy and block inflation. When that didn't deter
the economy, or the stock market, the Fed took the unusual step of
raising rates by one-half a percentage point in May. Shortly after, the
economy began to show signs of slowing, while inflation remained
relatively benign. This trend continued through the year's end, so the
Fed stayed on the sidelines and the federal funds rate ended the year at
6.50%, up from 5.50% a year earlier. After rising in the first half of
the year, money-market yields remained fairly level, since the federal
funds rate is a key pricing benchmark for money-market securities.
In the second half of the year, the effects of the slowing economy began
to show up in earnest in the form of earnings disappointments -- which
sent the stock market reeling -- and slowdowns in manufacturing, housing
and consumer spending. So by the end of the year, the Fed actually
returned to its neutral stance and investors even began to anticipate
rate cuts in 2001.
7-day effective yield
On December 31, 2000, John Hancock V.A. Money Market Fund had a 7-day
effective yield of 6.17%. By comparison, the average taxable
money-market fund had a 7-day effective yield of 5.91%, according to
Lipper, Inc.
"It was a good
year for
money-market
fund
investors..."
Staying short
For the first nine months of 2000, we kept the Fund's maturity slightly
shorter than average, believing that rates were on the rise, as the Fed
remained intent on slowing the economy and preventing inflation through
a series of rate hikes. This conservative stance meant that our money
was not tied up for as long, so we were able to move more quickly into
higher-yielding securities as rates rose.
Our thinking changed by the end of September, as we began to see a
marked and consistent slowdown in housing, manufacturing and the
consumer and producer price indexes. Believing that a slowing economy
would keep the Fed on hold, or even cause it to reverse course and lower
rates, we extended our maturity in October to be on the average. We
stayed that way through year end, mostly to take advantage of the
year-end bargains and higher yields that we can generally find as
traders clear out their inventory of money-market securities.
[Bar chart at the top of left-hand column with heading "7-Day
Effective Yield." Under the heading is a note that reads "As
of December 31, 2000." The chart is scaled in increments of
2% with 0% at the bottom and 8% at the top. The first bar
represents the 6.17% total return for John Hancock V.A. Money
Market Fund. The second bar represents the 5.91% total return
for Average taxable money-market fund. A note below the chart
reads "The average taxable money-market fund is tracked by
Lipper, Inc. Past performance is no guarantee of future
results."]
"With the
prospect for
additional
rate cuts
real, we plan
to extend our
maturity..."
A look ahead
With the economy slowing down so rapidly, we had anticipated that the
Fed would begin lowering rates at its next meeting in late January. In
fact, just three days after the Fund's year ended, the Fed took the
surprise step of lowering rates by one-half a percentage point in an
aggressive effort to avoid a serious economic downturn. In doing so, the
Fed cited weaker sales, production, consumer confidence and financial
markets, while core inflation remained tame. Even before this move, we
had confidence that the Fed would continue to nimbly manage the
economy's growth and prevent a recession, and this recent action further
bolsters that view. With the prospects for additional rate cuts real, we
plan to extend our maturity to slightly longer than average in an effort
to lock in higher rates. As always, we will continue to focus not only
on providing the Fund with a competitive yield, but also on preserving
stability of principal.
- ------------------------------------------------------------------------
The Fund is neither insured nor guaranteed by the U.S. government.
Although the Fund seeks to maintain a net asset value of $1.00 per
share, it is possible to lose money by investing in the Fund.
BY FREDERICK CAVANAUGH, MANAGEMENT TEAM LEADER,
AND ARTHUR N. CALAVRITINOS, CFA, JANET L. CLAY, CFA, AND DANIEL S. JANIS,
PORTFOLIO MANAGERS
[A 1 1/2" x 3" photo at bottom right side of page of John Hancock
V.A. Strategic Income Fund. Caption below reads "Fred
Cavanaugh."]
John Hancock
V.A. Strategic Income Fund
Treasury securities advance, while high-yield bonds stumble
The past year was a good one for U.S. Treasury securities, which were
boosted initially by the government's debt buyback program and later by
expanding signs that the U.S. economy was slowing. Despite the Federal
Reserve's effort to stave off inflation by raising interest rates
through May 2000, Treasury prices rose as the government scaled back the
frequency and size of its auctions of new debt and bought back billions
of dollars of outstanding debt. Continued debt reduction efforts,
coupled with mounting evidence that economic growth had slacked off and
inflation was non-existent, added steam to the Treasury market in the
second half. By year's end, the market increasingly anticipated that the
Fed would stop raising interest rates in recognition of receding
inflationary pressures, and perhaps even cut them in the near future.
Meanwhile, concern about the outlook for the economy and corporate
profits eroded investor confidence in the high-yield sector. That was
particularly true among high-yield bonds in the telecommunications
sector.
[Table at bottom left-hand column entitled "Top Five
Sectors." The first listing is U.S. Government 49%, the
second is Telecommunications 14%, the third Foreign
Governments 10%, the fourth Utilities 3% and the fifth Media
2%. A note below the table reads "As a percentage of net
assets on December 31, 2000."]
For the most part, foreign government bond markets remained relatively
uninteresting from our standpoint. Western Europe and Asia didn't offer
a lot of value, since their bond yields typically were lower than those
offered in the United States. One foreign bright spot was Canada, which
benefited from relatively low and stable inflation. There also was some
good news out of some Latin American countries, which enjoyed improving
credit fundamentals thanks to the rise in oil prices.
"The high-yield
market's
slump was
difficult to
escape..."
Fund performance
For the 12 months ended December 31, 2000, John Hancock V.A. Strategic
Income Fund posted a total return of 1.40% at net asset value, compared
with the 4.64% return of the average variable annuity general bond fund
income fund, according to Lipper Inc. Historical performance information
can be found on page 47.
Defensive stance
Given the ongoing difficulties suffered by the high-yield market and our
view that more problems may be in store over the near-term, we
continually expanded our defensive posture throughout 2000. By year-end,
we had reduced our exposure to high-yield bonds to about 23% of net
assets, and increasingly gravitated toward more stable, high-quality
investments. Our position in cash and other short-term securities rose
to 10% by the end of the period, up from 1% at the beginning of the
year.
[Bar chart at the top of left-hand column with heading "Fund
Performance." Under the heading is a note that reads "For the
year ended December 31, 2000." The chart is scaled in
increments of 1% with 0% at the bottom and 5% at the top. The
first bar represents the 1.40% total return for John Hancock
V.A. Strategic Income Fund. The second bar represents the
4.64% total return for Average variable annuity general bond
fund. A note below the chart reads "The total return for John
Hancock V.A. Strategic Income Fund is at net asset value with
all distributions reinvested. The average variable annuity
general bond fund is tracked by Lipper, Inc. See the
following page for historical performance information."]
We also increased our Treasury holdings to 49% at the end of the year,
up from 35% at the end of June 2000. We emphasized a combination of
short- and long-term holdings, which was a plus for performance.
Short-term securities rallied on expectations that the Fed would lower
short-term interest rates, while long-term Treasuries turned in strong
performance thanks to the government's buyback program and expectations
for lower interest rates.
"We expect to
maintain our
defensive
stance for
the time
being."
High-yield leaders and laggards
The high-yield market's slump was difficult to escape, although some of
our holdings held up much better than the others. Packaging company
Kappa Beheer, for example, surprised Wall Street with much better than
expected financial results. Natural gas service company Universal
Compression was lifted by the rising price of that fuel. Finally, French
billboard company Go Outdoors Systems Holding and British newspaper
company Regional Independent Media Group each benefited from reasonably
strong advertising and economic growth.
On the flip side, many of our biggest disappointments were
telecommunications holdings. As we mentioned earlier, this sector
stumbled because investors were worried about telecom companies' ability
to raise money to continue the build-out of their networks. Within that
group, the bond prices of Viatel, Primus Telecommunications Group and
Esprit Telecom Group all suffered substantial losses during 2000.
Changes in foreign holdings
Our increase in foreign securities basically was a function of our
purchases of Canadian and Venezuelan government bonds. Canadian bonds,
which were the best performers among foreign bond markets, offered
interest rates competitive with those of U.S. Treasuries and afforded us
the opportunity to increase our holdings in a high-quality market
characterized by low and stable inflation. Our Venezuelan holdings,
which we view as a short-term play, were boosted by the country's
improving creditworthiness as oil prices rose.
A look ahead
We expect to maintain our defensive stance for the time being.
High-yield bonds offer some very attractive values, including some bonds
carrying yields of nearly nine full percentage points more than U.S.
Treasuries. But we don't believe investors will rush back into the
market. We believe they'll take a "wait and see" attitude about how much
the economy will eventually slow and how much the Federal Reserve will
cut interest rates, which it began to do January 3 with a one-half
percentage point cut. But since no one can pinpoint the exact timing of
the next high-yield bond market rally, we'll continue to hold onto some
high-yield bonds that we think have good fundamental prospects and can
perform better once market sentiment turns more favorable. We are
prepared to move even more into lower-quality investments when we think
the time is right. Finally, we'll continue to look for attractive yields
in foreign markets, although we believe Canada still offers the best
value.
- -----------------------------------------------------------------------
International investing involves special risks such as political,
economic and currency risks and differences in accounting standards and
financial reporting.
A LOOK AT PERFORMANCE
For the period ended December 31, 2000
SINCE
ONE INCEPTION
YEAR (8/29/96)
---------- ----------
Cumulative Total Returns 1.40% 32.63%
Average Annual Total Returns(1) 1.40% 6.72%
YIELD
For the period ended December 31, 2000
SEC 30-DAY
YIELD
----------
John Hancock V.A. Strategic Income Fund(1) 7.94%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them.
Note to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25%
(excluding management fee) of the Fund's daily average net assets.
Without the limitation of expenses, the average annual total return
since inception would have been 6.30%. The expense limitation did not
impact the one-year performance.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Strategic Income Fund would be worth, assuming all distributions
were reinvested for the period indicated. For comparison, we've shown
the same $10,000 investment in the Lehman Brothers Government/Corporate
Bond Index -- an unmanaged index that measures the performance of U.S.
government bonds, U.S. corporate bonds and Yankee bonds. It is not
possible to invest in an index.
Line chart with the heading John Hancock V.A. Strategic
Income Fund, representing the growth of a hypothetical
$10,000 investment over the life of the fund. Within the
chart are two lines. The first line represents the Lehman
Brothers Government/Corporate Bond Index and is equal to
$13,760 as of December 31, 2000. The second line represents
the value of the hypothetical $10,000 investment made in the
John Hancock V.A. Strategic Income Fund on August 29, 1996
and is equal to $13,271 as of December 31, 2000.
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Statements of Assets and Liabilities
December 31, 2000
- -------------------------------------------------------------------------------------------------------------------------------
V.A. V.A. V.A. V.A. V.A. V.A. V.A.
CORE EQUITY 500 INDEX LARGE CAP MID CAP RELATIVE SMALL CAP SOVEREIGN
FUND FUND GROWTH FUND GROWTH FUND VALUE FUND GROWTH FUND INVESTORS FUND
----------- ----------- ----------- ----------- ----------- ----------- --------------
Assets:
Investments at value - Note D:
Common stocks
(cost - $36,110,454,
$16,676,006, $12,655,003,
$10,826,748, $43,121,074,
$17,936,487 and
$42,749,147, respectively) $39,953,798 $23,960,835 $12,262,793 $11,416,600 $37,753,769 $19,721,586 $49,516,774
Bonds and U.S. government
Obligations (cost - none, none,
none, none, $401,957, none,
and $401,813, respectively) -- -- -- -- 82,500 -- 404,188
Joint repurchase agreements
(cost - $730,000, $1,121,000,
$95,000, none, none, $144,000
and $5,365,000, respectively) 730,000 1,121,000 95,000 -- -- 144,000 5,365,000
Corporate savings account 735 -- 402 -- -- 527 6
----------- ----------- ----------- ----------- ----------- ----------- -----------
40,684,533 25,081,835 12,358,195 11,416,600 37,836,269 19,866,113 55,285,968
Cash -- 75,533 -- -- -- -- --
Receivable for investments sold 125,803 -- -- 235,949 2,452,116 34,008 --
Receivable for shares sold -- -- -- -- 11,847 -- 26,525
Dividends and interest receivable 45,189 21,814 5,625 1,938 17,815 2,324 74,903
Deferred organization
expenses - Note B 1,413 1,413 1,413 -- -- 1,413 1,413
Receivable from John Hancock
Advisers, Inc. and
affiliates - Note C -- 11,986 -- -- -- -- --
Other Assets 596 705 293 49 352 1,039 721
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets 40,857,534 25,193,286 12,365,526 11,654,536 40,318,399 19,904,897 55,389,530
- -----------------------------------------------------------------------------------------------------------------------------
Liabilities:
Due to custodian -- -- -- 79,105 428,258 -- --
Payable for investments
purchased -- -- -- 45,139 805,157 43,552 --
Payable for shares
repurchased 139,651 29,010 43,803 26,804 5,484 56,605 14,480
Payable for futures variation
margin -- 18,200 -- -- -- -- --
Payable to John Hancock
Advisers, Inc.
and affiliates - Note C 25,142 -- 8,534 5,938 20,643 6,715 29,736
Accounts payable and
accrued expenses 20,191 52,053 8,983 15,700 16,245 26,363 17,210
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities 184,984 99,263 61,320 172,686 1,275,787 133,235 61,426
- -----------------------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 37,693,541 17,418,746 14,462,393 11,596,579 42,471,127 20,227,806 50,814,015
Accumulated net realized gain
(loss) on investments,
financial futures contracts
and foreign currency
transactions (864,138) 367,594 (1,765,886) (704,573) 2,251,057 (2,241,167) (2,255,666)
Net unrealized appreciation
(depreciation) of investments,
financial futures contracts and
foreign currency transactions 3,843,344 7,302,676 (392,210) 589,852 (5,686,762) 1,785,099 6,770,002
Undistributed net investment
Income (distributions in
excess of net
investment income) (197) 5,007 (91) (8) 7,190 (76) (253)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Assets $40,672,550 $25,094,023 $12,304,206 $11,481,850 $39,042,612 $19,771,662 $55,328,098
=============================================================================================================================
Net Asset Value Per Share:
(Based on 2,321,942, 1,547,681,
1,197,751, 761,075 3,669,836,
1,372,971, 3,525,673 shares,
respectively, of beneficial
interest outstanding -
unlimited number of
shares authorized
with no par value) $17.52 $16.21 $10.27 $15.09 $10.64 $14.40 $15.69
=============================================================================================================================
The Statement of Assets and Liabilities is each Fund's balance sheet and
shows the value of what the Fund owns, is due and owes on December 31,
2000. You'll also find the net asset value per share as of that date.
See notes to financial statements.
Statements of Assets and Liabilities (continued)
December 31, 2000
- --------------------------------------------------------------
V.A.
INTERNATIONAL
FUND
-----------------
Assets:
Investments at value - Note D:
Common stocks (cost - $5,094,561) $5,299,410
Short-term investments (cost - $1,022,457) 1,022,457
-----------------
6,321,867
Cash 624
Foreign currency, at value
(cost - $68,187) 66,421
Receivable for investments sold 1,929,937
Dividends and interest receivable 11,621
Deferred organization expenses - Note B 1,413
Receivable from John Hancock Advisers,
Inc. and affiliates - Note C 8,832
Other assets 190
-----------------
Total Assets 8,340,905
- --------------------------------------------------------------
Liabilities:
Payable for shares repurchased 31,392
Payable for securities on loan 933,457
Accounts payable and accrued expenses 46,417
-----------------
Total Liabilities 1,011,266
- --------------------------------------------------------------
Net Assets:
Capital paid-in 7,723,198
Accumulated net realized loss on
investments and foreign currency
transactions (519,368)
Net unrealized appreciation
(depreciation) of investments and
foreign currency transactions 202,894
Distributions in excess of net
investment income (77,085)
-----------------
Net Assets $7,329,639
==============================================================
Net Asset Value Per Share:
(Based on 665,848 shares of beneficial
interest outstanding -- unlimited
number of shares authorized with no
par value) $11.01
==============================================================
See notes to financial statements.
Statements of Assets and Liabilities (continued)
December 31, 2000
- ----------------------------------------------------------------------------------------------------------
V.A. V.A. V.A.
FINANCIAL REGIONAL BANK TECHNOLOGY
INDUSTRIES FUND FUND FUND
----------------- ----------------- -----------------
Assets:
Investments at value - Note D:
Common stocks (cost - $48,938,306,
$10,935,579 and $14,432,054,
respectively) $67,939,052 $13,050,336 $10,542,962
Short-term investments (cost - none,
none and $1,499,369, respectively) -- -- 1,499,369
Joint repurchase agreements (cost -
$3,504,000, $679,000 and $2,747,789,
respectively) 3,504,000 679,000 2,747,789
Corporate savings account 879 382 792
----------------- ----------------- -----------------
71,443,931 13,729,718 14,790,912
Receivable for investments sold -- 36,611 --
Receivable for shares sold 608,712 -- 245,636
Dividends and interest receivable 55,035 26,914 2,290
Other assets 5,891 296 1
----------------- ----------------- -----------------
Total Assets 72,113,569 13,793,539 15,038,839
- ----------------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 684,125 -- 969,180
Payable for shares repurchased -- 36,656 --
Payable to John Hancock Advisers, Inc.
and affiliates - Note C 46,510 9,115 6,564
Accounts payable and accrued expenses 16,338 14,338 21,051
----------------- ----------------- -----------------
Total Liabilities 746,973 60,109 996,795
- ----------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 55,845,481 14,564,298 18,123,471
Accumulated net realized loss on
investments, options and foreign
currency transactions (3,482,390) (2,945,521) (193,630)
Net unrealized appreciation
(depreciation) of investments and
foreign currency transactions 19,000,607 2,114,757 (3,889,092)
Undistributed net investment income
(distributions in excess of net
investment income) 2,898 (104) 1,295
----------------- ----------------- -----------------
Net Assets $71,366,596 $13,733,430 $14,042,044
==========================================================================================================
Net Asset Value Per Share:
(Based on 3,892,145, 1,389,168 and
1,916,254, respectively, of beneficial
interest outstanding -- unlimited
number of shares authorized with no
par value) $18.34 $9.89 $7.33
==========================================================================================================
See notes to financial statements.
Statements of Assets and Liabilities (continued)
December 31, 2000
- --------------------------------------------------------------------------------------------------------------------------------
V.A. V.A. V.A. V.A.
BOND HIGH YIELD MONEY MARKET STRATEGIC
FUND BOND FUND FUND INCOME FUND
----------------- ----------------- ----------------- -----------------
Assets:
Investments at value - Note D:
Common stocks (cost - none, $892,077,
none and $122,883, respectively) -- $680,118 -- $177,413
Preferred stocks and warrants (cost -
$51, $820,929, none and $178,105,
respectively) $475 626,607 -- 104,496
Bonds (cost - $22,605,396, $6,946,112,
none and $31,955,894, respectively) 23,225,973 4,572,675 -- 29,816,857
Short-term investments (cost - none,
none, 61,612,023 and none,
respectively) -- -- $61,612,023 --
Joint repurchase agreements (cost -
$1,606,000, $1,162,000, $6,307,000 and
$3,437,000, respectively) 1,606,000 1,162,000 6,307,000 3,437,000
Corporate savings account 749 951 -- 346
----------------- ----------------- ----------------- -----------------
24,833,197 7,042,351 67,919,023 33,536,112
Cash -- -- 281 --
Foreign currency, at value (cost -
none, $3,732, none and none,
respectively) -- 3,938 -- --
Receivable for shares sold 215,269 -- 6,046,686 145,909
Receivable for forward foreign currency
exchange contracts purchased - Note B -- 2,091 -- 13,525
Dividends and interest receivable 377,403 228,649 17,948 846,545
Deferred organization expenses --
Note B 1,413 -- 1,413 1,413
Other assets 234 129 3,037 1,548
----------------- ----------------- ----------------- -----------------
Total Assets 25,427,516 7,277,158 73,988,388 34,545,052
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 224,459 -- -- --
Payable for shares repurchased -- 10,068 -- 1,258
Distributions payable -- -- 33,176 --
Payable for forward foreign currency
exchange contracts sold - Note B -- 34,228 -- 40,954
Payable to John Hancock Advisers, Inc.
and affiliates - Note C 14,274 2,986 30,177 17,336
Accounts payable and accrued expenses 16,066 11,242 7,703 13,705
----------------- ----------------- ----------------- -----------------
Total Liabilities 254,799 58,524 71,056 73,253
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 24,922,117 10,257,167 73,917,139 37,817,216
Accumulated net realized loss on
investments, options and foreign
currency transactions (391,881) (221,273) -- (1,029,019)
Net unrealized appreciation
(depreciation) of investments and
foreign currency transactions 621,001 (2,812,458) -- (2,190,200)
Undistributed net investment income
(distributions in excess of net
investment income) 21,480 (4,802) 193 (126,198)
----------------- ----------------- ----------------- -----------------
Net Assets $25,172,717 $7,218,634 $73,917,332 $34,471,799
================================================================================================================================
Net Asset Value Per Share:
(Based on 2,445,857, 1,080,247,
73,917,332 and 3,841,771 shares,
respectively, of beneficial interest
outstanding -- unlimited number of
shares authorized with no par value) $10.29 $6.68 $1.00 $8.97
================================================================================================================================
See notes to financial statements.
Statements of Operations
Year ended December 31, 2000
- -------------------------------------------------------------------------------------------------------------------------------
V.A. V.A. V.A. V.A. V.A. V.A. V.A.
CORE EQUITY 500 INDEX LARGE CAP MID CAP RELATIVE SMALL CAP SOVEREIGN
FUND FUND GROWTH FUND GROWTH FUND VALUE FUND GROWTH FUND INVESTORS FUND
----------- ----------- ----------- ----------- ----------- ----------- --------------
Investment Income:
Dividends (net of foreign
Withholding tax of $1,892,
$1,761, $438, $104,
$169, none and $1,865,
respectively) $492,956 $372,756 $55,135 $16,961 $172,226 $11,016 $745,879
Interest 73,783 27,843 18,183 59,766 193,222 46,062 282,891
Securities lending income 831 -- 621 510 27,459 33,144 --
----------- ----------- ----------- ----------- ----------- ----------- -----------
567,570 400,599 73,939 77,237 392,907 90,222 1,028,770
----------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Investment management
fee - Note C 306,248 116,127 148,433 99,566 257,116 213,759 295,467
Custodian fee 25,408 147,126 16,780 26,598 21,881 69,760 16,924
Auditing fee 19,431 15,164 13,432 12,000 18,164 15,000 18,000
Accounting and legal
services fee -Note C 8,230 6,221 3,705 2,504 8,056 5,347 9,273
Printing 4,589 2,048 1,250 4,356 2,174 4,189 1,873
Trustees' fee 2,693 2,236 1,293 439 2,345 1,275 3,214
Miscellaneous 2,163 16,092 1,059 607 2,021 1,377 5,669
Organization expense - Note B 2,141 2,141 2,141 -- -- 2,141 2,141
Legal fees 399 280 169 124 368 230 401
Registration and filing fees 27 27 13 27 127 27 27
Interest Expense -- -- 2,054 79 26,328 1,736 --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Expenses 371,329 307,462 190,329 146,300 338,580 314,841 352,989
- -----------------------------------------------------------------------------------------------------------------------------
Less Expense Reductions - Note C -- (191,146) -- (13,517) -- (29,736) --
- -----------------------------------------------------------------------------------------------------------------------------
Net Expenses 371,329 116,316 190,329 132,783 338,580 285,105 352,989
- -----------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 196,241 284,283 (116,390) (55,546) 54,327 (194,883) 675,781
- -----------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain
(Loss) on Investments,
Financial Futures Contracts and
Foreign Currency Transactions:
Net realized gain
(loss) on investments sold 153,575 571,901 (1,715,484) (691,193) 13,435,050 (2,221,923) (1,886,401)
Net realized loss on
financial futures
contracts -- (61,831) -- -- -- -- --
Net realized loss on
foreign currency
transactions -- -- -- -- (919) -- --
Change in net unrealized
Appreciation (depreciation)
of investments (3,702,349) (3,824,817) (4,414,002) (1,246,996) (15,297,492) (5,140,485) 1,083,527
Change in net unrealized
Appreciation (depreciation)
of financial futures
contracts -- 8,691 -- -- -- -- --
Change in net unrealized
Appreciation (depreciation)
of foreign currency
transactions -- -- -- -- 906 -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Realized and Unrealized
Loss on Investments, Financial
Futures Contracts and Foreign
Currency Transactions (3,548,774) (3,306,056) (6,129,486) (1,938,189) (1,862,455) (7,362,408) (802,874)
- -----------------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ($3,352,533) ($3,021,773) ($6,245,876) $1,993,735) ($1,808,128) ($7,557,291) ($127,093)
- -----------------------------------------------------------------------------------------------------------------------------
The Statement of Operations summarizes for each of the Funds the
investment income earned and expenses incurred in operating the Fund. It
also shows net gains (losses) for the period stated.
See notes to financial statements.
Statements of Operations (continued)
Year ended December 31, 2000
- --------------------------------------------------------------
V.A.
INTERNATIONAL
FUND
-----------------
Investment Income:
Dividends (net of foreign withholding
tax of $15,166) $94,960
Interest 21,961
Securities lending income 4,860
-----------------
121,781
-----------------
Expenses:
Investment management fee - Note C 81,503
Custodian fee 188,289
Auditing fee 13,090
Printing 5,381
Organization expense - Note B 2,141
Accounting and legal services fee - Note C 1,697
Registration and filing fees 573
Trustees' fee 544
Miscellaneous 461
Legal fees 117
-----------------
Total Expenses 293,796
- --------------------------------------------------------------
Less Expense Reductions - Note C (189,610)
- --------------------------------------------------------------
Net Expenses 104,186
- --------------------------------------------------------------
Net Investment Income 17,595
- --------------------------------------------------------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions:
Net realized loss on investments sold (435,585)
Net realized loss on foreign currency
transactions (15,739)
Change in net unrealized appreciation
(depreciation) of investments (2,178,286)
Change in net unrealized appreciation
(depreciation) of foreign currency
transactions (952)
-----------------
Net Realized and Unrealized Loss
on Investments and Foreign Currency
Transactions (2,630,562)
- --------------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ($2,612,967)
==============================================================
See notes to financial statements.
Statements of Operations (continued)
Year ended December 31, 2000
- ----------------------------------------------------------------------------------------------------------
V.A. V.A. V.A.
FINANCIAL REGIONAL BANK TECHNOLOGY
INDUSTRIES FUND FUND FUND
----------------- ----------------- -----------------
Investment Income:
Dividends (net of foreign withholding
tax of $12,422, none and $3,
respectively) $616,349 $375,640 $503
Interest 64,208 38,145 68,818
Securities lending income 5,313 1,734 87
----------------- ----------------- -----------------
685,870 415,519 69,408
----------------- ----------------- -----------------
Expenses:
Investment management fee - Note C 434,813 113,415 33,261
Custodian fee 18,441 11,464 33,980
Auditing fee 17,500 13,000 12,000
Accounting and legal services fee - Note C 10,269 2,660 810
Printing 3,971 1,036 2,276
Trustees' fee 3,058 1,096 61
Miscellaneous 2,209 296 200
Interest Expense 944 738 --
Legal fees 364 -- 61
Registration and filing fees 13 26 14
----------------- ----------------- -----------------
Total Expenses 491,582 143,731 82,663
- ----------------------------------------------------------------------------------------------------------
Less Expense Reductions - Note C -- -- (39,008)
- ----------------------------------------------------------------------------------------------------------
Net Expenses 491,582 143,731 43,655
- ----------------------------------------------------------------------------------------------------------
Net Investment Income 194,288 271,788 25,753
- ----------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
on Investments, Options and Foreign
Currency Transactions:
Net realized gain (loss) on investments
sold and options 692,941 (2,865,401) (193,630)
Net realized gain on foreign currency
transactions 3,958 -- --
Change in net unrealized appreciation
(depreciation) of investments 12,308,867 4,087,137 (3,889,092)
Change in net unrealized appreciation
(depreciation) of foreign currency
transactions (2,383) -- --
----------------- ----------------- -----------------
Net Realized and Unrealized Gain (Loss)
on Investments, Options
and Foreign Currency Transactions 13,003,383 1,221,736 (4,082,722)
- ----------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations $13,197,671 $1,493,524 ($4,056,969)
==========================================================================================================
See notes to financial statements.
Statements of Operations (continued)
Year ended December 31, 2000
- --------------------------------------------------------------------------------------------------------------------------------
V.A. V.A. V.A. V.A.
BOND HIGH YIELD MONEY MARKET STRATEGIC
FUND BOND FUND FUND INCOME FUND
----------------- ----------------- ----------------- -----------------
Investment Income:
Dividends (net of foreign withholding
tax of none, $3,900, none and none,
respectively) -- $123,442 -- $21,652
Interest $1,161,742 986,842 $2,511,902 2,640,081
----------------- ----------------- ----------------- -----------------
1,161,742 1,110,284 2,511,902 2,661,733
----------------- ----------------- ----------------- -----------------
Expenses:
Investment management fee - Note C 80,502 51,368 194,539 165,020
Custodian fee 46,140 16,651 16,717 22,549
Auditing fee 12,164 13,667 8,000 8,000
Accounting and legal services
fee - Note C 3,048 1,605 7,395 5,193
Printing 2,230 1,214 1,232 4,355
Organization expense - Note B 2,141 -- 2,141 2,141
Trustees' fee 835 576 1,950 1,457
Registration and filing fees 790 27 27 27
Miscellaneous 695 457 908 1,352
Legal fees 125 20,928 241 251
----------------- ----------------- ----------------- -----------------
Total Expenses 148,670 106,493 233,150 210,345
- --------------------------------------------------------------------------------------------------------------------------------
Less Expense Reductions - Note C (27,848) (33,670) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net Expenses 120,822 72,823 233,150 210,345
- --------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 1,040,920 1,037,461 2,278,752 2,451,388
- --------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
on Investments, Options and Foreign
Currency Transactions:
Net realized gain (loss) on investments
sold and options (153,038) 13,846 -- (980,624)
Net realized gain on foreign currency
transactions 988 127,478 -- 280,348
Change in net unrealized appreciation
(depreciation) of investments 1,086,406 (1,600,466) -- (1,250,037)
Change in net unrealized appreciation
(depreciation) of foreign currency
transactions (909) (65,941) -- (72,198)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gain (Loss)
on Investments, Options
and Foreign Currency Transactions 933,447 (1,525,083) -- (2,022,511)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations $1,974,367 ($487,622) $2,278,752 $428,877
================================================================================================================================
See notes to financial statements.
Statements of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
V.A. CORE EQUITY FUND V.A. 500 INDEX FUND V.A. LARGE CAP GROWTH FUND
--------------------------- --------------------------- ---------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------- --------------------------- ---------------------------
1999 2000 1999 2000 1999 2000
----------- ----------- ----------- ----------- ----------- -----------
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) $170,261 $196,241 $344,397 $284,283 ($40,884) ($116,390)
Net realized gain (loss) on
investments sold and financial
futures contracts 1,489,402 153,575 91,519 510,070 1,316,751 (1,715,484)
Change in net unrealized
appreciation (depreciation) of
investments and financial futures
contracts 3,097,564 (3,702,349) 5,755,226 (3,816,126) 1,878,149 (4,414,002)
----------- ----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) in Net
Assets Resulting from Operations 4,757,227 (3,352,533) 6,191,142 (3,021,773) 3,154,016 (6,245,876)
----------- ----------- ----------- ----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment
income (174,331) (199,287) (344,375) (279,659) -- --
Distributions in excess of net
investment income (86) -- -- -- -- --
Distributions from net realized
gain on investments sold and
financial futures contracts (895,808) (695,716) (231,893) (92,786) (491,445) (643,661)
Distributions in excess of net
realized gain on investments
sold, financial futures contracts -- (844,741) (15,178) -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions to
Shareholders (1,070,225) (1,739,744) (591,446) (372,445) (491,445) (643,661)
----------- ----------- ----------- ----------- ----------- -----------
From Fund Share Transactions: **
Shares sold 21,277,999 11,671,817 13,349,010 2,172,521 10,666,325 5,563,562
Shares issued to shareholders in
reinvestment of distributions 1,070,225 1,739,743 591,446 372,407 491,445 643,661
----------- ----------- ----------- ----------- ----------- -----------
22,348,224 13,411,560 13,940,456 2,544,928 11,157,770 6,207,223
Less shares repurchased (7,735,163) (12,638,050) (8,044,099) (12,009,903) (2,320,226) (8,885,412)
----------- ----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) 14,613,061 773,510 5,896,357 (9,464,975) 8,837,544 (2,678,189)
----------- ----------- ----------- ----------- ----------- -----------
Net Assets:
Beginning of period 26,691,254 44,991,317 26,457,163 37,953,216 10,371,817 21,871,932
----------- ----------- ----------- ----------- ----------- -----------
End of period (including
undistributed net investment
income (distributions in excess
of net investment income) of
($85), ($197), $335, $5,007,
($41) and ($91), respectively) $44,991,317 $40,672,550 $37,953,216 $25,094,023 $21,871,932 $12,304,206
----------- ----------- ----------- ----------- ----------- -----------
* Distributions to Shareholders:
Per share dividends from net
investment income $0.0861 $0.0888 $0.1710 $0.1530 -- --
----------- ----------- ----------- ----------- ----------- -----------
Per share dividends in excess of
net investment income $0.0001 -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Per share distributions from net
realized gain on investments sold
and financial futures contracts $0.4028 $0.6886 $0.1105 $0.0585 $0.3598 $0.5666
----------- ----------- ----------- ----------- ----------- -----------
Per share distributions in excess
of net realized gain on
investments sold and financial
futures contracts -- -- $0.0072 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
** Analysis of Fund Share
Transactions:
Shares sold 1,133,853 601,375 816,451 123,028 738,312 376,363
Shares issued to shareholders in
reinvestment of distributions 55,765 99,280 34,866 21,738 31,974 62,310
----------- ----------- ----------- ----------- ----------- -----------
1,189,618 700,655 851,317 144,766 770,286 438,673
Less shares repurchased (410,573) (662,061) (490,081) (694,943) (158,856) (628,273)
----------- ----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) 779,045 38,594 361,236 (550,177) 611,430 (189,600)
=========== =========== =========== =========== =========== ===========
See notes to financial statements.
Statements of Changes in Net Assets (continued)
- ---------------------------------------------------------------------------------------------------------------------------------
V.A. MID CAP GROWTH FUND V.A. RELATIVE VALUE FUND V.A. SMALL CAP GROWTH FUND
--------------------------- --------------------------- ---------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------- --------------------------- ---------------------------
1999 2000 1999 2000 1999 2000
----------- ----------- ----------- ----------- ----------- -----------
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ($6,426) ($55,546) $161,304 $54,327 ($82,296) ($194,883)
Net realized gain (loss) on
investments sold and foreign
currency transactions 187,318 (691,193) 5,322,397 13,434,131 2,352,183 (2,221,923)
Change in net unrealized
appreciation (depreciation) of
investments and foreign currency
transactions 1,607,019 (1,246,996) 7,741,197 (15,296,586) 5,122,311 (5,140,485)
---------- ----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) in Net
Assets Resulting from Operations 1,787,911 (1,993,735) 13,224,898 (1,808,128) 7,392,198 (7,557,291)
---------- ----------- ----------- ----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment
income -- -- (162,651) (42,822) -- --
Distributions from net realized
gain on investments sold and
foreign currency transactions (5,407) (78,273) (1,365,816) (15,128,734) (441,478) (1,193,201)
---------- ----------- ----------- ----------- ----------- -----------
Total Distributions to
Shareholders (5,407) (78,273) (1,528,467) (15,171,556) (441,478) (1,193,201)
---------- ----------- ----------- ----------- ----------- -----------
From Fund Share Transactions: **
Shares sold 3,390,736 12,664,811 12,838,972 13,227,216 7,383,931 18,612,044
Shares issued to shareholders in
reinvestment of distributions 5,407 78,273 1,528,467 15,171,557 441,478 1,193,201
---------- ----------- ----------- ----------- ----------- -----------
3,396,143 12,743,084 14,367,439 28,398,773 7,825,409 19,805,245
Less shares repurchased (594,918) (5,552,026) (4,666,018) (11,142,581) (2,141,408) (12,149,701)
---------- ----------- ----------- ----------- ----------- -----------
Net Increase 2,801,225 7,191,058 9,701,421 17,256,192 5,684,001 7,655,544
---------- ----------- ----------- ----------- ----------- -----------
Net Assets:
Beginning of period 1,779,071 6,362,800 17,368,252 38,766,104 8,231,889 20,866,610
---------- ----------- ----------- ----------- ----------- -----------
End of period (including
undistributed net investment
income (distributions in excess
of net investment income) of
none, ($8), ($3,436), $7,190,
($40) and ($76), respectively) $6,362,800 $11,481,850 $38,766,104 $39,042,612 $20,866,610 $19,771,662
---------- ----------- ----------- ----------- ----------- -----------
* Distributions to Shareholders:
Per share dividends from net
investment income -- -- $0.0980 $0.0186 -- --
---------- ----------- ----------- ----------- ----------- -----------
Per share distributions from net
realized gain on investments sold
and foreign currency transactions $0.0160 $0.1010 $0.6493 $6.5883 $0.4314 $0.9031
---------- ----------- ----------- ----------- ----------- -----------
** Analysis of Fund Share
Transactions:
Shares sold 257,673 699,219 949,975 744,370 499,482 888,422
Shares issued to shareholders in
reinvestment of distributions 329 5,222 91,349 1,406,946 23,955 86,905
---------- ----------- ----------- ----------- ----------- -----------
258,002 704,441 1,041,324 2,151,316 523,437 975,327
Less shares repurchased (49,945) (313,149) (334,023) (631,982) (153,686) (658,355)
---------- ----------- ----------- ----------- ----------- -----------
Net Increase 208,057 391,292 707,301 1,519,334 369,751 316,972
========== =========== =========== =========== =========== ===========
The Statement of Changes in Net Assets shows how the value of each
Fund's net assets has changed since the end of the previous period. The
difference reflects earnings less expenses, any investment and foreign
currency gains and losses, distributions paid to shareholders, if any,
and any increase or decrease in money shareholders invested in each
Fund. The footnotes illustrate the number of Fund shares sold,
reinvested and repurchased during the last two periods, along with the
per share amount of distributions made to shareholders of each Fund for
the periods indicated.
See notes to financial statements.
Statements of Changes in Net Assets (continued)
- ---------------------------------------------------------------------------------------------------------------------------------
V.A. SOVEREIGN INVESTORS FUND V.A. INTERNATIONAL FUND V.A. FINANCIAL INDUSTRIES FUND
----------------------------- --------------------------- ------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------- --------------------------- ---------------------------
1999 2000 1999 2000 1999 2000
----------- ----------- ----------- ----------- ----------- -----------
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $651,984 $675,781 $38,442 $17,595 $385,825 $194,288
Net realized gain (loss) on
investments sold and foreign
currency transactions (211,594) (1,886,401) 681,683 (451,324) (3,550,224) 696,899
Change in net unrealized
appreciation (depreciation) of
investments and foreign currency
transactions 1,075,319 1,083,527 1,497,165 (2,179,238) 3,537,348 12,306,484
----------- ----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) in Net
Assets Resulting from Operations 1,515,709 (127,093) 2,217,290 (2,612,967) 372,949 13,197,671
----------- ----------- ----------- ----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment
income (651,984) (678,637) (46,076) (107,471) (362,866) (169,614)
Distributions in excess of net
investment income (617) -- (9,515) -- -- --
Distributions from net realized
gain on investments sold and
foreign currency transactions -- -- (259,599) (238,923) (153,776) --
Tax return of capital (2,297) -- -- -- (23,257) --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions to
Shareholders (654,898) (678,637) (315,190) (346,394) (539,899) (169,614)
----------- ----------- ----------- ----------- ----------- -----------
From Fund Share Transactions: **
Shares sold 19,084,625 16,811,905 1,131,817 1,932,741 10,055,880 20,739,283
Shares issued to shareholders in
reinvestment of distributions 654,898 678,636 315,190 346,394 539,899 169,614
----------- ----------- ----------- ----------- ----------- -----------
19,739,523 17,490,541 1,447,007 2,279,135 10,595,779 20,908,897
Less shares repurchased (4,515,757) (11,610,910) (1,175,008) (1,364,748) (15,685,364) (11,882,798)
----------- ----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) 15,223,766 5,879,631 271,999 914,387 (5,089,585) 9,026,099
----------- ----------- ----------- ----------- ----------- -----------
Net Assets:
Beginning of period 34,169,620 50,254,197 7,200,514 9,374,613 54,568,975 49,312,440
----------- ----------- ----------- ----------- ----------- -----------
End of period (including
undistributed net investment
income (distributions in excess
of net investment income) of
($105), ($253), ($46,722),
($80,691), ($2,491) and $2,898,
respectively) $50,254,197 $55,328,098 $9,374,613 $7,329,639 $49,312,440 $71,366,596
----------- ----------- ----------- ----------- ----------- -----------
* Distributions to Shareholders:
Per share dividends from net
investment income $0.2404 $0.2077 $0.0791 $0.1684 $0.1078 $0.0450
----------- ----------- ----------- ----------- ----------- -----------
Per share distributions in excess
of net investment income $0.0002 -- $0.0163 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Per share distributions from net
realized gain on investments sold
and foreign currency transactions -- -- $0.4454 $0.3744 -- --
----------- ----------- ----------- ----------- ----------- -----------
Tax return of capital $0.0009 -- -- -- $0.0069 --
----------- ----------- ----------- ----------- ----------- -----------
** Analysis of Fund Share
Transactions:
Shares sold 1,204,042 1,103,469 86,360 131,349 691,929 1,252,923
Shares issued to shareholders in
reinvestment of distributions 42,073 44,976 21,633 31,955 38,926 9,578
----------- ----------- ----------- ----------- ----------- -----------
1,246,115 1,148,445 107,993 163,304 730,855 1,262,501
Less shares repurchased (285,296) (771,887) (92,089) (104,357) (1,096,716) (779,897)
----------- ----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) 960,819 376,558 15,904 58,947 (365,861) 482,604
=========== =========== =========== =========== =========== ===========
See notes to financial statements.
Statements of Changes in Net Assets (continued)
- -----------------------------------------------------------------------------------------------------------------
V.A.
TECHNOLOGY
V.A. REGIONAL BANK FUND FUND V.A. BOND FUND
--------------------------- ------------ ---------------------------
YEAR ENDED DECEMBER 31, PERIOD ENDED YEAR ENDED DECEMBER 31,
--------------------------- DECEMBER 31, ---------------------------
1999 2000 2000(1) 1999 2000
----------- ----------- ------------ ----------- -----------
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $281,620 $271,788 $25,753 $740,529 $1,040,920
Net realized gain (loss) on
investments sold, options and
foreign currency transactions 232,178 (2,865,401) (193,630) (216,376) (152,050)
Change in net unrealized
appreciation (depreciation) of
investments and foreign currency
transactions (1,578,109) 4,087,137 (3,889,092) (583,796) 1,085,497
----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) in Net
Assets Resulting from Operations (1,064,311) 1,493,524 (4,056,969) (59,643) 1,974,367
----------- ----------- ----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment
income (281,482) (275,181) (24,458) (740,530) (1,040,858)
Distributions from net realized
gain on investments sold, options
and foreign currency transactions (347,453) -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Distributions to
Shareholders (628,935) (275,181) (24,458) (740,530) (1,040,858)
----------- ----------- ----------- ----------- -----------
From Fund Share Transactions: **
Shares sold 7,383,736 1,198,441 18,589,255 5,640,516 13,994,748
Shares issued to shareholders in
reinvestment of distributions 628,935 275,181 24,458 740,530 1,040,858
----------- ----------- ----------- ----------- -----------
8,012,671 1,473,622 18,613,713 6,381,046 15,035,606
Less shares repurchased (6,280,747) (9,253,630) (490,242) (3,719,713) (3,326,986)
----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) 1,731,924 (7,780,008) 18,123,471 2,661,333 11,708,620
----------- ----------- ----------- ----------- -----------
Net Assets:
Beginning of period 20,256,417 20,295,095 -- 10,669,428 12,530,588
----------- ----------- ----------- ----------- -----------
End of period (including
undistributed net investment
income of $3,154, ($209), $1,295,
$21,494 and $21,556,
respectively) $20,295,095 $13,733,430 $14,042,044 $12,530,588 $25,172,717
----------- ----------- ----------- ----------- -----------
* Distributions to Shareholders:
Per share dividends from net
investment income $0.1190 $0.1686 $0.0143 $0.6448 $0.6434
----------- ----------- ----------- ----------- -----------
Per share distributions from net
realized gain on investments
sold, options and foreign
currency transactions $0.1489 -- -- -- --
----------- ----------- ----------- ----------- -----------
** Analysis of Fund Share
Transactions:
Shares sold 798,204 150,452 1,961,452 556,313 1,400,901
Shares issued to shareholders in
reinvestment of distributions 73,089 33,504 3,292 73,574 104,450
----------- ----------- ----------- ----------- -----------
871,293 183,956 1,964,744 629,887 1,505,351
Less shares repurchased (683,009) (1,166,423) (48,490) (367,396) (336,738)
----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) 188,284 (982,467) 1,916,254 262,491 1,168,613
=========== =========== =========== =========== ===========
(1) Commenced operations on May 1, 2000.
See notes to financial statements.
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------------------------------------------------------
V.A. HIGH YIELD BOND FUND V.A. MONEY MARKET FUND V.A. STRATEGIC INCOME FUND
--------------------------- --------------------------- ---------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------- --------------------------- ---------------------------
1999 2000 1999 2000 1999 2000
----------- ----------- ----------- ----------- ----------- -----------
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $951,874 $1,037,461 $1,072,850 $2,278,752 $1,576,575 $2,451,388
Net realized gain (loss) on
investments sold, options and
foreign currency transactions 104,240 141,324 -- -- (156,823) (700,276)
Change in net unrealized
appreciation (depreciation) of
investments and foreign currency
transactions 59,411 (1,666,407) -- -- (534,751) (1,322,235)
----------- ----------- ----------- ------------ ----------- -----------
Net Increase (Decrease) in Net
Assets Resulting from Operations 1,115,525 (487,622) 1,072,850 2,278,752 885,001 428,877
----------- ----------- ----------- ------------ ----------- -----------
Distributions to Shareholders: *
Dividends from net investment
income (945,546) (1,039,972) (1,072,850) (2,278,752) (1,576,590) (2,359,734)
Tax Return of Capital -- -- -- -- -- (91,654)
Distributions from net realized
gain on investments sold, options
and foreign currency transactions (74,253) (241,224) -- -- -- (350,215)
----------- ----------- ----------- ------------ ----------- -----------
Total Distributions to
Shareholders (1,019,799) (1,281,196) (1,072,850) (2,278,752) (1,576,590) (2,801,603)
----------- ----------- ----------- ------------ ----------- -----------
From Fund Share Transactions: **
Shares sold 2,548,352 858,489 48,097,999 188,358,513 8,665,787 14,978,386
Shares issued in
reorganization - Note F -- -- -- -- 2,569,836 --
Shares issued to shareholders in
reinvestment of distributions 1,019,800 1,281,195 944,404 2,374,022 1,576,592 2,801,603
----------- ----------- ----------- ------------ ----------- -----------
3,568,152 2,139,684 49,042,403 190,732,535 12,812,215 17,779,989
Less shares repurchased (2,496,893) (2,438,764) (32,610,270) (149,766,710) (4,858,040) (3,217,447)
----------- ----------- ----------- ------------ ----------- -----------
Net Increase (Decrease) 1,071,259 (299,080) 16,432,133 40,965,825 7,954,175 14,562,542
----------- ----------- ----------- ------------ ----------- -----------
Net Assets:
Beginning of period 8,119,547 9,286,532 16,519,374 32,951,507 15,019,397 22,281,983
----------- ----------- ----------- ------------ ----------- -----------
End of period (including
undistributed net investment
income (distributions in excess
of net investment income) of
$5,028, $33,938, $52, $193,
($47,169) and ($126,198),
respectively) $9,286,532 $7,218,634 $32,951,507 $73,917,332 $22,281,983 $34,471,799
----------- ----------- ----------- ------------ ----------- -----------
* Distributions to Shareholders:
Per share dividends from net
investment income $0.8767 $0.9394 $0.0452 $0.0576 $0.7977 $0.8345
----------- ----------- ----------- ------------ ----------- -----------
Per share distributions from net
realized gain on investments
sold, options and foreign
currency transactions $0.0657 $0.2290 -- -- -- $0.0945
----------- ----------- ----------- ------------ ----------- -----------
** Analysis of Fund Share
Transactions:
Shares sold 305,760 110,078 48,097,999 188,358,513 872,439 1,598,355
Shares issued in
reorganization - Note F -- -- -- -- 253,313 --
Shares issued to shareholders in
reinvestment of distributions 122,160 172,859 94,404 2,374,022 159,651 302,236
----------- ----------- ----------- ------------ ----------- -----------
427,920 282,937 48,192,403 190,732,535 1,285,403 1,900,591
Less shares repurchased (297,910) (320,600) (32,610,270) (149,766,710) (491,471) (339,848)
----------- ----------- ----------- ------------ ----------- -----------
Net Increase (Decrease) 130,010 (37,663) 15,582,133 40,965,825 793,932 1,560,743
=========== =========== =========== ============ =========== ===========
See notes to financial statements.
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- -----------------------------------------------------------------------------------------------------------------------
V.A. CORE EQUITY FUND
-------------------------------------------------------------------------------------
PERIOD
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------------------------------------
1996(1) 1997 1998 1999 2000
------------- ------------- ------------- ------------- -------------
Per Share Operating Performance
Net Asset Value, Beginning
of Period $10.00 $11.11 $14.11 $17.74 $19.70
------------- ------------- ------------- ------------- -------------
Net Investment Income(2) 0.06 0.16 0.10 0.09 0.08
Net Realized and Unrealized
Gain (Loss) on Investments 1.12 3.23 3.90 2.36 (1.48)
------------- ------------- ------------- ------------- -------------
Total from Investment
Operations 1.18 3.39 4.00 2.45 (1.40)
------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.06) (0.14) (0.10) (0.09) (0.09)
Distributions in Excess of
Net Investment Income -- -- -- --(3) --
Distributions from Net
Realized Gain on
Investments Sold (0.01) (0.25) (0.27) (0.40) (0.31)
Distributions in Excess of
Net Realized Gain on
Investments Sold -- -- -- -- (0.38)
------------- ------------- ------------- ------------- -------------
Total Distributions (0.07) (0.39) (0.37) (0.49) (0.78)
------------- ------------- ------------- ------------- -------------
Net Asset Value, End of
Period $11.11 $14.11 $17.74 $19.70 $17.52
============= ============= ============= ============= =============
Total Investment Return(4) 11.78%(5,6) 30.68%(6) 28.42% 13.89% (7.11%)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $1,149 $8,719 $26,691 $44,991 $40,673
Ratio of Expenses to Average
Net Assets 0.95%(7) 0.95% 0.95% 0.83% 0.85%
Ratio of Adjusted Expenses
to Average Net Assets(8) 4.23%(7) 1.59% -- -- --
Ratio of Net Investment
Income to Average Net
Assets 1.60%(7) 1.24% 0.65% 0.47% 0.45%
Portfolio Turnover Rate 24% 53% 55% 77% 97%
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) Not annualized.
(6) The total returns would have been lower had certain expenses not
been reduced during the periods shown.
(7) Annualized.
(8) Does not take into consideration expense reductions during the
periods shown.
The Financial Highlights summarizes the impact of the following factors
on a single share for each period indi cated: net investment income,
gains (losses), distributions and total investment return of each Fund.
It shows how the Fund's net asset value for a share has changed since
the end of the previous period. Additionally, important rela tionships
between some items presented in the financial statements are expressed
in ratio form.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- -----------------------------------------------------------------------------------------------------------------------
V.A. 500 INDEX FUND
-------------------------------------------------------------------------------------
PERIOD
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------------------------------------
1996(1) 1997 1998 1999 2000
------------- ------------- ------------- ------------- -------------
Per Share Operating Performance
Net Asset Value, Beginning
of Period $10.00 $10.44 $12.62 $15.23 $18.09
------------- ------------- ------------- ------------- -------------
Net Investment Income(2) 0.17 0.30 0.20 0.17 0.14
Net Realized and Unrealized
Gain (Loss) on Investments 0.98 2.72 3.37 2.98 (1.81)
------------- ------------- ------------- ------------- -------------
Total from Investment
Operations 1.15 3.02 3.57 3.15 (1.67)
------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.16) (0.30) (0.20) (0.17) (0.15)
Distributions from Net
Realized Gain on
Investments Sold (0.55) (0.54) (0.76) (0.11) (0.06)
Distributions in Excess of
Net Realized Gain on
Investments Sold -- -- -- (0.01) --
------------- ------------- ------------- ------------- -------------
Total Distributions (0.71) (0.84) (0.96) (0.29) (0.21)
------------- ------------- ------------- ------------- -------------
Net Asset Value, End of
Period $10.44 $12.62 $15.23 $18.09 $16.21
============= ============= ============= ============= =============
Total Investment Return(3,4) 11.49%(5) 29.51% 28.44% 20.81% (9.28%)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $4,049 $20,008 $26,457 $37,953 $25,094
Ratio of Expenses to Average
Net Assets 0.60%(6) 0.36% 0.35% 0.35% 0.35%
Ratio of Adjusted Expenses
to Average Net Assets(7) 1.31%(6) 0.83% 0.92% 0.75% 0.93%
Ratio of Net Investment
Income to Average Net
Assets 4.57%(6) 2.45% 1.44% 1.06% 0.86%
Portfolio Turnover Rate 0% 9% 47% 5% 7%
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) The total returns would have been lower had certain expenses not
been reduced during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Does not take into consideration expense reductions during the
periods shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- -----------------------------------------------------------------------------------------------------------------------
V.A. LARGE CAP GROWTH FUND
-------------------------------------------------------------------------------------
PERIOD
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------------------------------------
1996(1) 1997 1998 1999 2000
------------- ------------- ------------- ------------- -------------
Per Share Operating Performance
Net Asset Value, Beginning
of Period $10.00 $9.39 $10.73 $13.37 $15.77
------------- ------------- ------------- ------------- -------------
Net Investment Loss(2) (0.01) (0.04) --(3) (0.04) (0.08)
Net Realized and Unrealized
Gain (Loss) on Investments (0.60) 1.38 2.64 2.80 (4.85)
------------- ------------- ------------- ------------- -------------
Total from Investment
Operations (0.61) 1.34 2.64 2.76 (4.93)
------------- ------------- ------------- ------------- -------------
Less Distributions:
Distributions from Net
Realized Gain on
Investments Sold -- -- -- (0.36) (0.57)
------------- ------------- ------------- ------------- -------------
Net Asset Value, End of
Period $9.39 $10.73 $13.37 $15.77 $10.27
============= ============= ============= ============= =============
Total Investment Return(4) (6.10%)(5,6) 14.27%(6) 24.60%(6) 20.71%(6) (31.30%)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $994 $3,733 $10,372 $21,872 $12,304
Ratio of Expenses to Average
Net Assets 1.00%(7) 1.00% 1.00% 1.00% 0.96%
Ratio of Adjusted Expenses
to Average Net Assets(8) 4.76%(7) 2.37% 1.33% 1.02% --
Ratio of Net Investment Loss
to Average Net Assets (0.23%)(7) (0.39%) (0.00%) (0.25%) (0.59%)
Portfolio Turnover Rate 68% 136% 176% 172% 170%
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) Not annualized.
(6) The total returns would have been lower had certain expenses not
been reduced during the periods shown.
(7) Annualized.
(8) Does not take into consideration expense reductions during the
periods shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- -----------------------------------------------------------------------------------
V.A. MID CAP GROWTH FUND
-------------------------------------------------
PERIOD
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------
1998(1) 1999 2000
- -----------------------------------------------------------------------------------
Per Share Operating Performance
Net Asset Value, Beginning
of Period $10.00 $11.03 $17.21
------------- ------------- -------------
Net Investment Income
(Loss)(2) 0.01 (0.03) (0.08)
Net Realized and Unrealized
Gain (Loss) on Investments 1.03 6.23 (1.94)
------------- ------------- -------------
Total from Investment
Operations 1.04 6.20 (2.02)
------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.01) -- --
Distributions from Net
Realized Gain on
Investments Sold -- (0.02) (0.10)
Tax Return of Capital --(3) -- --
------------- ------------- -------------
Total Distributions (0.01) (0.02) (0.10)
------------- ------------- -------------
Net Asset Value, End of
Period $11.03 $17.21 $15.09
============= ============= =============
Total Investment Return(4,5) 10.35%(6) 56.18% (11.73%)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $1,779 $6,363 $11,482
Ratio of Expenses to Average
Net Assets 1.00%(7) 1.00% 1.00%
Ratio of Adjusted Expenses
to Average Net Assets(8) 4.23%(7) 2.36% 1.10%
Ratio of Net Investment
Income (Loss) to Average
Net Assets 0.06%(7) (0.23%) (0.42%)
Portfolio Turnover Rate 103% 136% 155%
(1) Commenced operations on January 7, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) The total returns would have been lower had certain expenses not
been reduced during the periods shown.
(6) Not annualized.
(7) Annualized.
(8) Does not take into consideration expense reductions during the
periods shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- -----------------------------------------------------------------------------------
V.A. RELATIVE VALUE FUND
-------------------------------------------------
PERIOD
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------
1998(1) 1999 2000
- -----------------------------------------------------------------------------------
Per Share Operating Performance
Net Asset Value, Beginning
of Period $10.00 $12.03 $18.03
------------- ------------- -------------
Net Investment Income(2) 0.11 0.10 0.02
Net Realized and Unrealized
Gain (Loss) on Investments 2.02 6.65 (0.80)
------------- ------------- -------------
Total from Investment
Operations 2.13 6.75 (0.78)
------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.10) (0.10) (0.02)
Distributions from Net
Realized Gain on
Investments Sold -- (0.65) (6.59)
------------- ------------- -------------
Total Distributions (0.10) (0.75) (6.61)
------------- ------------- -------------
Net Asset Value, End of
Period $12.03 $18.03 $10.64
============= ============= =============
Total Investment Return(3) 21.39%(4,5) 56.65% (4.80%)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $17,368 $38,766 $39,043
Ratio of Expenses to Average
Net Assets 0.85%(6) 0.77% 0.79%
Ratio of Adjusted Expenses
to Average Net Assets(7) 1.03%(6) -- --
Ratio of Net Investment
Income to Average Net
Assets 1.17%(6) 0.66% 0.13%
Portfolio Turnover Rate 242% 166% 164%
(1) Commenced operations on January 6, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) Not annualized.
(5) The total return would have been lower had certain expenses not been
reduced during the period shown.
(6) Annualized.
(7) Does not take into consideration expense reductions during the period shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- -----------------------------------------------------------------------------------------------------------------------
V.A. SMALL CAP GROWTH FUND
-------------------------------------------------------------------------------------
PERIOD
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------------------------------------
1996(1) 1997 1998 1999 2000
------------- ------------- ------------- ------------- -------------
Per Share Operating Performance
Net Asset Value, Beginning
of Period $10.00 $9.32 $10.35 $12.00 $19.76
------------- ------------- ------------- ------------- -------------
Net Investment Income
(Loss)(2) 0.02 (0.02) (0.06) (0.10) (0.13)
Net Realized and Unrealized
Gain (Loss) on Investments (0.68) 1.05 1.71 8.29 (4.33)
------------- ------------- ------------- ------------- -------------
Total from Investment
Operations (0.66) 1.03 1.65 8.19 (4.46)
------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.02) --(3) -- -- --
Distributions from Net
Realized Gain on
Investments Sold -- -- -- (0.43) (0.90)
------------- ------------- ------------- ------------- -------------
Total Distributions to
Shareholders (0.02) -- -- (0.43) (0.90)
------------- ------------- ------------- ------------- -------------
Net Asset Value, End of
Period $9.32 $10.35 $12.00 $19.76 $14.40
============= ============= ============= ============= =============
Total Investment Return(4,5) (6.62%)(6) 11.06% 15.94% 68.52% (22.33%)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $975 $3,841 $8,232 $20,867 $19,772
Ratio of Expenses to Average
Net Assets 1.00%(7) 1.00% 1.00% 1.00% 1.00%
Ratio of Adjusted Expenses
to Average Net Assets(8) 5.19%(7) 2.72% 1.63% 1.38% 1.10%
Ratio of Net Investment
Income (Loss) to Average
Net Assets 0.62%(7) (0.16%) (0.59%) (0.76%) (0.68%)
Portfolio Turnover Rate 31% 79% 93% 120% 104%
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) The total returns would have been lower had certain expenses not
been reduced during the periods shown.
(6) Not annualized.
(7) Annualized.
(8) Does not take into consideration expense reductions during the
periods shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- -----------------------------------------------------------------------------------------------------------------------
V.A. SOVEREIGN INVESTORS FUND
-------------------------------------------------------------------------------------
PERIOD
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------------------------------------
1996(1) 1997 1998 1999 2000
------------- ------------- ------------- ------------- -------------
Per Share Operating Performance
Net Asset Value, Beginning
of Period $10.00 $10.74 $13.59 $15.61 $15.96
------------- ------------- ------------- ------------- -------------
Net Investment Income(2) 0.07 0.22 0.27 0.24 0.21
Net Realized and Unrealized
Gain (Loss) on Investments 0.76 2.82 2.00 0.35 (0.27)
------------- ------------- ------------- ------------- -------------
Total from Investment
Operations 0.83 3.04 2.27 0.59 (0.06)
------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.07) (0.18) (0.25) (0.24) (0.21)
Distributions in Excess of
Net Investment Income -- -- -- --(3) --
Distributions from Net
Realized Gain on
Investments Sold (0.02) (0.01) -- -- --
Tax Return of Capital -- -- -- --(3) --
------------- ------------- ------------- ------------- -------------
Total Distributions (0.09) (0.19) (0.25) (0.24) (0.21)
------------- ------------- ------------- ------------- -------------
Net Asset Value, End of
Period $10.74 $13.59 $15.61 $15.96 $15.69
============= ============= ============= ============= =============
Total Investment Return(4) 8.30%(5,6) 28.43%(6) 16.88% 3.84% (0.33%)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $1,111 $12,187 $34,170 $50,254 $55,328
Ratio of Expenses to Average
Net Assets 0.85%(7) 0.85% 0.74% 0.70% 0.72%
Ratio of Adjusted Expenses
to Average Net Assets(8) 3.78%(7) 1.16% -- -- --
Ratio of Net Investment
Income to Average Net
Assets 1.90%(7) 1.81% 1.88% 1.57% 1.37%
Portfolio Turnover Rate 17% 11% 19% 26% 46%
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) Not annualized.
(6) The total returns would have been lower had certain expenses not
been reduced during the periods shown.
(7) Annualized.
(8) Does not take into consideration expense reductions during the
periods shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- -----------------------------------------------------------------------------------------------------------------------
V.A. INTERNATIONAL FUND
-------------------------------------------------------------------------------------
PERIOD
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------------------------------------
1996(1) 1997 1998 1999 2000
------------- ------------- ------------- ------------- -------------
Per Share Operating Performance
Net Asset Value, Beginning
of Period $10.00 $11.23 $10.50 $12.18 $15.45
------------- ------------- ------------- ------------- -------------
Net Investment Income(2) 0.07 0.05 0.07 0.07 0.03
Net Realized and Unrealized
Gain (Loss) on Investments 1.20 (0.13) 1.69 3.75 (3.93)
------------- ------------- ------------- ------------- -------------
Total from Investment
Operations 1.27 (0.08) 1.76 3.82 (3.90)
------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.04) (0.01) (0.07) (0.08) (0.17)
Dividends in Excess of Net
Investment Income -- -- (0.01) (0.02) --
Distributions from Net
Realized Gain on
Investments Sold -- (0.64) -- (0.45) (0.37)
------------- ------------- ------------- ------------- -------------
Total Distributions (0.04) (0.65) (0.08) (0.55) (0.54)
------------- ------------- ------------- ------------- -------------
Net Asset Value, End of
Period $11.23 $10.50 $12.18 $15.45 $11.01
============= ============= ============= ============= =============
Total Investment Return(3,4) 12.75%(5) (0.54%) 16.75% 31.55% (25.17%)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $2,267 $3,792 $7,201 $9,375 $7,330
Ratio of Expenses to Average
Net Assets 1.15%(6) 1.15% 1.15% 1.15% 1.15%
Ratio of Adjusted Expenses
to Average Net Assets(7) 3.13%(6) 2.04% 3.13% 2.51% 3.24%
Ratio of Net Investment
Income to Average Net
Assets 2.03%(6) 0.43% 0.59% 0.52% 0.19%
Portfolio Turnover Rate 14% 273% 89% 116% 177%
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) The total returns would have been lower had certain expenses not
been reduced during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Does not take into consideration expense reductions during the
periods shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- -----------------------------------------------------------------------------------------------------
V.A. FINANCIAL INDUSTRIES FUND
-------------------------------------------------------------------
PERIOD
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------------------
1997(1) 1998 1999 2000
------------- ------------- ------------- -------------
Per Share Operating Performance
Net Asset Value, Beginning
of Period $10.00 $13.44 $14.45 $14.46
------------- ------------- ------------- -------------
Net Investment Income(2) 0.11 0.18 0.11 0.06
Net Realized and Unrealized
Gain on Investments 3.39 0.97 0.06 3.87
------------- ------------- ------------- -------------
Total from Investment
Operations 3.50 1.15 0.17 3.93
------------- ------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.05) (0.14) (0.10) (0.05)
Distributions from Net
Realized Gain on
Investments Sold (0.01) --(3) (0.05) --
Tax Return of Capital -- -- (0.01) --
------------- ------------- ------------- -------------
Total Distributions (0.06) (0.14) (0.16) (0.05)
------------- ------------- ------------- -------------
Net Asset Value, End of
Period $13.44 $14.45 $14.46 $18.34
============= ============= ============= =============
Total Investment Return(4) 35.05%(5,6) 8.55% 1.23% 27.16%
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $18,465 $54,569 $49,312 $71,367
Ratio of Expenses to Average
Net Assets 1.05%(7) 0.92% 0.90% 0.90%
Ratio of Adjusted Expenses
to Average Net Assets(8) 1.39%(7) -- -- --
Ratio of Net Investment
Income to Average Net
Assets 1.32%(7) 1.25% 0.77% 0.36%
Portfolio Turnover Rate 11% 38% 72% 41%
(1) Commenced operations on April 30, 1997.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) Not annualized.
(6) The total return would have been lower had certain expenses not been
reduced during the period shown.
(7) Annualized.
(8) Does not take into consideration expense reductions during the period shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- -----------------------------------------------------------------------------------
V.A. REGIONAL BANK FUND
------------------------------------------------
PERIOD
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------
1998(1) 1999 2000
- -----------------------------------------------------------------------------------
Per Share Operating Performance
Net Asset Value, Beginning
of Period $10.00 $9.28 $8.56
------------- ------------- -------------
Net Investment Income(2) 0.09 0.12 0.16
Net Realized and Unrealized
Gain (Loss) on Investments (0.74) (0.57) 1.34
------------- ------------- -------------
Total from Investment
Operations (0.65) (0.45) 1.50
------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.07) (0.12) (0.17)
Distributions from Net
Realized Gain on
Investments Sold --(3) (0.15) --
------------- ------------- -------------
Total Distributions (0.07) (0.27) (0.17)
------------- ------------- -------------
Net Asset Value, End of
Period $9.28 $8.56 $9.89
============= ============= =============
Total Investment Return(4) (6.43%)(5,6) (4.86%) 17.91%
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $20,256 $20,295 $13,733
Ratio of Expenses to Average
Net Assets 1.05%(7) 1.00% 1.01%
Ratio of Adjusted Expenses
to Average Net Assets(8) 1.14%(7) -- --
Ratio of Net Investment
Income to Average Net
Assets 1.39%(7) 1.30% 1.92%
Portfolio Turnover Rate 28% 49% 32%
(1) Commenced operations on May 1, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) Not annualized.
(6) The total return would have been lower had certain expenses not been
reduced during the period shown.
(7) Annualized.
(8) Does not take into consideration expense reductions during the period shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- ---------------------------------------------------
V.A. TECHNOLOGY FUND
--------------------
PERIOD ENDED
DECEMBER 31, 2000(1)
--------------------
Per Share Operating Performance
Net Asset Value, Beginning
of Period $10.00
-------------
Net Investment Income(2) 0.03
Net Realized and Unrealized
Loss on Investments (2.69)
-------------
Total from Investment
Operations (2.66)
-------------
Less Distributions:
Dividends from Net
Investment Income (0.01)
-------------
Net Asset Value, End of
Period $7.33
=============
Total Investment Return(3,4) (26.56%)(5)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $14,042
Ratio of Expenses to Average
Net Assets 1.05%(6)
Ratio of Adjusted Expenses
to Average Net Assets(7) 1.99%(6)
Ratio of Net Investment
Income to Average Net
Assets 0.62%(6)
Portfolio Turnover Rate 75%
(1) Commenced operations on May 1, 2000.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) The total return would have been lower had certain expenses not been
reduced during the period shown.
(5) Not annualized.
(6) Annualized.
(7) Does not take into consideration expense reductions during the period shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- -----------------------------------------------------------------------------------------------------------------------
V.A. BOND FUND
-------------------------------------------------------------------------------------
PERIOD
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------------------------------------
1996(1) 1997 1998 1999 2000
------------- ------------- ------------- ------------- -------------
Per Share Operating Performance
Net Asset Value, Beginning
of Period $10.00 $10.19 $10.36 $10.51 $9.81
------------- ------------- ------------- ------------- -------------
Net Investment Income(2) 0.23 0.68 0.63 0.64 0.64
Net Realized and Unrealized
Gain (Loss) on Investments 0.21 0.24 0.32 (0.70) 0.50
------------- ------------- ------------- ------------- -------------
Total from Investment
Operations 0.44 0.92 0.95 (0.06) 1.12
------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.23) (0.68) (0.63) (0.64) (0.64)
Distributions from Net
Realized Gain on
Investments Sold (0.02) (0.07) (0.17) -- --
------------- ------------- ------------- ------------- -------------
Total Distributions (0.25) (0.75) (0.80) (0.64) (0.64)
------------- ------------- ------------- ------------- -------------
Net Asset Value, End of
Period $10.19 $10.36 $10.51 $9.81 $10.29
============= ============= ============= ============= =============
Total Investment Return(3,4) 4.42%(5) 9.30% 9.41% (0.51%) 11.89%
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $1,056 $3,682 $10,669 $12,531 $25,173
Ratio of Expenses to Average
Net Assets 0.75%(6) 0.75% 0.75% 0.75% 0.75%
Ratio of Adjusted Expenses
to Average Net Assets(7) 4.15%(6) 2.53% 1.34% 1.01% 0.92%
Ratio of Net Investment
Income to Average Net
Assets 6.69%(6) 6.57% 5.93% 6.39% 6.47%
Portfolio Turnover Rate 45% 193% 367% 307% 298%
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) The total returns would have been lower had certain expenses not
been reduced during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Does not take into consideration expense reductions during the
periods shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- -----------------------------------------------------------------------------------
V.A. HIGH YIELD BOND FUND
------------------------------------------------
PERIOD
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------
1998(1) 1999 2000
- -----------------------------------------------------------------------------------
Per Share Operating Performance
Net Asset Value, Beginning
of Period $10.00 $8.22 $8.31
------------- ------------- -------------
Net Investment Income(2) 0.90 0.88 0.94
Net Realized and Unrealized
Gain (Loss) on Investments (1.82) 0.16 (1.40)
------------- ------------- -------------
Total from Investment
Operations (0.92) 1.04 (0.46)
------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.84) (0.88) (0.94)
Distributions from Net
Realized Gain on
Investments Sold -- (0.07) (0.23)
Tax Return of Capital (0.02) -- --
------------- ------------- -------------
Total Distributions (0.86) (0.95) (1.17)
------------- ------------- -------------
Net Asset Value, End of
Period $8.22 $8.31 $6.68
============= ============= =============
Total Investment Return(3,4) (9.80%)(5) 13.12% (6.08%)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $8,120 $9,287 $7,219
Ratio of Expenses to Average
Net Assets 0.85%(6) 0.85% 0.85%
Ratio of Adjusted Expenses
to Average Net Assets(7) 1.15%(6) 1.03% 1.24%
Ratio of Net Investment
Income to Average Net
Assets 9.85%(6) 10.56% 12.12%
Portfolio Turnover Rate 102% 122% 56%
(1) Commenced operations on January 6, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) The total returns would have been lower had certain expenses not
been reduced during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Does not take into consideration expense reductions during the
periods shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- -----------------------------------------------------------------------------------------------------------------------
V.A. MONEY MARKET FUND
-------------------------------------------------------------------------------------
PERIOD
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------------------------------------
1996(1) 1997 1998 1999 2000
------------- ------------- ------------- ------------- -------------
Per Share Operating Performance
Net Asset Value, Beginning
of Period $1.00 $1.00 $1.00 $1.00 $1.00
------------- ------------- ------------- ------------- -------------
Net Investment Income(2) 0.02 0.05 0.05 0.05 0.06
------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.02) (0.05) (0.05) (0.05) (0.06)
------------- ------------- ------------- ------------- -------------
Net Asset Value, End of
Period $1.00 $1.00 $1.00 $1.00 $1.00
============= ============= ============= ============= =============
Total Investment Return(3) 1.61%(4,5) 4.88%(5) 4.87% 4.58% 5.90%
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $207 $8,377 $16,519 $32,952 $73,917
Ratio of Expenses to Average
Net Assets 0.75%(6) 0.75% 0.74% 0.66% 0.60%
Ratio of Adjusted Expenses
to Average Net Assets(7) 27.48%(6) 1.27% -- -- --
Ratio of Net Investment
Income to Average Net
Assets 4.68%(6) 4.86% 4.70% 4.55% 5.86%
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) Not annualized.
(5) The total returns would have been lower had certain expenses not
been reduced during the periods shown.
(6) Annualized.
(7) Does not take into consideration expense reductions during the
periods shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- -----------------------------------------------------------------------------------------------------------------------
V.A. STRATEGIC INCOME FUND
-------------------------------------------------------------------------------------
PERIOD
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------------------------------------
1996(1) 1997 1998 1999 2000
------------- ------------- ------------- ------------- -------------
Per Share Operating Performance
Net Asset Value, Beginning
of Period $10.00 $10.30 $10.47 $10.10 $9.77
------------- ------------- ------------- ------------- -------------
Net Investment Income(2) 0.27 0.91 0.85 0.80 0.83
Net Realized and Unrealized
Gain (Loss) on Investments 0.36 0.26 (0.35) (0.33) (0.71)
------------- ------------- ------------- ------------- -------------
Total from Investment
Operations 0.63 1.17 0.50 0.47 0.12
------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.27) (0.91) (0.85) (0.80) (0.83)
Distributions from Net
Realized Gain on
Investments Sold (0.06) (0.09) (0.02) -- (0.09)
------------- ------------- ------------- ------------- -------------
Total Distributions (0.33) (1.00) (0.87) (0.80) (0.92)
------------- ------------- ------------- ------------- -------------
Net Asset Value, End of
Period $10.30 $10.47 $10.10 $9.77 $8.97
============= ============= ============= ============= =============
Total Investment Return(3) 6.45%(4,5) 11.77%(5) 4.92%(5) 4.82%(5) 1.40%
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $2,131 $5,540 $15,019 $22,282 $34,472
Ratio of Expenses to Average
Net Assets 0.85%(6) 0.85% 0.85% 0.85% 0.76%
Ratio of Adjusted Expenses
to Average Net Assets(7) 2.28%(6) 1.37% 0.93% 0.87% --
Ratio of Net Investment
Income to Average Net
Assets 7.89%(6) 8.77% 8.19% 8.06% 8.91%
Portfolio Turnover Rate 73% 110% 92% 53%(8) 53%
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) Not annualized.
(5) The total returns would have been lower had certain expenses not
been reduced during the periods shown.
(6) Annualized.
(7) Does not take into consideration expense reductions during the
periods shown.
(8) Portfolio turnover rate excludes merger activity.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Core Equity Fund
Schedule of Investments
December 31, 2000
- ------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the V.A. Core Equity Fund on December 31, 2000. It is divided into
two main categories: common stocks and short-term investments. Common
stocks are further broken down by industry group. Short-term
investments, which represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------------ ------------
COMMON STOCKS
Advertising (1.86%)
Interpublic Group of Cos., Inc. (The) 8,400 $357,525
Omnicom Group, Inc. 4,800 397,800
------------
755,325
------------
Aerospace (1.93%)
General Dynamics Corp. 3,700 288,600
United Technologies Corp. 6,300 495,338
------------
783,938
------------
Automobile/Trucks (1.01%)
Ford Motor Co. 12,800 300,000
Lear Corp.* 4,400 109,175
------------
409,175
------------
Banks - United States (6.08%)
Bank of America Corp. 10,000 458,750
Bank of New York Co., Inc. (The) 9,600 529,800
Comerica, Inc. 3,900 231,563
Firstar Corp. 8,500 197,625
FleetBoston Financial Corp. 15,800 593,488
J.P. Morgan Chase & Co. 1,800 297,900
Mellon Financial Corp. 3,300 162,319
------------
2,471,445
------------
Beverages (0.56%)
Anheuser-Busch Cos., Inc. 5,000 227,500
------------
Broker Services (0.47%)
Merrill Lynch & Co., Inc. 2,800 190,925
------------
Building (0.61%)
Black & Decker Corp. (The) 6,300 247,275
------------
Chemicals (1.14%)
Air Products & Chemicals, Inc. 5,200 213,200
Dow Chemical Co. 6,900 252,713
------------
465,913
------------
Computers (13.95%)
Adobe Systems, Inc. 1,700 98,919
America Online, Inc.* 10,600 368,880
Cisco Systems, Inc.* 27,600 1,055,700
Compaq Computer Corp. 5,700 85,785
EMC Corp.* 8,900 591,850
First Data Corp. 13,500 711,281
Hewlett-Packard Co. 6,600 208,312
International Business Machines Corp. 5,400 459,000
Microsoft Corp.* 17,900 776,413
Network Appliance, Inc.* 1,200 77,025
Oracle Corp.* 17,700 514,406
Siebel Systems, Inc.* 1,800 121,725
Sun Microsystems, Inc.* 11,400 317,775
VERITAS Software Corp.* 2,500 218,750
Yahoo! Inc.* 2,200 66,378
------------
5,672,199
------------
Diversified Operations (3.02%)
Honeywell International, Inc. 2,800 132,475
Illinois Tool Works, Inc. 3,100 184,644
Minnesota Mining & Manufacturing Co. 3,200 385,600
Tyco International Ltd. 9,500 527,250
------------
1,229,969
------------
Electronics (9.31%)
Altera Corp.* 3,000 78,937
Analog Devices, Inc.* 2,000 102,375
Applied Materials, Inc.* 3,100 118,381
General Electric Co. 39,300 1,883,944
Intel Corp. 23,600 709,475
Linear Technology Corp. 1,500 69,375
Maxim Integrated Products, Inc.* 2,200 105,187
Motorola, Inc. 7,600 153,900
Parker-Hannifin Corp. 3,700 163,262
Texas Instruments, Inc. 6,600 312,675
Xilinx, Inc.* 1,900 87,637
------------
3,785,148
------------
Fiber Optics (0.25%)
JDS Uniphase Corp.* 2,400 100,050
------------
Finance (4.40%)
Citigroup, Inc. 35,033 1,788,873
------------
Insurance (4.28%)
American International Group, Inc. 3,100 305,544
Hartford Financial Services Group, Inc. (The) 5,400 381,375
Lincoln National Corp. 5,200 246,025
Marsh & McLennan Cos., Inc. 1,300 152,100
St. Paul Cos., Inc. (The) 5,600 304,150
Torchmark Corp. 4,200 161,437
XL Capital Ltd. (Class A) 2,200 192,225
------------
1,742,856
------------
Leisure (0.48%)
Disney (Walt) Co. (The) 6,700 193,881
------------
Machinery (0.56%)
Ingersoll-Rand Co. 5,400 226,125
------------
Media (3.15%)
AT&T Corp. - Liberty Media Group* 12,900 174,956
Clear Channel Communications, Inc.* 4,700 227,656
Infinity Broadcasting Corp. (Class A)* 4,900 136,894
Time Warner, Inc. 3,000 156,720
Viacom, Inc. (Class B)* 12,507 584,702
------------
1,280,928
------------
Medical (18.01%)
Abbott Laboratories 7,900 382,656
Allergan, Inc. 3,200 309,800
ALZA Corp.* 5,400 229,500
American Home Products Corp. 5,700 362,235
Baxter International, Inc. 5,900 521,044
Bristol-Myers Squibb Co. 12,900 953,794
Johnson & Johnson 8,800 924,550
Lilly (Eli) & Co. 1,300 120,981
Merck & Co., Inc. 14,100 1,320,113
Pfizer, Inc. 32,100 1,476,600
Pharmacia Corp. 4,700 286,700
Schering-Plough Corp. 4,800 272,400
St. Jude Medical, Inc. * 2,700 165,881
------------
7,326,254
------------
Mortgage Banking (1.68%)
Fannie Mae 7,900 685,325
------------
Office (0.46%)
Avery Dennison Corp. 3,400 186,575
------------
Oil & Gas (7.40%)
Apache Corp. 3,300 231,206
Chevron Corp. 2,900 244,869
El Paso Energy Corp. 6,300 451,238
Exxon Mobil Corp. 14,112 1,226,862
Kerr-McGee Corp. 2,400 160,650
Royal Dutch Petroleum Co., American Depositary
Receipt (Netherlands) 8,900 539,006
USX - Marathon Group 5,600 155,400
------------
3,009,231
------------
Paper & Paper Products (0.62%)
Kimberly-Clark Corp. 3,600 254,484
------------
Retail (6.45%)
CVS Corp. 3,800 227,762
Home Depot, Inc. (The) 8,100 370,069
Intimate Brands, Inc. 4,500 67,500
Kohl's Corp.* 7,800 475,800
Limited, Inc. (The) 7,100 121,144
Lowe's Cos., Inc. 6,200 275,900
RadioShack Corp. 3,500 149,844
TJX Cos., Inc. 8,800 244,200
Wal-Mart Stores, Inc. 13,000 690,625
------------
2,622,844
------------
Soap & Cleaning Preparations (0.38%)
Procter & Gamble Co. (The) 2,000 156,875
------------
Telecommunications (4.37%)
Comverse Technology, Inc.* 1,500 162,937
Corning, Inc. 4,200 221,812
Nortel Networks Corp. (Canada) 12,200 391,163
Qwest Communications International, Inc.* 9,100 373,100
Sprint Corp. 7,900 160,469
Sprint PCS* 3,500 71,531
Verizon Communications, Inc. 7,900 395,988
------------
1,777,000
------------
Tobacco (0.72%)
Philip Morris Cos., Inc. 6,700 294,800
------------
Utilities (5.09%)
BellSouth Corp. 4,300 176,031
Dominion Resources, Inc. 5,500 368,500
Duke Energy Corp. 6,900 588,225
Exelon Corp. 4,900 344,029
SBC Communications, Inc. 12,400 592,100
------------
2,068,885
------------
TOTAL COMMON STOCKS
(Cost $36,110,454) (98.24%) 39,953,798
------------
INTEREST PAR VALUE
RATE (000s OMITTED)
-------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.79%)
Investment in a joint repurchase
agreement transaction with UBS
Warburg, Inc. - Dated 12-29-00, due
01-02-01 (Secured by U.S. Treasury
Bonds, 6.750% thru 8.875%, due
08-15-17 thru 08-15-26) - Note B 5.95% $730 730,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company Daily
Interest Savings Account Current Rate
5.20% 735
------------
TOTAL SHORT-TERM INVESTMENTS (1.79%) 730,735
--------- ------------
TOTAL INVESTMENTS (100.03%) 40,684,533
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.03%) (11,983)
--------- ------------
TOTAL NET ASSETS (100.00%) $40,672,550
========= ============
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security
description represents country of a foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. 500 Index Fund
Schedule of Investments
December 31, 2000
- ------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the V.A. 500 Index Fund on December 31, 2000. It is divided into two
main categories: common stocks and short-term investments. Common
stocks are further broken down by industry group. Short-term investments,
which represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------------ ------------
COMMON STOCKS
Advertising (0.23%)
Interpublic Group of Companies, Inc. (The) 629 $26,772
Omnicom Group, Inc. 362 30,001
------------
56,773
------------
Aerospace (1.19%)
Boeing Co. (The) 1,817 119,922
General Dynamics Corp. 407 31,746
Goodrich (B.F.) Co. (The) 208 7,566
Lockheed Martin Corp. 881 29,910
Northrop Grumman Corp. 147 12,201
Raytheon Co. (Class B) 695 21,588
United Technologies Corp. 958 75,323
------------
298,256
------------
Automobile/Trucks (0.77%)
Cummins Engine Co., Inc. 85 3,225
Dana Corp. 302 4,624
Delphi Automotive Systems Corp. 1,145 12,881
Eaton Corp. 143 10,752
Ford Motor Co. 3,833 89,836
General Motors Corp. 1,155 58,833
PACCAR, Inc. 156 7,683
Ryder System, Inc. 122 2,028
Visteon Corp. 268 3,082
------------
192,944
------------
Banks - United States (5.60%)
AmSouth Bancorp. 768 11,712
Bank of America Corp. 3,329 152,718
Bank of New York Co., Inc. 1,514 83,554
Bank One Corp. 2,366 86,655
BB&T Corp. 811 30,260
Chase Manhattan Corp. 2,680 121,772
Comerica, Inc. 321 19,059
Fifth Third Bancorp 945 56,464
First Union Corp. 2,003 55,708
Firstar Corp. 1,943 45,175
FleetBoston Financial Corp. 1,851 69,528
Huntington Bancshares, Inc. 513 8,304
KeyCorp. 871 24,388
Mellon Financial Corp. 998 49,089
Morgan (J.P.) & Co., Inc. 327 54,118
National City Corp. 1,244 35,765
Northern Trust Corp. 454 37,029
Old Kent Financial Corp. 283 12,381
PNC Bank Corp. 591 43,180
Regions Financial Corp. 453 12,373
SouthTrust Corp. 344 13,997
State Street Corp. 330 40,989
Summit Bancorp. 357 13,633
SunTrust Banks, Inc. 606 38,178
Synovus Financial Corp. 581 15,651
U.S. Bancorp 1,540 44,949
Union Planters Corp. 276 9,867
Wachovia Corp. 416 24,180
Wells Fargo Co. 3,496 194,684
------------
1,405,360
------------
Beverages (2.28%)
Anheuser-Busch Cos., Inc. 1,845 83,947
Brown-Forman Corp. 140 9,310
Coca-Cola Co. (The) 5,072 309,075
Coca-Cola Enterprises, Inc. 855 16,245
Coors (Adolph) Co. (Class B) 75 6,023
PepsiCo, Inc. 2,952 146,309
------------
570,909
------------
Broker Services (1.67%)
Bear Stearns Cos., Inc. 218 11,050
Lehman Brothers Holdings, Inc. 488 33,001
Merrill Lynch & Co., Inc. 1,657 112,987
Morgan Stanley Dean Witter & Co. 2,292 181,641
Schwab (Charles) Corp. 2,830 80,301
------------
418,980
------------
Building (0.57%)
Black & Decker Corp. 166 6,515
Centex Corp. 121 4,545
Danaher Corp. 290 19,829
Fluor Corp. 155 5,125
Georgia-Pacific Corp. 460 14,317
Kaufman & Broad Home Corp. 88 2,964
Louisiana-Pacific Corp. 213 2,157
Masco Corp. 913 23,453
Pulte Corp. 83 3,502
Sherwin-Williams Co. 328 8,631
Snap-on, Inc. 119 3,317
Stanley Works (The) 176 5,489
Vulcan Materials Co. 207 9,910
Weyerhauser Co. 448 22,736
Willamette Industries, Inc. 223 10,467
------------
142,957
------------
Business Services - Misc. (0.40%)
Block, H & R, Inc. 187 7,737
Cendant Corp. * 1,491 14,351
Convergys Corp.* 315 14,273
Equifax, Inc. 290 8,319
Moody's Corp. 332 8,528
Paychex, Inc. 761 37,004
Robert Half International, Inc. 363 9,620
------------
99,832
------------
Chemicals (0.65%)
Air Products & Chemicals, Inc. 469 19,229
Dow Chemical Co. 1,388 50,835
Eastman Chemical Co. 157 7,654
Engelhard Corp. 261 5,318
FMC Corp. * 62 4,445
Great Lakes Chemical Corp. 103 3,830
Hercules, Inc. 220 4,194
PPG Industries, Inc. 345 15,978
Praxair, Inc. 324 14,378
Rohm & Haas Co. 449 16,304
Sigma-Aldrich Corp. 158 6,211
Union Carbide Corp. 276 14,852
------------
163,228
------------
Computers (12.22%)
Adaptec, Inc.* 202 2,070
Adobe Systems, Inc. 492 28,628
Apple Computer, Inc. * 665 9,892
Autodesk, Inc. 118 3,179
Automatic Data Processing, Inc. 1,291 81,736
BMC Software, Inc.* 502 7,028
Cabletron Systems, Inc.* 377 5,679
Ceridian Corp.* 298 5,941
Cisco Systems, Inc.* 14,719 563,002
Citrix Systems, Inc.* 379 8,527
Compaq Computer Corp. 3,477 52,329
Computer Associates International, Inc. 1,187 23,146
Computer Sciences Corp.* 344 20,683
Compuware Corp.* 747 4,669
Dell Computer Corp.* 5,291 92,262
Electronic Data Systems Corp. 956 55,209
EMC Corp.* 4,475 297,587
First Data Corp. 808 42,571
Gateway 2000, Inc.* 661 11,891
Hewlett-Packard Co. 4,044 127,639
IMS Health, Inc. 601 16,227
International Business Machines Corp. 3,588 304,980
Intuit, Inc.* 422 16,643
Lexmark International Group, Inc. (Class A)* 260 11,521
Mercury Interactive Corp.* 165 14,891
Microsoft Corp.* 10,905 473,004
NCR Corp.* 197 9,678
Network Appliance, Inc.* 646 41,495
Novell, Inc.* 671 3,502
Oracle Corp.* 11,448 332,708
Palm, Inc.* 1,157 32,758
Parametric Technology Corp.* 557 7,485
PeopleSoft, Inc.* 584 21,718
Sabre Holdings Corp.* 264 11,385
Sapient Corp.* 248 2,961
Siebel Systems, Inc.* 878 59,375
Sun Microsystems, Inc.* 6,585 183,557
Unisys Corp.* 640 9,360
VERITAS Software Corp.* 798 69,825
------------
3,066,741
------------
Consumer Products - Misc. (0.00%)
American Greetings Corp. (Class A) 130 1,227
------------
Containers (0.06%)
Ball Corp. 58 2,672
Bemis Co., Inc. 109 3,658
Pactiv Corp.* 323 3,997
Sealed Air Corp. * 171 5,216
------------
15,543
------------
Cosmetics & Personal Care (0.44%)
Alberto Culver Co. (Class B) 114 4,881
Avon Products, Inc. 487 23,315
Gillette Co. 2,154 77,813
International Flavors & Fragrances, Inc. 200 4,062
------------
110,071
------------
Diversified Operations (2.34%)
Crane Co. 123 3,498
Du Pont (E.I.) De Nemours & Co. 2,133 103,051
Fortune Brands, Inc. 316 9,480
Honeywell International, Inc. 1,631 77,167
Illinois Tool Works, Inc. 618 36,810
ITT Industries, Inc. 180 6,975
Johnson Controls, Inc. 176 9,152
Loews Corp. 202 20,920
Minnesota Mining & Manufacturing Co. 807 97,243
National Service Industries, Inc. 84 2,158
Textron, Inc. 291 13,532
TRW, Inc. 254 9,843
Tyco International Ltd. 3,577 198,524
------------
588,353
------------
Electronics (9.21%)
Advanced Micro Devices, Inc.* 641 8,854
Agilent Technologies, Inc.* 926 50,698
Altera Corp.* 811 21,339
American Power Conversion Corp.* 398 4,925
Analog Devices, Inc.* 731 37,418
Applied Materials, Inc.* 1,659 63,353
Broadcom Corp. (Class A)* 481 40,644
Conexant Systems, Inc.* 466 7,165
Emerson Electric Co. 874 68,882
General Electric Co. 20,265 971,453
Grainger (W.W.), Inc. 192 7,008
Intel Corp. 13,764 416,361
KLA-Tencor Corp.* 380 12,801
Linear Technology Corp. 648 29,970
LSI Logic Corp.* 653 11,160
Maxim Integrated Products, Inc.* 581 27,779
Micron Technology, Inc. 1,160 41,180
Molex Inc. 400 14,200
Motorola, Inc. 4,467 90,457
National Semiconductor Corp.* 365 7,346
Novellus Systems, Inc.* 269 9,667
Parker- Hannifin Corp. 238 10,502
PerkinElmer, Inc. 102 10,710
Power-One, Inc.* 161 6,329
QLogic Corp.* 187 14,399
Rockwell International Corp. 375 17,859
Sanmina Corp.* 310 23,754
Solectron Corp.* 1,302 44,138
Tektronix, Inc. 193 6,502
Teradyne, Inc.* 357 13,298
Texas Instruments, Inc. 3,538 167,613
Thomas & Betts Corp. 119 1,926
Vitesse Semiconductor Corp.* 367 20,300
Xilinx, Inc.* 674 31,088
------------
2,311,078
------------
Fiber Optics (0.72%)
Corning, Inc. 1,881 99,340
JDS Uniphase Corp.* 1,966 81,958
------------
181,298
------------
Finance (4.09%)
American Express Co. 2,720 149,430
Capital One Financial Corp. 403 26,522
Charter One Financial, Inc. 425 12,272
CIT Group, Inc. (The) (Class A) 536 10,787
Citigroup, Inc. 10,281 524,974
Franklin Resources, Inc. 498 18,974
Golden West Financial Corp. 324 21,870
Household International, Inc. 963 52,965
MBNA Corp. 1,742 64,345
Price (T. Rowe) Associates, Inc. 248 10,482
Providian Financial Corp. 585 33,638
Stilwell Financial, Inc. 455 17,944
USA Education, Inc. 336 22,848
Washington Mutual, Inc. 1,103 58,528
------------
1,025,579
------------
Food (1.42%)
Archer-Daniels-Midland Co. 1,295 19,425
Campbell Soup Co. 861 29,812
ConAgra, Inc. 1,091 28,366
General Mills, Inc. 578 25,757
Heinz (H.J.) Co. 709 33,633
Hershey Foods Corp. 278 17,896
Kellogg Co. 830 21,787
Quaker Oats Co. 268 26,097
Ralston Purina Group 628 16,407
Sara Lee Corp. 1,705 41,879
Unilever NV, American Depositary Receipts (ADR)
(Netherlands) 1,169 73,574
Wrigley (WM) Jr. Co. 231 22,133
------------
356,766
------------
Furniture (0.03%)
Leggett & Platt, Inc. 401 7,594
------------
Household (0.11%)
Maytag Corp. 157 5,073
Newell Rubbermaid, Inc. 545 12,399
Tupperware Corp. 118 2,412
Whirlpool Corp. 136 6,486
------------
26,370
------------
Instruments - Scientific (0.23%)
Applera Corp. - Applied Biosystems Group 430 40,447
Millipore Corp. 95 5,985
Thermo Electron Corp.* 368 10,948
------------
57,380
------------
Insurance (4.15%)
Aetna, Inc. 289 11,867
AFLAC, Inc. 542 39,126
Allstate Corp. (The) 1,496 65,169
Ambac Financial Group, Inc. 215 12,537
American General Corp. 514 41,891
American International Group, Inc. 4,761 469,256
Aon Corp. 524 17,947
Chubb Corp. (The) 358 30,967
CIGNA Corp. 314 41,542
Cincinnati Financial Corp. 329 13,016
Conseco, Inc. 665 8,770
Hartford Financial Services Group, Inc. (The) 461 32,558
Jefferson Pilot Corp. 211 15,772
Lincoln National Corp. 392 18,546
Marsh & McLennan Cos., Inc. 563 65,871
MBIA, Inc. 201 14,899
MetLife, Inc. 1,564 54,740
MGIC Investment Corp. 218 14,701
Progressive Corp. 150 15,544
SAFECO Corp. 261 8,580
St. Paul Cos., Inc. (The) 445 24,169
Torchmark Corp. 258 9,917
UnumProvident Corp. 493 13,249
------------
1,040,634
------------
Internet Services (0.83%)
America Online, Inc.* 4,777 166,240
BroadVision, Inc.* 550 6,497
Yahoo! Inc.* 1,142 34,456
------------
207,193
------------
Leisure (1.10%)
Brunswick Corp. 179 2,942
Carnival Corp. (Class A) 1,195 36,821
Disney (Walt) Co., (The) 4,263 123,361
Eastman Kodak Co. 614 24,176
Harley-Davidson, Inc. 620 24,645
Harrah's Entertainment, Inc. * 239 6,304
Hasbro, Inc. 352 3,740
Hilton Hotels Corp. 753 7,906
Marriott International, Inc. (Class A) 491 20,745
Mattel, Inc. 873 12,606
Starwood Hotels & Resorts Worldwide, Inc. 395 13,924
------------
277,170
------------
Machinery (0.38%)
Briggs & Stratton Corp. 44 1,952
Caterpiller Tractor, Inc. 703 33,261
Cooper Industries, Inc. 191 8,774
Deere & Co. 480 21,990
Dover Corp. 415 16,833
Ingersoll-Rand Co. 328 13,735
------------
96,545
------------
Media (2.19%)
Clear Channel Communications, Inc.* 1,196 57,931
Comcast Corp. 1,846 77,070
Dow Jones & Co., Inc. 179 10,136
Gannett Co., Inc. 539 33,991
Harcourt General, Inc. 150 8,580
Knight-Ridder, Inc. 150 8,531
McGraw-Hill Cos., Inc. (The) 400 23,450
Meredith Corp. 102 3,283
New York Times Co. (Class A) 333 13,341
Time Warner, Inc. 2,715 141,832
Tribune Co. 618 26,111
Viacom, Inc. (Class B)* 3,094 144,645
------------
548,901
------------
Medical (13.36%)
Abbott Laboratories 3,163 153,208
Allergan, Inc. 269 26,043
ALZA Corp.* 484 20,570
American Home Products Corp. 2,680 170,314
Amgen, Inc.* 2,113 135,100
Bard (C.R.), Inc. 104 4,842
Bausch & Lomb, Inc. 109 4,408
Baxter International, Inc. 602 53,164
Becton, Dickinson & Co. 518 17,936
Biogen, Inc.* 303 18,199
Biomet, Inc. 365 14,486
Boston Scientific Corp.* 829 11,347
Bristol-Myers Squibb Co. 3,999 295,676
Cardinal Health, Inc. 571 56,886
Chiron Corp. * 392 17,444
Forest Laboratories, Inc.* 179 23,785
Guidant Corp. 629 33,927
HCA-The Healthcare Co. 1,130 49,731
HEALTHSOUTH Corp.* 790 12,887
Humana, Inc.* 346 5,276
Johnson & Johnson 2,843 298,693
King Pharmaceuticals, Inc.* 345 17,832
Lilly (Eli) & Co. 2,305 214,509
Manor Care, Inc.* 210 4,331
McKesson HBOC, Inc. 581 20,852
MedImmune, Inc.* 431 20,553
Medtronic, Inc. 2,457 148,341
Merck & Co., Inc. 4,716 441,535
Pall Corp. 252 5,371
Pfizer Inc. 12,903 593,538
Pharmacia Corp. 2,638 160,918
Quintiles Transnational Corp.* 236 4,941
Schering-Plough Corp. 2,990 169,683
St. Jude Medical, Inc. * 174 10,690
Stryker Corp. 400 20,236
Tenet Healthcare Corp.* 648 28,796
UnitedHealth Group, Inc. 652 40,017
Watson Pharmaceutical, Inc.* 210 10,749
Wellpoint Health Networks, Inc.* 128 14,752
------------
3,351,566
------------
Metal (0.52%)
Alcan Aluminium Ltd. (Canada) 661 22,598
Alcoa Inc. 1,769 59,261
Barrick Gold Corp. (Canada) 810 13,268
Freeport-McMoran Copper & Gold, Inc. (Class B)* 304 2,603
Homestake Mining Co. 538 2,253
Inco, Ltd. (Canada) 372 6,235
Newmont Mining Corp. 344 5,869
Phelps Dodge Corp. 161 8,986
Placer Dome, Inc. (Canada) 670 6,449
Timken Co. (The) 123 1,860
Worthington Industries, Inc. 175 1,411
------------
130,793
------------
Mortgage Banking (1.15%)
Countrywide Credit Industries, Inc. 234 11,758
Fannie Mae 2,060 178,705
Freddie Mac 1,422 97,940
------------
288,403
------------
Office (0.16%)
Avery Dennison Corp. 226 12,402
Deluxe Corp. 148 3,740
Pitney Bowes, Inc. 516 17,093
Xerox Corp. 1,365 6,313
------------
39,548
------------
Oil & Gas (6.92%)
Amerada Hess Corp. 181 13,224
Anadarko Petroleum Corp. 509 36,180
Apache Corp. 253 17,726
Ashland, Inc. 143 5,132
Baker Hughes, Inc. 679 28,221
Burlington Resources, Inc. 440 22,220
Chevron Corp. 1,313 110,866
Coastal Corp. (The) 440 38,857
Conoco, Inc. (Class B) 1,275 36,895
Devon Energy Corp. 262 15,974
El Paso Energy Corp. 475 34,022
Enron Corp. 1,527 126,932
EOG Resources, Inc. 239 13,070
Exxon Mobil Corp. 7,109 618,039
Halliburton Co. 905 32,806
Kerr-McGee Corp. 193 12,919
McDermott International, Inc. 124 1,333
Nabors Industries, Inc.* 301 17,804
Occidental Petroleum Corp. 755 18,309
Phillips Petroleum Co. 522 29,689
Rowan Cos., Inc.* 193 5,211
Royal Dutch Petroleum Co. (ADR) (Netherlands) 4,385 265,567
Schlumberger Ltd. 1,171 93,607
Sunoco, Inc. 174 5,862
Texaco, Inc. 1,125 69,891
Tosco Corp. 296 10,046
Transocean Sedco Forex, Inc. 431 19,826
Unocal Corp. 497 19,228
USX - Marathon Group 635 17,621
------------
1,737,077
------------
Paper & Paper Products (0.56%)
Boise Cascade Corp. 117 3,934
International Paper Co. 984 40,159
Kimberly-Clark Corp. 1,092 77,193
Mead Corp. (The) 206 6,463
Potlatch Corp. 58 1,947
Temple-Inland, Inc. 101 5,416
Westvaco Corp. 206 6,013
------------
141,125
------------
Pollution Control (0.16%)
Allied Waste Industries, Inc.* 402 5,854
Waste Management, Inc. 1,271 35,270
------------
41,124
------------
Printing - Commercial (0.03%)
Donnelley (R.R.) & Sons 250 6,750
------------
Retail (6.32%)
Albertson's, Inc. 861 22,816
AutoZone, Inc.* 261 7,438
Bed Bath & Beyond, Inc.* 579 12,955
Best Buy Co., Inc.* 425 12,564
Circuit City Stores-Circuit City Group 420 4,830
Consolidated Stores Corp.* 228 2,422
Costco Wholesale Corp. 915 36,543
CVS Corp. 801 48,010
Darden Restaurants, Inc. 244 5,581
Dillards, Inc. 188 2,221
Dollar General Corp. 674 12,722
Federated Department Stores, Inc. * 413 14,455
Gap, Inc. (The) 1,738 44,319
Genuine Parts Co. 354 9,270
Home Depot, Inc. (The) 4,736 216,376
Kmart Corp.* 989 5,254
Kohl's Corp.* 678 41,358
Kroger Co.* 1,683 45,546
Limited, Inc. (The) 870 14,844
Longs Drug Stores Corp. 76 1,833
Lowe's Cos., Inc. 783 34,843
May Department Stores 609 19,945
McDonald's Corp. 2,682 91,188
Nordstrom, Inc. 264 4,802
Office Depot, Inc.* 609 4,339
Penney (J. C.) Co., Inc. 536 5,829
RadioShack Corp. 380 16,269
Reebok International Ltd. * 117 3,199
Safeway, Inc.* 1,025 64,063
Sears, Roebuck & Co. 683 23,734
Staples, Inc.* 929 10,974
Starbucks Corp.* 383 16,948
SUPERVALU, Inc. 271 3,760
SYSCO Corp. 1,367 41,010
Target Corp. 1,832 59,082
Tiffany & Co. 298 9,424
TJX Cos., Inc. 575 15,956
Toys "R" Us, Inc.* 417 6,959
Tricon Global Restaurants, Inc. * 299 9,867
Walgreen Co. 2,072 86,636
Wal-Mart Stores, Inc. 9,135 485,297
Wendy's International, Inc. 233 6,116
Winn-Dixie Stores, Inc. 285 5,522
------------
1,587,119
------------
Rubber - Tires & Misc. (0.04%)
Cooper Tire & Rubber Co. 148 1,572
Goodyear Tire & Rubber Co. (The) 322 7,403
------------
8,975
------------
Shoes & Related Apparel (0.12%)
Nike, Inc. (Class B) 552 30,809
------------
Soap & Cleaning Preparations (1.25%)
Clorox Co. 482 17,111
Colgate-Palmolive Co. 1,170 75,523
Ecolab, Inc. 260 11,229
Proctor & Gamble Co. (The) 2,666 209,114
------------
312,977
------------
Steel (0.05%)
Allegheny Technologies, Inc. 164 2,603
Nucor Corp. 159 6,310
USX-U.S. Steel Group, Inc. 182 3,276
------------
12,189
------------
Telecommunications (7.46%)
ADC Telecommunications, Inc.* 1,579 28,619
ALLTEL Corp. 639 39,898
Andrew Corp.* 166 3,610
AT&T Corp. 7,676 132,891
Avaya, Inc.* 569 5,868
BellSouth Corp. 3,821 156,422
CenturyTel, Inc. 288 10,296
Comverse Technology, Inc.* 337 36,607
Global Crossing Ltd.* (Bermuda) 1,811 25,920
Lucent Technologies, Inc. 6,830 92,205
Nextel Communications, Inc. (Class A)* 1,558 38,560
Nortel Networks Corp. (Canada) 6,335 203,116
QUALCOMM, Inc.* 1,529 125,665
Qwest Communications International, Inc.* 3,387 138,867
SBC Communications, Inc. 6,923 330,573
Scientific-Atlanta, Inc. 330 10,746
Sprint Corp. 1,809 36,745
Sprint PCS* 1,907 38,974
Symbol Technologies, Inc. 299 10,764
Tellabs, Inc.* 840 47,460
Verizon Communications, Inc. 5,520 276,690
WorldCom, Inc.* 5,888 82,432
------------
1,872,928
------------
Textile (0.05%)
Liz Claiborne, Inc. 106 4,412
VF Corp. 233 8,444
------------
12,856
------------
Tobacco (0.83%)
Philip Morris Cos., Inc. 4,547 200,068
UST, Inc. 333 9,345
------------
209,413
------------
Transport (0.64%)
AMR Corp.* 308 12,070
Burlington Northern Santa Fe Corp. 807 22,848
CSX Corp. 444 11,516
Delta Air Lines, Inc. 251 12,597
FedEx Corp.* 583 23,297
Navistar International Corp. * 121 3,169
Norfolk Southern Corp. 785 10,450
Southwest Airlines Co. 1,026 34,402
Union Pacific Corp. 507 25,730
US Airways Group, Inc.* 137 5,557
------------
161,636
------------
Utilities (2.98%)
AES Corp. (The)* 938 51,942
Allegheny Energy, Inc. 226 10,890
Ameren Corp. 281 13,014
American Electric Power Co., Inc. 659 30,643
Calpine Corp.* 576 25,956
Cinergy Corp. 325 11,416
CMS Energy Corp. 247 7,827
Consolidated Edison, Inc. 434 16,709
Constellation Energy Group, Inc. 308 13,879
Dominion Resources, Inc. 489 32,763
DTE Energy Co. 292 11,370
Duke Energy Corp. 754 64,278
Dynegy, Inc. (Class A) 661 37,057
Edison International 666 10,406
Entergy Corp. 456 19,294
Exelon Corp. 651 45,707
FirstEnergy Corp. * 461 14,550
FPL Group, Inc. 362 25,973
GPU, Inc. 248 9,129
KeySpan Corp. 275 11,653
Kinder Morgan, Inc. 234 12,212
Massey Energy Co. 155 1,976
Niagara Mohawk Holdings, Inc.* 328 5,474
NICOR, Inc. 93 4,016
NiSource, Inc. 417 12,823
ONEOK, Inc. 60 2,888
Peoples Energy Corp. 72 3,222
PG&E Corp. 792 15,840
Pinnacle West Capital Corp. 173 8,239
PPL Corp. 296 13,376
Progress Energy, Inc. 420 20,659
Public Service Enterprise Group, Inc. 438 21,298
Reliant Energy, Inc. 603 26,117
Sempra Energy 418 9,719
Southern Co. 1,382 45,952
TXU Corp. 528 23,397
Williams Cos., Inc. (The) 900 35,944
Xcel Energy, Inc. 697 20,257
------------
747,865
------------
TOTAL COMMON STOCKS
(Cost $16,676,006) (95.48%) 23,960,835
--------- ------------
INTEREST PAR VALUE
RATE (000s OMITTED)
-------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.47%)
Investment in a joint repurchase
agreement transaction with UBS
Warburg, Inc. - Dated 12-29-00, due
01-02-01(Secured by U.S. Treasury
Bonds 10.750% and 13.875% due 02-15-03
and 05-15-11) - Note B 5.95% $1,121 $1,121,000
--------- ------------
TOTAL SHORT-TERM INVESTMENTS (4.47%) 1,121,000
--------- ------------
TOTAL INVESTMENTS (99.95%) 25,081,835
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.05%) 12,188
--------- ------------
TOTAL NET ASSETS (100.00%) $25,094,023
========= ============
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security
description represents country of foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Large Cap Growth Fund
Schedule of Investments
December 31, 2000
- ------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the V.A. Large Cap Growth Fund on December 31, 2000. It's divided into
two main categories: common stocks and short-term investments. Common
stocks are further broken down by industry groups. Short-term investments,
which represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------------ ------------
Banks - United States (2.94%)
State Street Corp. 1,520 $188,799
Wells Fargo & Co. 3,115 173,467
------------
362,266
------------
Broker Services (0.61%)
Schwab (Charles) Corp. (The) 2,649 75,165
------------
Business Services - Misc. (0.53%)
Paychex, Inc. 1,350 65,644
------------
Computers (22.85%)
Adobe Systems, Inc. 1,900 110,556
BEA Systems, Inc.* 2,550 171,647
Brocade Communications Systems, Inc.* 1,300 119,356
Cisco Systems, Inc.* 13,100 501,075
Compaq Computer Corp. 7,720 116,186
EMC Corp.* 6,536 434,644
Juniper Networks, Inc.* 1,150 144,972
Oracle Corp.* 15,200 441,750
Palm, Inc.* 3,050 86,353
Redback Networks, Inc.* 1,000 41,000
Sun Microsystems, Inc.* 11,050 308,019
VeriSign, Inc.* 1,200 89,025
VERITAS Software Corp.* 2,050 179,375
Yahoo! Inc.* 2,250 67,887
------------
2,811,845
------------
Diversified Operations (8.33%)
General Electric Co. 12,170 583,399
Tyco International Ltd. 7,942 440,781
------------
1,024,180
------------
Electronics (4.87%)
Altera Corp.* 3,800 99,988
Analog Devices, Inc.* 1,807 92,496
Broadcom Corp. (Class A)* 1,600 134,400
Flextronics International Ltd. (Singapore)* 3,700 105,450
PMC-Sierra, Inc.* 800 62,900
Xilinx, Inc.* 2,250 103,781
------------
599,015
------------
Fiber Optics (4.14%)
CIENA Corp.* 1,600 130,000
JDS Uniphase Corp.* 3,200 133,400
SDL, Inc.* 500 74,094
Sycamore Networks, Inc.* 2,600 96,850
TyCom, Ltd. (Bermuda)* 3,345 74,844
------------
509,188
------------
Finance (4.16%)
Citigroup, Inc. 6,149 313,983
MBNA Corp. 5,346 197,468
------------
511,451
------------
Instruments - Scientific (2.01%)
Applera Corp. - Applied Biosystems Group 1,098 103,281
Waters Corp.* 1,723 143,870
------------
247,151
------------
Insurance (3.16%)
AFLAC, Inc. 1,513 109,220
American International Group, Inc. 2,834 279,326
------------
388,546
------------
Media (3.64%)
Clear Channel Communications, Inc.* 3,142 152,191
Time Warner, Inc. 5,668 296,096
------------
448,287
------------
Medical (21.53%)
Cardinal Health, Inc. 3,216 320,394
Genentech, Inc.* 2,056 167,564
Johnson & Johnson 2,408 252,991
Medtronic, Inc. 6,668 402,580
Merck & Co., Inc. 4,428 414,572
Millennium Pharmaceuticals, Inc.* 1,800 111,375
Pfizer, Inc. 14,080 647,680
Pharmacia Corp. 5,446 332,206
------------
2,649,362
------------
Mortgage Banking (1.24%)
Fannie Mae 1,765 153,114
------------
Retail (7.51%)
Bed Bath & Beyond, Inc.* 4,600 102,925
Home Depot, Inc. (The) 8,490 387,887
Wal-Mart Stores, Inc. 8,153 433,128
------------
923,940
------------
Telecommunications (11.11%)
American Tower Corp. (Class A)* 3,120 118,170
Comverse Technology, Inc.* 1,450 157,506
Corning, Inc. 4,703 248,377
McLeodUSA, Inc. (Class A)* 5,450 76,981
Nokia Corp., American Depositary Receipts
(Finland) 7,477 325,249
Nortel Networks Corp. 6,896 221,103
Scientific-Atlanta, Inc. 2,207 71,865
Verizon Communications, Inc. 2,942 147,468
------------
1,366,719
------------
Utilities (1.03%)
AES Corp. (The)* 2,292 126,920
------------
TOTAL COMMON STOCKS
(Cost $12,655,003) (99.66%) 12,262,793
------------
INTEREST PAR VALUE
RATE (000s OMITTED)
-------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.77%)
Investment in a joint repurchase
agreement transaction with UBS
Warburg, Inc. - Dated 12-29-00, due
01-02-01 (Secured by U.S. Treasury
Bonds, 6.750% thru 8.875%, due
08-15-17 thru 08-15-26) - Note B 5.95% $95 $95,000
------------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company Daily
Interest Savings Account Current Rate
5.20% 402
------------
TOTAL SHORT-TERM INVESTMENTS (0.78%) 95,402
--------- ------------
TOTAL INVESTMENTS (100.44%) 12,358,195
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.44%) (53,989)
--------- ------------
TOTAL NET ASSETS (100.00%) $12,304,206
========= ============
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security
description represents country of foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Mid Cap Growth Fund
Schedule of Investments
December 31, 2000
- ------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the V.A. Mid Cap Growth Fund on December 31, 2000. Common stocks
are broken down by industry groups.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------------ ------------
COMMON STOCKS
Banks - United States (3.84%)
Fifth Third Bancorp 1,700 $101,575
Mellon Financial Corp. 3,453 169,844
Northern Trust Corp. 2,070 168,834
------------
440,253
------------
Beverages (0.82%)
Pepsi Bottling Group, Inc. 2,362 94,332
------------
Broker Services (1.17%)
Bear Stearns Cos., Inc. 831 42,121
Lehman Brothers Holdings, Inc. 1,364 92,240
------------
134,361
------------
Computers (21.07%)
Adobe Systems, Inc. 1,200 69,825
Ariba, Inc.* 1,700 91,162
Brocade Communications Systems, Inc.* 2,180 200,151
Commerce One, Inc. 2,000 50,625
DST Systems, Inc.* 704 47,168
EMC Corp.* 910 60,515
Emulex Corp.* 1,800 143,887
Exodus Communications, Inc.* 2,910 58,200
Fiserv, Inc.* 1,365 64,752
Handspring, Inc.* 2,200 85,663
i2 Technologies, Inc.* 3,340 181,612
Interwoven, Inc.* 1,000 65,938
Intuit, Inc.* 2,900 114,369
McDATA Corp. (Class B)* 50 2,738
Mercury Interactive Corp.* 1,270 114,617
Palm, Inc.* 4,250 120,328
Parametric Technology Corp.* 14,000 188,125
Rational Software Corp.* 3,220 125,379
Research in Motion Ltd.* (Canada) 1,010 80,800
Siebel Systems, Inc.* 1,600 108,200
SunGard Data Systems, Inc.* 2,834 133,552
TIBCO Software, Inc.* 2,300 110,256
VeriSign, Inc.* 1,800 133,538
VERITAS Software Corp.* 776 67,900
------------
2,419,300
------------
Electronics (12.68%)
Aeroflex, Inc.* 7,194 207,389
Alpha Industries, Inc.* 2,300 85,100
Amphenol Corp. (Class A)* 2,344 91,855
Analog Devices, Inc.* 985 50,420
Applied Micro Circuits Corp.* 680 51,032
Flextronics International Ltd.* (Singapore) 5,080 144,780
Jabil Circuit, Inc.* 3,571 90,614
Molex, Inc. 1,250 44,375
QLogic Corp.* 1,450 111,650
Sanmina Corp.* 1,320 101,145
Tektronix, Inc. 4,826 162,576
Vitesse Semiconductor Corp.* 930 51,441
Waters Corp.* 3,160 263,860
------------
1,456,237
------------
Fiber Optics (2.01%)
SDL, Inc.* 850 125,959
Sycamore Networks, Inc.* 2,800 104,300
------------
230,259
------------
Finance (4.38%)
Affiliated Managers Group, Inc.* 1,632 89,556
Concord EFS, Inc.* 2,470 108,526
Golden West Financial Corp. 2,378 160,515
USA Education, Inc. 2,120 144,160
------------
502,757
------------
Insurance (5.22%)
AFLAC, Inc. 2,833 204,507
Ambac Financial Group, Inc. 3,484 203,161
American General Corp. 458 37,327
Everest Re Group Ltd. (Bermuda) 2,158 154,567
------------
599,562
------------
Media (3.47%)
Clear Channel Communications, Inc.* 2,390 115,766
Hispanic Broadcasting Corp.* 3,544 90,372
Reader's Digest Association, Inc. (Class A) 2,544 99,534
Univision Communications, Inc. (Class A)* 2,258 92,437
------------
398,109
------------
Medical (17.00%)
Alkermes, Inc.* 1,800 56,475
Allergan, Inc. 1,181 114,336
ALZA Corp.* 3,688 156,740
Applera Corp. - Applied Biosystems Group 2,060 193,769
Cardinal Health, Inc. 1,874 186,697
Community Health Systems, Inc.* 2,439 85,365
Express Scripts, Inc. (Class A)* 750 76,688
Health Management Associates, Inc. (Class A)* 4,209 87,337
HEALTHSOUTH Corp.* 8,128 132,588
Human Genome Sciences, Inc.* 970 67,233
IDEC Pharmaceuticals Corp.* 400 75,825
Immunex Corp.* 3,680 149,500
MedImmune, Inc.* 1,740 82,976
Millennium Pharmaceuticals, Inc.* 3,440 212,850
Oxford Health Plans, Inc.* 3,100 122,450
Stryker Corp. 709 35,868
Trigon Healthcare, Inc.* 812 63,184
Wellpoint Health Networks, Inc.* 454 52,324
------------
1,952,205
------------
Oil & Gas (8.42%)
Baker Hughes, Inc. 2,960 123,025
BJ Services Co.* 2,580 177,697
Cooper Cameron Corp.* 1,620 107,021
El Paso Energy Corp. 2,632 188,517
R&B Falcon Corp.* 6,281 144,070
Santa Fe International Corp. 2,815 90,256
Weatherford International, Inc.* 2,889 136,505
------------
967,091
------------
Pollution Control (1.52%)
Waste Management, Inc. 6,296 174,714
------------
Retail (1.97%)
Bed Bath & Beyond, Inc.* 4,300 96,212
RadioShack Corp. 1,739 74,451
Staples, Inc.* 4,650 54,928
------------
225,591
------------
Telecommunications (12.90%)
Allegiance Telecom, Inc.* 5,580 124,242
American Tower Corp. (Class A)* 4,434 167,938
COLT Telecom Group Plc* American Depositary
Receipts (United Kingdom) 374 32,819
Comverse Technology, Inc.* 1,870 203,129
Crown Castle International Corp.* 4,060 109,874
Dobson Communications Corp. (Class A)* 11,480 167,895
Global Crossing Ltd.* (Bermuda) 5,963 85,345
McLeodUSA, Inc. (Class A)* 14,430 203,824
Scientific-Atlanta, Inc. 3,162 102,963
Western Wireless Corp. (Class A)* 3,850 150,872
XO Communications, Inc. (Class A)* 7,450 132,703
------------
1,481,604
------------
Utilities (2.96%)
Calpine Corp.* 3,966 178,718
Dynegy, Inc. (Class A) 1,214 68,060
Orion Power Holdings, Inc.* 2,220 54,668
TNPC, Inc.* 3,952 38,779
------------
340,225
------------
TOTAL COMMON STOCKS
(Cost $10,826,748) (99.43%) 11,416,600
--------- ------------
TOTAL INVESTMENTS (99.43%) 11,416,600
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.57%) 65,250
--------- ------------
TOTAL NET ASSETS (100.00%) $11,481,850
========= ============
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security
description represents country of foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
Portfolio Concentration
December 31, 2000 (Unaudited)
- -----------------------------------------------------------------------
The V.A. Mid Cap Growth Fund invests primarily in common stocks of U.S.
and foreign issuers. The performance of the Fund is closely tied to the
economic and financial conditions within the countries in which it
invests. The concentration of investments by industry category for
individual securities held by the Fund is shown in the schedule of
investments.
In addition, concentration of investments can be aggregated by various
countries. The table below shows the percentages of the Fund's
investments at December 31, 2000 assigned to country categories.
MARKET VALUE AS A %
COUNTRY DIVERSIFICATION OF FUND NET ASSETS
- ----------------------- ------------------
Bermuda 2.09%
Canada 0.70
Singapore 1.26
United Kingdom 0.29
United States 95.09
-------
TOTAL INVESTMENTS 99.43%
=======
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Relative Value Fund
Schedule of Investments
December 31, 2000
- ------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the V.A. Relative Value Fund on December 31, 2000. It's divided into
two main categories: common stocks and bonds. Common stocks and bonds
are further broken down by industry groups.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------------ ------------
COMMON STOCKS
Business Services - Misc. (5.70%)
Cendant Corp. * 100,000 $962,500
Iron Mountain, Inc.* 25,000 928,125
Moody's Corp. 13,000 333,937
------------
2,224,562
------------
Computers (16.24%)
Computer Associates International, Inc. 36,493 711,614
Dell Computer Corp.* 44,450 775,097
Hyperion Solutions Corp.* 14,000 216,125
IMS Health, Inc. 10,000 270,000
Microsoft Corp.* 22,000 954,250
MicroStrategy, Inc.* 50,000 475,000
Parametric Technology Corp.* 153,000 2,055,938
Viant Corp.* 25,000 99,220
Wind River Systems, Inc.* 22,950 783,169
------------
6,340,413
------------
Cosmetics & Personal Care (1.85%)
Gillette Co. 20,000 722,500
------------
Diversified Operations (4.90%)
Tyco International, Ltd. 34,500 1,914,750
------------
Electronics (12.62%)
Alpha Industries, Inc. 34,700 1,283,900
Conexant Systems, Inc.* 78,300 1,203,862
SBS Technologies, Inc.* 17,000 508,938
SCI Systems, Inc.* 15,840 417,780
Sony Corp. (Japan) 4,800 332,049
Vicor Corp.* 38,900 1,181,588
------------
4,928,117
------------
Finance (1.29%)
Citigroup, Inc. 9,841 502,506
------------
Food (0.62%)
Hain Celestial Group, Inc.* 7,500 243,750
------------
Insurance (7.11%)
Ace, Ltd. (Bermuda) 29,505 1,252,118
Ambac Financial Group, Inc. 10,000 583,125
Progressive Corp. 4,000 414,500
XL Capital, Ltd. (Class A) 6,032 527,046
------------
2,776,789
------------
Machinery (0.68%)
Applied Science & Technology, Inc.* 22,000 264,000
------------
Media (11.56%)
AT&T Corp. - Liberty Media Group (Class A)* 145,744 1,976,653
Clear Channel Communications, Inc.* 11,000 532,812
Pegasus Communications Corp.* 40,700 1,048,025
Viacom, Inc. (Class B)* 17,000 794,750
XM Satellite Radio Holdings, Inc. (Class A)* 10,000 160,625
------------
4,512,865
------------
Medical (5.37%)
Abbott Laboratories 15,500 750,781
Alpharma, Inc. (Class A) 12,000 526,500
Apogent Technologies, Inc.* 40,000 820,000
------------
2,097,281
------------
Oil & Gas (1.19%)
Unocal Corp. 12,000 464,250
------------
Pollution Control (2.13%)
Waste Management, Inc. 30,000 832,500
------------
Printing - Commercial (1.42%)
Valassis Communications, Inc.* 17,500 552,344
------------
Telecommunications (24.02%)
ANTEC Corp.* 57,750 456,589
CenturyTel, Inc. 35,000 1,251,250
CTC Communications Group, Inc.* 60,000 277,500
Hughes Electronics 85,000 1,955,000
Lucent Technologies, Inc. 95,953 1,295,365
Motient Corp.* 30,000 120,000
Nextel Partners, Inc. (Class A)* 28,000 470,750
Sprint Corp. 85,000 1,726,563
TeleCorp PCS, Inc. (Class A)* 30,000 671,250
Verizon Communications, Inc. 23,000 1,152,875
------------
9,377,142
------------
TOTAL COMMON STOCKS
(Cost $43,121,074) (96.70%) 37,753,769
--------- ------------
INTEREST CREDIT PAR VALUE
RATE RATING** (000s OMITTED)
----- -------- --------------
BONDS
Office (0.21%)
Danka Business Systems Plc,
Conv Note
(United Kingdom) 04-01-02 6.750% B+ $500 82,500
--------- ------------
TOTAL BONDS (Cost $401,957) (0.21%) 82,500
--------- ------------
TOTAL INVESTMENTS (96.91%) 37,836,269
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (3.09%) 1,206,343
--------- ------------
TOTAL NET ASSETS (100.00%) $39,042,612
========= ============
* Non-income producing security.
** Credit ratings are unaudited and rated by Standard & Poor's where
available, or Moody's Investor Services or John Hancock Advisers, Inc.,
where Standard & Poor's ratings are not available.
Parenthetical disclosure of a foreign country in the security
description represents country of a foreign issuer.
The percentage shown for each investment category is the total of that
category as a percentage of the nest assets of the Fund.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Small Cap Growth Fund
Schedule of Investments
December 31, 2000
- ------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the V.A. Small Cap Growth Fund on December 31, 2000. It's divided
into two main categories: common stocks and short-term investments.
Common stocks are further broken down by industry groups. Short-term
investments, which represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------------ ------------
COMMON STOCKS
Advertising (1.00%)
Getty Images, Inc.* 6,200 $198,400
------------
Banks - United States (3.42%)
Greater Bay Bancorp. 5,800 237,800
Investors Financial Services Corp. 2,000 172,000
Southwest Bancorp. of Texas, Inc.* 3,550 152,428
Sterling Bancshares, Inc. 5,800 114,550
------------
676,778
------------
Building (1.08%)
Standard-Pacific Corp. 4,350 101,681
Toll Brothers, Inc.* 2,750 112,406
------------
214,087
------------
Business Services - Misc. (6.19%)
Corporate Executive Board Co. (The)* 7,350 292,277
Forrester Research, Inc.* 4,500 225,281
Heidrick & Struggles International, Inc.* 3,800 159,837
Management Network Group, Inc. (The)* 9,150 108,656
On Assignment, Inc.* 8,450 240,825
Pivotal Corp.* 2,400 88,950
Quanta Services, Inc.* 3,379 108,762
------------
1,224,588
------------
Computers (9.97%)
Advent Software, Inc.* 3,950 158,247
Aspen Technology, Inc.* 1,900 63,175
AvantGo, Inc.* 2,600 16,250
Avocent Corp.* 2,450 66,150
Broadbase Software, Inc.* 4,850 30,312
Cerner Corp.* 3,300 152,625
Data Return Corp.* 10,250 38,437
DigitalThink, Inc.* 5,500 93,844
Embarcadero Technologies, Inc.* 3,600 162,000
Genomica Corp.* 1,350 7,130
IDX Systems Corp.* 5,750 143,750
IntraNet Solutions, Inc.* 2,650 135,150
Manugistics Group, Inc.* 3,500 199,500
M-Systems Flash Disk Pioneers Ltd.* (Israel) 8,350 116,378
National Instruments Corp.* 2,750 133,547
NetRatings, Inc.* 6,500 95,469
Novatel Wireless, Inc.* 8,450 104,569
Secure Computing Corp.* 11,100 109,613
TeleCommunication Systems, Inc. (Class A)* 3,800 12,825
WatchGuard Technologies, Inc.* 4,200 132,825
------------
1,971,796
------------
Consumer Products - Misc. (0.37%)
CoorsTek, Inc.* 2,300 72,162
------------
Electronics (14.14%)
Aeroflex, Inc.* 7,700 221,976
ATMI, Inc.* 5,800 113,100
Brooks Automation, Inc.* 2,850 79,978
Caliper Technologies Corp.* 1,200 56,400
Credence Systems Corp.* 3,750 86,250
DDi Corp.* 6,500 177,125
DuPont Photomasks, Inc.* 3,950 208,733
Elantec Semiconductor, Inc.* 2,250 62,437
Electro Scientific Industries, Inc.* 3,950 110,600
Exar Corp.* 4,350 134,782
Kent Electronics Corp.* 4,400 72,600
Merix Corp.* 5,750 76,906
Microsemi Corp.* 4,700 130,719
Nanometrics, Inc.* 5,650 78,041
Nu Horizons Electronics Corp.* 4,175 37,314
Pixelworks, Inc.* 3,950 88,381
Plexus Corp.* 4,000 121,562
PLX Technology, Inc.* 9,600 79,800
Powerwave Technologies, Inc.* 2,300 134,550
PRI Automation, Inc.* 5,400 101,250
Rudolph Technologies, Inc.* 5,350 161,503
Semtech Corp.* 5,700 125,756
Stratos Lightwave, Inc.* 6,500 110,906
Wilson Greatbatch Technologies, Inc.* 7,950 224,588
------------
2,795,257
------------
Finance (2.98%)
Actrade Financial Technologies, Ltd.* 5,750 126,859
Affiliated Managers Group, Inc.* 4,450 244,194
Medallion Financial Corp. 3,600 52,650
Metris Cos., Inc. 6,275 165,111
------------
588,814
------------
Instruments - Scientific (0.59%)
Varian, Inc.* 3,450 116,869
------------
Insurance (2.83%)
Fidelity National Financial, Inc. 6,850 253,022
HCC Insurance Holdings, Inc. 6,250 168,359
Philadelphia Consolidated Holding Corp.* 1,450 44,769
RenaissanceRe Holdings Ltd. (Bermuda) 1,200 93,975
------------
560,125
------------
Machinery (0.63%)
Hydril Co.* 7,100 124,694
------------
Media (3.07%)
Entercom Communications Corp.* 2,000 68,875
Pegasus Communications Corp.* 1,900 48,925
Radio One, Inc. (Class A)* 3,750 40,078
Radio One, Inc. (Class D)* 6,650 73,150
Regent Communications, Inc.* 19,000 112,813
Scholastic Corp.* 2,000 177,250
Westwood One, Inc.* 4,450 85,941
------------
607,032
------------
Medical (24.45%)
Accredo Health, Inc.* 4,700 235,881
Alexion Pharmaceuticals, Inc.* 2,500 162,344
Alkermes, Inc.* 4,450 139,619
Alpharma, Inc. (Class A) 4,500 197,437
AmeriSource Health Corp. (Class A)* 5,350 270,175
Arena Pharmaceuticals, Inc.* 400 6,200
Aurora Biosciences Corp.* 4,050 127,322
Bindley Western Industries, Inc. 6,800 282,625
Cell Therapeutics, Inc.* 3,050 137,441
COR Therapeutics, Inc.* 4,100 144,269
Corvas International, Inc.* 7,900 113,562
CV Therapeutics, Inc.* 2,750 194,562
Cytyc Corp.* 2,900 181,431
Exelixis, Inc.* 5,700 83,362
Genome Therapeutics Corp.* 550 3,833
Human Genome Sciences, Inc.* 1,350 93,572
Inhale Therapeutic Systems, Inc.* 4,400 222,200
Inspire Pharmaceuticals, Inc.* 4,700 122,494
Invitrogen Corp.* 2,500 215,938
LifePoint Hospitals, Inc.* 5,250 263,156
Lincare Holdings, Inc.* 3,750 213,984
NPS Pharmaceuticals, Inc.* 4,900 235,200
Physiometrix, Inc.* 8,300 132,281
Province Healthcare Co.* 6,100 240,188
Renal Care Group, Inc.* 6,850 187,840
Techne Corp.* 4,200 151,463
Titan Pharmaceuticals, Inc.* 4,300 152,091
Transgenomic, Inc.* 3,450 36,225
Vascular Solutions, Inc.* 5,450 40,194
Virologic, Inc.* 7,750 70,719
Visible Genetics, Inc.* (Canada) 4,650 175,538
------------
4,833,146
------------
Oil & Gas (9.38%)
Dril-Quip, Inc.* 2,750 94,016
Hanover Compressor Co.* 5,859 261,092
Marine Drilling Cos., Inc.* 9,000 240,750
Newfield Exploration Co.* 6,200 294,113
Patterson Energy, Inc.* 5,800 216,050
Pride International, Inc.* 9,900 243,788
Spinnaker Exploration Co.* 450 19,125
Stone Energy Corp.* 3,600 232,380
Universal Compression Holdings, Inc.* 6,700 252,506
------------
1,853,820
------------
Printing - Commercial (0.81%)
Houghton Mifflin Co. 3,450 159,994
------------
Retail (9.27%)
99 Cents Only Stores* 5,840 159,870
Brightpoint, Inc.* 19,850 69,475
Columbia Sportswear Co.* 3,950 196,512
Cost Plus, Inc.* 6,750 198,281
Gymboree Corp. (The)* 6,100 84,637
Insight Enterprises, Inc.* 6,675 119,733
P.F. Chang's China Bistro, Inc.* 1,800 56,588
Performance Food Group Co.* 2,200 112,784
RARE Hospitality International, Inc.* 7,375 164,555
ScanSource, Inc.* 4,450 173,550
Tech Data Corp.* 4,700 127,120
Too, Inc.* 6,250 78,125
Tweeter Home Entertainment Group, Inc.* 5,600 68,250
Whole Foods Market, Inc.* 3,650 223,106
------------
1,832,586
------------
Schools/Education (2.95%)
Corinthian Colleges, Inc.* 5,000 189,687
Education Management Corp.* 5,150 184,112
ProsoftTraining.com* 7,500 90,938
University of Phoenix Online* 3,650 117,712
------------
582,449
------------
Steel (1.26%)
Lone Star Technologies, Inc.* 6,450 248,325
------------
Telecommunications (3.54%)
AirGate PCS, Inc.* 4,350 154,425
o2wireless Solutions, Inc.* 1,400 13,038
Powertel, Inc.* 1,350 83,616
Rural Cellular Corp. (Class A)* 2,400 71,100
SBA Communications Corp.* 5,950 244,322
UbiquiTel, Inc.* 5,350 29,425
WJ Communications, Inc.* 7,350 104,738
------------
700,664
------------
Transport (1.82%)
Expeditors International of Washington, Inc. 3,300 177,169
Forward Air Corp.* 4,900 182,831
------------
360,000
------------
TOTAL COMMON STOCKS
(Cost $17,936,487) (99.75%) 19,721,586
--------- ------------
INTEREST PAR VALUE
RATE (000s OMITTED)
-------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.73%)
Investment in a joint repurchase
agreement transaction with UBS
Warburg, Inc. - Dated 12-29-00, due
01-02-01 (Secured by U.S. Treasury
Bonds, 6.750% thru 8.875%, due
08-15-17 thru 08-15-26) - Note B 5.95% $144 144,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company Daily
Interest Savings Account Current Rate
5.20% 527
------------
TOTAL SHORT-TERM INVESTMENTS (0.73%) 144,527
--------- ------------
TOTAL INVESTMENTS (100.48%) 19,866,113
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.48%) (94,451)
--------- ------------
TOTAL NET ASSETS (100.00%) $19,771,662
========= ============
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security
description represents country of foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Sovereign Investors Fund
Schedule of Investments
December 31, 2000
- ------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the V.A. Sovereign Investors Fund on December 31, 2000. It is divided
into three main categories: common stocks, U.S. government obligations
and short-term investments. Common stocks are further broken down by
industry group. Short-term investments, which represent the Fund's
"cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------------ ------------
COMMON STOCKS
Advertising (2.55%)
Interpublic Group of Cos., Inc. (The) 33,200 $1,413,075
------------
Banks - United States (7.37%)
Chase Manhattan Corp. (The)* 30,000 1,363,125
Mellon Financial Corp. 25,000 1,229,688
State Street Corp. 5,000 621,050
Wells Fargo Co. 15,500 863,156
------------
4,077,019
------------
Beverages (1.52%)
PepsiCo, Inc. 17,000 842,563
------------
Chemicals (1.48%)
Air Products & Chemicals, Inc. 20,000 820,000
------------
Computers (7.35%)
Automatic Data Processing, Inc. 8,000 506,500
Cisco Systems, Inc.* 25,000 956,250
Compaq Computer Corp. 30,000 451,500
Hewlett-Packard Co. 8,000 252,500
International Business Machines Corp. 12,500 1,062,500
Sun Microsystems, Inc.* 30,000 836,250
------------
4,065,500
------------
Diversified Operations (2.94%)
Minnesota Mining & Manufacturing Co. 11,200 1,349,600
Tyco International Ltd. 5,000 277,500
------------
1,627,100
------------
Electronics (6.67%)
Emerson Electric Co. 14,700 1,158,544
General Electric Co. 19,800 949,163
Intel Corp. 16,000 481,000
Motorola, Inc. 31,000 627,750
Texas Instruments, Inc. 10,000 473,750
------------
3,690,207
------------
Finance (4.93%)
Citigroup, Inc. 29,500 1,506,344
Household International, Inc. 15,000 825,000
Morgan Stanley Dean Witter & Co. 5,000 396,250
------------
2,727,594
------------
Furniture (0.65%)
Leggett & Platt, Inc. 19,000 359,813
------------
Insurance (5.45%)
AFLAC, Inc. 12,400 895,125
American General Corp. 15,000 1,222,500
American International Group, Inc. 9,093 896,229
------------
3,013,854
------------
Machinery (1.65%)
Dover Corp. 22,500 912,656
------------
Media (3.29%)
Gannett Co., Inc. 19,400 1,223,413
McGraw-Hill Cos., Inc. (The) 10,200 597,975
------------
1,821,388
------------
Medical (12.58%)
Abbott Laboratories 26,000 1,259,375
American Home Products Corp. 13,000 826,150
Bard (C.R.), Inc. 12,800 596,000
Baxter International, Inc. 11,100 980,269
Johnson & Johnson 9,000 945,563
Merck & Co., Inc. 9,000 842,625
Pfizer, Inc. 19,250 885,500
Schering-Plough Corp. 11,000 624,250
------------
6,959,732
------------
Mortgage Banking (4.22%)
Fannie Mae 15,000 1,301,250
Freddie Mac 15,000 1,033,125
------------
2,334,375
------------
Office (1.50%)
Avery Dennison Corp. 15,150 831,356
------------
Oil & Gas (6.78%)
Chevron Corp. 17,200 1,452,325
Conoco, Inc. (Class B) 30,000 868,125
Exxon Mobil Corp. 10,184 885,372
Royal Dutch Petroleum Co., American Depositary
Receipts (Netherlands) 9,000 545,063
------------
3,750,885
------------
Paper & Paper Products (2.43%)
Kimberly-Clark Corp. 19,000 1,343,110
------------
Retail (5.91%)
Home Depot, Inc. (The) 9,000 411,188
Lowe's Cos., Inc. 28,000 1,246,000
McDonald's Corp. 14,000 476,000
SYSCO Corp. 16,400 492,000
Target Corp. 20,000 645,000
------------
3,270,188
------------
Telecommunications (4.35%)
CenturyTel, Inc. 35,000 1,251,250
Verizon Communications, Inc. 23,000 1,152,875
------------
2,404,125
------------
Tobacco (1.99%)
Philip Morris Cos., Inc. 25,000 1,100,000
------------
Utilities (3.89%)
ALLTEL Corp. 17,000 1,061,434
SBC Communications, Inc. 22,844 1,090,800
------------
2,152,234
------------
TOTAL COMMON STOCKS
(Cost $42,749,147) (89.50%) 49,516,774
--------- ------------
INTEREST CREDIT PAR VALUE
RATE RATING** (000s OMITTED)
-------- -------- ------------
U.S. GOVERNMENT OBLIGATIONS
Government - U.S. (0.73%)
United States Treasury, Note 09-30-02 5.88% AAA $400 404,188
------------
TOTAL U.S. GOVERNMENT
AND AGENCIES SECURITIES
(Cost $401,813) (0.73%) 404,188
--------- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (9.69%)
Investment in a joint repurchase
agreement transaction with UBS
Warburg, Inc. - Dated 12-29-00, due
01-02-01 (Secured by U.S. Treasury
Bonds, 6.750% thru 8.875%, due
08-15-17 thru 08-15-26) - Note B 5.95% 5,365 5,365,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company Daily
Interest Savings Account Current Rate
5.20% 6
------------
TOTAL SHORT-TERM INVESTMENTS (9.69%) 5,365,006
--------- ------------
TOTAL INVESTMENTS (99.92%) 55,285,968
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.08%) 42,130
--------- ------------
TOTAL NET ASETS (100.00%) $55,328,098
========= ============
* Non-income producing security.
** Credit ratings are rated by Moody's Investor Services or John
Hancock Advisers, Inc. where Standard and Poor's ratings are not
available.
Parenthetical disclosure of a foreign country in the security
description represents country of foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. International Fund
Schedule of Investments
December 31, 2000
- ------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the V.A. International Fund on December 31, 2000. It's divided into
two main categories: common stocks and short-term investments. Common
stocks are further broken down by country. Short-term investments, which
represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------------ ------------
COMMON STOCKS
Australia (2.11%)
BHP, Ltd. (Diversified Operations) 3,797 $40,044
Lend Lease Corp., Ltd. (Real Estate Operations) 1,113 10,366
National Australia Bank, Ltd. (Banks - Foreign) 580 9,296
News Corp., Ltd. (The), American Depositary
Receipts (ADR) (Media) 3,580 27,884
OneSteel, Ltd.* (Steel) 1 1
Publishing & Broadcasting, Ltd. (Media) 1,195 8,674
ResMed, Inc.* (Medical) 900 3,652
Securenet, Ltd.* (Computers) 5,477 14,648
Telstra Corp., Ltd. (Telecommunications) 1,999 7,143
Westpac Banking Corp., Ltd. (Banks - Foreign) 805 5,909
Woodside Petroleum, Ltd. (Oil & Gas) 3,294 27,026
------------
154,643
------------
Belgium (0.41%)
Fortis (B) (Insurance) 378 4
UCB SA (Medical) 800 29,657
------------
29,661
------------
Brazil (1.09%)
Companhia Brasileira de Distribuicao Grupo Pao
de Acucar (ADR) (Retail) 720 26,280
Telecomunicacoes Brasileiras SA (ADR)
(Telecommunications) 380 27,693
Uniao de Bancos Brasileiros SA, Global Depositary
Receipts (GDR) (Finance) 890 26,199
------------
80,172
------------
Canada (4.86%)
BCE, Inc. (Telecommunications) 729 21,040
Bombardier, Inc. (Diversified Operations) 5,000 77,151
Celestica, Inc.* (Electronics) 580 31,314
Nortel Networks Corp. (Telecommunications) 3,369 108,348
Sun Life Financial Services of Canada (Insurance) 2,339 62,361
Thomson Corp. (Computers) 949 36,308
Weston (George) Ltd. (Food) 356 19,956
------------
356,478
------------
China (0.15%)
Shandong International Power Development Co.,
Ltd. (Utilities) 70,000 11,039
------------
Denmark (0.59%)
Vestas Wind Systems AS (Utilities) 800 43,310
------------
Finland (1.53%)
Nokia Oyj (Telecommunications) 2,520 112,398
------------
France (6.02%)
Alcatel SA (Telecommunications) 1,620 92,031
Dassault Systemes SA (Computers) 300 20,564
Renault SA (Automobile/Trucks) 720 37,522
Schneider Electric SA (Machinery) 360 26,266
Societe Generale (Banks - Foreign) 950 59,054
Total Fina Elf SA (Oil & Gas) 830 123,452
Vivendi SA (Diversified Operations) 1,250 82,280
------------
441,169
------------
Germany (3.72%)
Allianz AG (Insurance) 290 108,543
BASF AG (Chemicals) 617 27,908
Dresdner Bank AG (Banks - Foreign) 420 18,319
Muenchener Rueckversicherungs-Gesellschaft AG
(Insurance) 147 52,599
Siemens AG (Diversified Operations) 500 65,354
------------
272,723
------------
Greece (0.38%)
Hellenic Telecommunications Organization SA (ADR)
(Telecommunications) 3,800 27,550
------------
Hong Kong (2.34%)
Aeon Credit Service Co., Ltd. (Finance) 29,400 8,952
ASM Pacific Technology, Ltd. (Electronics) 3,500 4,981
Cathay Pacific Airways (Transport) 2,000 3,692
Cheung Kong Holdings, Ltd. (Real Estate
Operations) 2,000 25,578
China Everbright, Ltd. (Finance) 16,000 16,513
China Resources Enterprise, Ltd. (Diversified
Operations) 14,000 17,860
Giordano International, Ltd. (Retail) 4,000 1,846
Guoco Group, Ltd. (Finance) 4,000 11,924
Hang Seng Bank, Ltd. (Banks - Foreign) 700 9,423
Hongkong Electric Holdings, Ltd. (Utilities) 1,000 3,692
HSBC Holdings Plc (Banks - Foreign) 1,437 21,372
Hutchison Whampoa, Ltd. (Diversified Operations) 2,000 24,937
Sun Hung Kai Properties, Ltd. (Real Estate
Operations) 1,000 9,968
Swire Pacific, Ltd. (Class A) (Diversified
Operations) 1,500 10,770
------------
171,508
------------
India (0.43%)
Infosys Technologies, Ltd. (ADR) (Computers) 130 11,992
Videsh Sanchar Nigam, Ltd. (ADR)
(Telecommunications) 1,575 19,687
------------
31,679
------------
Ireland (0.52%)
CRH Plc (Building) 2,050 38,153
------------
Israel (0.32%)
Bank Hapoalim, Ltd. (Banks - Foreign) 8,100 23,498
------------
Italy (3.06%)
Assicurazioni Generali SpA (Insurance) 2,700 107,243
ENI SpA (Oil & Gas) 11,070 70,684
Riunione Adriatica di Sicurta SpA (Insurance) 2,982 46,510
------------
224,437
------------
Japan (21.09%)
Aiful Corp. (Finance) 300 24,484
Asahi Glass Co., Ltd. (Glass Products) 3,000 24,746
Daibiru Corp. (Real Estate Operations) 3,000 21,256
Daito Trust Construction Co., Ltd. (Real Estate
Operations) 2,000 35,864
Fuji Television Network, Inc. (Media) 3 20,889
Fujitsu, Ltd. (Computers) 2,000 29,461
Inax Corp. (Building) 4,000 20,189
Katokichi Co., Ltd. (Food) 2,000 52,484
Kirin Brewery Co., Ltd. (Beverages) 6,000 53,691
Kurita Water Industries, Ltd. (Pollution Control) 1,000 13,077
Kyocera Corp. (Electronics) 300 32,724
Maeda Corp. (Building) 15,000 51,566
Marui Co., Ltd. (Retail) 4,000 60,357
Matsushita Electric Industrial Co., Ltd.
(Electronics) 3,000 71,641
Max Co., Ltd. (Machinery) 2,000 19,244
Melco, Inc. (Computers) 600 12,544
Mitsubishi Estate Co., Ltd. (Real Estate
Operations) 2,975 31,749
Mitsui Fudosan Co., Ltd. (Real Estate Operations) 6,000 59,570
Murata Manufacturing Co., Ltd. (Electronics) 100 11,721
NEC Corp. (Electronics) 1,000 18,282
Nippon Meat Packers, Inc. (Food) 3,000 40,833
Nissan Motor Co., Ltd. (Automobile/Trucks) 8,000 46,046
Nissin Food Products Co., Ltd. (Food) 1,000 24,405
Nitto Denko Corp. (Electronics) 900 24,405
Nomura Securities Co., Ltd. (Broker Services) 2,000 35,952
NTT DoCoMo, Inc. (Telecommunications) 1 17,232
Orix Corp. (Leasing Companies) 100 10,024
Q.P. Corp. (Food) 9,000 74,633
Rohm Co., Ltd. (Electronics) 200 37,964
Santen Pharmaceutical Co., Ltd. (Medical) 1,000 19,769
Sekisui House, Ltd. (Building) 5,000 45,705
Sharp Corp. (Electronics) 1,000 12,054
Shin-Etsu Chemical Co., Ltd. (Chemicals) 1,000 38,488
Shiseido Co., Ltd. (Cosmetics & Personal Care) 3,000 33,459
Sony Corp. (Electronics) 1,000 69,104
Stanley Electric Co., Ltd. (Electronics) 3,000 27,292
Sumitomo Bakelite Co., Ltd. (Chemicals) 2,000 18,422
Sumitomo Metal Mining Co., Ltd. (Metal) 5,000 26,155
Takefuji Corp. (Finance) 300 18,894
Terumo Corp. (Medical) 1,000 21,868
Toho Gas Co., Ltd. (Oil & Gas) 13,000 23,312
Tokyo Electric Power Co., Inc. (Utilities) 2,400 59,517
Tokyu Corp. (Transport) 4,000 21,554
Toshiba Corp. (Electronics) 3,000 20,049
Toyota Motor Corp. (Automobile/Trucks) 2,200 70,241
Yamanouchi Pharmaceutical Co., Ltd. (Medical) 1,000 43,212
------------
1,546,128
------------
Malaysia (0.39%)
Petronas Gas Berhad (Oil & Gas) 17,000 28,855
------------
Mexico (0.20%)
Telefonos de Mexico SA (ADR) (Telecommunications) 320 14,440
------------
Netherlands (4.57%)
AEGON NV (Insurance) 1,400 57,921
Akzo Nobel NV (Chemicals) 630 33,838
ING Groep NV (Banks - Foreign) 1,050 83,885
Koninklijke Ahold NV (Retail) 2,245 72,433
Koninklijke Numico NV (Food) 720 36,238
Unilever Plc (Food) 5,900 50,552
------------
334,867
------------
New Zealand (0.13%)
Auckand International Airport, Ltd. (Transport) 3,900 5,419
Telecom Corp of New Zealand, Ltd.
(Telecommunications) 2,000 4,257
------------
9,676
------------
Norway (0.90%)
Tomra Systems ASA * (Machinery) 3,400 66,084
------------
Singapore (0.67%)
Capitaland, Ltd.* (Real Estate Operations) 2,000 3,464
DBS Group Holdings, Ltd. (Banks - Foreign) 1,000 11,316
Flextech Holdings, Ltd. (Electronics) 2,000 1,097
Keppel Capital Holdings, Ltd. (Finance) 1,250 1,653
Neptune Orient Lines, Ltd. (Transport) 4,000 3,141
Overseas Union Bank, Ltd. (Banks - Foreign) 1,000 4,677
Pacific Century Regional Developments, Ltd.
(Real Estate Operations) 5,000 2,555
Singapore Technologies Engineering, Ltd.
(Engineering/R&D Services) 7,000 11,276
United Overseas Bank, Ltd. (Banks - Foreign) 1,000 7,506
Wing Tai Holdings, Ltd. (Real Estate Operations) 3,000 2,182
------------
48,867
------------
South Africa (0.75%)
DataTec, Ltd.* (Computers) 5,000 23,788
Remgro, Ltd. (Diversified Operations) 4,600 31,307
------------
55,095
------------
South Korea (0.68%)
Samsung Electronics Co. (Electronics) 135 16,862
Shinhan Bank (Banks - Foreign) 1,700 13,976
SK Telecom Co., Ltd. (Telecommunications) 95 19,000
------------
49,838
------------
Sweden (1.36%)
Ericsson (LM) Telefonaktiebolaget
(Telecommunications) 5,800 66,056
Nordic Baltic Holding AB (Banks - Foreign) 4,250 33,522
------------
99,578
------------
Switzerland (2.47%)
Novartis AG (Medical) 68 120,192
Roche Holding AG (Medical) 6 61,114
------------
181,306
------------
Taiwan (0.89%)
Hon Hai Precision Industry Co., Ltd.
(Electronics) 2,000 10,145
Taiwan Semiconductor Manufacturing Co., Ltd.*
(Electronics) 12,000 28,804
United Microelectronics Corp.* (Electronics) 18,000 26,141
------------
65,090
------------
Thailand (0.11%)
Shin Satellite Pcl* (Telecommunications) 11,500 7,751
------------
Turkey (0.17%)
Dogan Yayin Holding AS* (Diversified Operations) 1,738,100 12,058
------------
United Kingdom (10.39%)
Barclay's Plc (Banks - Foreign) 900 27,884
BP Amoco Plc (Oil & Gas) 9,200 74,287
Centrica Plc (Utilities) 17,240 66,832
CGNU Plc (Insurance) 1,400 22,651
Energis Plc* (Telecommunications) 5,550 37,345
GlaxoSmithKline Plc* (Medical) 6,149 173,778
Granada Compass Plc (Diversified Operations) 3,000 32,680
HSBC Holdings Plc (Banks - Foreign) 9,000 132,558
Marconi Plc (Telecommunications) 2,500 26,878
Reckitt Benckiser Plc (Soap & Cleaning
Preparations) 3,000 41,360
Vodafone AirTouch Plc (Telecommunications) 34,080 125,106
------------
761,359
------------
TOTAL COMMON STOCKS
(Cost $5,094,561) (72.30%) 5,299,410
--------- ------------
INTEREST PAR VALUE
RATE (000s OMITTED)
-------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.21%)
Investment in a joint repurchase
agreement transaction with UBS
Warburg, Inc. - Dated 12-29-00, due
01-02-01 (Secured by U.S. Treasury
Bonds, 10.750% and 13.875% due
02-15-03 and 05-15-11) - Note B 5.95% $89 89,000
------------
NUMBER
OF SHARES
---------
Cash Equivalents (12.74%)
Navigator Securities Lending Prime
Portfolio** 933,457 933,457
------------
TOTAL SHORT-TERM INVESTMENTS (13.95%) 1,022,457
--------- ------------
TOTAL INVESTMENTS (86.25%) 6,321,867
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (13.75%) 1,007,772
--------- ------------
TOTAL NET ASSETS (100.00%) $7,329,639
========= ============
* Non-income producing security.
** Represents investment of security lending collateral - Note A.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
Industry Diversification (Unaudited)
- -----------------------------------------------------------------------
The Fund primarily invests in securities issued by companies of other
countries. The performance of the Fund is closely tied to the economic
conditions within the countries in which it invests. The concentration
of investments by country for individual securities held by the Fund is
shown in the schedule of investments. In addition, the concentration of
investments can be aggregated by various industry groups. The table
below shows the percentages of the Fund's investments at December 31,
2000 assigned to the various investment categories.
MARKET VALUE AS A %
INVESTMENT CATEGORIES OF FUND NET ASSETS
- ----------------------- ------------------
Automobile/Trucks 2.10%
Banks - Foreign 6.30
Beverages 0.73
Broker Services 0.49
Building 2.12
Chemicals 1.62
Computers 2.04
Cosmetics & Personal Care 0.46
Diversified Operations 5.14
Electronics 6.06
Engineering/R&D Services 0.15
Finance 1.48
Food 4.08
Glass Products 0.34
Insurance 6.25
Leasing Companies 0.14
Machinery 1.52
Media 0.78
Medical 6.46
Metal 0.36
Oil & Gas 4.74
Pollution Control 0.18
Real Estate Operations 3.01
Retail 2.20
Soap & Cleaning Preparations 0.56
Steel 0.00
Telecommunications 10.01
Transport 0.46
Utilities 2.52
Short-Term Investments 13.95
-------
TOTAL INVESTMENTS 86.25%
=======
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Financial Industries Fund
Schedule of Investments
December 31, 2000
- ------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the V.A. Financial Industries Fund on December 31, 2000. It's
divided into two main categories: common stocks and short-term
investments. Common stocks are further broken down by industry groups.
Short-term investments, which represent the Fund's "cash" position, are
listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------------ ------------
COMMON STOCK
Banks - Foreign (4.63%)
Bipop-Carire SpA (Italy) 107,000 $698,175
HSBC Holdings Plc (United Kingdom) 85,000 1,250,681
Nordic Baltic Holding (Sweden) 178,020 1,353,789
------------
3,302,645
------------
Banks - Midwest (7.22%)
Fifth Third Bancorp 49,250 2,942,688
Northern Trust Corp. 27,100 2,210,344
------------
5,153,032
------------
Banks - Money Center (3.36%)
Citigroup, Inc. 47,000 2,399,938
------------
Banks - Northeast (3.53%)
State Street Corp. 20,300 2,521,461
------------
Banks - Superregional (8.25%)
Bank of New York Co., Inc. 39,500 2,179,906
FleetBoston Financial Corp. 30,536 1,147,009
Wells Fargo & Co. 46,000 2,561,625
------------
5,888,540
------------
Broker Services (8.49%)
Legg Mason, Inc. 24,500 1,335,250
Merrill Lynch & Co., Inc. 33,500 2,284,280
Schwab (Charles) Corp. (The) 86,076 2,442,407
------------
6,061,937
------------
Computer - Services (9.32%)
Automatic Data Processing, Inc. 13,000 823,063
BISYS Group, Inc. (The)* 42,000 2,189,250
First Data Corp. 28,500 1,501,594
Fiserv, Inc.* 45,000 2,134,688
------------
6,648,595
------------
Computer - Software (1.35%)
Intuit, Inc.* 24,500 966,219
------------
Finance - Consumer Loans (7.25%)
American Express Co. 44,400 2,439,225
Household International, Inc. 17,000 935,000
MBNA Corp. 48,650 1,797,009
------------
5,171,234
------------
Finance - Investment Management (8.62%)
Amvescap Plc, American Depositary Receipts (ADR)
(United Kingdom) 53,000 2,305,500
Morgan Stanley Dean Witter & Co. 24,000 1,902,000
Price (T. Rowe) Associates, Inc. 46,000 1,944,218
------------
6,151,718
------------
Insurance - Brokers (2.79%)
Marsh & McLennan Cos., Inc. 17,000 1,989,000
------------
Insurance - Life (11.01%)
AFLAC, Inc. 37,000 2,670,938
American General Corp. 25,700 2,094,550
Protective Life Corp. 48,000 1,548,000
Reinsurance Group of America, Inc. 43,500 1,544,250
------------
7,857,738
------------
Insurance - Multi Line (3.29%)
Allmerica Financial Corp. 15,600 1,131,000
Fortis (NL) NV (Netherlands) 37,454 1,216,659
------------
2,347,659
------------
Insurance - Property & Casualty (13.35%)
Ambac Financial Group, Inc. 45,750 2,667,797
American International Group, Inc. 25,625 2,525,664
MBIA, Inc. 29,000 2,149,625
XL Capital Ltd. (Class A) 25,000 2,184,375
------------
9,527,461
------------
Mortgage & RE Services (2.74%)
Fannie Mae 22,500 1,951,875
------------
TOTAL COMMON STOCKS
(Cost $48,938,306) (95.20%) 67,939,052
------------
INTEREST PAR VALUE
RATE (000s OMITTED)
-------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.91%)
Investment in a joint repurchase
agreement transaction with UBS
Warburg, Inc. - Date 12-29-00, due
01-02-01 (Secured by U.S. Treasury
Bonds, 6.750% thru 8.875%, due
08-15-17 thru 08-15-26) - Note B 5.95% $3,504 3,504,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company Daily
Interest Savings Account Current Rate
5.20% 879
------------
TOTAL SHORT-TERM INVESTMENTS (4.91%) 3,504,879
--------- ------------
TOTAL INVESTMENTS (100.11%) 71,443,931
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.11%) (77,335)
--------- ------------
TOTAL NET ASETS (100.00%) $71,366,596
========= ============
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security
description represents country of foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
Portfolio Concentration
December 31, 2000 (Unaudited)
- -----------------------------------------------------------------------
The V.A. Financial Industries Fund invests primarily in equity
securities in the financial sector in the United States and abroad. The
concentration of investments by industry category for individual
securities held by the Fund is shown in the schedule of investments. In
addition, concentration of investments can be aggregated by various
countries. The table below shows the percentage of the Fund's
investments at December 31, 2000 assigned to the various countries.
MARKET VALUE AS A %
COUNTRY DIVERSIFICATION OF FUND NET ASSETS
- ----------------------- ------------------
Italy 0.98%
Netherlands 1.70
Sweden 1.90
United Kingdom 4.98
United States 90.55
-------
TOTAL INVESTMENTS 100.11%
=======
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Regional Bank Fund
Schedule of Investments
December 31, 2000
- ------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the V.A. Regional Bank Fund on December 31, 2000. It's divided into
two main categories: common stocks and short-term investments. Common
stocks are further broken down by industry groups. Short-term investments,
which represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION, STATE SHARES VALUE
- -------------------------- ------------ ------------
COMMON STOCKS
Superregional Banks (6.87%)
Mellon Financial Corp. (PA) 8,500 $418,094
U.S. Bancorp (MN) 7,500 218,906
Wells Fargo & Co. (CA) 5,500 306,281
------------
943,281
------------
Banks - Money Center (4.92%)
Chase Manhattan Corp. (The) (NY) 7,000 318,062
Citigroup, Inc. (NY) 7,000 357,437
------------
675,499
------------
Banks - United States (79.05%)
BancFirst Corp. (OK) 1,500 59,531
BancWest Corp. (HI) 16,000 418,000
BB&T Corp. (NC) 4,000 149,250
Cascade Bancorp (OR) 33,010 445,635
Chittenden Corp. (VT) 7,500 227,344
City National Corp. (CA) 8,000 310,500
Comerica, Inc. (MI) 4,500 267,187
Commerce Bancshares, Inc. (MO) 12,047 511,998
Community First Bankshares, Inc. (ND) 10,000 188,750
Cullen/Frost Bankers, Inc. (TX) 6,500 271,781
Fifth Third Bancorp (OH) 8,592 513,372
Financial Institutions, Inc. (NY) 19,750 266,625
First Midwest Bancorp., Inc. (IL) 5,000 143,750
FirstMerit Corp. (OH) 5,000 133,672
Independent Bank Corp. (MI) 23,887 471,768
M & T Bank Corp. (NY) 4,500 306,000
Marshall & Ilsley Corp. (WI) 3,500 177,905
Mercantile Bankshares Corp. (MD) 9,500 410,281
Mid-State Bancshares (CA) 15,000 532,500
Mississippi Valley Bancshares, Inc. (MO) 10,350 304,031
National Commerce Bancorp. (TN) 14,465 358,009
Northrim Bank (AK) 16,695 169,037
Pacific Capital Bancorp. (CA) 13,500 379,688
PNC Financial Service Group (PA) 3,500 255,719
Prosperity Bancshares, Inc. (TX) 14,000 276,500
SJNB Financial Corp. (CA) 8,000 292,000
SouthTrust Corp. (AL) 4,000 162,750
Southwest Bancorp. of Texas, Inc.* (TX) 5,000 214,688
Sterling Bancshares, Inc. (TX) 12,000 237,000
Summit Bancshares, Inc. (TX) 14,800 320,975
Texas Regional Bancshares, Inc. (Class A) (TX) 11,000 357,500
Umpqua Holdings Corp. (OR) 38,000 323,000
Valley National Bancorp. (NJ) 15,700 523,006
Whitney Holding Corp. (LA) 5,500 199,719
Yardville National Bancorp. (NJ) 25,000 301,563
Zions Bancorp. (UT) 6,000 374,625
------------
10,855,659
------------
Thrifts (4.19%)
Charter One Financial, Inc. (OH) 6,017 173,741
First Financial Holdings, Inc. (SC) 12,300 242,156
Warren Bancorp., Inc. (MA) 20,000 160,000
------------
575,897
------------
TOTAL COMMON STOCKS
(Cost $10,935,579) (95.03%) 13,050,336
------------
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000s OMITTED)
- ------------------- -------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.94%)
Investment in a joint repurchase
agreement transaction with UBS
Warburg, Inc. - Dated 12-29-00, due
01-02-01 (Secured by U.S. Treasury
Bonds, 6.750% thru 8.875%, due
08-15-17 thru 08-15-26) - Note B 5.95% $679 679,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company Current
Rate 5.20% 382
------------
TOTAL SHORT-TERM INVESTMENTS (4.94%) 679,382
--------- ------------
TOTAL INVESTMENTS (99.97%) 13,729,718
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.03%) 3,712
--------- ------------
TOTAL NET ASSETS (100.00%) $13,733,430
========= ============
* Non-income producing security.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Technology Fund
Schedule of Investments
December 31, 2000
- ------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the V.A. Technology Fund on December 31, 2000. It is divided into two
main categories: common stocks and short-term investments. Common stocks
are further broken down by industry group. Short-term investments,
which represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------------ ------------
COMMON STOCKS
Computer - Graphics (1.34%)
Cadence Design Systems, Inc.* 6,850 $188,375
------------
Computer - Internet Services (10.56%)
America Online, Inc.* 10,325 359,310
Art Technology Group, Inc.* 3,800 116,138
Ask Jeeves, Inc.* 2,820 6,874
DoubleClick, Inc.* 700 7,700
Exodus Communications, Inc.* 7,700 154,000
Exult, Inc.* 3,400 45,050
Genuity, Inc.* 5,000 25,312
Infospace, Inc.* 6,750 59,696
Inktomi Corp.* 2,975 53,178
Openwave Systems, Inc.* 2,600 124,638
Portal Software, Inc.* 3,300 25,884
RealNetworks, Inc.* 5,750 49,953
ScreamingMedia, Inc.* 8,350 25,050
TIBCO Software, Inc.* 2,500 119,844
VeriSign, Inc.* 2,300 170,631
VerticalNet, Inc.* 3,000 19,969
Viant Corp.* 1,700 6,747
Vignette Corp.* 6,250 112,500
------------
1,482,474
------------
Computer - Local Networks (5.24%)
Cisco Systems, Inc.* 10,500 401,625
JNI Corp.* 3,300 74,869
Lucent Technologies, Inc. 2,600 35,100
Network Appliance, Inc.* 3,500 224,656
------------
736,250
------------
Computer - Memory Devices (6.97%)
EMC Corp.* 6,600 438,900
Emulex Corp.* 2,400 191,850
VERITAS Software Corp.* 3,775 330,312
Western Digital Corp.* 6,950 16,941
------------
978,003
------------
Computer - Micro/Macro (1.44%)
Dell Computer Corp.* 6,600 115,088
Gateway, Inc.* 4,800 86,352
------------
201,440
------------
Computer - Services (0.64%)
Unisys Corp.* 6,150 89,944
------------
Computer - Software (17.35%)
BEA Systems, Inc.* 6,550 440,897
Citrix Systems, Inc.* 10,300 231,750
i2 Technologies, Inc.* 4,300 233,812
Mercury Interactive Corp.* 6,075 548,269
Microsoft Corp.* 2,000 86,750
Oracle Corp.* 12,150 353,109
Networks Associates, Inc.* 3,000 12,562
Parametric Technology Corp.* 9,900 133,031
Rational Software Corp.* 5,650 219,997
SmartForce Plc,* American Depositary Receipt
(ADR) (Ireland) 4,700 176,544
------------
2,436,721
------------
Electronics - Components Misc. (5.37%)
Sanmina Corp.* 2,800 214,550
SCI Systems, Inc.* 3,800 100,225
Solectron Corp.* 12,950 439,005
------------
753,780
------------
Electronics - Products Misc. (1.70%)
Aeroflex, Inc.* 8,300 239,273
------------
Electronics - Semiconductor Components (10.70%)
Altera Corp.* 2,650 69,728
Amkor Technology, Inc.* 3,250 50,426
Analog Devices, Inc.* 5,350 273,853
Applied Materials, Inc.* 4,725 180,436
Applied Science & Technology, Inc.* 1,200 14,400
ASM Lithography Holding N.V.* (Netherlands) 3,500 78,969
Atmel Corp.* 13,250 154,031
Cypress Semiconductor Corp.* 4,750 93,516
Integrated Device Technology, Inc.* 4,150 137,469
Intel Corp. 2,000 60,125
KLA-Tencor Corp.* 2,800 94,325
Micron Technology, Inc. 7,100 252,050
PRI Automation, Inc.* 2,300 43,125
------------
1,502,453
------------
Fiber Optics (7.06%)
CIENA Corp.* 3,500 284,375
Corning, Inc. 5,900 311,594
Finisar Corp.* 7,050 204,450
JDS Uniphase Corp.* 3,100 129,231
Sycamore Networks, Inc.* 1,650 61,462
------------
991,112
------------
Media - Radio/TV (0.36%)
Infinity Broadcasting Corp. (Class A)* 1,800 50,287
------------
Telecom - Equipment (4.91%)
Advanced Fibre Communications, Inc.* 4,150 74,959
ANTEC Corp.* 1,220 9,646
Nokia Corp. (ADR) (Finland) 5,750 250,125
Nortel Networks Corp. (Canada) 6,400 205,200
QUALCOMM, Inc.* 1,550 127,391
Tut Systems, Inc.* 2,750 22,687
------------
690,008
------------
Telecom - Services (1.44%)
Global Crossing Ltd.* (Bermuda) 9,250 132,391
Global Light Telecommunications, Inc.* (Canada) 1,600 6,960
Metromedia Fiber Network, Inc. (Class A)* 5,300 53,663
Primus Telecommunications Group, Inc. * 4,250 9,828
------------
202,842
------------
TOTAL COMMON STOCKS
(Cost $14,432,054) (75.08%) 10,542,962
------------
INTEREST PAR VALUE
RATE (000s OMITTED)
-------- --------------
SHORT-TERM INVESTMENTS
Government - U.S. Agencies (10.68%)
FHLMC Discount Note Due 01-02-01 5.05% $1,500 1,499,369
------------
Joint Repurchase Agreement (19.57%)
Investment in a joint repurchase
agreement transaction with UBS
Warburg, Inc. - Dated 12-29-00, due
01-02-01 (Secured by U.S. Treasury
Bonds, 6.750% thru 8.875%, due
08-15-17 thru 08-15-26) - Note B 5.95 2,748 2,747,789
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company Daily
Interest Savings Account Current Rate
5.20% 792
------------
TOTAL SHORT-TERM INVESTMENTS (30.25%) 4,247,950
--------- ------------
TOTAL INVESTMENTS (105.33%) 14,790,912
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (5.33%) (748,868)
--------- ------------
TOTAL NET ASSETS (100.00%) $14,042,044
========= ============
* Non-income producing security
Parenthetical disclosure of a foreign country in the security
description represents country of foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
Portfolio Concentration
December 31, 2000 (Unaudited)
- -----------------------------------------------------------------------
The V.A. Technology Fund invests primarily in equity securities of
technology companies in the United States and abroad. The concentration
of investments by industry category for individual securities held by
the Fund is shown in the schedule of investments. In addition,
concentration of investments can be aggregated by various countries. The
table below shows the percentage of the Fund's investments at December 31,
2000 assigned to the various countries.
MARKET VALUE AS A %
COUNTRY DIVERSIFICATION OF FUND NET ASSETS
- ----------------------- ------------------
Bermuda 0.94%
Canada 1.51
Finland 1.78
Ireland 1.26
Netherlands 0.56
United States 99.28
-------
TOTAL INVESTMENTS 105.33%
=======
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Bond Fund
Schedule of Investments
December 31, 2000
- --------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the V.A. Bond Fund on December 31, 2000. It is divided into three
main categories: bonds, warrants and short-term investments. Bonds and
warrants are further broken down by industry group. Short-term
investments, which represent the Fund's "cash" position, are listed last.
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- -------------------------- -------- ------- -------------- -------------
BONDS
Aerospace (0.70%)
Lockheed Martin Corp.,
Bond 12-01-29 8.500% BBB- $75 $84,880
Raytheon Co.,
Note 03-01-03 7.900 BBB- 40 41,017
Note 03-01-10 8.300 BBB- 45 49,135
-------------
175,032
-------------
Automobile/Trucks (0.66%)
ERAC USA Finance Co.,
Note 02-15-05 (R) 6.625 BBB+ 19 18,426
Note 12-15-09 (R) 7.950 BBB+ 35 36,094
Ford Capital B.V.,
Gtd Deb (Netherlands) 05-15-02 (Y) 9.875 A 50 52,044
Ford Motor Co.,
Note 07-16-31 7.450 A 65 60,161
-------------
166,725
-------------
Banks - Foreign (0.83%)
Abbey National First Capital, B.V.,
Sub Note (United Kingdom) 10-15-04 (Y) 8.200 AA- 30 31,849
Royal Bank of Scotland Plc,
Bond (United Kingdom) 03-31-05 (Y) 8.817 A- 30 31,641
Scotland International Finance No. 2,
B.V., Gtd Sub Note (Netherlands) 11-01-06 (R) (Y) 8.850 A 95 104,251
UBS PFD Funding Trust I,
Gtd Bond 10-01-49 8.622# AA- 40 41,905
-------------
209,646
-------------
Banks - United States (0.94%)
Bank of America Corp.,
Jr Sub Note 02-15-10 7.800 A 60 62,441
Bank of New York,
Cap Security 12-01-26 (R) 7.780 A- 50 46,179
BNP Paribas Capital Trust,
Sub Note 12-27-49 (R) 9.003# A- 45 46,849
National Westminster Bank Plc --
New York Branch, Sub Note 05-01-01 9.450 A+ 5 5,041
NB Capital Trust IV,
Gtd Cap Security 04-15-27 8.250 A- 20 18,837
RBSG Capital Corp.,
Gtd Cap Note 03-01-04 10.125 A 15 16,467
Security Pacific Corp.,
Sub Note 03-01-01 11.000 A 40 40,260
-------------
236,074
-------------
Beverages (0.12%)
Canandaigua Brands, Inc.,
Sr Sub Note Ser C 12-15-03 8.750 B+ 30 29,700
-------------
Chemicals (0.17%)
Akzo Nobel, Inc.,
Bond 11-15-03 (R) 6.000 A- 45 43,614
-------------
Cosmetics & Personal Care (0.19%)
Procter & Gamble Co.,
Deb 01-15-26 6.450 AA 50 47,919
-------------
Energy (0.63%)
Enron Corp.,
Note 08-15-05 (R) 8.000 BBB+ 60 62,402
MidAmerican Energy Holdings,
Sr Bond 09-15-28 8.480 BBB- 60 64,901
P&L Coal Holdings Corp.,
Sr Sub Note Ser B 05-15-08 9.625 B 30 30,000
-------------
157,303
-------------
Finance (4.32%)
Boeing Capital Corp.,
Sr Note 09-27-10 7.375 AA- 60 64,577
Bombardier Capital, Inc.,
Note 01-15-02 (R) 6.000 A- 30 29,859
Citigroup, Inc.,
Sub Note 10-01-10 7.250 A+ 85 87,958
EES Coke Battery Co., Inc.,
Sr Sec Note Ser A 04-15-02 (R) 7.125 BBB 3 3,194
Ford Credit Auto Owner Trust,
Pass Thru Ctf Ser 2000-F Class A-3 11-15-04 6.580 AAA 115 116,905
Ford Motor Credit Co.,
Note 04-28-03 6.125 A 35 34,771
General Electric Capital Corp.,
Med Term Note Ser A 11-15-10 6.875 AAA 65 68,044
General Motors Acceptance Corp.,
Note 07-15-05 7.500 A 60 61,726
Household Finance Corp.,
Note 11-01-02 5.875 A 70 69,431
Sr Unsub Note 02-01-09 5.875 A 30 27,572
HSBC Capital Funding, L.P.,
Gtd Note (Channel Islands) 12-31-49 (R) (Y) 9.547# A- 55 60,338
ING Capital Funding Trust III,
Gtd Trust Preferred Security 12-31-49 8.439# A 50 50,756
Marlin Water Trust/Marlin Water
Capital Corp., Sr Sec Note 12-15-01 (R) 7.090 BBB 30 30,039
Midland Funding Corp. I,
Deb Ser C-94 07-23-02 10.330 BBB- 7 6,882
Sec Deb Ser C-91 07-23-02 10.330 BBB- 9 9,584
Midland Funding Corp. II,
Deb Ser A 07-23-05 11.750 BB+ 65 68,843
MMCA Automobile Trust,
Pass Thru Ctf Ser 2000-2 Class A-4 06-15-05 6.860 AAA 100 102,182
Nisource Finance Corp.,
Gtd Bond 11-15-10 (R) 7.875 BBB 55 57,528
Spear Leeds & Kellogg, L.P.,
Note 08-15-05 (R) 8.250 A+ 40 42,393
Toyota Auto Receivables Owner Trust,
Asset Backed Note Ser 2000-B Class A-4 04-15-07 6.800 AAA 90 91,800
Yanacocha Receivables Master Trust,
Pass Thru Cert Ser 1997-A 06-15-04 (R) 8.400 BBB- 3 2,972
-------------
1,087,354
-------------
Food (0.20%)
Earthgrains Co. (The),
Note 08-01-03 8.375 BBB 50 50,665
-------------
Government - Foreign (0.39%)
Nova Scotia, Province of,
Deb (Canada) 11-15-19 (Y) 8.250 A- 20 23,285
Quebec, Province of,
Deb (Canada) 09-15-29 (Y) 7.500 A+ 70 74,704
-------------
97,989
-------------
Government - U.S. (36.85%)
United States Treasury,
Bond 08-15-17 8.875 AAA 482 655,144
Bond 02-15-23 7.125 AAA 1,360 1,620,522
Bond 08-15-29 6.125 AAA 230 250,162
Note 08-15-03 5.750 AAA 1,665 1,689,192
Note 02-15-05 7.500 AAA 1,025 1,114,524
Note 07-15-06 7.000 AAA 1,142 1,242,998
Note 05-15-08 5.625 AAA 2,375 2,437,344
Note 08-15-10 5.750 AAA 255 267,232
-------------
9,277,118
-------------
Government - U.S. Agencies (24.03%)
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf 12-01-12 6.500 AAA 31 31,120
15 Yr Pass Thru Ctf 11-01-14 7.000 AAA 52 53,032
30 Yr Pass Thru Ctf 06-01-29 6.000 AAA 19 18,200
Note 04-15-03 5.750 AAA 310 310,629
Note 09-15-09 6.625 AAA 780 812,783
Note 01-15-30 7.125 AAA 240 268,649
Pass Thru Ctf Ser 1997-M8 Class A-1 01-25-22 6.940 AAA 3 2,684
Government National Mortgage Assn.,
30 Yr Pass thru Ctf 07-15-26 8.000 AAA 23 23,747
30 Yr Pass Thru Ctf 04-15-28 to 06-15-29 6.500 AAA 3,153 3,117,377
30 Yr Pass Thru Ctf 06-15-28 to 07-15-29 7.000 AAA 1,284 1,289,673
30 Yr Pass Thru Ctf 10-15-29 to 10-15-30 7.500 AAA 118 120,016
-------------
6,047,910
-------------
Insurance (0.61%)
AXA, Sub Note (France) 12-15-30 (Y) 8.600 A- 50 51,815
Equitable Life Assurance Society USA,
Surplus Note 12-01-05 (R) 6.950 A+ 15 15,099
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) 7.625 AA 5 4,928
MONY Group, Inc. (The),
Sr Note 12-15-05 7.450 A- 30 30,447
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) 7.500 AA- 5 4,449
Sun Canada Financial Co.,
Gtd Sub Note 12-15-07 (R) 6.625 AA- 20 19,732
URC Holdings Corp.,
Sr Note 06-30-06 (R) 7.875 A- 25 25,989
-------------
152,459
-------------
Leisure (0.31%)
HMH Properties, Inc.,
Gtd Sr Note Ser A 08-01-05 7.875 BB 30 28,875
MGM Mirage, Inc.,
Gtd Sr Note 09-15-10 8.500 BBB- 30 30,749
Waterford Gaming LLC/Waterford
Gaming Finance Corp., Sr Note 03-15-10 (R) 9.500 B+ 20 19,100
-------------
78,724
-------------
Media (2.27%)
Adelphia Communications Corp.,
Sr Note Ser B 10-01-02 9.250 B+ 17 16,405
Sr Note Ser B 07-15-03 8.125 B+ 15 13,931
British Sky Broadcasting Group Plc,
Gtd Sr Note (United Kingdom) 07-15-09 (Y) 8.200 BB+ 40 37,638
Clear Channel Communications, Inc.,
Note 06-15-05 7.875 BBB- 40 41,337
Continental Cablevision, Inc.,
Sr Note 05-15-06 8.300 A 60 62,316
CSC Holdings, Inc.,
Sr Note Ser B 07-15-09 8.125 BB+ 55 55,525
Sr Sub Deb 05-15-16 10.500 BB- 20 21,900
Garden State Newspapers, Inc.,
Sr Sub Note 07-01-11 8.625 B+ 45 40,725
Jones Intercable, Inc.,
Sr Note 04-15-08 7.625 BBB 90 91,301
Lenfest Communications, Inc.,
Sr Note 11-01-05 8.375 BBB 40 42,822
Mediacom LLC/Mediacom Capital Corp.,
Sr Note Ser B 04-15-08 8.500 B+ 20 18,300
News America Holdings, Inc.,
Gtd Sr Deb 08-10-18 8.250 BBB- 20 18,418
TCI Communications, Inc.,
Sr Deb 02-15-26 7.875 A 45 42,261
Time Warner, Inc.,
Deb 01-15-13 9.125 BBB 58 67,415
-------------
570,294
-------------
Medical (0.46%)
Dynacare, Inc.,
Sr Note (Canada) 01-15-06 (Y) 10.750 B+ 37 35,520
Fresenius Medical Care
Capital Trust II, Gtd Trust Preferred Security
02-01-08 7.875 B+ 10 9,225
HCA - The Healthcare Co.,
Note 09-01-10 8.750 BB+ 20 21,050
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 10.750 B+ 23 24,495
Tenet Healthcare Corp.,
Sr Note 01-15-05 8.000 BB+ 25 25,313
-------------
115,603
-------------
Metal (0.32%)
WMC Finance (USA), Ltd.,
Gtd Note (Australia) 11-15-03 (Y) 6.500 A 80 80,029
-------------
Mortgage Banking (5.52%)
AMRESCO Residential Securities Corp.
Mortgage Loan Trust, Pass Thru Ctf Ser 1998-1
Class A-6 08-25-27 6.510 AAA 150 149,555
Citibank Credit Card Master Trust I,
Class A Credit Card Part Cert Ser 1997-2
02-15-04 6.550 AAA 130 130,650
Commercial Mortgage Acceptance Corp.,
Pass Thru Ctf Ser 1999-C1 Class A-1 08-15-08 6.790 Aaa 73 74,577
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1995-2 Class A-5 08-15-25 8.100 AAA 10 10,063
Credit Suisse First Boston Mortgage
Securities Corp.,
Commercial Mtg Pass Thru Ctf
Ser 1998-C1 Class A-1A 12-17-07 6.260 AAA 20 20,221
EQCC Home Equity Loan Trust,
Pass Thru Ctf Ser 1997-3 Class A-9 02-15-29 6.570 AAA 145 144,297
GMAC Commercial Mortgage Securities, Inc.,
Pass Thru Ctf Ser 1997-C1 Class A-2 09-15-06 6.853 Aaa 50 50,953
Pass Thru Ctf Ser 1997-C2 Class A-3 11-15-07 6.566 Aaa 175 174,631
IMC Home Equity Loan Trust,
Pass Thru Ctf Ser 1998-1 Class A-4 03-20-25 6.600 AAA 15 14,864
LB Commercial Conduit Mortgage Trust,
Pass Thru Ctf Ser 1999-C1 Class A-1 08-15-07 6.410 Aaa 52 51,851
Money Store Home Equity Trust (The),
Pass Thru Ctf Ser 1997-D Class AF-7 12-15-38 6.485 AAA 16 15,840
Morgan Stanley Capital I, Inc.,
Pass Thru Ctf Ser 1997-WF1 Class A-1 10-15-06
(R) 6.830 AAA 228 230,773
Pass Thru Ctf Ser 1999-CAM1 Class A-3 11-15-08 6.920 AAA 140 143,866
Salomon Brothers Mortgage Securities
VII, Inc., Mtg Pass Thru Ctf Ser 1997-HUD2 Class
A-2 07-25-24 6.750 Aaa 6 5,987
Saxon Asset Securities Trust,
Pass Thru Ctf Ser 2000-2 Class AF-2 06-25-15 7.965 AAA 105 106,805
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1997-A1 Class A-8 06-15-28 7.220 AAA 9 9,103
Pass Thru Ctf Ser 1997-B Class A-6 10-15-28 6.900 AAA 55 55,453
-------------
1,389,489
-------------
Oil & Gas (1.90%)
Alberta Energy Co., Ltd.,
Note (Canada) 09-15-30 (Y) 8.125 BBB+ 45 48,028
Amerada Hess Corp.,
Bond 10-01-29 7.875 BBB+ 70 73,390
Apache Finance Canada Corp.,
Note (Canada) 12-15-29 (Y) 7.750 BBB+ 75 79,207
El Paso Energy Corp.,
Med Term Note 10-15-30 8.050 BBB 75 78,926
Louis Dreyfus Natural Gas Corp.,
Note 12-01-07 6.875 BBB 40 39,697
Occidental Petroleum Corp.,
Sr Deb 09-15-09 10.125 BBB- 15 17,837
Ocean Energy, Inc.,
Gtd Sr Sub Note Ser B 07-15-07 8.875 BB+ 20 20,700
Petroleum Geo-Services ASA,
Sr Note (Norway) 03-30-28 (Y) 7.125 BBB 50 40,692
Santa Fe Snyder Corp.,
Sr Sub Note 06-15-07 8.750 BBB+ 20 21,132
Tosco Corp.,
Note 02-15-30 8.125 BBB 55 59,173
-------------
478,782
-------------
Paper & Paper Products (0.19%)
International Paper Co.,
Note 07-08-05 (R) 8.125 BBB+ 45 46,637
-------------
Real Estate Investment Trust (0.57%)
American Health Properties, Inc.,
Note 01-15-07 7.500 BBB- 20 19,080
Cabot Industrial Properties, L.P.,
Note 05-01-04 7.125 BBB- 25 24,925
Camden Property Trust,
Sr Note 04-15-04 7.000 BBB 30 29,801
Liberty Property, L.P.,
Med Term Note 06-05-02 6.600 BBB- 40 41,037
ProLogis Trust,
Sr Note 04-15-04 6.700 BBB+ 25 24,756
TriNet Corporate Realty Trust, Inc.,
Note 05-15-01 7.300 BB 5 4,913
-------------
144,512
-------------
Telecommunications (2.01%)
BellSouth Capital Funding Corp.,
Deb 02-15-30 7.875 AA- 50 51,556
Clearnet Communications, Inc.,
Sr Disc Note, Step Coupon
(10.125%, 05-01-04) (Canada)
05-01-09 (A) (Y) Zero B3 30 24,000
Cox Communications, Inc.,
Note 11-01-10 7.750 BBB 40 41,321
Dominion Resources, Inc.,
Sr Note Ser A 06-15-10 8.125 BBB+ 60 65,217
LCI International, Inc.,
Sr Note 06-15-07 7.250 BBB+ 30 29,978
McLeodUSA, Inc.,
Sr Note 11-01-08 9.500 B+ 25 22,750
MetroNet Communications Corp.,
Sr Note (Canada) 08-15-07 (Y) 12.000 BBB 15 16,500
NTL Communications Corp.,
Sr Note Ser B 10-01-08 11.500 B 40 35,600
Qwest Capital Funding, Inc.,
Gtd Note 07-15-28 6.875 BBB+ 65 57,407
TeleCorp PCS, Inc.,
Sr Sub Disc Note, Step Coupon
(11.625%, 04-15-04)
04-15-09 (A) Zero B3 25 17,000
Verizon Global Funding Corp.,
Bond 12-01-30 (R) 7.750 A+ 70 72,073
VoiceStream Wireless Corp.,
Sr Note 09-15-09 11.500 CCC+ 20 21,950
Sr Note 11-15-09 10.375 B- 10 10,775
WorldCom, Inc.,
Note 05-15-06 8.000 A- 40 40,864
-------------
506,991
-------------
Transportation (2.55%)
America West Airlines,
Pass Thru Ctf Ser 1996-1B 01-02-08 6.930 A- 3 3,290
Burlington Northern & Santa Fe
Railway Co., Deb 08-15-30 7.950 BBB+ 70 72,758
Continental Airlines, Inc.,
Pass Thru Ctf Ser 1997-2C 06-30-04 7.206 BBB 102 101,835
Pass Thru Ctf Ser 1999-1A 02-02-19 6.545 AA+ 58 56,722
Delta Air Lines, Inc.,
Pass Thru Ctf Ser 2000-1 Class A-2 11-18-10 7.570 AAA 45 47,655
Northwest Airlines, Inc.,
Gtd Note 03-15-04 8.375 BB 25 24,536
Pass Thru Ctf Ser 1996-1D 01-02-15 8.970 BBB- 5 4,772
NWA Trust,
Sr Note Ser A 12-21-12 9.250 AA 37 41,165
Railcar Trust No. 1992-1,
Pass Thru Ser 1992-1 Class A 06-01-04 7.750 AAA 61 62,568
United Air Lines, Inc.,
Pass Thru Ctf Ser 2000-1 Class A-1 01-01-14 7.783 AAA 75 78,191
Pass Thru Ctf Ser 2000-2 Class A-1 04-01-12 7.032 AAA 70 70,398
US Airways, Inc.,
Pass Thru Ctf Ser 1989-A2 01-01-13 9.820 BB- 40 35,650
Pass Thru Ctf Ser 1990-A1 03-19-05 11.200 BB- 35 35,994
Wisconsin Central Transportation Corp.,
Note 04-15-08 6.625 BBB- 8 7,479
-------------
643,013
-------------
Utilities (5.53%)
AES Corp.,
Sr Note 06-01-09 9.500 BB 35 36,225
Sr Note 09-15-10 9.375 BB 20 20,350
Sr Sub Note 07-15-06 10.250 B+ 10 10,400
AES Eastern Energy, L.P.,
Pass Thru Ctf Ser 1999-A 01-02-17 9.000 BBB- 25 25,755
Avon Energy Partners Holdings,
Sr Note (United Kingdom) 12-11-02 (R) (Y) 6.730 BBB+ 40 39,693
Beaver Valley Funding Corp.,
Deb 06-01-07 8.625 BB- 60 62,145
Sec Lease Oblig Bond 06-01-17 9.000 BB- 23 25,081
BVPS II Funding Corp.,
Collateralized Lease Bond 06-01-17 8.890 BB- 5 5,512
Calpine Corp.,
Sr Note 08-15-05 8.250 BB+ 70 71,004
Sr Note 04-01-08 7.875 BB+ 15 14,700
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 9.500 BB+ 45 46,575
Sr Sec Note Ser D 11-01-17 7.880 BB+ 20 20,401
CMS Energy Corp.,
Sr Note 05-15-02 8.125 BB 60 60,023
Sr Note 10-15-07 9.875 BB 15 15,563
Sr Note Ser B 01-15-04 6.750 BB 55 51,975
Connecticut Light & Power Co.,
1st Mtg Ser C 06-01-02 7.750 BBB- 45 45,177
East Coast Power LLC,
Sr Sec Note 03-31-12 7.066 BBB- 30 28,730
EIP Funding-PNM,
Sec Fac Bond 10-01-12 10.250 BBB- 38 42,370
GG1B Funding Corp.,
Deb 01-15-11 7.430 BBB- 25 24,523
Hydro-Quebec,
Gtd Bond (Canada) 02-01-21 (Y) 9.400 A+ 30 37,800
Gtd Bond Ser HY (Canada) 01-15-22 (Y) 8.400 A+ 20 23,636
Iberdrola International B.V.,
Note 10-01-02 7.500 AA- 35 35,833
Keyspan Corp.,
Note 11-15-10 7.625 A 45 47,768
Long Island Lighting Co.,
Deb 03-15-23 8.200 A- 40 39,800
Niagara Mohawk Power Corp.,
Sec Fac Bond 01-01-18 8.770 BBB 44 46,317
North Atlantic Energy Corp.,
1st Mtg Ser A 06-01-02 9.050 BB+ 15 15,211
Northeast Utilities,
Note Ser A 12-01-06 8.580 BB+ 6 6,366
PECO Energy Transition Trust,
Pass Thru Ctf Ser 1999-A Class A-6 03-01-09 6.050 AAA 35 34,627
Pass Thru Ctf Ser 2000-A Class A-3 03-01-10 7.625 AAA 125 134,541
Pinnacle One Partners, L.P.,
Sr Note 08-15-04 (R) 8.830 BBB- 25 25,657
PNPP II Funding Corp.,
Deb 05-30-16 9.120 BB- 40 43,271
Puget Sound Energy, Inc.,
1st Mtg Med Term Note Ser C 02-01-11 7.690 A- 40 41,786
Sierra Pacific Resources,
Note 05-15-05 8.750 BBB 45 47,163
TXU Corp.,
Gtd Note 01-30-37 8.175 BBB- 35 33,121
Waterford 3 Funding Corp.,
Sec Lease Oblig Bond 01-02-17 8.090 BBB- 61 63,217
Xcel Energy, Inc.,
Sr Note 12-01-10 7.000 BBB+ 70 70,075
-------------
1,392,391
-------------
TOTAL BONDS
(Cost $22,605,396) (92.27%) 23,225,973
--------- -------------
NUMBER
OF WARRANTS
-----------
WARRANTS
Telecommunications (0.00%)
MetroNet Communications Corp. (Canada) (R) (Y) * 5 475
-------------
TOTAL WARRANTS
(Cost $51) (0.00%) 475
--------- -------------
INTEREST PAR VALUE
RATE (000s OMITTED)
--------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (6.38%)
Investment in a joint repurchase
agreement transaction with UBS
Warburg, Inc. - Dated 12-29-00, due
01-02-01 (Secured by U.S. Treasury
Bonds, 6.750% thru 8.875%, due
08-15-17 thru 08-15-26) - Note B 5.950% $1,606 $1,606,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company Daily
Interest Savings Account Current Rate
5.20% 749
------------
TOTAL SHORT-TERM INVESTMENTS (6.38%) 1,606,749
--------- ------------
TOTAL INVESTMENTS (98.65%) 24,833,197
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (1.35%) 339,520
--------- ------------
TOTAL NET ASSETS (100.00%) $25,172,717
========= ============
(A) Cash interest will be paid on this obligation at the stated rate
beginning on the stated date.
(R) These securities are exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from
registration. Rule 144A securities amounted to $1,088,743 or 4.33% of
net assets as of December 31, 2000.
(Y) Parenthetical disclosure of a foreign country in the security
description represents country of a foreign issuer; however, security is
U.S. dollar denominated.
* Non-income producing security.
** Credit ratings are unaudited and rated by Standard & Poor's where
available, or Moody's Investor Services or John Hancock Advisers, Inc.,
where Standard & Poor's ratings are not available.
# Represents rate in effect on December 31, 2000.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. High Yield Bond Fund
Schedule of Investments
December 31, 2000
- -----------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the V.A. High Yield Bond Fund on December 31, 2000. It is divided
into four main categories: bonds, common stocks, pre ferred stocks and
warrants, and short-term investments. Bonds are further broken down by
industry group. Short-term invest ments, which represent the Fund's
"cash" position, are listed last.
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------------------------------ --------- ---------- -------------- -------------
BONDS
Aerospace (0.06%)
Compass Aerospace Corp.,
Gtd Sr Sub Note Ser D 04-15-05 10.125% CCC- $25 $4,250
-------------
Agricultural Operations (0.03%)
Iowa Select Farms L.P./ISF Finance, Inc.,
Sr Sub Note 12-01-05 (B) (R) 10.750 D 10 2,200
-------------
Automobile/Trucks (0.91%)
AM General Corp.,
Sr Note Ser B 05-01-02 12.875 B 50 46,500
J.B. Poindexter & Co., Inc.,
Sr Note 05-15-04 12.500 B 25 19,500
-------------
66,000
-------------
Building (0.24%)
Amatek Industries Property Ltd.,
Sr Sub Note (Australia) 02-15-08 (Y) 12.000 B 25 17,000
-------------
Business Services - Misc. (0.19%)
AP Holdings, Inc.,
Sr Disc Note, Step Coupon (11.25%, 03-15-03)
03-15-08 (A) Zero CCC+ 200 14,000
-------------
Chemicals (2.87%)
Huntsman ICI Chemicals LLC,
Sr Sub Note 07-01-09 10.125 B+ 100 95,000
Huntsman ICI Holdings LLC,
Sr Disc Note 12-31-09 Zero B+ 75 20,531
Trikem S.A.,
Bond (Brazil) 07-24-07 (R) (Y) 10.625 B+ 125 91,250
-------------
206,781
-------------
Consumer Products Misc. (0.82%)
Diamond Brands Operating Corp.,
Sr Sub Note 04-15-08 10.125 CCC 100 40,000
Indesco International, Inc.,
Sr Sub Note 04-15-08 9.750 D 100 19,000
-------------
59,000
-------------
Containers (3.71%)
Gaylord Container Corp.,
Sr Note Ser B 06-15-07 9.375 B- 15 9,450
Sr Sub Note Ser B 02-15-08 9.875 CCC+ 100 40,000
Kappa Beheer B.V.,
Sr Sub Bond (Netherlands) 07-15-09 (Y) 10.625 B 75 75,750
Sr Sub Bond, Step Coupon (12.50%, 07-15-04)
(Netherlands) 07-15-09 (A) (E) Zero B 100 64,232
Riverwood International Corp.,
Gtd Sr Sub Note 04-01-08 10.875 CCC+ 20 17,900
Stone Container Corp.,
Unit (Sr Sub Deb & Supplemental Int Cert)
04-01-02 12.250 B- 60 60,600
-------------
267,932
-------------
Cosmetics & Personal Care (0.08%)
Global Health Sciences, Inc.,
Gtd Sr Note 05-01-08 (B) 11.000 D 75 6,000
-------------
Diversified Operations (0.84%)
Diamond Holdings Plc,
Bond (United Kingdom) 02-01-08 # 10.000 B- 50 60,462
-------------
Energy (1.48%)
AEI Resources, Inc./AEI Resources Holdings, Inc.,
Gtd Note 12-15-05 (R) 10.500 CCC- 75 6,750
P&L Coal Holdings Corp.,
Sr Sub Note Ser B 05-15-08 9.625 B 100 100,000
-------------
106,750
-------------
Food (3.11%)
Agrilink Foods, Inc.,
Sr Sub Note 11-01-08 11.875 B 100 66,500
Mastellone Hermanos S.A.,
Sr Note (Argentina) 04-01-08 (Y) 11.750 B+ 125 86,250
RAB Holdings, Inc.,
Sr Note 05-01-08 (R) 13.000 Caa2 120 72,000
-------------
224,750
-------------
Insurance (0.62%)
Willis Corroon Corp.,
Gtd Sr Sub Note 02-01-09 9.000 B+ 50 44,750
-------------
Leisure (2.02%)
Claridge Hotel & Casino Corp.,
1st Mtg Note 02-01-02 (B) 11.750 Ca1 50 35,000
Fitzgeralds Gaming Corp.,
Gtd Sr Sec Note Ser B 12-15-04 (B) 12.250 Caa1 50 28,000
Production Resource Group LLC,
Sr Sub Note 01-15-08 11.500 CCC- 25 5,250
SC International Services, Inc.,
Sr Sub Note Ser B 09-01-07 9.250 B 30 28,500
Trump Atlantic City Associates,
1st Mtg Note 05-01-06 11.250 B- 75 49,125
-------------
145,875
-------------
Machinery (0.23%)
Glasstech, Inc.,
Sr Note Ser B 07-01-04 12.750 B3 25 16,250
-------------
Manufacturing (0.17%)
ICON Health & Fitness, Inc.,
Gtd Note 09-27-05 12.000 B 22 12,210
-------------
Media (3.31%)
DIVA Systems Corp.,
Sr Disc Note Ser B, Step Coupon (12.625%,
03-01-03) 03-01-08 (A) Zero B- 50 20,000
Pegasus Communications Corp.,
Sr Note Ser B 08-01-07 12.500 CCC+ 35 36,400
Regional Independent Media Group Plc,
Sr Disc Note, Step Coupon (12.875%, 07-01-03)
(United Kingdom) 07-01-08 (A) # Zero B- 20 23,737
Sr Note (United Kingdom) 07-01-08 (Y) 10.500 B- 5 5,112
Sirius Satellite Radio, Inc.,
Sr Disc Note, Step Coupon (15.00%, 12-01-02)
12-01-07 (A) Zero CCC+ 110 45,100
United International Holdings, Inc.,
Sr Disc Note, Step Coupon (10.75%, 02-15-03)
02-15-08 (A) Zero B- 75 29,250
XM Satellite Radio, Inc.,
Sr Sec Note 03-15-10 14.000 CCC+ 150 79,500
-------------
239,099
-------------
Medical (0.55%)
Total Renal Care Holdings, Inc.,
Conv Sub Note 05-15-09 (R) 7.000 B- 50 39,375
-------------
Metal (6.38%)
Apatief Freeport Finance Co. B.V. (P.T.),
Sr Note 04-15-01 9.750 CCC+ 280 263,200
Doe Run Resources Corp.,
Gtd Sr Note Ser B 03-15-03 13.070*** B- 25 12,500
Gtd Sr Note Ser B 03-15-05 11.250 B- 10 5,000
Freeport-McMoRan Copper & Gold, Inc.,
Sr Note 11-15-06 7.500 CCC+ 75 44,250
Golden Northwest Aluminum, Inc.,
1st Mtg Note 12-15-06 12.000 BB- 25 22,250
Great Lakes Acquisition Corp.,
Sr Disc Deb, Step Coupon (13.125%, 05-15-03)
05-15-09 (A) Zero B- 200 36,000
TVX Gold, Inc.,
Conv Sub Note (Canada) 03-28-02 (Y) 5.000 B- 100 77,000
-------------
460,200
-------------
Oil & Gas (8.99%)
Comstock Resources, Inc.,
Gtd Sr Note 05-01-07 11.250 B 75 77,438
Giant Industries, Inc.,
Sr Sub Note 11-15-03 9.750 B+ 25 24,312
Gothic Production Corp.,
Sr Sec Note Ser B 05-01-05 11.125 CCC 100 107,000
Key Energy Services, Inc.,
Conv Sub Note 09-15-04 5.000 B3 143 120,120
Conv Sub Note 09-15-04 (R) 5.000 B3 80 67,200
Sr Sub Note Ser B 01-15-09 14.000 B- 100 113,750
Mariner Energy, Inc.,
Sr Sub Note Ser B 08-01-06 10.500 B- 10 9,600
Ocean Rig Norway A.S.,
Gtd Sr Sec Note (Norway) 06-01-08 (Y) 10.250 B- 55 48,400
Universal Compression, Inc.,
Sr Disc Note, Step Coupon (9.875%, 02-15-03)
02-15-08 (A) Zero B 100 81,000
-------------
648,820
-------------
Paper & Paper Products (3.25%)
APP China Group Ltd.,
Unit (Sr Disc Note & Warrant) (Indonesia)
03-15-10 (R) (Y) 14.000 CCC+ 250 95,000
APP Finance (VII) Mauritius Ltd.,
Gtd Note (Indonesia) 04-30-03 (R) (Y) 3.500 CCC+ 10 3,100
Grupo Industrial Durango, S.A.,
Note (Mexico) 08-01-03 (Y) 12.625 BB- 125 126,563
Sappi BVI Finance Ltd.,
Gtd Conv Bond (South Africa) 08-01-02 (R) (Y) 7.500 BB- 10 9,745
-------------
234,408
-------------
Real Estate Operations (0.01%)
Signature Resorts, Inc.,
Conv Sub Note 01-15-07 (B) 5.750 Caa1 35 875
-------------
Retail (0.73%)
Imperial Home Decor Group, Inc,
Gtd Sr Sub Note 03-15-08 (B) 11.000 C 125 625
SpinCycle, Inc.,
Sr Disc Note, Step Coupon (12.75%, 05-01-01)
05-01-05 (A) Zero CCC+ 25 7,250
St. John Knits International, Inc.,
Sr Sub Note 07-01-09 12.500 B- 50 45,000
-------------
52,875
-------------
Steel (1.19%)
Gulf States Steel, Inc. of Alabama,
1st Mtg Bond 04-15-03 (B) 13.500 Caa3 100 250
LTV Corp. (The),
Gtd Sr Sub Note 11-15-09 11.750 B 50 7,750
Metallurg Holdings, Inc.,
Sr Disc Note, Step Coupon (12.75%, 07-15-03)
07-15-08 (A) Zero CCC+ 50 12,500
Metallurg, Inc.,
Gtd Sr Note Ser B 12-01-07 11.000 B- 30 23,400
NSM Steel, Inc./NSM Steel Ltd.,
Gtd Sr Sub Mtg Note Ser B 02-01-08 (B) (R) 12.250 D 75 750
Oregon Steel CF&I,
Note 03-31-03 (r) 9.500 B 56 41,218
-------------
85,868
-------------
Telecommunications (10.68%)
AMSC Acquisition Co., Inc.,
Sr Note Ser B 04-01-08 12.250 B- 40 17,600
CTI Holdings S.A.,
Sr Note, Step Coupon (11.25%, 04-15-03)
(Argentina) 04-15-08 (A) (Y) Zero B 75 28,500
Esprit Telecom Group Plc,
Sr Note (Germany) 06-15-08 # 11.000 BB- 40 192
Grupo Iusacell S.A. de C.V.,
Sr Note (Mexico) 12-01-06 (Y) 14.250 B+ 35 34,650
GT Group Telecom, Inc.,
Unit (Sr Disc Note & Warrant), Step Coupon
(13.25%, 02-01-05) 02-01-10 1.000 B- 100 42,000
ITC DeltaCom, Inc.,
Sr Note 11-15-08 9.750 B+ 100 76,000
Jazztel Plc,
Sr Note (United Kingdom) 12-15-09 (E) 13.250 CCC+ 50 30,475
McLeodUSA, Inc.,
Sr Note 03-15-08 8.375 B+ 35 30,450
Metromedia Fiber Network, Inc.,
Sr Note Ser B 11-15-08 10.000 B+ 75 62,437
Nextel Partners, Inc.,
Sr Disc Note, Step Coupon (14.00%, 02-01-04)
02-01-09 (A) Zero CCC+ 15 9,900
NTL Communications Corp.,
Sr Note Ser B 10-01-08 11.500 B 50 44,500
Sr Note Ser B, Step Coupon (12.375%, 10-01-03)
10-01-08 (A) Zero B 100 55,000
ONO Finance Plc,
Sr Note (United Kingdom) 07-15-10 (E) (R) 14.000 CCC+ 50 35,633
Primus Telecommunications Group, Inc.,
Sr Note 10-15-09 12.750 B- 50 15,500
PTC International Finance II S.A.,
Gtd Sr Sub Note (Luxembourg) 12-01-09 (E) 11.250 B+ 25 22,622
Telewest Communications Plc,
Sr Disc Note, Step Coupon (9.875%, 04-15-04)
(United Kingdom) 04-15-09 (A) # Zero B+ 25 16,795
United Pan-Europe Communicatons N.V.,
Sr Disc Note Ser B, Step Coupon (13.375%,
11-01-04) (Netherlands) 11-01-09 (A) (E) Zero B- 30 9,565
Sr Note (Netherlands) 11-01-07 (E) 10.875 B- 50 30,475
Sr Note (Netherlands) 11-01-09 (E) 11.250 B- 25 15,238
Versatel Telecom International N.V.,
Sr Note (Netherlands) 05-15-08 (Y) 13.250 B- 125 76,250
Viatel, Inc.,
Sr Note (Germany) 04-15-08 # 11.150 Caa1 170 26,896
Sr Sec Note 04-15-08 11.250 B- 75 22,500
World Access, Inc.,
Sr Note Ser B 01-15-08 13.250 B- 100 68,000
-------------
771,178
-------------
Textile (1.58%)
Coyne International Enterprises Corp.,
Sr Sub Note 06-01-08 11.250 B- 75 54,000
Steel Heddle Group, Inc.,
Sr Disc Deb, Step Coupon (13.75%, 06-01-03)
06-01-09 (A) Zero Caa2 200 10,000
Steel Heddle Manufacturing Co.,
Gtd Sr Sub Note Ser B 06-01-08 10.625 Caa1 50 7,500
Tropical Sportswear International Corp.,
Sr Sub Note Ser A 06-15-08 11.000 B- 50 42,500
-------------
114,000
-------------
Transport (6.95%)
Amtran, Inc.,
Sr Note 08-01-04 10.500 B+ 50 45,250
Cenargo International Plc,
1st Mtg Note (United Kingdom) 06-15-08 (Y) 9.750 B+ 20 15,800
CHC Helicopter Corp.,
Sr Sub Note (Canada) 07-15-07 (E) 11.750 B 100 98,927
Fine Air Services, Inc.,
Sr Note 06-01-08 (B) 9.875 CC 105 5,247
North American Van Lines, Inc.,
Sr Sub Note 12-01-09 (R) 13.375 B- 75 61,500
Northwest Airlines Corp.,
Gtd Note 03-15-07 8.700 BB 100 96,592
Pacer International, Inc.,
Sr Sub Note 06-01-07 11.750 B- 50 48,250
Pacific & Atlantic Holdings, Inc.,
Sr Sec Note 12-31-07 (R) 10.500 CC 20 10,996
US Airways, Inc.,
Pass Thru Ctf Ser 1993-A3
03-01-13 10.375 BB- 50 44,500
Sr Note 02-01-01 9.625 CCC+ 75 74,875
-------------
501,937
-------------
Utilities (0.66%)
CMS Energy Corp.,
Sr Note 10-15-07 9.875 BB 25 25,937
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico) 11-15-09 (R) (Y) 9.625 BB+ 23 21,768
-------------
47,705
-------------
Waste Disposal Service & Equip (1.69%)
Allied Waste North America, Inc.,
Sr Sub Note Ser B 08-01-09 10.000 B+ 125 116,875
Waste Systems International, Inc.,
Gtd Sr Note 01-15-06 11.500 D 15 5,250
-------------
122,125
-------------
TOTAL BONDS
(Cost 6,946,112) (63.35%) 4,572,675
--------- -------------
NUMBER OF
SHARES OR
WARRANTS
--------
COMMON STOCKS
Abitibi-Consolidated, Inc., Common Stock
(Canada) (Y) 12,500 114,844
American Pacific Corp., Common Stock** 5,000 27,500
AMR Corp., Common Stock ** 2,000 78,375
Chesapeake Energy Corp., Common Stock** 772 7,865
Gaylord Container Corp. (Class A), Common Stock** 6,500 6,500
Grey Wolf, Inc., Common Stock** 28,850 169,494
International Wireless Communications Holdings,
Inc., Common Stock 2,417 1,329
KLM Royal Dutch Airlines N.V., Common Stock
(Netherlands) (Y) 78 1,755
Northwest Airlines Corp., Common Stock** 6,500 195,813
Pathmark Stores, Inc., Common Stock** 1,046 17,259
Star Gas Partners, L.P., Common Stock 3,300 57,750
Waste Systems International, Inc., Common
Stock** 8,715 1,634
-------------
TOTAL COMMON STOCKS
(Cost 892,077) (9.42%) 680,118
--------- -------------
PREFERRED STOCKS AND WARRANTS
Asia Pulp & Paper Co. Ltd., Warrant (R)** 250 3
DIVA Systems Corp., Warrant (R)** 150 263
Georgia-Pacific Corp., Unit (Common & Preferred
Shares) 3,000 02,938
Gothic Energy Corp., Warrant** 79 0
GT Group Telecom, Inc., Warrant** 100 7,000
HF Holdings, Inc., Warrant** 212 106
Hills Stores Co., Warrant** 35,000 0
Motient Corp., Warrant (R)** 40 400
Nakornthai Strip Mill Plc, Warrant (Thailand) (R) (Y)** 63,309 63
Nextel Communications, Inc., 11.125%, Ser E,
Preferred Stock 198 68,300
ONO Finance Plc, Warrant (United Kingdom) (R) (Y)** 50 3,000
Pacific & Atlantic Holdings, Inc., 7.50%,
Preferred Stock 1,172 5,860
Pathmark Stores, Inc., Warrant** 740 3,561
Smurfit-Stone Container Corp., 7.00%, Ser A,
Preferred Stock 3,000 49,500
SpinCycle, Inc., Warrant (R)** 25 0
TimberWest Forest Corp., Unit (Common &
Preferred Shares) (Canada) # 38,000 74,501
Waste Systems International, Inc., 8.00%, Ser E,
Preferred Stock 160 7,360
Waste Systems International, Inc., Warrant (R)** 225 2
XM Satellite Radio Holdings, Inc., Warrant (R)** 150 3,750
-------------
TOTAL PREFERRED STOCKS AND WARRANTS
(Cost $820,929) (8.68%) 626,607
--------- -------------
INTEREST PAR VALUE
RATE (000s OMITTED)
-------- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (16.10%)
Investment in a joint repurchase
agreement transaction with UBS
Warburg, Inc. - Dated 12-29-00, due
01-02-01 (Secured by U.S. Treasury
Bonds, 6.750% thru 8.875%, due
08-15-17 thru 08-15-26) - Note B 5.950% $1,162 $1,162,000
------------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company Daily
Interest Savings Account Current Rate
5.20% 951
------------
TOTAL SHORT-TERM INVESTMENTS (16.11%) 1,162, 951
--------- ------------
TOTAL INVESTMENTS (97.56%) 7,042,351
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (2.44%) 176,283
--------- ------------
TOTAL NET ASSETS (100.00%) $7,218,634
========= ============
* Credit ratings are unaudited and rated by Moody's Investors Service
or John Hancock Advisers, Inc. where Standard & Poor's ratings are not
available.
** Non-income producing security.
*** Represents rate in effect on December 31, 2000.
# Par value of foreign bonds and common stocks is expressed in local currency,
as shown parenthetically in security description.
(A) Cash interest will be paid on this obligation at the stated rate
beginning on the stated date.
(B) Non-income producing issuer, filed for protection under Federal
Bankruptcy Code or is in default of interest payment.
(E) Parenthetical disclosure of a country in the security description
represents country of issuer; however, security is euro-denominated.
(R) These securities are exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from
registration. Rule 144A securities amounted to $524,748 or 7.27% of net
assets as of December 31, 2000.
(Y) Parenthetical disclosure of a foreign country in the security
description represents country of a foreign issuer; however, security is
U.S. dollar-denominated.
(r) Direct placement securities are restricted as to resale. They have
been valued in accordance with procedures approved by the Trustees after
consideration of restrictions as to resale, financial condition and
prospects of the issuer, general market conditions and pertinent
information in accordance with the Fund's By-laws and the Investment
Company Act of 1940, as amended. The Fund has limited rights to
registration under the Securities Act of 1933 with respect to these
restricted securities.
Additional information on these securities is as follows:
MARKET MARKET
VALUE AS A VALUE AT
ACQUISITION ACQUISITION % OF FUND DECENBER 31,
ISSUER, DESCRIPTION DATE COST NET ASSETS 2000
- ------------------- ---- ---- ---------- ----
Oregon Steel CF&I 05-14-98 $54,039 0.57% $41,218
The percentage shown for each investment category is the total value of
that category expressed as a percentage of the net assets of the Fund.
See notes to financial statements.
Portfolio Concentration
December 31, 2000 (Unaudited)
- -------------------------------------------------------------------------
The V.A. High Yield Bond Fund invests primarily in securities issued in
the United States of America. The performance of this Fund is closely
tied to the economic and financial conditions of the countries within
which it invests. The concentration of investments by industry category
for individual securities held by the Fund is shown in the schedule of
investments.
In addition, concentration of investments can be aggregated by various
countries. The table below shows the percentages of the Fund's
investments at December 31, 2000 assigned to country categories.
MARKET VALUE AS A %
COUNTRY DIVERSIFICATION OF FUND NET ASSETS
- ----------------------- ------------------
Argentina 1.59%
Australia 0.24
Brazil 1.26
Canada 7.83
Germany 0.38
Indonesia 1.36
Luxembourg 0.31
Mexico 2.53
Netherlands 3.79
Norway 0.67
South Africa 0.13
Thailand 0.00
United Kingdom 2.65
United States 74.82
-------
TOTAL INVESTMENTS 97.56%
=======
Additionally, the concentration of investments can be aggregated by the
quality rating for each debt security.
QUALITY DISTRIBUTION
- --------------------
BB 4.81%
B 41.87
CCC 15.49
CC 0.71
C 0.01
D 0.46
-------
TOTAL BONDS 63.35%
=======
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Money Market Fund
Schedule of Investments
December 31, 2000
- -----------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the V.A. Money Market Fund on December 31, 2000.
INTEREST QUALITY PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- --------- ---------- -------------- -------------
COMMERCIAL PAPER
Automobile/Trucks (7.97%)
Ford Motor Credit Co., 01-11-01 6.570% Tier 1 $800 $798,540
Ford Motor Credit Co., 01-16-01 6.530 Tier 1 2,100 2,094,286
General Motors Acceptance Corp., 01-10-01 6.560 Tier 1 1,500 1,497,540
General Motors Acceptance Corp., 01-10-01 6.510 Tier 1 1,000 998,372
General Motors Acceptance Corp., 01-11-01 6.520 Tier 1 500 499,094
-------------
5,887,832
-------------
Banks - Foreign (10.75%)
Abbey National North America Corp., 01-25-01 6.570 Tier 1 1,000 995,620
Abbey National North America Corp., 02-01-01 6.500 Tier 1 2,000 1,988,806
Deutsche Bank Financial, 02-07-01 6.510 Tier 1 2,000 1,986,618
Deutsche Bank Financial, 05-10-01 6.170 Tier 1 1,000 977,891
UBS Financial, Inc., 01-02-01 6.480 Tier 1 2,000 1,999,640
-------------
7,948,575
-------------
Banks - United States (4.03%)
Morgan (J.P.) & Co., Inc., 02-05-01 6.520 Tier 1 3,000 2,980,983
-------------
Beverages (3.34%)
Coca-Cola Co., 03-09-01 6.460 Tier 1 2,500 2,469,943
-------------
Broker Services (9.97%)
Bear Stearns Cos., Inc., 01-23-01 6.500 Tier 1 1,500 1,494,042
Bear Stearns Cos., Inc., 01-26-01 6.500 Tier 1 1,500 1,493,229
Goldman Sachs Group, L.P., 01-11-01 6.530 Tier 1 1,000 998,186
Goldman Sachs Group, L.P., 02-05-01 6.510 Tier 1 1,400 1,391,139
Merrill Lynch & Co., 01-19-01 6.510 Tier 1 1,400 1,395,443
Merrill Lynch & Co., 01-31-01 6.710 Tier 1 600 596,645
-------------
7,368,684
-------------
Building (2.97%)
Halifax Group PLC, 01-18-01 6.510 Tier 1 2,200 2,193,237
-------------
Finance (19.79%)
American Express Credit Corp., 01-12-01 6.530 Tier 1 3,000 2,994,014
Associates Corp. N. A., 01-12-01 6.540 Tier 1 2,500 2,495,004
CIT Group Holdings, Inc., 01-23-01 6.500 Tier 1 2,000 1,992,056
General Electric Capital Corp., 01-19-01 6.530 Tier 1 1,200 1,196,082
General Electric Capital Corp., 05-21-01 6.000 Tier 1 1,500 1,465,000
Household Financial Corp., 01-16-01 6.540 Tier 1 3,200 3,191,280
International Lease Finance,
01-23-01 6.500 Tier 1 1,300 1,294,836
-------------
14,628,272
-------------
Food (3.35%)
Heinz (H.J.) Co., 02-23-01 6.460 Tier 1 2,500 2,476,224
-------------
Insurance (2.96%)
American General Corp., 01-17-01 6.520 Tier 1 700 697,972
American General Corp., 02-08-01 6.510 Tier 1 1,500 1,489,693
-------------
2,187,665
-------------
Mortgage Banking (4.05%)
Countrywide Home Loans,
01-19-01 6.550 Tier 1 3,000 2,990,175
-------------
Utilities (2.16%)
Duke Energy Co., 01-04-01 6.480 Tier 1 1,600 1,599,136
-------------
TOTAL COMMERCIAL PAPER
(Cost $52,730,726) (71.34%) 52,730,726
-------------
CORPORATE INTEREST-BEARING OBLIGATIONS
Finance (0.68%)
General Electric Capital Corp., 05-04-01 6.020 Tier 1 500 499,199
-------------
TOTAL CORPORATE INTEREST-BEARING OBLIGATIONS
(Cost $499,199) (0.68%) 499,199
-------------
U.S. GOVERNMENT OBLIGATIONS
Government - U.S. Agencies (11.34%)
Federal Home Loan Bank, 06-15-01 5.930 Tier 1 5,000 4,864,104
Federal National Mortgage Assn., 03-15-01 5.625 Tier 1 600 598,832
Federal National Mortgage Assn., 06-14-01 5.915 Tier 1 3,000 2,919,162
-------------
8,382,098
-------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $8,382,098) (11.34%) 8,382,098
-------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $61,612,023) (83.36%) 61,612,023
-------------
JOINT REPURCHASE AGREEMENT (8.53%)
Investment in a joint repurchase
agreement transaction with UBS
Warburg, Inc. - Dated 12-29-00, due
01-02-01 (Secured by U.S. Treasury
Bonds, 10.750% and 13.875%, due
02-15-03 and 05-15-11) - Note B 5.950% Tier 1 $6,307 $6,307,000
------------
TOTAL JOINT REPURCHASE AGREEMENT (8.53%) 6,307,000
--------- ------------
TOTAL INVESTMENTS (91.89%) 67,919,023
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (8.11%) 5,998,309
--------- ------------
TOTAL NET ASSETS (100.00%) $73,917,332
========= ============
* Quality ratings indicate the categories of eligible securities, as
defined by Rule 2a-7 of the Investment Company Act of 1940, owned by the
Fund.
The percentage shown for each investment category is the total value of
that category expressed as a percentage of the net assets of the Fund.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Strategic Income Fund
Schedule of Investments
December 31, 2000
- -----------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the V.A. Strategic Income Fund on December 31, 2000. It is divided
into four main categories: bonds, common stocks, pre ferred stocks and
warrants, and short-term investments. Bonds are further broken down by
industry group. Short-term invest ments, which represent the Fund's
"cash" position, are listed last.
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------------------------------ --------- ---------- -------------- ----------------
BONDS
Advertising (0.32%)
Go Outdoor Systems Holding S.A.,
Sr Sub Note (France) 07-15-09 (E) 10.500% B- $100 $108,773
-------------
Building (0.26%)
Standard Pacific Corp.,
Sr Note 04-01-09 8.500 BB 100 90,000
-------------
Chemicals (0.28%)
Huntsman ICI Chemicals LLC,
Sr Sub Note 07-01-09 10.125 B+ 100 95,000
-------------
Computers (0.08%)
Unisys Corp.,
Sr Note 10-15-04 11.750 BB+ 25 26,313
-------------
Containers (0.49%)
Berry Plastics Corp.,
Sr Sub Note 04-15-04 12.250 B- 100 84,000
Consolidated Containers Co. LLC/Cons.
Container Capital, Inc., Sr Sub Note 07-15-09 10.125 B 100 85,500
-------------
169,500
-------------
Electronics (0.25%)
Communications Instruments, Inc.,
Sr Sub Note Ser B 09-15-04 10.000 B- 100 85,500
-------------
Energy (0.03%)
AEI Resources, Inc./AEI Resources
Holdings, Inc., Note 12-15-05 (R) 10.500 CCC- 100 9,000
-------------
Finance (0.26%)
PTC International Finance II S.A.,
Sr Sub Note (Luxembourg) 12-01-09 (E) (R) 11.250 B+ 100 90,488
-------------
Government - Foreign (10.03%)
Canada, Government of,
Government Bond (Canada) 09-01-02# 5.500 AAA 150 100,223
Government Bond (Canada) 12-01-05# 8.750 AAA 300 228,787
Government Bond (Canada) 12-01-06# 7.000 AAA 2,000 1,442,029
Government Bond (Canada) 06-01-09# 5.500 AAA 750 503,462
Government Bond (Canada) 06-01-10# 5.500 AA+ 300 201,624
Russia, Federation of,
Sr Unsub Note (Russia) 06-10-03 (Y) 11.750 B- 440 412,500
Unsub Note (Russia) 06-24-28 (Y) 12.750 B- 200 167,000
Venezuela, Republic of,
Floating Rate Bond Ser DL (Venezuela)
12-18-07 (Y) 6.813 B 500 402,496
-------------
3,458,121
-------------
Government - U.S. (48.73%)
United States Treasury,
Bond 08-15-01 13.375 AAA 7,000 7,320,460
Bond 08-15-05 6.500 AAA 400 422,936
Bond 08-15-05 10.750 AAA 400 490,876
Bond 02-15-16 9.250 AAA 615 849,278
Bond 08-15-19 8.125 AAA 1,340 1,732,164
Bond 08-15-23 6.250 AAA 1,100 1,189,716
Bond 02-15-27 6.625 AAA 1,100 1,256,409
Bond 11-15-28 5.250 AAA 750 717,893
Note 08-31-02 6.250 AAA 870 883,189
Note 08-15-04 7.250 AAA 590 630,745
Note 05-15-05 6.500 AAA 300 316,500
Note 08-15-07 6.125 AAA 940 989,792
-------------
16,799,958
-------------
Leisure (1.22%)
HMH Properties, Inc.,
Sr Note Ser B 08-01-08 7.875 BB 100 94,750
Jupiters Ltd.,
Sr Note (Australia) 03-01-06 (Y) 8.500 BB+ 150 144,375
Sun International Hotels Ltd.,
Sr Sub Note (Bahamas) 12-15-07 (Y) 8.625 B+ 100 91,000
Waterford Gaming LLC
Sr Note 03-15-10 (R) 9.500 B+ 95 90,725
-------------
420,850
-------------
Machinery (0.24%)
Columbus McKinnon Corp.,
Sr Sub Note 04-01-08 8.500 B 100 83,500
-------------
Media (2.16%)
American Media Operations, Inc.,
Sr Sub Note 05-01-09 10.250 B- 150 146,250
AMFM Operating, Inc.,
Sr Sub Deb 10-31-06 12.625 B- 64 70,866
Diamond Holdings Plc,
Bond (United Kingdom) 02-01-08# 10.000 B- 50 60,462
DIVA Systems Corp.,
Sr Disc Note Ser B, Step Coupon (12.625%,
03-01-03) 03-01-08 (A) Zero B- 250 100,000
Garden State Newspapers, Inc.,
Sr Sub Note 07-01-11 8.625 B+ 100 90,500
Regional Independent Media Group Plc,
Sr Note (United Kingdom) 07-01-08 (Y) 10.500 B- 175 178,938
STC Broadcasting, Inc.,
Sr Sub Note 03-15-07 11.000 B- 100 96,000
-------------
743,016
-------------
Metal (0.77%)
Euramax International Plc,
Sr Sub Note (United Kingdom) 10-01-06 (Y) 11.250 B 100 78,000
P.T. Alatief Freeport Finance Co. B.V.,
Sr Note (Netherlands) 04-15-01 9.750 CCC+ 200 188,000
-------------
266,000
-------------
Oil & Gas (1.60%)
Chesapeake Energy
Sr Note Ser B 05-01-05 9.625 B 200 206,000
Comstock Resources, Inc.,
Sr Note 05-01-07 11.250 B 100 103,250
Gothic Production Corp.,
Sr Sec Note Ser B 05-01-05 11.125 CCC 150 160,500
Universal Compression, Inc.,
Sr Disc Note, Step Coupon (9.875%, 02-15-03)
02-15-08 (A) Zero B 100 81,000
-------------
550,750
-------------
Paper & Paper Products (1.73%)
Grupo Industrial Durango, S.A.,
Note (Mexico) 08-01-03 (Y) 12.625 BB- 200 202,500
Kappa Beheer BV,
Sr Sub Note (Netherlands) 07-15-09 (E) (R) 10.625 B 150 144,171
Packaging Corp. of America,
Sr Sub Note Ser B 04-01-09 9.625 BB- 200 207,000
Stone Container Corp.,
Unit (Sr Sub Deb & Supplemental Int Cert)
04-01-02 12.250 B- 41 41,410
-------------
595,081
-------------
Retail (0.40%)
United Stationers Supply Co.,
Sr Sub Note 04-15-08 8.375 B 150 139,500
-------------
Telecommunications (6.51%)
Allegiance Telecom, Inc.,
Sr Disc Note, Ser B, Step Coupon
(11.75%, 02-15-03) 02-15-08 (A) Zero B 250 152,500
AMSC Acquisition Co., Inc.,
Sr Note Ser B 04-01-08 12.250 B- 100 44,000
Comunicacion Celular S.A.,
Sr Def Bond (Colombia) 03-01-05 (R) (Y) 14.125 B 100 77,000
Esprit Telecom Group Plc,
Sr Note (United Kingdom) 12-15-07 (Y) 11.500 D 100 2,000
Sr Note (Deutsche Mark) 06-15-08# 11.000 BB- 140 671
Exodus Comm., Inc.,
Sr Note (United States) 12-15-09 (E) 10.750 B- 200 163,160
Grupo Iusacell S.A. de C.V.,
Sr Note (Mexico) 12-01-06, (Y) 14.250 B+ 200 198,000
GT Group Telecom, Inc.,
Sr Disc Note, Step Coupon (13.25%, 02-01-05)
(Canada) 02-01-10 (A) Zero B- 200 84,000
Intercel, Inc.,
Unit (Sr Discount Note & Warrant), Step Coupon
(12.00%, 02-01-01) 02-01-06 (A) Zero B 200 200,000
Ionica PLC,
Sr Disc Note, Step Coupon (15.00%, 05-01-02)
(United Kingdom) 05-01-07 (A) (Y) Zero Ca 200 3,000
MetroNet Communications Corp.,
Sr Discount Note, Step Coupon (10.75%, 11-01-02)
(Canada) 11-01-07 (A) (Y) Zero BBB 200 161,944
Sr Note (Canada) 08-15-07 (Y) 12.000 BBB 50 55,000
Nextel International, Inc.,
Sr Note 08-01-10 (R) 12.750 B- 100 80,000
NorthEast Optic Network, Inc.,
Sr Note 08-15-08 12.750 B- 100 60,000
ONO Finance Plc,
Sr Note (United Kingdom) 07-15-10 (E) 14.000 CCC+ 200 142,530
Sr Sub Note (United Kingdom) 05-01-09 (E) 13.000 CCC+ 100 70,328
Pronet Inc.,
Sr Sub Note 06-15-05 11.875 CCC 280 229,600
Spectrasite Holdings, Inc.,
Sr Disc Note, Step Coupon
(11.25%, 04-15-04) 04-15-09 (A) Zero B- 200 104,000
Telecorp PCS, Inc.,
Sr Sub Disc Note, Step Coupon (11.625%, 04-15-04)
04-15-09 (A) Zero B3 175 119,000
Telewest Communication Plc,
Sr Disc Note, Step Coupon (9.25%, 04-15-04)
(United Kingdom) 04-15-09 (A) (Y) Zero B+ 100 67,181
Sr Note (United Kingdom) 02-01-10 (R) # 9.875 B+ 100 121,671
VoiceStream Wireless Corp.,
Sr Note 09-15-09 11.500 CCC+ 100 109,750
-------------
2,245,335
-------------
Telecommunications - Services (7.88%)
Clearnet Communications Inc.,
Sr Disc Note, Step Coupon (10.40%, 05-15-03)
(Canada) 05-15-08 (A)# Zero BBB+ 150 83,885
Sr Disc Note, Step Coupon (10.125%, 05-01-04)
(Canada) 05-01-09 (A) (Y) Zero B3 150 120,000
COLT Telecom Group Plc, (United Kingdom)
Sr Note (Deutsche Mark) 07-31-08# 7.625 B 300 130,167
Crown Castle International Corp.,
Sr Disc Note, Step Coupon (10.625%, 11-15-02)
11-15-07 (A) Zero B 150 119,250
Energis Plc,
Sr Note (United Kingdom) 06-15-09 (R)# 9.500 B+ 130 180,492
Jazztel Plc,
Sr Note (United Kingdom) 12-15-09 (E) 13.250 CCC+ 200 121,901
Level 3 Communications, Inc.,
Conv Sub Note 03-15-10 6.000 CCC+ 50 23,500
Sr Note (United States) 03-15-08 (E) 10.750 B 100 77,829
Sr Note 05-01-08 9.125 B 100 80,000
McLeodUSA, Inc.,
Sr Note 07-15-07 9.250 B+ 100 91,000
Sr Note 11-01-08 9.500 B+ 50 45,500
Metromedia Fiber Network, Inc.,
Sr Note 11-15-08 10.000 B+ 300 249,750
Sr Note (United States) 12-15-09 (E) 10.000 B+ 100 78,767
Nextel Communications, Inc.,
Sr Disc Note, Step Coupon (9.95%, 02-15-03)
02-15-08 (A) Zero B 125 90,000
Nextel Partners, Inc.,
Sr Disc Note, Step Coupon (14.00%, 02-01-04)
02-01-09 (A) Zero CCC+ 165 108,900
Sr Note 03-15-10 11.000 CCC+ 100 96,000
NEXTLINK Communications, Inc.,
Sr Disc Note, Step Coupon (12.125%, 12-01-04)
12-01-09 (A) Zero B 100 44,500
Sr Note 11-15-08 10.750 B 100 81,500
NTL Communications Corp.,
Sr Note Ser B 10-01-08 11.500 B 100 89,000
Sr Note, Ser B, Step Coupon (12.375%, 10-01-03)
10-01-08 (A) Zero B 150 82,500
Orion Network Systems,
Sr Note 01-15-07 11.250 CCC+ 100 35,000
Primus Telecommunications Group, Inc., Sr Note
10-15-09 12.750 B- 250 77,500
Qwest Communications International, Inc., Sr
Note Ser B 04-01-07 10.875 BBB+ 65 71,466
Time Warner Telecom LLC,
Sr Note 07-15-08 9.750 B- 100 92,250
Tritel PCS, Inc.,
Sr Disc Note, Step Coupon (12.75%,
05-15-04) 05-15-09 (A) Zero B3 100 67,000
United Pan-Europe Communicatons N.V.,
Sr Disc Note, Step Coupon (13.375%, 11-01-04)
(Netherlands) 11-01-09 (A) (E) Zero B- 100 31,882
Sr Note (Netherlands) 11-01-07 (E) 10.875 B- 100 60,951
Sr Note (Netherlands) 11-01-09 (E) 11.250 B- 100 60,951
Versatel Telecom International NV,
Sr Note (Netherlands) 05-15-08 (Y) 13.250 B- 100 61,000
Sr Note Ser EU (Netherlands) 07-15-09 (E) 11.875 B- 100 58,606
Viatel, Inc.,
Sr Note 04-15-08 11.250 B- 350 105,000
-------------
2,716,047
-------------
Transportation (0.59%)
CHC Helicopter Corp.,
Sr Sub Note (Canada) 07-15-07# (E) 11.750 B 200 197,855
Fine Air Services, Corp.,
Sr Note 06-01-08 (B) 9.875 CC 105 5,247
-------------
203,102
-------------
Utilities (2.67%)
Calpine Corp.,
Sr Note 04-01-08 7.875 BB+ 100 98,000
CMS Energy Corp.,
Sr Note 10-15-07 9.875 BB 200 207,500
Midland Funding Corp. II,
Deb Ser A 07-23-05 11.750 BB+ 200 211,826
Deb Ser B 07-23-06 13.250 BB+ 150 166,094
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico) 11-15-09 (R) (Y) 9.625 BB+ 90 87,074
Niagara Mohawk Power Corp.,
Sec Fac Bond 01-01-18 8.770 BBB 143 150,529
-------------
921,023
-------------
TOTAL BONDS
(Cost 31,955,894) (86.50%) 29,816,857
-------------
NUMBER OF
SHARES
OR WARRANTS
-----------
COMMON STOCKS
KLM Royal Dutch Airlines, N.V.
American Depositary Receipt (ADR) Common Stock
(Netherlands) 397 932
Nextel Communications, Inc. (Class A) Common
Stock** 464 11,484
Northeast Utilities, Common Stock 6,000 145,500
Versatel Telecom International NV* Common Stock
(ADR) (Netherlands)** 1,333 11,497
-------------
177,413
-------------
TOTAL COMMON STOCKS
(Cost $122,883) (0.52%) 177,413
-------------
PREFERRED STOCKS AND WARRANTS
Allegiance Telecom, Inc. Warrant** 250 16,250
Comunicacion Celular S.A. Warrant (Colombia)** 100 0
DIVA Systems Corp., Warrant (R)** 750 1,313
GT Group Telecom, Inc. Warrant (Canada) (R) ** 200 14,000
Loral Space & Communications Ltd. Warrant** 100 600
Motient Corp., Warrant (R)** 100 1,000
ONO Finance Plc, Warrant (United Kingdom) (R)
(E)** 50 2,813
ONO Finance Plc, Warrant (United Kingdom) (R)
(Y)** 50 3,000
XO Communications Inc., 14 Preferred Stock 2,340 65,520
-------------
104,496
-------------
TOTAL PREFERRED STOCKS AND WARRANTS
(Cost $178,105) (0.30%) 104,496
--------- -------------
INTEREST PAR VALUE
RATE (000s OMITTED)
-------- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (9.97%)
Investment in a joint repurchase
agreement transaction with UBS
Warburg, Inc. - Dated 12-29-00, due
01-02-01 (Secured by U.S. Treasury
Bonds, 6.750% thru 8.875%, due
08-15-17 thru 08-15-26) - Note B 5.950% $3,437 $3,437,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company Daily
Interest Savings Account Current Rate
5.20% 346
-------------
TOTAL SHORT-TERM INVESTMENTS (9.97%) 3,437,346
--------- -------------
TOTAL INVESTMENTS (97.29%) 33,536,112
--------- -------------
OTHER ASSETS AND LIABILITIES, NET (2.71%) 935,687
--------- -------------
TOTAL NET ASSETS (100.00%) $34,471,799
========= -------------
* Credit ratings are unaudited and rated by Moody's Investors Service
or John Hancock Advisers, Inc. where Standard & Poor's ratings are not
available.
** Non-income producing security.
# Par value of foreign bonds is expressed in local currency, as shown
parenthetically in security description.
(A) Cash interest will be paid on this obligation at the stated rate
beginning on the stated date.
(B) Non-income producing issuer, filed for protection under Federal
Bankruptcy Code or is in default of interest payment.
(E) Parenthetical disclosure of a foreign country in the security
description represents country of a foreign issuer; however, security is
euro-denominated.
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from
registration. Rule 144A securities amounted to $902,747 or 2.62% of the
Fund's net assets as of December 31, 2000.
(Y) Parenthetical disclosure of a foreign country in the security
description represents country of foreign issuer, however, security is
U.S. dollar-denominated.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
Portfolio Concentration
December 31, 2000 (Unaudited)
- -------------------------------------------------------------------------
The V.A. Strategic Income Fund invests primarily in securities issued in
the United States of America. The performance of this Fund is closely
tied to the economic and financial conditions of the countries within which
it invests. The concentration of investments by industry category for
individual securities held by the Fund is shown in the schedule of
investments. In addition, con centration of investments can be
aggregated by various countries. The table below shows the percentages
of the Fund's investments at December 31, 2000 assigned to country
categories.
MARKET VALUE
AS A % OF
COUNTRY DIVERSIFICATION FUND'S NET ASSETS
- ----------------------- -----------------
Australia 0.42%
Bahamas 0.26
Canada 9.26
Colombia 0.22
France 0.32
Luxembourg 0.26
Mexico 1.41
Netherlands 1.82
Russia 1.68
United Kingdom 3.37
United States 77.10
Venezuela 1.17
-------
TOTAL INVESTMENTS 97.29%
=======
Additionally, the concentration of investments can be aggregated by the
quality rating for each debt security.
MARKET VALUE
AS A % OF
QUALITY DISTRIBUTION FUND'S NET ASSETS
- -------------------- -----------------
AAA 55.33%
AA 0.58
BBB 1.52
BB 4.46
B 20.82
CCC 3.76
CC 0.02
D 0.01
-------
TOTAL BONDS 86.50%
=======
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
NOTE A--
ORGANIZATION
John Hancock V.A. Core Equity Fund ("V.A. Core Equity Fund"), John
Hancock V.A. 500 Index Fund ("V.A. 500 Index Fund"), John Hancock V.A.
Large Cap Growth Fund ("V.A. Large Cap Growth Fund"), John Hancock V.A.
Mid Cap Growth Fund ("V.A. Mid Cap Growth Fund"), John Hancock V.A.
Relative Value Fund ("V.A. Relative Value Fund," formerly John Hancock
V.A. Large Cap Value Fund), John Hancock V.A. Small Cap Growth Fund
("V.A. Small Cap Growth Fund"), John Hancock V.A. Sovereign Investors
Fund ("V.A. Sovereign Investors Fund"), John Hancock V.A. International
Fund ("V.A. International Fund"), John Hancock V.A. Financial Industries
Fund ("V.A. Financial Industries Fund"), John Hancock V.A. Regional Bank
Fund ("V.A. Regional Bank Fund"), John Hancock V.A. Technology Fund
("V.A. Technology Fund"), John Hancock V.A. Bond Fund ("V.A. Bond
Fund"), John Hancock V.A. High Yield Bond Fund ("V.A. High Yield Bond
Fund"), John Hancock V.A. Money Market Fund ("V.A. Money Market Fund")
and John Hancock V.A. Strategic Income Fund ("V.A. Strategic Income
Fund"), (each a "Fund," collectively the "Funds"), are separate series
of John Hancock Declaration Trust (the "Trust"), an open-end management
investment company, registered under the Investment Company Act of 1940.
The Trust, organized as a Massachusetts business trust in 1995, consists
of fifteen different series at December 31, 2000. Each Fund currently
has one class of shares with equal rights as to voting, redemption,
dividends and liquidation within its respective Fund. The Trustees may
authorize the creation of additional series from time to time to satisfy
various investment objectives. An insurance company issuing a Variable
Contract that participates in the Trust will vote shares of the Funds
held by the insurance company's separate accounts as required by law. In
accordance with current law and interpretations thereof, participating
insurance companies are required to request voting instructions from
policy owners and must vote shares of the Funds in proportion to the
voting instructions received.
The investment objective of the V.A. Core Equity Fund is to seek
above-average total return, consisting of capital appreciation and
income. The investment objective of the V.A. 500 Index Fund is to
provide investment results that correspond with the total return
performance of the Standard & Poor's 500 Stock Price Index (the "S&P 500
Index"). The investment objective of the V.A. Large Cap Growth Fund is
to seek long-term capital appreciation. The investment objective of the
V.A. Mid Cap Growth Fund is to seek long-term capital appreciation. The
investment objective of the V.A. Relative Value Fund is to seek the
highest total return (capital appreciation plus current income) that is
consistent with reasonable safety of capital. The investment objective
of the V.A. Small Cap Growth Fund is to seek long-term capital
appreciation. The investment objective of the V.A. Sovereign Investors
Fund is to seek long-term growth of capital and income without assuming
undue market risks. The investment objective of the V.A. International
Fund is to seek long-term growth of capital. The investment objective of
the V.A. Financial Industries Fund is to seek capital appreciation. The
investment objective of the V.A. Regional Bank Fund is to seek long-term
capital appreciation. The investment objective of the V.A. Technology
Fund is to seek long-term growth of capital. The investment objective of
the V.A. Bond Fund is to seek a high level of current income consistent
with prudent investment risk. The investment objective of the V.A. High
Yield Bond Fund is to seek maximum current income without assuming undue
risk. The investment objective of the V.A. Money Market Fund is to seek
maximum current income consistent with capital preservation and
liquidity. The investment objective of the V.A. Strategic Income Fund is
to seek a high level of current income.
NOTE B--
ACCOUNTING POLICIES
VALUATION OF INVESTMENTS Securities in the Funds' portfolios (except for
V.A. Money Market Fund) are valued on the basis of market quotations,
valuations provided by independent pricing services or at fair value as
determined in good faith in accordance with procedures approved by the
Trustees. Short-term debt investments maturing within 60 days are valued
at amortized cost, which approximates market value. All Portfolio
transactions initially expressed in terms of foreign currencies have
been translated into U.S. dollars as described in "Foreign Currency
Translation" below.
The V.A. Money Market Fund's portfolio of securities is valued at
amortized cost, in accordance with Rule 2a-7 of the Investment Company
Act of 1940, which approximates market value. The amortized cost method
involves valuing a security at its cost on the date of purchase and
thereafter assuming a constant amortization to maturity of the
difference between the principal amount due at maturity and the cost of
the security to the Funds. Interest income on certain portfolio
securities such as negotiable bank certificates of deposit and
interest-bearing notes is accrued daily and included in interest
receivable. The Funds may invest in indexed securities whose value is
linked either directly or inversely to changes in foreign currencies,
interest rates, indexes or other reference instruments. Indexed
securities may be more volatile than the reference instrument itself,
but any loss is limited to the amount of the original investment.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Funds, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The
Berkeley Financial Group, Inc., may participate in joint repurchase
agreement transactions. Aggregate cash balances are invested in one or
more large repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Funds'
custodian bank receives delivery of the underlying securities for the
joint account on the Funds' behalf. The Adviser is responsible for
ensuring that the agreement is fully collateralized at all times.
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially
expressed in terms of foreign currencies are translated into U.S.
dollars based on London currency exchange quotations as of 5:00 p.m.,
London time, on the date of any determination of the net asset value of
the Funds. Transactions affecting statement of operations accounts and
net realized gain (loss) on investments are translated at the rates
prevailing at the dates of the transactions.
The Funds do not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized
gains or losses from investments.
Reported net realized foreign exchange gains or losses arise from sales
of foreign currency, currency gains or losses realized between the trade
and settlement dates on securities transactions and the difference
between the amounts of dividends, interest and foreign withholding taxes
recorded on the Funds' books and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign exchange gains
and losses arise from changes in the value of assets and liabilities
other than investments in securities, resulting from changes in the
exchange rate.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
Capital gains realized on some foreign securities are subject to foreign
taxes, which are accrued as applicable.
DISCOUNT ON SECURITIES The Funds accrete discount from par value on
securities from either the date of issue or the date of purchase over
the life of the security.
EXPENSES The majority of the expenses are directly identifiable to an
individual fund. Expenses that are not readily identifiable to specific
Funds will be allocated in such a manner as deemed equitable, taking
into consideration, among other things, the nature and type of expense
and the relative size of the Funds.
ORGANIZATION EXPENSES Expenses incurred in connection with the
organization of the Funds have been capitalized and are being charged to
the Funds' operations ratably over a five-year period that began with
the commencement of the investment operations of the Funds.
BANK BORROWINGS The Funds (except for V.A. Money Market Fund) are
permitted to have bank borrowings for temporary or emergency purposes,
including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. The Funds have entered
into a syndicated line of credit agreement with various banks. This
agreement enables the Funds to participate with other funds managed by
the Adviser in an unsecured line of credit with banks which permit
borrowings up to $500 million, collectively. Interest is charged to each
Fund, based on its borrowing. In addition, a commitment fee is charged
to each Fund based on the average daily unused portion of the line of
credit and is allocated among the participating Funds.
The following Funds had borrowings under the line of credit during the
year ended December 31, 2000:
AVERAGE DAILY LOAN BALANCE
DURING THE PERIOD FOR WHICH WEIGHTED AVERAGE
FUND LOANS WERE OUTSTANDING INTEREST RATE INTEREST EXPENSE
- ----- --------------------------- ---------------- ----------------
V.A. Large Cap Growth $2,618,000 6.93% $5,152
V.A. Relative Value 911,750 7.02 1,217
V.A. Small Cap Growth 1,373,750 7.03 1,055
SECURITIES LENDING The Funds may lend their securities to certain
qualified brokers who pay the Funds negotiated lender fees. These fees
are included in interest income. The loans are collateralized at all
times with cash or securities with a market value at least equal to the
market value of the securities on loan. As with other extensions of
credit, the Funds may bear the risk of delay of the loaned securities in
recovery or even loss of rights in the collateral, should the borrower
of the securities fail financially. At December 31, 2000, V.A. Relative
Value Fund loaned securities having a market value of $474,050
collateralized by securities in the amount of $500,149, V.A. Small Cap
Growth Fund loaned securities having a market value of $431,062
collateralized by securities in the amount of $441,188, V.A.
International Fund loaned securities having a market value of $886,726
collateralized by cash in the amount of $933,457 and V.A. Regional Bank
Fund loaned securities having a market value of $467,250 collateralized
by securities in the amount of $505,964. The cash collateral was
invested in a short-term instrument.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Funds (except for V.A.
Core Equity, V.A. 500 Index, V.A. Sovereign Investors and V.A. Money
Market Funds) may enter into forward foreign currency exchange contracts
as a hedge against the effect of fluctuations in currency exchange
rates. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date at a
set price. The aggregate principal amounts of the contracts are marked
to market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination
of the Funds' daily net assets. The Funds record realized gains and
losses at the time the forward foreign currency exchange contracts are
closed out or offset by matching contracts. Risks may arise upon
entering these contracts from the potential inability of counterparties
to meet the terms of the contracts and from unanticipated movements in
the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the
unrealized gain or loss reflected in the Funds' Statements of Assets and
Liabilities. The Funds may also purchase and sell forward contracts to
facilitate the settlement of foreign currency denominated portfolio
transactions, under which they intend to take delivery of the foreign
currency. Such contracts normally involve no market risk if they are
offset by the currency amounts of the underlying transactions.
The Funds had the following open forward foreign currency exchange
contracts at December 31, 2000:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION/
CURRENCY COVERED BY CONTRACT MONTH (DEPRECIATION)
- -------- ------------------- ---------- ------------
V.A. HIGH YIELD BOND FUND
Buys
Euro Currency 23,343 Feb 01 $2,091
=======
Sells
Euro Currency 265,610 Jan 01 ($19,139)
Euro Currency 97,405 Feb 01 (8,891)
Euro Currency 55,903 Mar 01 (3,467)
Pound Sterling 12,500 Jan 01 (243)
Pound Sterling 64,050 Feb 01 (2,488)
-------
($34,228)
=======
V.A. STRATEGIC INCOME FUND
Buys
Australian Dollar 301,550 Feb 01 $11,115
Pound Sterling 49,876 Feb 01 2,410
-------
13,525
=======
Sells
Australian Dollar 301,550 Feb 01 ($10,521)
Pound Sterling 262,805 Jan 01 (5,103)
Pound Sterling 335,217 Feb 01 (13,021)
Pound Sterling 308,646 Mar 01 (12,309)
-------
($40,954)
=======
FINANCIAL FUTURES CONTRACTS The Funds (except for V.A. Money Market
Fund) may buy and sell financial futures contracts. Buying futures tends
to increase the Funds' exposure to the underlying instrument. Selling
futures tends to decrease the Funds' exposure to the underlying
instrument or hedge other Funds instruments. At the time each Fund
enters into a financial futures contract, it is required to deposit with
its custodian a specified amount of cash or U.S. government securities,
known as "initial margin," equal to a certain percentage of the value of
the financial futures contract being traded. Each day, the futures
contract is valued at the official settlement price of the board of
trade or U.S. commodities exchange on which it trades. Subsequent
payments to and from the broker, known as "variation margin," are made
on a daily basis as the market price of the financial futures contract
fluctuates. Daily variation margin adjustments, arising from this "mark
to market," are recorded by the Funds as unrealized gains or losses.
When the contracts are closed, the Funds recognize a gain or loss. Risks
of entering into futures contracts include the possibility that there
may be an illiquid market and/or that a change in the value of the
contracts may not correlate with changes in the value of the underlying
securities. In addition, the Funds could be prevented from opening or
realizing the benefits of closing out futures positions because of
position limits or limits on daily price fluctuation imposed by an
exchange.
For federal income tax purposes, the amount, character and timing of the
Funds' gains and/or losses can be affected as a result of futures
contracts.
The Funds had the following open financial futures contracts at
December 31, 2000:
UNREALIZED
OPEN APPRECIATION
EXPIRATION CONTRACTS POSITION (DEPRECIATION)
- ---------- --------- -------- ------------
V.A. 500 INDEX FUND
Mar 01 4 S&P 500 Long $17,847
=======
At December 31, 2000, the V.A. 500 Index Fund had deposited $75,000 in a
segregated account to cover margin requirements on open futures
contracts.
OPTIONS The Funds (except for V.A. Money Market Fund) may enter into
option contracts. Listed options will be valued at the last quoted sales
price on the exchange on which they are primarily traded.
Over-the-counter options are valued at the mean between the last bid and
asked prices. Upon the writing of a call or put option, an amount equal
to the premium received by the Funds will be included in the Statements
of Assets and Liabilities as an asset and corresponding liability. The
amount of the liability will be subsequently marked to market to reflect
the current market value of the written option.
The Funds may use option contracts to manage their exposure to the price
volatility of financial instruments. Writing puts and buying calls will
tend to increase the Funds' exposure to the underlying instrument and
buying puts and writing calls will tend to decrease the Funds' exposure
to the underlying instrument, or hedge other Funds' investments.
The maximum exposure to loss for any purchased options will be limited
to the premium initially paid for the option. In all other cases, the
face (or "notional") amount of each contract at value will reflect the
maximum exposure of the Funds in these contracts, but the actual
exposure will be limited to the change in value of the contract over the
period the contract remains open.
Risks may also arise if counterparties do not perform under the
contracts' terms ("credit risk") or if the Funds are unable to offset a
contract with a counterparty on a timely basis ("liquidity risk").
Exchange-traded options have minimal credit risk as the exchanges act as
counterparties to each transaction, and only present liquidity risk in
highly unusual market conditions. To minimize credit and liquidity risks
in over-the-counter option contracts, the Funds will continuously
monitor the creditworthiness of all their counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Funds'
year-end Statements of Assets and Liabilities.
Written option transactions for the year ended December 31, 2000, were
as follows:
CONTRACTS
(000s OMITTED) PREMIUM
------------ -------
V.A. STRATEGIC INCOME FUND
Outstanding, beginning of period -- --
Options written -- Mexican Peso 3,750 $3,639
Options expired -- Mexican Peso (3,750) ($3,639)
------- -------
Outstanding, end of period -- --
CONTRACTS
(000s OMITTED) PREMIUM
------------ -------
V.A. TECHNOLOGY FUND
Outstanding, beginning of period -- --
Options written 2 $661
Options expired (2) ($661)
------- -------
Outstanding, end of period -- --
FEDERAL INCOME TAXES The Funds' policy is to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies. They will not be subject to federal
income tax on taxable earnings which are distributed to shareholders.
For federal income tax purposes, net currency gains and losses from
sales of foreign debt securities may be treated as ordinary income even
though such items are capital gains and losses for accounting purposes.
For federal income tax purposes, the following funds had capital loss
carryforwards available to the extent provided by regulations to offset
future net realized capital gains:
CAPITAL LOSS CARRYFORWARD EXPIRING POST 10/31/2000
------------------------------------ LOSS TREATED AS
FUND 12/31/2006 12/31/2007 12/31/2008 ARISING 1/1/2001
- ---- ---------- ---------- ---------- ----------------
V.A. Core Equity Fund -- -- -- $814,496
V.A. 500 Index Fund -- -- -- --
V.A. Large Cap Growth Fund -- -- $1,306,804 419,653
V.A. Mid Cap Growth Fund -- -- 633,415 --
V.A. Small Cap Growth Fund -- -- 2,089,105 --
V.A. Sovereign Investors Fund $157,877 $101,159 1,206,695 789,935
V.A. International Fund -- -- 265,560 277,503
V.A. Financial Industries Fund -- 2,140,648 1,313,228 --
V.A. Regional Bank Fund -- -- 2,212,041 638,852
V.A. Technology Fund -- -- 14,000 132,115
V.A. Bond Fund -- 67,593 215,568 8,807
V.A. High Yield Bond Fund -- -- -- 275,404
V.A. Strategic Income Fund 4,130 136,493 455,777 580,413
Expired capital loss carryforwards are reclassified to capital paid-in,
in the year of expiration. Additionally, net capital losses attributable
to security transactions occurring after October 31, 2000 are treated as
arising on the first day (January 1, 2001) of the Funds' next taxable
year.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment
securities is recorded on the ex-dividend date or, in the case of some
foreign securities, on the date thereafter when the Funds identify the
dividend. Interest income on investment securities is recorded on the
accrual basis. The Funds may place a debt obligation on non-accrual
status and reduce related interest income by ceasing current accruals
and writing off interest receivables when the collection of interest has
become doubtful. Foreign income may be subject to foreign withholding
taxes, capital gains and repatriation taxes imposed by certain countries
in which the Funds invest, that are accrued as applicable.
The Funds record all dividends and distributions to shareholders from
net investment income and realized gains on the ex-dividend date. Such
distributions are determined in conformity with income tax regulations,
which may differ from generally accepted accounting principles.
USE OF ESTIMATES The preparation of these financial statements, in
accordance with accounting principles generally accepted in the United
States of America, incorporates estimates made by management in
determining the reported amount of assets, liabilities, revenues and
expenses of the Funds. Actual results could differ from these estimates.
NOTE C--
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
The Funds have an investment management contract with the Adviser. Under
the investment management contract, the Funds pay a monthly management
fee to the Adviser equivalent, on an annual basis, as follows:
RATE AS A PERCENTAGE OF
FUND AVERAGE DAILY NET ASSETS
- ---- ------------------------
V.A. Core Equity Fund 0.70%
V.A. 500 Index Fund 0.35
V.A. Large CapGrowth Fund 0.75
V.A. Mid Cap Growth Fund 0.75
V.A. Relative Value Fund 0.60
V.A. Small Cap Growth Fund 0.75
V.A. Sovereign Investors Fund 0.60
V.A. International Fund 0.90
V.A. Financial Industries Fund 0.80
V.A. Regional Bank Fund 0.80
V.A. Technology Fund 0.80
V.A. Bond Fund 0.50
V.A. High Yield Bond Fund 0.60
V.A. Money Market Fund 0.50
V.A. Strategic Income Fund 0.60
The V.A. Core Equity Fund and the Adviser have a subadvisory contract
with Independence Investment Associates, Inc. ("IIA"). IIA is a
wholly-owned indirect subsidiary of John Hancock Life Insurance Company
("JHLICo").
From January 1, 2000, until March 1, 2000, the V.A. International Fund
and the Adviser had subadvisory contracts with John Hancock Advisers
International Limited ("JHAI"), the Fund's original subadviser, and
Indocam International Investments Services ("IIIS"). The Adviser
terminated the contract with JHAI on March 1, 2000 and with IIIS on
December 14, 2000. Effective December 14, 2000, the Fund and the Adviser
entered into a subadvisory contract with Nicholas-Applegate Capital
Management LP, who is the Fund's sole subadviser.
The V.A. Technology Fund and the Adviser have a subadvisory contract
with American Fund Advisors, Inc.
The Funds are not responsible for payment of subadvisers' fees.
The Adviser has voluntarily agreed to limit the management fee on the
V.A. 500 Index Funds to 0.10% of the Funds' average daily net assets, at
least until April 30, 2001. Accordingly, the management fee reduction
amounted to $82,948 during the year ended December 31, 2000. The Adviser
reserves the right to terminate this limitation in the future.
The Adviser has voluntarily agreed to limit each Fund's expenses
(excluding the management fee), to 0.25% of each Fund's average daily
net assets at least until April 30, 2001. Accordingly, the reductions in
the Funds' expenses for the year ended December 31, 2000 were as
follows:
FUND FEE REDUCTION
- ---- -------------
V.A. 500 Index Fund $108,198
V.A. Mid Cap Growth Fund 13,517
V.A. Small Cap Growth Fund 29,736
V.A. International Fund 189,610
V.A. Technology Fund 39,008
V.A. Bond Fund 27,848
V.A. High Yield Bond Fund 33,670
The Adviser reserves the right to terminate this limitation in the future.
The Funds have an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Funds. The compensation for the
year was at an annual rate of less than 0.02% of the average net assets
of each Fund.
The V.A. 500 Index Fund has an agreement with Standard & Poor's ("S&P")
to license certain trademarks and trade names of S&P and of the S&P 500
Index, which is determined, composed and calculated by S&P without
regard to the Adviser or the V.A. 500 Index Fund. (Requisite disclosure
regarding the use of the Standard & Poor's name is included in the
Funds' prospectus.)
Mr. Stephen L. Brown and Ms. Maureen R. Ford are directors and/or
officers of the Adviser and/or its affiliates, as well as Trustees of
the Funds. The compensation of unaffiliated Trustees is borne by the
Funds. The unaffiliated Trustees may elect to defer, for tax purposes,
their receipt of this compensation under the John Hancock Group of Fund
Deferred Compensation Plan. The Funds make investments into other John
Hancock funds, as applicable, to cover their liability for the deferred
compensation. Investments to cover the Funds' deferred compensation
liability are recorded on the Funds' books as an other assets. The
deferred compensation liability and the related other assets are always
equal and are marked to market on a quarterly basis to reflect any
income earned by the investments as well as any unrealized gains or
losses. The Deferred Compensation Plan investments had no impact on the
operations of the Funds.
The Adviser and other subsidiaries of John Hancock Life Insurance
Company owned the following shares of beneficial interest of the Funds
as of December 31, 2000:
FUND SHARES OF BENEFICIAL INTEREST
- ---- -----------------------------
V.A. Large Cap Growth Fund 102,341
V.A. Mid Cap Growth Fund 50,071
V.A. Relative Value Fund 52,777
V.A. Small Cap Growth Fund 102,547
V.A. International Fund 222,987
V.A. Regional Bank Fund 52,589
V.A. Technology Fund 50,000
V.A. Bond Fund 131,418
V.A. High Yield Bond Fund 264,334
V.A. Money Market Fund 120,098
V.A. Strategic Income Fund 523,521
NOTE D--
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities for the Funds, other
than short-term securities and obligations of the U.S. government,
during the year ended December 31, 2000, were as follows:
FUND PURCHASES SALES
- ---- ----------- -----------
V.A. Core Equity Fund $42,115,835 $41,675,001
V.A. 500 Index Fund 2,307,449 12,894,479
V.A. Large Cap Growth Fund 31,296,632 34,612,666
V.A. Mid Cap Growth Fund 26,398,947 18,795,733
V.A. Relative Value Fund 70,514,895 69,223,742
V.A. Small Cap Growth Fund 34,977,801 28,519,888
V.A. Sovereign Investors Fund 24,474,993 19,435,997
V.A. International Fund 14,985,994 15,776,436
V.A. Financial Industries Fund 29,716,172 22,019,465
V.A. Regional Bank Fund 4,345,596 12,035,766
V.A. Technology Fund 18,361,163 3,734,817
V.A. Bond Fund 37,105,046 31,197,443
V.A. High Yield Bond Fund 4,376,128 6,109,749
V.A. Strategic Income Fund 23,089,638 12,639,620
At December 31, 2000, the cost (excluding the corporate savings account)
and gross unrealized appreciation and depreciation in value of
investments owned by the Funds, as computed on a federal income tax
basis, were as follows:
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND COST APPRECIATION DEPRECIATION (DEPRECIATION)
- ---- ----------- ------------ ------------ ------------
V.A. Core Equity Fund $36,890,096 $7,804,058 $4,010,356 $3,793,702
V.A. 500 Index Fund 17,840,933 8,398,062 1,697,160 7,240,902
V.A. Large Cap Growth Fund 12,789,433 2,239,349 2,670,989 (431,640)
V.A. Mid Cap Growth Fund 10,897,906 2,093,387 1,574,693 518,694
V.A. Relative Value Fund 43,590,186 4,854,560 10,608,477 (5,753,917)
V.A. Small Cap Growth Fund 18,232,549 5,165,484 3,532,447 1,633,037
V.A. Sovereign Investors Fund 48,515,960 10,191,217 3,421,215 6,770,002
V.A. International Fund 6,171,294 702,258 551,685 150,573
V.A. Financial Industries Fund 52,470,820 19,632,068 659,836 18,972,232
V.A. Regional Bank Fund 11,709,207 2,334,146 314,017 2,020,129
V.A. Technology Fund 18,726,727 401,010 4,337,617 (3,936,607)
V.A. Bond Fund 24,311,360 654,628 133,540 521,088
V.A High Yield Bond Fund 9,825,406 240,539 3,024,545 (2,784,006)
V.A. Money Market Fund 67,919,023 -- -- --
V.A. Strategic Income Fund 35,693,882 656,841 2,814,957 (2,158,116)
NOTE E--
RECLASSIFICATION OF ACCOUNTS
During the year ended December 31, 2000, reclassifications have been
made in each Fund's capital balances to report these balances on a tax
basis, excluding certain temporary differences, as of December 31, 2000.
Additional adjustments may be needed in subsequent reporting periods.
These reclassifications, which have no impact on the net asset value of
the Funds, are primarily attributable to certain differences in the
treatment of net operating losses, foreign currency gains and losses and
return of capital under federal tax rules versus generally accepted
accounting principles. The calculation of net investment income (loss)
per share in the financial highlights excludes these adjustments.
UNDISTRIBUTED ACCUMULATED
CAPITAL NET INVESTMENT NET REALIZED
FUND PAID-IN INCOME (LOSS) GAIN (LOSS)
- ---- ------- ------------- -----------
V.A. Core Equity Fund ($3,088) $2,934 $154
V.A. 500 Index Fund (177) 48 129
V.A. Large Cap Growth Fund (116,413) 116,340 73
V.A. Mid Cap Growth Fund (55,559) 55,538 21
V.A. Relative Value Fund (158) (879) 1,037
V.A. Small Cap Growth Fund (194,912) 194,847 65
V.A. Sovereign Investors Fund (2,880) 2,708 172
V.A. International Fund (39) 59,513 (59,474)
V.A. Financial Industries Fund (241) (19,285) 19,526
V.A. Regional Bank Fund (214) 135 79
V.A. Bond Fund (61) (76) 137
V.A. High Yield Bond Fund (47) (7,319) 7,366
V.A. Money Market Fund (141) 141 --
V.A. Strategic Income Fund (91,761) (79,029) 170,790
NOTE F --
REORGANIZATION
On March 18, 1999, the shareholders of John Hancock V.A. World Bond Fund
(VAWBF) approved a plan of reorganization between VAWBF and V.A.
Strategic Income Fund, providing for the transfer of substantially all
of the assets and liabilities of VAWBF to V.A. Strategic Income Fund in
exchange solely for shares of V.A. Strategic Income Fund. The
acquisition of VAWBF was accounted for as a tax-free exchange of 253,313
shares of V.A. Strategic Income for the net assets of VAWBF, which
amounted to $2,569,839, including $17,012 of unrealized depreciation,
after the close of business on March 26, 1999.
NOTE G --
CHANGE IN ACCOUNTING PRINCIPLE
The Funds will adopt the provisions of the AICPA Audit and Accounting
Guide for Investment Companies, as revised, effective for fiscal years
beginning after December 15, 2000. As required, the Funds will begin
amortizing premiums on debt securities effective January 1, 2001. Prior
to this date, the Funds did not amortize premiums on debt securities.
The cumulative effect of this accounting change will have no impact on
the total net assets of the Funds. The impact of this accounting change
has not been determined but will result in a reclassification between
the cost of securities and a corresponding reclassification in net
unrealized appreciation/depreciation, based on securities held as of
December 31, 2000.
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Contract Owners and Trustees of
John Hancock Declaration Trust
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of John Hancock Declaration
Trust (the Trust) (comprising, respectively, V.A. Core Equity Fund, V.A.
500 Index Fund, V.A. Large Cap Growth Fund, V.A. Mid Cap Growth Fund,
V.A. Relative Value Fund (formerly, V.A. Large Cap Value Fund), V.A.
Small Cap Growth Fund, V.A. Sovereign Investors Fund, V.A. International
Fund, V.A. Financial Industries Fund, V.A. Regional Bank Fund, V.A.
Technology Fund, V.A. Bond Fund, V.A. High Yield Bond Fund, V.A. Money
Market Fund and V.A. Strategic Income Fund) as of December 31, 2000, and
the related statements of operations for the year then ended, the
statements of changes in net assets and the financial highlights for
each of the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Trust's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2000, by
correspondence with the custodian and brokers, or by other appropriate
auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of each of the respective portfolios constituting the
John Hancock Declaration Trust at December 31, 2000, the results of
their operations for the year then ended, and the changes in their net
assets and the financial highlights for each of the periods indicated,
in conformity with accounting principles generally accepted in the
United States of America.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
February 9, 2001
TAX INFORMATION (UNAUDITED)
The Funds designated the following as long-term capital gain divi dends
during the fiscal year ended December 31, 2000.
Additionally, the following dividend distributions qualify for the
dividends received deduction available to corporations.
DIVIDENDS
CAPITAL GAINS RECEIVED
FUND DESIGNATED DEDUCTION
- ---- ----------- -----------
V.A. Core Equity Fund $1,330,264 67.30%
V.A. 500 Index Fund 92,786 99.99
V.A. Large Cap Growth Fund 323,779 12.13
V.A. Mid Cap Growth Fund 7,822 8.34
V.A. Relative Value Fund 3,679,699 1.58
V.A. Small Cap Growth Fund 315,995 0.91
V.A. Sovereign Investors Fund -- 100.00
V.A. International Fund 238,923 --
V.A. Financial Industries Fund -- 76.12
V.A. Regional Bank Fund -- 99.85
V.A. Technology Fund -- 1.87
V.A. High Yield Bond Fund -- 5.80
V.A. Strategic Income Fund -- 0.81
SHAREHOLDER MEETING (UNAUDITED)
On December 1, 2000, the shareholders of John Hancock V.A. Financial
Industries Fund approved a proposal to eliminate the investment
restriction requiring the Fund to invest more than 25% of its assets in
the banking industry (3,132,756 FOR, 131,200 AGAINST and 192,513
ABSTAINING).
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.]
John Hancock Funds, Inc.
MEMBER NASD
101 Huntington Avenue
Boston, MA 02199-7603
1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds.com
This report is for the information of the shareholders of the John
Hancock Declaration Trust. It is not authorized for distribution to
prospective investors unless it is preceded or accompanied by the
current prospectus, which details charges, investment objectives and
operating policies.
A recycled logo in lower left hand corner with caption "Printed on
Recycled Paper."
DEC0A 12/00
2/01
SEMIANNUAL REPORT
Declaration Trust
Equity V.A. Core Equity Fund
V.A. Relative Value Fund
V.A. Sovereign Investors Fund
- ------------------------------------------------------
Sector V.A. Financial Industries Fund
V.A. Technology Fund
- ------------------------------------------------------
Income V.A. Bond Fund
V.A. Money Market Fund
V.A. Strategic Income Fund
JUNE 30, 2001
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS".]
Table of Contents
Page
1) CEO Corner 3
2) Portfolio Manager Commentary
These commentaries reflect the views of the portfolio managers or
portfolio management teams through the end of the period discussed in
this report. Of course, the managers' or team's views are subject to
change as market and other conditions warrant.
Equity
V.A. Core Equity Fund 4
V.A. Relative Value Fund 7
V.A. Sovereign Investors Fund 10
Sector
V.A. Financial Industries Fund 13
V.A. Technology Fund 16
Income
V.A. Bond Fund 19
V.A. Money Market Fund 22
V.A. Strategic Income Fund 24
3) Financial Statements 27
4) Notes to Financial Statements 63
TRUSTEES
Dennis S. Aronowitz*
Richard P. Chapman, Jr.
William J. Cosgrove*
John M. DeCiccio
Richard A. Farrell*
Maureen R. Ford
Gail D. Fosler
William F. Glavin
Dr. John A. Moore
Patti McGill Peterson
John W. Pratt*
* Members of the Audit Committee
OFFICERS
Maureen R. Ford
Chairman, President and
Chief Executive Officer
William L. Braman
Executive Vice President and
Chief Investment Officer
Richard A. Brown
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Senior Vice President and Secretary
William H. King
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIANS
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
V.A. Bond Fund
V.A. Core Equity Fund
V.A. Financial Industries Fund
V.A. Relative Value Fund
V.A. Sovereign Investors Fund
V.A. Strategic Income Fund
V.A. Technology Fund
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
V.A. Money Market Fund
TRANSFER AGENT
John Hancock Annuity Servicing Office
529 Main Street (X-4)
Charlestown, Massachusetts 02129
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
SUB-INVESTMENT ADVISERS
American Fund Advisors, Inc.
1415 Kellum Place
Garden City, New York 11530
V.A. Technology Fund
Independence Investment LLC
53 State Street
Boston, Massachusetts 02109
V.A. Core Equity Fund
ISSUER
John Hancock
Life Insurance Company
John Hancock Variable
Life Insurance Company*
200 Clarendon Street
Boston, Massachusetts 02117
*Not Licensed in New York
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
CEO CORNER
[A 1" x 1" photo of Maureen R. Ford, Chairman and Chief Executive Officer,
flush right next to first paragraph.]
DEAR SHAREHOLDERS:
The U.S. stock market has had a rough beginning in 2001, as last year's
downward spiral continued due to growing concern over the slowing economy
and a parade of disappointing earnings announcements. The Standard & Poor's
500 Index, a leading benchmark of large-cap stocks, fell by 6.69% in the
first six months of the year. The Federal Reserve aggressively began to
attack the economic slowdown with interest-rate cuts totaling 2.75
percentage points between January and the end of June. By April, investors
began to believe the worst might be over, prompting a sharp stock rally
that month. Bonds wound up outperforming stocks overall.
Even with the spring upturn, the stock market remains indecisive, as
investors try to get a clearer sense of the timetable for economic and
corporate recovery. More than ever, this is a time to keep a long-term
investment perspective and check in with your investment professional to
ensure that your portfolio is adequately diversified.
In the midst of this year's market disappointments, one significant event
occurred that has positive short- and long-term implications for
investors. On June 7, President George W. Bush signed into law the most
sweeping tax-cut bill in two decades. The bill's first benefit comes this
summer in the form of a tax refund, ranging from $300 to $600, to almost
everyone who filed a 2000 tax return. Gradual cuts in taxes will follow
the rebate checks. For investors, the bill also provides a number of extra
incentives for retirement and college savings through changes to IRA and
401(k) plan contributions and enhancements to Education IRAs, among other
things.
The new tax law has a variety of provisions, many of which are phased in
over a number of years. We encourage you to consult with your investment
professional to determine how to take the best, and most timely, advantage
of the benefits it contains.
Sincerely,
/S/ MAUREEN R. FORD
MAUREEN R. FORD, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY PAUL MCMANUS FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
V.A. Core Equity Fund
Fed cuts interest rates aggressively amid further slowing of the economy
The first half of 2001 witnessed a pitched battle between two powerful
forces. On the one hand, prices were undermined -- especially in February
and March -- by continued economic slowing and the resulting damage to
corporate earnings prospects. On the other hand, the Federal Reserve Board
weighed in with six reductions in short-term interest rates since the
beginning of the year in an aggressive effort to head off a recession. Two
of the cuts -- on January 3 and April 18 -- came between regularly
scheduled meetings of the Fed's Open Market Committee. Both surprise moves
gave all of the popular market averages a notable boost. The Standard &
Poor's 500 Index reached an interim peak on May 22, five business days
after the May 15 reduction. From there the Index drifted irregularly lower
until the end of the period, consolidating its recent gains.
"With a few
exceptions,
the stocks
that detracted
most from
performance
were technology
and telecommunications
stocks..."
Although announcements of corporate layoffs continued unabated during the
period, unemployment rose only modestly, and consumers continued to spend
freely. Accounting for approximately two-thirds of total economic
activity, consumer spending is considered vital to keep the economy
growing at a healthy rate. Energy prices, while still high, eased somewhat
from their extreme levels in the fall of 2000. Overall, inflation remained
well under control, allowing the Fed free rein to trim rates as it saw
fit.
[Table at bottom left hand column entitled "Top Five Stock Holdings." The
first listing is General Electric 4.7%, the second is Microsoft 4.5%, the
third Citigroup 4.2%, the fourth Pfizer 3.3% and the fifth ExxonMobil 3.0%.
A note below the table reads "As a percentage of net assets on June 30,
2001."]
Performance review
Technology and telecommunications stocks continued to fare poorly,
reflecting sagging demand and overbuilding of the telecom infrastructure
during the past few years. Meanwhile, investors flocked to defensive
market sectors such as consumer staples, financial services and health
care, especially the services segment. Energy stocks also did well, buoyed
by continued strength in crude oil and natural gas prices. The Fund's
strategy of diversification and buying undervalued stocks of companies
with improving fundamentals worked well in this environment, enabling us
to add value with stock selection in a number of sectors while remaining
close to our benchmark index in sector weightings and risk profile.
For the six months ended June 30, 2001, John Hancock V.A. Core Equity Fund
had a return of -4.68% at net asset value. In comparison, the S&P 500
Index returned -6.69%, including reinvested dividends. The Fund's returns,
while negative, also compared favorably with the average variable annuity
large-cap core fund's -7.92%, according to Lipper, Inc. Longer-term
performance information can be found on page six.
Mega-cap winners
Microsoft topped the list of stocks that helped the Fund's performance,
bucking the overall downward trend in technology. The company was one of
the first to preannounce lower-than-expected earnings last fall, and
investors likewise anticipated an early recovery relative to other stocks
in the sector. Another positive influence was the news near the end of
June that a federal appeals court had overturned the U.S. District Court
ruling that Microsoft must be split into two separate companies for
antitrust reasons. The likelihood of a new generation of personal
computers within the next year or so, which would trigger upgrades to a
more advanced version of Microsoft's Windows operating system, added still
another reason for investors to like the stock.
[Bar chart at the top of left hand column with heading "Fund Performance."
Under the heading is a note that reads "For the six months ended June 30,
2001." The chart is scaled in increments of 2% with -10% at the bottom and
0% at the top. The first bar represents the -4.68% total return for John
Hancock V.A. Core Equity Fund. The second bar represents the -7.92% total
return for Average variable annuity large-cap core fund. A note below the
chart reads "The total return for John Hancock V.A. Core Equity Fund is at
net asset value with all distributions reinvested. The average variable
annuity large-cap core fund is tracked by Lipper, Inc. See the following
page for historical performance information."]
AOL Time Warner also made a positive contribution to performance. The
company's management appeared to be doing a good job of bringing to
fruition the anticipated synergies from the recent mega-merger of America
Online and Time Warner -- in spite of lower income from advertising, which
constitutes a large percentage of the company's revenue base. Finally,
Chevron and ExxonMobil reflected the ongoing strength in energy prices.
Tech and drug losers
With a few exceptions, the stocks that detracted most from performance
were technology and telecommunications stocks in which the Fund had
market-weighted or underweighted positions. Included in this category were
Cisco Systems, EMC, Oracle Systems, Sun Microsystems, Radio Shack,
Corning, Comverse Technology and QUALCOMM. In the case of Qwest
Communications, the Fund was hurt by being overweighted compared with the
Index. However, we felt justified in taking this position because of
Qwest's solid management, strong fundamental outlook, and the potential
benefits of the company's recent merger with SBC Communications.
A number of drug companies -- among them Merck, Bristol-Myers Squibb,
Pfizer and Schering-Plough -- also detracted significantly from
performance. While some of the drug industry's problems were attributable
to currency fluctuations, we believe that most of the weakness in these
stocks was due to a temporary, but widespread, lull in the product
development and approval process.
"...the
economy is
still giving
off very
mixed
signals."
Looking ahead
We are as positive on the U.S. stock market as we have been for quite a
while. Valuations are much more reasonable, investors are more
value-conscious, and the Fed is aggressively easing monetary conditions.
Short-term interest rates are now approximately two full percentage points
below long-term rates, historically an extremely bullish backdrop for
stocks. Consumer spending, an important driver of economic activity,
should be aided by the retroactive tax cut recently passed by Congress.
Despite all of these positive factors, however, we must point out that the
economy is still giving off very mixed signals. Patience and the
discipline to stick with our methodology of seeking out undervalued stocks
of companies with improving fundamentals should provide useful guidance in
this uncertain environment.
A LOOK AT PERFORMANCE
For the period ended June 30, 2001
SINCE
SIX ONE INCEPTION
MONTHS YEAR (8/29/96)
------- ------- -------
Cumulative Total Returns (4.68%) (12.02%) 89.14%
Average Annual Total Returns -- (12.02%) 14.09%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
Note to Performance
The Fund's performance results reflect any applicable expense reductions,
without which the expenses would increase and results would have been less
favorable. These reductions can be terminated in the future.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Core Equity Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Standard & Poor's 500 Index -- an unmanaged
index that includes 500 widely traded common stocks and is often used as a
measure of stock market performance. It is not possible to invest in an
index.
Line chart with the heading John Hancock V.A. Core Equity Fund,
representing the growth of a hypothetical $10,000 investment over the life
of the fund. Within the chart are two lines. The first line represents the
Standard & Poor's 500 Index and is equal to $20,142 as of June 30, 2001.
The second line represents the value of the hypothetical $10,000 investment
made in the John Hancock V.A. Core Equity Fund on August 29, 1996 and is
equal to $18,914 as of June 30, 2001.
BY TIMOTHY E. QUINLISK, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
JAMES S. YU, CFA, AND R. SCOTT MAYO, CFA, PORTFOLIO MANAGERS
John Hancock
V.A. Relative Value Fund
Stock market volatility continues as economy remains weak
The first half of 2001 was not what investors had hoped. The Federal
Reserve significantly lowered short-term interest rates between January
and June, but the economy remained sluggish. Corporations with declining
revenues and earnings cut back on spending, triggering earnings
disappointments for many suppliers. Tough year-over-year earnings
comparisons caused further volatility in the market, especially during the
first quarter when stock prices fell sharply. The market appeared to reach
bottom early in the second quarter, gaining some ground as investors began
buying stocks that would benefit from an improved economy. Many stocks in
sectors like technology and telecommunications, however, continued to
plummet. The Standard & Poor's 500 Index returned a disappointing -6.69%
for the six months ended June 30, 2001.
[Table at bottom left hand column entitled "Top Five Stock Holdings." The
first listing is Agere Systems 5.8%, the second is Pegasus Communications
5.2%, the third Sprint 4.5%, the fourth Parametric Technology 4.4% and the
fifth AT&T Corp.-Liberty Media Group 4.3%. A note below the table reads "As
a percentage of net assets on June 30, 2001."]
Stock picker's market
The market's volatility and weak economic environment forced investors to
focus on fundamentals, such as sales and earnings, as well as valuations
(or stock prices relative to earnings growth). Many growth stocks in the
technology and telecom sectors suffered, while investors favored value
stocks in areas like natural resources, energy and finance. Across all
industries, however, stock selection -- choosing companies that could meet
their earnings targets -- was key. Lower stock prices made sense where
sales had fallen severely or balance sheets carried too much debt. But too
often problems at one company triggered indiscriminate selling throughout
the industry. This created unique opportunities to buy great businesses at
bargain prices.
"We found the
best values
in the
technology,
telecom
and media
sectors."
Strong Fund performance
The market's volatility allowed us to build the Fund's stakes in
top-quality businesses with the ability to grow and create value over a
long period. Our focus was on companies where there was a catalyst -- such
as a restructuring, new management or new product -- that would help
unlock the stock's intrinsic value. Strong stock selection resulted in
John Hancock V.A. Relative Value Fund returning 5.87% at net asset value,
during the six months ended June 30, 2001. By comparison, the average
variable annuity multi-cap value fund returned 0.94%, according to Lipper,
Inc. For historical performance information, please see page nine.
[A 1 1/2" x 2" photo at bottom right side of page of John Hancock V.A.
Relative Value Fund. Caption below reads "Timothy Quinlisk."]
Winners in technology and media
The Fund had above-average investments in technology and media, where
selected stocks rebounded nicely. Microsoft and Dell Computer rallied as
investors regained confidence in their ability to meet earnings forecasts,
prompting us to take profits. Computer Associates International, a
mainframe software developer, benefited from improved accounting practices
and strong demand related to IBM's new mainframe offering. And ANTEC,
which makes equipment that enables companies to deliver telephone services
over cable, rebounded following a questionable acquisition. Media
companies like AT&T's Liberty Media, Clear Channel Communications, USA
Networks, Viacom and XM Satellite Radio Holdings also were strong
contributors to performance as investors began recognizing the value of
their assets. But our biggest gains came from Cendant, a company with
hotel franchising and real estate operations. The stock made a huge
comeback as management addressed past accounting problems and exceeded
earnings expectations. As the stock reached our price target, we took
profits.
[Bar chart at the top of left hand column with heading "Fund Performance."
Under the heading is a note that reads "For the six months ended June 30,
2001." The chart is scaled in increments of 2% with 0% at the bottom and 6%
at the top. The first bar represents the 5.87% total return for John
Hancock V.A. Relative Value Fund. The second bar represents the 0.94% total
return for Average variable annuity multi-cap value fund. A note below the
chart reads "The total return for John Hancock V.A. Relative Value Fund is
at net asset value with all distributions reinvested. The average variable
annuity multi-cap value fund is tracked by Lipper, Inc. See the following
page for historical performance information."]
"While the
economy
remains
sluggish,
there are many
indications
that it could
be at or near
the bottom."
Disappointments in telecom
The Fund also had a sizable stake in telecom-related companies, many of
which declined 50% or more during the period as telecom spending came to a
screeching halt. Among our biggest casualties were Conexant Systems, which
makes semiconductors used in broadband and wireless communications;
Corning, which supplies the fiber for fiber-optics networks; Vicor, which
makes power converters used in the cellular infrastructure; and Lucent
Technologies, which makes telecom equipment. Nextel Communications, a
wireless operator, also took a severe beating despite maintaining high
monthly subscriber revenues. In addition, software stocks like Wind River
Systems and Parametric Technology disappointed as companies deferred
technology spending. Satellite companies like Pegasus Communications and
Hughes Electronics suffered from uncertainties surrounding their possible
acquisition.
Buying opportunities
We found the best values in the technology, telecom and media sectors.
Among our new additions were Agere Systems, a leading supplier of
communications semiconductors and optical components that was recently
spun off by Lucent Technologies at a very attractive price, and Concord
Communications, a small software company. We added substantially to our
stake in Sprint, a leading provider of local and long- distance services.
And we bought Cumulus Media, a company that buys and manages small radio
stations in small- and mid-size markets. Finally, cheap health-care
valuations and solid growth prospects prompted us to increase our stake in
large pharmaceuticals like Schering-Plough, as well as smaller specialty
drug companies like Alpharma.
A look ahead
We believe both the economy and the stock market are poised for recovery.
While the economy remains sluggish, there are many indications that it
could be at or near the bottom. U.S. economic growth in 2001 will not be
as robust as it was in early 2000, but it should still be good, especially
as lower interest rates kick in. We're also optimistic about stocks. A lot
of companies announced in advance that they would miss their second
quarter earnings targets, which means the bad news is already reflected in
their stock prices. Stock prices should benefit as year-over-year earnings
comparisons become easier and as the economic outlook improves. At current
levels, the market offers attractive buying opportunities for relative
value stock pickers like us.
A LOOK AT PERFORMANCE
For the period ended June 30, 2001
SINCE
SIX ONE INCEPTION
MONTHS YEAR (1/6/98)
------- ------- -------
Cumulative Total Returns 5.87% (4.99%) 91.66%
Average Annual Total Returns -- (4.99%) 20.56%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
Note to Performance
The Fund's performance results reflect any applicable expense reductions,
without which the expenses would increase and results would have been less
favorable. These reductions can be terminated in the future.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Relative Value Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Standard & Poor's 500 Index -- an unmanaged
index that includes 500 widely traded common stocks and is often used as a
measure of stock market performance. It is not possible to invest in an
index.
Line chart with the heading John Hancock V.A. Relative Value Fund,
representing the growth of a hypothetical $10,000 investment over the life
of the fund. Within the chart are two lines. The first line represents the
value of the hypothetical $10,000 investment made in the John Hancock V.A.
Relative Value Fund on January 6, 1998 and is equal to $19,166 as of June
30, 2001. The second line represents the Standard & Poor's 500 Index and is
equal to $13,201 as of June 30, 2001.
BY JOHN F. SNYDER, III, PORTFOLIO MANAGEMENT TEAM LEADER, AND
BARRY H. EVANS, CFA, AND PETER M. SCHOFIELD, PORTFOLIO MANAGERS
John Hancock
V.A. Sovereign Investors Fund
Stock market stays in negative territory
The stock market's malaise extended into 2001. Under the pressure of
corporate cost-cutting and layoffs as well as a sagging U.S. economy,
stocks continued their treacherous decline in the first quarter of the
year. Once again, technology and telecommunications stocks were among the
sectors hardest hit by the market slump. Investors continued their
migration to safer havens -- those stocks with steady earnings growth,
even in a slower economy, and more reasonable valuations.
"Once again,
technology and
telecommunications
stocks were
among the
sectors hardest
hit by the
market slump."
After four straight quarters of tumbling prices, investors finally got
some relief when stocks staged a springtime rally. With the Federal
Reserve's fifth interest-rate cut, investors began to believe that the
worst might finally be over for the U.S. economy. Although stocks surged
on the news, most experts remained skeptical about whether the rally
signaled the start of a sustained market recovery. At the end of the
period, doubt still pervaded the market and many gun-shy investors
continued to take a cautious wait-and-see attitude. The result was a
negative return for the broad Standard & Poor's 500 Index, which lost
6.69% in the first six months of 2001.
[Table at bottom left hand column entitled "Top Five Stock Holdings." The
first listing is Citigroup 3.5%, the second is IBM 2.6%, the third Johnson
& Johnson 2.3%, the fourth Chevron 2.3% and the fifth BellSouth 2.2%. A
note below the table reads "As a percentage of net assets on June 30,
2001."]
Performance scorecard
For the six months ended June 30, 2001, John Hancock V.A. Sovereign
Investors Fund returned -5.70% at net asset value. By comparison, the
average variable annuity equity income fund returned -1.79%, according to
Lipper, Inc. See page 12 for historical performance information.
What put a damper on the Fund's relative performance was our focus on
high-quality growth financials. As interest rates fell in the first half
of the year, investors flocked to lower-quality regional banks with hopes
that an economic uptick would eventually improve their credit situations.
On the flip side, our high-quality growth financials -- including American
International Group, AFLAC and Citigroup -- languished.
[A 1 1/2" x 2" photo at bottom right side of page of John Hancock V.A.
Sovereign Investors Fund. Caption below reads "John Snyder."]
Several of our longtime holdings also had a negative impact on
performance. Consumer products company Kimberly-Clark dropped under the
pressure of rising material costs, an increasingly competitive environment
and a strong U.S. dollar that hurt profits overseas. Given its reasonable
valuation and strong product line-up, we're sticking with our position.
Advertising giant Interpublic Group fell prey to a weak economy and
difficulty digesting several large acquisitions, and we've cut back on our
position.
In this difficult environment, we were once again reminded how important
stock selectivity is. For example, thanks to its strong product cycle and
accelerating earnings, Baxter International turned in a strong
performance, despite the declining health-care sector. At a time when most
technology stocks were still reeling from tremendous losses, IBM jumped
more than 30%. This is a testament to its solid fundamentals -- diverse
product line, strong earnings and reasonable valuation. Finally, our
largest energy holdings -- Chevron and ExxonMobil -- rose sharply thanks
to higher oil prices, strong earnings and the perception of their being
safe havens in a stormy market.
[Bar chart at the top of left hand column with heading "Fund Performance."
Under the heading is a note that reads "For the six months ended June 30,
2001." The chart is scaled in increments of 2% with -6% at the bottom and
0% at the top. The first bar represents the -5.70% total return for John
Hancock V.A. Sovereign Investors Fund. The second bar represents the -1.79%
total return for Average variable annuity equity income fund. A note below
the chart reads "The total return for John Hancock V.A. Sovereign Investors
Fund is at net asset value with all distributions reinvested. The average
variable annuity equity income fund is tracked by Lipper, Inc. See the
following page for historical performance information."]
Fine-tuning the portfolio
Our strong focus on stock selectivity has led us to make several
adjustments to the portfolio during the first half of the year. Once
again, the Fund's unwavering investment philosophy has always led us to
invest in high-quality companies with steady earnings growth and
reasonable valuations. Given that, we've continued to pare our retail
holdings such as Home Depot and Lowe's. Our concern is that valuations
have become extended and there's a risk of softer consumer spending as
corporate layoffs become more widespread. High valuations also led us to
take profits in several of our longtime health-care holdings such as
pharmaceutical giant Schering-Plough and medical device maker Medtronic.
We viewed the lackluster performance of high-quality financials as a
buying opportunity, since we believe that investors will eventually
recognize the outstanding growth potential of these stocks. As a result,
we've added a position in PNC Bank, which stands to benefit from an
increase in its fee-based business. We've also beefed up our position in
capital goods and basic materials stocks, believing they will perform
strongly when the economy recovers. Our emphasis here is on companies such
as Rohm and Haas, and Tyco International, both of which have successfully
weathered the recent downturn and are well positioned to leverage the
eventual upturn in the economy.
"...it's clear
that the
Federal Reserve
is committed to
preventing the
economy from
hitting a hard
landing."
A look ahead
In the midst of this difficult market, we do see some positive signs on
the horizon. With its six interest-rate cuts so far this year, it's clear
that the Federal Reserve is committed to preventing the economy from
hitting a hard landing. We're also starting to see rates come down
overseas, which can only be positive for the United States. Probably the
most important factor is that inflation remains well under control,
despite the recent rate cuts and the surge in energy prices.
Does this mean the worst is over? Now more than ever, investors are
questioning when the stock market and the economy will turn the corner.
Since no one knows, we're not putting our efforts into trying to time the
turnaround, but rather we're maintaining our steadfast focus on
high-quality stocks with strong growth potential and reasonable
valuations.
A LOOK AT PERFORMANCE
For the period ended June 30, 2001
SINCE
SIX ONE INCEPTION
MONTHS YEAR (8/29/96)
------- ------- -------
Cumulative Total Returns (5.70%) (1.59%) 58.65%
Average Annual Total Returns -- (1.59%) 10.02%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
Note to Performance
The Fund's performance results reflect any applicable expense reductions,
without which the expenses would increase and results would have been less
favorable. These reductions can be terminated in the future.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Sovereign Investors Fund would be worth, assuming all distributions
were reinvested for the period indicated. For comparison, we've shown the
same $10,000 investment in the Standard & Poor's 500 Index -- an unmanaged
index that includes 500 widely traded common stocks and is often used as a
measure of stock market performance. It is not possible to invest in an
index.
Line chart with the heading John Hancock V.A. Sovereign Investors Fund,
representing the growth of a hypothetical $10,000 investment over the life
of the fund. Within the chart are two lines. The first line represents the
Standard & Poor's 500 Index and is equal to $20,142 as of June 30, 2001.
The second line represents the value of the hypothetical $10,000 investment
made in the John Hancock V.A. Sovereign Investors Fund on August 29, 1996
and is equal to $15,865 as of June 30, 2001.
BY JAMES K. SCHMIDT, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
THOMAS M. FINUCANE AND THOMAS C. GOGGINS, PORTFOLIO MANAGERS
John Hancock
V.A. Financial Industries Fund
Financial stocks outperform the volatile stock market
It was a difficult six months for the stock market, which lost ground and
was fraught with heightened volatility. An economy that slowed
precipitously and a barrage of corporate earnings disappointments turned
investors into bears, especially in the first quarter. In response to the
sagging economy, the Federal Reserve began cutting interest rates. Between
January and the end of June, it lowered the federal funds rate that banks
charge each other for overnight loans by 2.75 percentage points in a bid
to avoid a recession. Financial stocks held up better than the market as a
whole, although the sector had its decided winners and losers. With the
market growing increasingly dicey, financial companies connected to the
stock market, like asset managers and brokerage houses, suffered, as did
those whose stocks had run up the most by late last year. In a reversal of
last year's fortunes, the smaller banks and those most sensitive to
interest-rate moves made a comeback. For the six months ended June 30,
2001, the Standard & Poor's Financial Index returned -2.52%, while the
Standard & Poor's 500 Index returned -6.69%.
[Table at bottom left hand column entitled "Top Five Stock Holdings." The
first listing is Fifth Third Bancorp 4.2%, the second is American
International Group 4.0%, the third Citigroup 4.0%, the fourth AFLAC 3.8%
and the fifth General Electric 3.7%. A note below the table reads "As a
percentage of net assets on June 30, 2001."]
Fund performance
For the six months ended June 30, 2001, John Hancock V.A. Financial
Industries Fund posted a total return -9.54% at net asset value. That
compared with the 0.54% return of the average open-end financial services
fund and the -14.72% return of the average variable annuity
specialty/miscellaneous fund, according to Lipper, Inc. See page 15 for
historical performance information.
"We also moved
to boost our
stake in U.S.
banks..."
Brokers, asset managers struggle
Our overweighting in the brokerage firms and asset managers, which helped
us significantly outperform our peers last year, accounted for our
relative performance lag so far this year. That included brokerage and
investment banking firms Charles Schwab, Merrill Lynch and Morgan Stanley,
whose fundamentals deteriorated as trading, IPO and merger activity slowed
in the negative market environment. Marsh McLennan, with its Putnam
asset-manager subsidiary, and American Express were similarly affected.
[A 1 1/2" x 2" photo at bottom right side of page of John Hancock V.A.
Financial Industries Fund. Caption below reads "Jim Schmidt."]
While we moved to cut our stake in these market-sensitive stocks, we did
not do so aggressively enough. But we believe the securities business is
close to a bottom, and will begin to look better later this year as the
economy stabilizes with lower rates.
[Bar chart at the top of left hand column with heading "Fund Performance."
Under the heading is a note that reads "For the six months ended June 30,
2001." The chart is scaled in increments of 5% with -15% at the bottom and
10% at the top. The first bar represents the -9.54% total return for John
Hancock V.A. Financial Industries Fund. The second bar represents the 0.54%
total return for Average open-end financial services fund. The third bar
represents the -14.72% total return for Average variable annuity
specialty/miscellaneous fund. A note below the chart reads "The total
return for John Hancock V.A. Financial Industries Fund is at net asset
value with all distributions reinvested. The average open-end financial
services fund and variable annuity specialty/miscellaneous fund are tracked
by Lipper, Inc. See the following page for historical performance
information."]
Insurance
Several of our larger insurance company stocks that had been our best
performers last year also sold off, not because of any fundamental
changes, but simply because their valuations, as measured by
price-earnings ratios, had become too high for value-conscious investors.
Two examples were American International Group (AIG) and AFLAC. Furthering
the consolidation trend among life insurers, AIG made a successful bid for
American General during the period.
We continued to shift our insurance assets from life insurance companies
to property and casualty companies, since the pricing environment is
improving for property and casualty names like Allstate. Life insurance
companies, on the other hand, face some challenges the property and
casualty companies don't. These include stock-market and economic
sensitivity, a rash of new demutualization offerings that have put
pressure on stock prices, and the potential passage of estate-tax reform
legislation that could dampen variable life sales.
"...we expect
the U.S.
economy to
avoid a
recession and
produce modest
growth for the
rest of 2001."
Banks, finance companies boosted
We also moved to boost our stake in U.S. banks, since we had previously
been significantly underweighted there and anticipated that falling rates
would lift the stocks. We increased our exposure to the more interest-rate
sensitive, less expensive, banks, and they did well, including
FleetBoston. On the other hand, our emphasis on trust banks with less
interest-rate sensitivity, like State Street and Northern Trust Company,
held us back this period after serving us so well last year. Like some of
our premium insurance names, their higher valuations put them out of
investor favor.
Our effort to increase the Fund's exposure to stocks sensitive to falling
interest rates also prompted us to take larger positions in Fannie Mae and
Household International. They were both near the top of our performance
chart as loan and mortgage activity picked up. Toward the end of the
period, we also bought General Electric at an attractive price so that we
could tap into its subsidiary General Electric Credit Corp., a
well-managed company that provides a range of financial services including
consumer and commercial lending and life insurance.
REITs, foreign holdings cut
We upped our bank and finance company stakes by taking profits and nearly
eliminating our position in real estate investment trusts after their
strong runup last year. We also cut our foreign holdings and shifted our
emphasis there to asset managers such as Amvescap. They stand to benefit
most from the move in Europe to privatize pension funding.
Outlook
Although the Fed's aggressive stance to stabilize the economy appears to
be winding down, its efforts should begin to have a positive effect later
this year, and we expect the U.S. economy to avoid a recession and produce
modest growth for the rest of 2001. Once investors become more confident
in this scenario, we anticipate a pickup in trading, underwriting and
merger activity. This bodes well for all financial services stocks,
including the banks with exposure to market-related revenues, and we
believe the Fund is poised to benefit from the upturn.
- -----------------------------------------------------------------------------
Sector investing is subject to greater risks than the market as a whole.
A LOOK AT PERFORMANCE
For the period ended June 30, 2001
SINCE
SIX ONE INCEPTION
MONTHS YEAR (4/30/97)
------- ------- -------
Cumulative Total Returns (9.54%) 8.78% 70.72%
Average Annual Total Returns -- 8.78% 13.70%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
Note to Performance
The Fund's performance results reflect any applicable expense reductions,
without which the expenses would increase and results would have been less
favorable. These reductions can be terminated in the future.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Financial Industries Fund would be worth, assuming all distributions
were reinvested for the period indicated. For comparison, we've shown the
same $10,000 investment in the Standard & Poor's 500 Index -- an unmanaged
index that includes 500 widely traded common stocks and is often used as a
measure of stock market performance. It is not possible to invest in an
index.
Line chart with the heading John Hancock V.A. Financial Industries Fund,
representing the growth of a hypothetical $10,000 investment over the life
of the fund. Within the chart are two lines. The first line represents the
value of the hypothetical $10,000 investment made in the John Hancock V.A.
Financial Industries Fund on April 30, 1997 and is equal to $17,072 as of
June 30, 2001. The second line represents the Standard & Poor's 500 Index
and is equal to $16,178 as of June 30, 2001.
BY BARRY GORDON, MARC H. KLEE, CFA, AND ALAN LOEWENSTEIN, CFA,
PORTFOLIO MANAGERS
John Hancock
V.A. Technology Fund
Tech stocks suffer first quarter 2001 decline as economy weakens
Technology stocks declined sharply in the first three months of 2001,
although a spring rally helped erase some of those losses. In the
beginning of the year, technology stocks suffered steep losses as economic
growth slowed to a near crawl, leading corporations to dramatically
curtail their technology spending. This reminded investors that the tech
sector is a cyclical group whose fortunes are closely linked to the
economy's ups and downs. Consequently, tech companies were forced to lower
earnings and revenue expectations, causing the technology-dominated Nasdaq
Composite Index to shed more than 25% in the first quarter of 2001.
"Despite the
spring
rebound, most
tech stocks --
like the
Nasdaq -- ended
the period
with sizable
losses..."
In early April, however, the tide began to turn in favor of technology
stocks. Shrugging off signs that the economy remained weak, investors
became increasingly optimistic that the worst of the economic and stock
price deterioration was behind them, fueling hopes for a recovery. That
renewed enthusiasm was due in no small part to economically stimulative
moves by the Federal Reserve, which cut interest rates six times totaling
2.75 percentage points in the first half of the year. That helped tech
stocks rack up decent gains in April, with the Nasdaq posting a gain of
15% in the month of April alone. But the group remained volatile through
the end of June and the Nasdaq was still in negative territory through
June, losing 13% in the first six months of 2001.
[Table at bottom left hand column entitled "Top Five Stock Holdings."
The first listing is AOL Time Warner 4.0%, the second is Micron
Technology 3.4%, the third KLA-Tencor 3.4%, the fourth Applied Materials
3.0% and the fifth Mercury Interactive 2.9%. A note below the table reads
"As a percentage of net assets on June 30, 2001."]
Fund performance
For the six-month period ended June 30, 2001, John Hancock V.A. Technology
Fund posted a total return of -28.10% at net asset value, compared with
the -25.86% return of the average open-end science and technology fund and
the -14.72% return of the average variable annuity specialty/miscellaneous
fund, according to Lipper, Inc. See page 18 for historical performance
information.
[A 3" x 2" photo at bottom right side of page of John Hancock V.A. Technology
Fund. Caption below reads "Fund management team members (l-r): Barry Gordon,
Marc Klee and Alan Loewenstein."]
Leaders and laggards
Despite the spring rebound, most tech stocks -- like the Nasdaq -- ended
the period with sizable losses, most of which were sustained in the first
quarter. Among the few holdings that posted gains were semiconductor and
related companies KLA-Tencor, Applied Materials, Micron Technology and
Cypress Semiconductor. They bounced back this spring when global investors
started to adjust their portfolios toward cyclical and growth-oriented
stocks. Investors also reasoned that semiconductor stocks might be the
first to take off in a rally, just as they were the first to go down in
the sell-off. Some Internet-related stocks staged a bit of a comeback,
with AOL Time Warner advancing after the merger between the leading
Internet service provider and the media giant was approved. Amazon.com,
the world's largest online retailer, also posted strong returns thanks to
smaller-than-expected losses and the company's prediction that it will
pull into the black by year end. Microsoft's stock price surged more than
50% during the period, thanks in large part to its better-than-expected
quarterly earnings announced in mid-April, driven by strong sales of its
Windows 2000 product.
[Bar chart at the top of left hand column with heading "Fund Performance."
Under the heading is a note that reads "For the six months ended June 30,
2001." The chart is scaled in increments of 10% with -30% at the bottom and
0% at the top. The first bar represents the -28.10% total return for John
Hancock V.A. Technology Fund. The second bar represents the -25.86% total
return for Average open-end science and technology fund. The third bar
represents the -14.72% total return for Average variable annuity
specialty/miscellaneous fund. A note below the chart reads "The total
return for John Hancock V.A. Technology Fund is at net asset value with all
distributions reinvested. The average open-end science and technology fund
and variable annuity specialty/miscellaneous fund are tracked by Lipper,
Inc. See the following page for historical performance information."]
On the flip side were the vast majority of tech stocks that posted sizable
losses. Among the biggest detractors from the Fund's performance were
storage companies EMC and Network Appliance. Last year, businesses had to
pay top dollar to warehouse the reams of data they generated. Even as the
rest of the tech sector suffered a slowdown, storage companies seemed
immune. But the sinking reality of the economy's slowdown began to take
its toll, and competition among storage vendors ratcheted up. Another
major detractor was Cisco Systems, the leading supplier of data networking
products to business. Its stock held up relatively well during most of
2000, but got hit hard in the first quarter of 2001 as the company's
growth rates dropped from 50% to 60% per year to showing year-over-year
declines. Computer software and service stocks also were hard hit.
Although many software projects remain under way, a growing number of
corporations have re-evaluated their spending at this time because of
economic conditions. Software companies i2 Technologies, BEA Systems and
Mercury Interactive all saw their stock prices at least halved during the
period. Despite these disappointing results, we continue to believe that
these stocks offer well-above-average growth prospects.
"...technology
stocks as a
whole are
reasonably
valued, with
excellent
growth
prospects."
The stock prices of communications equipment companies, including Corning
and JDS Uniphase, also posted sharp declines as many of their customers --
the telecommunications carriers -- faced problems. Without the necessary
capital, the carriers were forced to curtail spending to build out their
networks. Furthermore, the communications equipment industry's inability
to anticipate demand caused large inventory buildups that need to be
worked down.
Outlook
We're optimistic about the prospects for technology stocks. Despite the
April rally, technology stocks as a whole are reasonably valued, with
excellent growth prospects. Given the increasing reliance on technology by
consumers and corporations, our view is that five-year growth rates for
the tech sector will be higher than those of the broad S&P 500 Index. We
believe this is an attractive time to buy technology stocks, which
historically do well in a declining interest-rate environment. Finally, we
believe better economic growth later this year should spur technology
spending and provide a boost for the group.
- -----------------------------------------------------------------------------
Sector investing is subject to greater risks than the market as a whole.
A LOOK AT PERFORMANCE
For the period ended June 30, 2001
SINCE
SIX ONE INCEPTION
MONTHS YEAR (5/1/00)
------- ------- -------
Cumulative Total Returns (28.10%) (52.22%) (47.20%)
Average Annual Total Returns -- (52.22%) (42.22%)
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
Note to Performance
The Fund's performance results reflect any applicable expense reductions,
without which the expenses would increase and results would have been less
favorable. These reductions can be terminated in the future.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Technology Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Standard & Poor's 500 Index -- an unmanaged
index that includes 500 widely traded common stocks and is often used as a
measure of stock market performance. It is not possible to invest in an
index.
Line chart with the heading John Hancock V.A. Technology Fund, representing
the growth of a hypothetical $10,000 investment over the life of the fund.
Within the chart are two lines. The first line represents the Standard &
Poor's 500 Index and is equal to $8,549 as of June 30, 2001. The second
line represents the value of the hypothetical $10,000 investment made in
the John Hancock V.A. Technology Fund on May 1, 2000 and is equal to $5,280
as of June 30, 2001.
BY JAMES K. HO, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
BENJAMIN A. MATTHEWS, PORTFOLIO MANAGER
John Hancock
V.A. Bond Fund
Bonds outperform stocks in volatile market; slowing economy
increases individual credit disappointments
During the six months ended June 30, 2001, the broad fixed-income market
was helped by the Federal Reserve's rate-cutting efforts aimed at
preventing the economy from slipping into a recession, although the
widespread deterioration in corporate profits created somewhat of a
minefield. Many companies, particularly technology-related firms, found it
increasingly difficult to service the debt on their books. Throughout the
first half, we maintained the Fund's focus on individual, in-depth credit
research. Doing so enabled the Fund to participate in the positive events
taking place, while sidestepping many of the securities experiencing an
implosion of their creditworthiness.
Fund performance
For the six months ended June 30, 2001, John Hancock V.A. Bond Fund
produced a total return of 2.78% at net asset value. This compares with
the 3.10% return of the average variable annuity corporate debt A-rated
fund, according to Lipper, Inc. For historical performance information,
please turn to page 21.
[Table at bottom left hand column entitled "Top Five Sectors." The
first listing is U.S. Agencies 30%, the second is U.S. Government 28%, the
third Telecommunications 4%, the fourth Utilities 4% and the fifth Finance
4%. A note below the table reads "As a percentage of net assets on June 30,
2001."]
Credit spreads narrow
Since January, a greater-than-anticipated slowing of the economy has
assaulted the financial markets. To head off a recession, the Federal
Reserve Board got aggressive and cut short-term interest rates six times
during the period, totaling 2.75 percentage points. The federal funds rate
- -- the rate that banks charge each other for overnight loans -- stood at
3.75% on June 30, down from 6.50% on December 31, 2000. The Fed's
concerted efforts to inject liquidity into the markets and make it easier
for corporations to raise capital enabled credit spreads to contract. A
"spread" is the difference in yield between bonds of varying credit
quality. Bonds offering attractive risk premiums enjoyed renewed investor
interest as a result. These included investment-grade and high-yield
corporate issues, emerging-market bonds and government agency securities
such as mortgage-backed issues.
"Where and when
we could, we
added to or
initiated
positions in
corporate
bonds,
particularly
investment-grade
issues..."
[A 1 1/2" x 2" photo at bottom right side of page of John Hancock V.A. Bond
Fund. Caption below reads "James Ho."]
Throughout the period, we carefully bolstered the portfolio's stake in the
so-called spread products. We primarily targeted mortgage-backed issues,
such as Ginnie Mae and Fannie Mae to pursue the higher-yields and
participate in the narrowing of credit spreads.
[Bar chart at the top of left hand column with heading "Fund Performance."
Under the heading is a note that reads "For the six months ended June 30,
2001." The chart is scaled in increments of 1% with 0% at the bottom and 4%
at the top. The first bar represents the 2.78% total return for John
Hancock V.A. Bond Fund. The second bar represents the 3.10% total return
for Average variable annuity corporate debt A-rated fund. A note below the
chart reads "The total return for John Hancock V.A. Bond Fund is at net
asset value with all distributions reinvested. The average variable annuity
corporate debt A-rated fund is tracked by Lipper, Inc. See the following
page for historical performance information."]
Corporate bond exposure increases selectively
Where and when we could, we added to or initiated positions in corporate
bonds, particularly investment-grade issues, but we also targeted select
high-yield securities. For the most part, our focus was economically
sensitive companies that we believe are well positioned to benefit first
from what we anticipate will be an eventual economic rebound. These
include such names as Northwest Airlines, Delphi Auto Systems, Newmont
Mining, Phelps Dodge, Georgia Pacific, AOL Time Warner, Viacom and Bank
One Corporation. We also slightly increased the Fund's weighting in
foreign bonds, purchasing Deutsche Telekom, France Telecom, Brazil
C-bonds, Colombia sovereign debt and BBVA Bancomer, a Mexican corporate
bond that we sold for profits by period's end.
"The Fed has
certainly
demonstrated
its commitment
to
jump-starting
an economic
recovery..."
We also maintained fair representation in recession-resistant industries
such as defense, utilities, health care, media and energy. Noteworthy
performers in this area include BellSouth, Qwest Communications, Progress
Energy, HEALTHSOUTH and Cox Communications.
Yield curve steepens throughout the period
With each interest-rate cut, U.S. Treasury bonds rallied. The shorter end
of the yield curve experienced the most price appreciation and the yield
curve finally returned to its historic steep slope. The Fund's Treasury
positions were laddered in varying maturities, all of which contributed to
performance throughout the period.
As 2001 began, our duration was relatively neutral, as we wanted to wait
and see how the interest-rate drama would unfold. Because duration
mathematically measures a Fund's sensitivity to interest rate changes,
actively managing it provides us with an additional means with which to
pursue performance. The surprising rapidity of the Fed's initial rate
reductions -- and the bond market's substantial response -- led us to
believe that investors had fully discounted further rate cuts. It appeared
long-term rates would not have much more room to fall. Looking beyond the
current environment as we often do, we slightly shortened the portfolio's
relative duration to position it for what we believed would be the next
turn in the road: a flattening of the yield curve. In hindsight, it seems
our move was a bit premature, as evidence of a protracted economic
slowdown -- and thus the need for additional financial stimulus --
continued to mount. The yield curve continued to steepen as the period
progressed.
Outlook
Our outlook for bonds is, for the most part, upbeat. The Fed has certainly
demonstrated its commitment to jump-starting an economic recovery and
there is no reason to believe it will fail to continue reducing short-term
rates if that is what the economy mandates. Furthermore, the current
scenario is not unlike that which preceded the dramatic corporate bond
rally between 1992 and 1996, with one exception: current credit spreads
are presently wider than they were back then, presenting discerning
investors with some attractive investment opportunities. Selectivity and
knowing what issues to buy and sell will be what separates those who
profit from those who do not.
A LOOK AT PERFORMANCE
For the period ended June 30, 2001
SINCE
SIX ONE INCEPTION
MONTHS YEAR (8/29/96)
------- ------- -------
Cumulative Total Returns 2.78% 10.38% 42.89%
Average Annual Total Returns -- 10.38% 7.66%
YIELD
For the period ended June 30, 2001
SEC 30-DAY
YIELD
-------
John Hancock V.A. Bond Fund 5.70%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
Note to Performance
The Fund's performance results reflect any applicable expense reductions,
without which the expenses would increase and results would have been less
favorable. These reductions can be terminated in the future.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Bond Fund would be worth, assuming all distributions were reinvested
for the period indicated. For comparison, we've shown the same $10,000
investment in the Lehman Brothers Corporate Bond Index -- an unmanaged
index that mirrors the investment objectives and characteristics of the
Fund. It is not possible to invest in an index.
Line chart with the heading John Hancock V.A. Bond Fund, representing the
growth of a hypothetical $10,000 investment over the life of the fund.
Within the chart are two lines. The first line represents the value of the
hypothetical $10,000 investment made in the John Hancock V.A. Bond Fund on
August 29, 1996 and is equal to $14,290 as of June 30, 2001. The second
line represents the Lehman Brothers Corporate Bond Index and is equal to
$14,149 as of June 30, 2001.
BY DAWN M. BAILLIE FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
V.A. Money Market Fund
Federal Reserve cuts interest rates six times to bolster the
lagging economy; money market yields fell in tandem
Money market yields fell in the first six months of 2001, as the Federal
Reserve embarked on an aggressive program to cut short-term interest rates
to prevent the economy from slipping into recession. With the economy
slowing precipitously, the Fed stepped in beginning in January, cutting
the federal funds rate by half a percentage point in a surprise move
between its regularly scheduled meetings. The effects of the slowing
economy began to show up in earnest in the form of corporate earnings
disappointments, sending the stock market reeling. The Fed cut rates five
more times through the end of June, sending the federal funds rate that
banks charge each other for overnight loans from 6.50% at the start of the
year to 3.75% by the end of June -- the lowest level in more than seven
years. The first five cuts were for a half a percentage point each, and
the last one in June was for one-quarter percentage point, an indication
that the Fed could be winding down its rate-cut, or easing, cycle. Money
market yields fell in this period, since the federal funds rate is also a
key pricing benchmark for money market securities.
"...we began to
lengthen the
Fund's average
maturity to
lock in
higher-yielding
securities for
a longer time
in the face of
falling rates."
7-day effective yield
On June 30, 2001, John Hancock V.A. Money Market Fund had a 7-day
effective yield of 3.67%. By comparison, the average taxable money market
fund had a 7-day effective yield of 3.38%, according to Lipper, Inc.
Lengthening maturity
As it became evident from the start of 2001 that the Fed, with its
concerns about a too-slow economy, would continue to cut rates, we began
to lengthen the Fund's average maturity to lock in higher-yielding
securities for a longer time in the face of falling rates. Although the
Fed clearly remained on its easing path, we did not extend the Fund's
maturity beyond our peers' average. As is typically the case during an
economic downturn, there are increased concerns about corporate defaults
and credit downgrades, so money market funds typically scale back their
exposure to longer-dated credits. In fact, we paid particular attention to
buying and holding only the highest-quality top-tier securities.
[A 1 1/2" x 2" photo at bottom middle of page of John Hancock V.A. Money
Market Fund. Caption below reads "Dawn Baillie."]
Uncertainty ahead
The Fed appears to be slowing down, or even nearing the end of, its
rate-cut cycle, as it waits to see the full impact of the steps it has
already taken this year. But it has maintained its easing bias and not yet
declared victory in its efforts to avert a recession, instead indicating
it still has concerns about the economy's ongoing weakness. The Fed's
stance will undoubtedly remain the same until there are clearer signs of
an upturn in both the U.S. and global economies, where a slowdown has
weighed on the U.S. economy. Other key elements to watch for are a rebound
in corporate earnings growth and corporate capital spending, which has
ground almost to a halt. In this uncertain environment, we'll keep the
Fund's maturity in line with, if not slightly shorter than, our peers,
until we have a clearer sense of the economy's health. As always, we will
also continue to focus on providing the Fund with a competitive yield and
on preserving stability of principal.
[Bar chart at the top of left hand column with heading "7-Day Effective
Yield." Under the heading is a note that reads "As of June 30, 2001." The
chart is scaled in increments of 1% with 0% at the bottom and 4% at the
top. The first bar represents the 3.67% total return for John Hancock V.A.
Money Market Fund. The second bar represents the 3.38% total return for
Average taxable money-market fund. A note below the chart reads "The
average taxable money-market fund is tracked by Lipper, Inc. Past
performance is no guarantee of future results."]
"The Fed
appears to be
slowing down,
or even nearing
the end of, its
rate-cut
cycle..."
The Fund is neither insured nor guaranteed by the U.S. government.
Although the Fund seeks to maintain a net asset value of $1.00 per share,
it is possible to lose money by investing in the Fund.
BY FREDERICK L. CAVANAUGH, JR., MANAGEMENT TEAM LEADER, AND
ARTHUR N. CALAVRITINOS, CFA, JANET L. CLAY, CFA, AND DANIEL S. JANIS,
PORTFOLIO MANAGERS
John Hancock
V.A. Strategic Income Fund
Falling interest rates lift U.S. bonds, as U.S. economy slows
The first six months of 2001 marked a significant shift for the global
bond markets. U.S. Treasuries had posted significant gains in 2000, as
investors began to anticipate that the Federal Reserve Board would cut
interest rates in response to slowing economic conditions. Although the
Fed cut rates six times for a total of 2.75 percentage points in the first
six months of 2001, U.S. Treasury securities posted mixed results in the
period. Short- and intermediate-term Treasury securities continued to
perform well in tandem with those rate cuts, with their yields falling and
their prices rising. Ironically, long-term Treasury bond yields and prices
were stalled throughout much of this spring as investors worried that the
Fed may have risked re-igniting inflationary pressures with its dramatic
rate cuts.
"Recognizing
that U.S.
Treasury
securities had
enjoyed a nice
run, we
reduced our
stake in
them."
In contrast, some high-yield bonds perked up a bit this year, after
posting significant losses in 2000. The catalyst for their better
performance was growing confidence that rate cuts would translate into
improved economic conditions and stronger corporate performance.
Furthermore, investors increasingly moved toward high-yield bonds in
search of cheap valuations and higher yields. But the somewhat better
performance of the broad high-yield sector masked continued disappointing
losses among telecommunications bonds, which have been depressed for more
than a year.
[Table at bottom left hand column entitled "Top Five Sectors." The first
listing is U.S. Government 39%, the second is Foreign Government 25%, the
third Telecommunications 6%, the fourth Media 5% and the fifth Oil & Gas
3%. A note below the table reads "As a percentage of net assets on June 30,
2001."]
In the foreign markets, performance was, as always, mixed. European bonds
languished, primarily because the European Central Bank, citing decent
economic growth on that continent, held interest rates steady.
Emerging-market bonds, however, posted good performances as conditions in
their markets generally improved, and Canadian bonds continued to benefit
from relatively low and stable inflation. Japanese bonds didn't attract
much attention throughout the year, due to the fact that their yields
remained substantially lower than in other parts of the world.
[A 1 1/2" x 2" photo at bottom right side of page of John Hancock V.A.
Strategic Income Fund. Caption below reads "Fred Cavanaugh."]
Fund performance
For the six months ended June 30, 2001, John Hancock V.A. Strategic Income
Fund posted a total return of 1.79% at net asset value. This compared with
the 1.70% return of the average variable annuity general bond fund,
according to Lipper, Inc. Historical performance information can be found
on page 26.
[Bar chart at the top of left hand column with heading "Fund Performance."
Under the heading is a note that reads "For the six months ended June 30,
2001." The chart is scaled in increments of 1% with 0% at the bottom and 2%
at the top. The first bar represents the 1.79% total return for John
Hancock V.A. Strategic Income Fund. The second bar represents the 1.70%
total return for Average variable annuity general bond fund. A note below
the chart reads "The total return for John Hancock V.A. Strategic Income
Fund is at net asset value with all distributions reinvested. The average
variable annuity general bond fund is tracked by Lipper, Inc. See the
following page for historical performance information."]
Turning from defensive to opportunistic
Throughout much of 2000, we maintained a relatively defensive posture, but
by January 2001, we began to take on a more opportunistic approach.
Recognizing that U.S. Treasury securities had enjoyed a nice run, we
reduced our stake in them. At the same time, we increased our holdings in
emerging-market bonds. Not only were many dollar-denominated
emerging-market bonds attractively valued, but they also were benefiting
from some fundamental improvements, such as rising economic growth,
declining interest rates, falling inflation and improving trade balances.
Our increased exposure to government bonds issued by Mexico, Russia and
Peru generally helped performance. Fortunately, we did not own any
Argentinean bonds, which performed poorly as that country struggled with a
weak economy and high levels of debt.
The rest of the world
Apart from emerging-market bonds, few foreign markets offered attractive
value by our assessment. Because European bond yields remained below those
offered by U.S. Treasuries, and the European Central Bank refused to lower
interest rates, European bonds offered little upside potential for
investors. Most Asian bonds also were decidedly unattractive, offering
yields far lower than those found in the U.S. and emerging markets.
Canada, however, offered an attractive combination of high quality and
competitive yields.
High-yield winners and losers
Despite the choppy market, some of our high-yield holdings performed well.
Coal producer AEI Resources benefited from stronger demand for that fuel,
as well as a restructuring of its business. Columbia's Comunicacion
Cellular was buoyed by strong interest in the country's bonds. Canada's
MetroNet Communications was lifted by last year's merger with AT&T Canada.
The telecommunications sector continued to be plagued by doubts during the
past six months and handed us some of our biggest disappointments. Two-way
messaging company Metro Call filed for bankruptcy protection, while
fiber-optic company NorthEast Optic Network was hurt by weaker pricing in
its key markets. Finally, video-on-demand company DIVA Systems struggled
against slower-than-expected demand for its products and its failure to
complete a planned IPO.
"In our view,
the Federal
Reserve still
has some work
to do..."
Outlook
In our view, the Federal Reserve still has some work to do since the U.S.
economy continues to struggle. Overseas, Europe already is showing some
signs of weakening and Japan stands again at the brink of a recession, if
it hasn't already entered one. That's why we believe the Fed will remain
accommodative, perhaps cutting interest rates another three-quarters of a
percentage point from current levels. With that backdrop in mind, we
believe that emerging-market bonds will continue to perform well as
investors seek out higher yields and position themselves to benefit from
the fundamental economic and policy changes that are helping to improve
conditions in many countries. We'll also keep our eyes out for
attractively valued high-yield bonds. So far this year, a lack of
liquidity and other market-driven factors have limited our high-yield
purchases. If liquidity returns, we will look to expand our high-yield
allocation.
International investing involves special risks such as political, economic
and currency risks and differences in accounting standards and financial
reporting. See the prospectus for the risks of investing in high-yield
bonds.
A LOOK AT PERFORMANCE
For the period ended June 30, 2001
SINCE
SIX ONE INCEPTION
MONTHS YEAR (8/29/96)
------- ------- -------
Cumulative Total Returns 1.79% 1.95% 35.07%
Average Annual Total Returns -- 1.95% 6.41%
YIELD
For the period ended June 30, 2001
SEC 30-DAY
YIELD
-------
John Hancock V.A. Strategic
Income Fund 7.14%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
Note to Performance
The Fund's performance results reflect any applicable expense reductions,
without which the expenses would increase and results would have been less
favorable. These reductions can be terminated in the future.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Strategic Income Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Lehman Brothers Government/Credit Bond Index --
an unmanaged index that measures the performance of U.S. government bonds,
U.S. corporate bonds and Yankee bonds. It is not possible to invest in an
index.
Line chart with the heading John Hancock V.A. Strategic Income Fund,
representing the growth of a hypothetical $10,000 investment over the life
of the fund. Within the chart are two lines. The first line represents the
Lehman Brothers Government/Credit Bond Index and is equal to $14,278 as of
June 30, 2001. The second line represents the value of the hypothetical
$10,000 investment made in the John Hancock V.A. Strategic Income Fund on
August 29, 1996 and is equal to $13,508 as of June 30, 2001.
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Statements of Assets and Liabilities
June 30, 2001 (Unaudited)
- ---------------------------------------------------------------------------------------------------
V.A. V.A. V.A. V.A.
CORE RELATIVE SOVEREIGN FINANCIAL
EQUITY VALUE INVESTORS INDUSTRIES
FUND FUND FUND FUND
----------- ----------- ----------- -----------
Assets:
Investments at value (cost -
$36,203,706, $53,741,513,
$57,496,454 and $68,696,240,
respectively) $40,984,082 $48,517,103 $61,866,211 $76,588,973
Joint repurchase agreements (cost -
$558,000, $2,863,000, $6,474,000
and $5,059,000, respectively) 558,000 2,863,000 6,474,000 5,059,000
----------- ----------- ----------- -----------
41,542,082 51,380,103 68,340,211 81,647,973
Cash 345 661 738 793
Receivable for investments sold 21,871 -- -- 44,308
Receivable for shares sold -- 605,015 -- 265,908
Dividends and interest receivable 41,627 29,903 194,185 93,093
Deferred organization expenses 360 -- 360 --
Other assets 594 353 710 5,889
----------- ----------- ----------- -----------
Total assets 41,606,879 52,016,035 68,536,204 82,057,964
- ---------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 305,411 -- -- --
Payable for shares repurchased 120,067 -- 19,636 --
Payable to affiliates 24,621 22,921 35,307 53,787
Accounts payable and accrued
expenses 20,788 6,303 13,432 14,582
----------- ----------- ----------- -----------
Total liabilities 470,887 29,224 68,375 68,369
- ---------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 40,153,629 52,889,850 67,695,696 73,522,524
Accumulated net realized gain
(loss) on investments and foreign
currency transactions (3,800,675) 4,322,497 (3,584,573) 340,035
Net unrealized appreciation
(depreciation) of investments and
translation of assets and
liabilities in foreign currencies. 4,780,376 (5,224,410) 4,369,757 7,892,324
Undistributed (distributions in
excess of) net investment income 2,662 (1,126) (13,051) 234,712
----------- ----------- ----------- -----------
Net assets $41,135,992 $51,986,811 $68,467,829 $81,989,595
===================================================================================================
Net Asset Value Per Share:
(Based on 2,469,310, 4,622,886,
4,664,964, and 4,941,476 shares,
respectively, of beneficial
interest outstanding - unlimited
number of shares authorized with
no par value) $16.66 $11.25 $14.68 $16.59
===================================================================================================
The Statement of Assets and Liabilities is each Fund's balance sheet and shows the value of
what the Fund owns, is due and owes on June 30, 2001. You'll also find the net asset value
per share as of that date.
See notes to financial statements.
Statements of Assets and Liabilities (continued)
June 30, 2001 (Unaudited)
- ---------------------------------------------------------------------------------------------------
V.A. V.A. V.A. V.A.
TECHNOLOGY BOND MONEY MARKET STRATEGIC
FUND FUND FUND INCOME FUND
----------- ----------- ----------- -----------
Assets:
Investments at value (cost -
$26,597,872, $63,029,448,
$124,243,085 and $48,106,465,
respectively) $19,378,231 $63,141,671 $124,243,085 $45,878,321
Joint repurchase agreements (cost -
$2,658,000, $6,265,000,
$19,099,000 and $12,252,000,
respectively) 2,658,000 6,265,000 19,099,000 12,252,000
----------- ----------- ----------- -----------
22,036,231 69,406,671 143,342,085 58,130,321
Cash 270 935 508 831
Receivable for investments sold 6,300 1,400,073 -- 577,828
Receivable for shares sold 183,531 28,993 -- 371,520
Dividends and interest receivable 1,218 911,363 244,121 1,255,406
Receivable for forward foreign
currency exchange contracts sold -- -- -- 23,060
Deferred organization expenses -- 360 360 360
Other assets -- 227 3,037 1,548
----------- ----------- ----------- -----------
Total assets 22,227,550 71,748,622 143,590,111 60,360,874
- ---------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 605,978 3,983,931 -- 7,457,921
Payable for shares repurchased 760 9,723 -- 9,288
Dividends payable -- 22,275 28,204 23,677
Payable for forward foreign
currency exchange contracts
purchased -- -- -- 7,045
Payable to affiliates 13,367 28,158 60,892 24,642
Accounts payable and accrued
expenses 26,164 12,674 6,173 2,091
----------- ----------- ----------- -----------
Total liabilities 646,269 4,056,761 95,269 7,524,664
- ---------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 30,789,537 67,763,216 143,494,649 57,331,052
Accumulated net realized loss on
investments and foreign currency
transactions (1,972,282) (117,077) -- (1,624,165)
Net unrealized appreciation
(depreciation) of investments and
translation of assets and
liabilities in foreign currencies. (7,219,642) 112,223 -- (2,222,895)
Undistributed net investment income
(accumulated net investment loss) (16,332) (66,501) 193 (647,782)
----------- ----------- ----------- -----------
Net assets $21,581,281 $67,691,861 $143,494,842 $52,836,210
===================================================================================================
Net Asset Value Per Share:
(Based on 4,093,449, 6,582,826,
143,494,842 and 6,055,354 shares,
respectively, of beneficial
interest outstanding - unlimited
number of shares authorized with
no par value.) $5.27 $10.28 $1.00 $8.73
===================================================================================================
See notes to financial statements.
Statements of Operations
Six months ended June 30, 2001 (Unaudited)
- ---------------------------------------------------------------------------------------------------
V.A. V.A. V.A. V.A.
CORE RELATIVE SOVEREIGN FINANCIAL
EQUITY VALUE INVESTORS INDUSTRIES
FUND FUND FUND FUND
----------- ----------- ----------- -----------
Investment Income:
Dividends (net of foreign
withholding tax of $1,473, $73,
$1,224, $14,006, respectively) $243,052 $91,109 $369,001 $494,937
Interest -- 78,419 -- --
Securities lending 23,934 30,035 313,191 57,233
----------- ----------- ----------- -----------
Total investment income 266,986 199,563 682,192 552,170
- ---------------------------------------------------------------------------------------------------
Expenses:
Investment management fee 137,988 120,565 178,874 283,808
Custodian fee 12,603 3,970 9,511 14,534
Auditing fee 10,198 9,157 8,927 10,319
Accounting and legal services fee 3,857 3,931 5,833 6,941
Miscellaneous 2,182 468 938 802
Printing 1,710 1,577 1,338 1,198
Trustees' fees 1,275 1,112 1,415 2,082
Organization expense 1,053 -- 1,053 --
Legal fees 233 252 279 516
Registration and filing fees 21 9 8 156
Interest expense -- 10,430 -- --
----------- ----------- ----------- -----------
Total expenses 171,120 151,471 208,176 320,356
- ---------------------------------------------------------------------------------------------------
Net investment income 95,866 48,092 474,016 231,814
- ---------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments (2,936,537) 2,071,440 (1,328,907) 3,833,796
Foreign currency transactions -- -- -- (11,371)
Change in unrealized appreciation
(depreciation) on:
Investments 937,032 462,352 (2,400,245) (11,108,013)
Translation of assets and
liabilities in foreign currencies -- -- -- (270)
----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) (1,999,505) 2,533,792 (3,729,152) (7,285,858)
- ---------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations ($1,903,639) $2,581,884 ($3,255,136) ($7,054,044)
===================================================================================================
The Statement of Operations summarizes for each of the Funds the investment
income earned and expenses incurred in operating the Fund. It also shows
net gains (losses) for the period stated.
See notes to financial statements.
Statements of Operations (continued)
Six months ended June 30, 2001 (Unaudited)
- ---------------------------------------------------------------------------------------------------
V.A. V.A. V.A. V.A.
TECHNOLOGY BOND MONEY MARKET STRATEGIC
FUND FUND FUND INCOME FUND
----------- ----------- ----------- -----------
Investment Income:
Dividends (net of foreign
withholding tax of $425, none,
none and none, respectively) $4,033 -- -- $8,332
Interest 61,129 $1,274,160 $2,597,886 1,604,967
Securities lending 1,931 -- -- --
----------- ----------- ----------- -----------
Total investment income 67,093 1,274,160 2,597,886 1,613,299
- ---------------------------------------------------------------------------------------------------
Expenses:
Investment management fee 64,569 103,111 255,409 116,449
Custodian fee 15,732 23,415 16,685 10,181
Auditing fee 5,951 5,495 4,336 4,796
Printing 2,217 2,127 932 577
Legal fees 1,603 284 612 154
Accounting and legal services fee 1,579 4,034 9,994 3,797
Trustees' fee 374 647 1,735 515
Miscellaneous 238 360 199 239
Registration and filing fees 8 8 7 21
Organization expense -- 1,053 1,053 1,053
----------- ----------- ----------- -----------
Total expenses 92,271 140,534 290,962 137,782
Less expense reductions (7,551) -- -- --
- ---------------------------------------------------------------------------------------------------
Net expenses 84,720 140,534 290,962 137,782
- ---------------------------------------------------------------------------------------------------
Net investment income (loss) (17,627) 1,133,626 2,306,924 1,475,517
- ---------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments (1,778,652) 274,804 -- (625,492)
Foreign currency transactions -- -- -- 30,346
Change in unrealized appreciation
(depreciation) on:
Investments (3,330,550) (541,491) -- (300,466)
Translation of assets and
liabilities in foreign currencies -- -- -- 37,333
----------- ----------- ----------- -----------
Net realized and unrealized loss (5,109,202) (266,687) -- (858,279)
- ---------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations ($5,126,829) $866,939 $2,306,924 $617,238
===================================================================================================
See notes to financial statements.
Statements of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
V.A. V.A. V.A.
CORE EQUITY FUND RELATIVE VALUE FUND SOVEREIGN INVESTORS FUND
------------------------ ------------------------ ------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
DECEMBER 31, 2001 DECEMBER 31, 2001 DECEMBER 31, 2001
2000 (UNAUDITED) 2000 (UNAUDITED) 2000 (UNAUDITED)
----------- ----------- ----------- ----------- ----------- -----------
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $196,241 $95,866 $54,327 $48,092 $675,781 $474,016
Net realized gain (loss) 153,575 (2,936,537) 13,434,131 2,071,440 (1,886,401) (1,328,907)
Change in net unrealized
appreciation (depreciation) (3,702,349) 937,032 (15,296,586) 462,352 1,083,527 (2,400,245)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from operations (3,352,533) (1,903,639) (1,808,128) 2,581,884 (127,093) (3,255,136)
----------- ----------- ----------- ----------- ----------- -----------
Distributions to Shareholders: *
From net investment income (199,287) (93,007) (42,822) (56,408) (678,637) (486,814)
From net realized gain (695,716) -- (15,128,734) -- -- --
In excess of net realized gain (844,741) -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total distributions to shareholders (1,739,744) (93,007) (15,171,556) (56,408) (678,637) (486,814)
----------- ----------- ----------- ----------- ----------- -----------
From Fund Share Transactions:
Shares sold 11,671,817 6,436,466 13,227,216 37,266,291 16,811,905 22,295,811
Shares issued to shareholders in
reinvestment of distributions 1,739,743 93,007 15,171,557 56,408 678,636 486,814
Less shares repurchased (12,638,050) (4,069,385) (11,142,581) (26,903,976) (11,610,910) (5,900,944)
----------- ----------- ----------- ----------- ----------- -----------
Net increase 773,510 2,460,088 17,256,192 10,418,723 5,879,631 16,881,681
----------- ----------- ----------- ----------- ----------- -----------
Net Assets:
Beginning of period 44,991,317 40,672,550 38,766,104 39,042,612 50,254,197 55,328,098
----------- ----------- ----------- ----------- ----------- -----------
End of period (including
undistributed (distributions in
excess of) net investment income
of ($197), $2,662, $7,190,
($1,126), ($253), and ($13,051),
respectively) $40,672,550 $41,135,992 $39,042,612 $51,986,811 $55,328,098 $68,467,829
=========== =========== =========== =========== =========== ===========
Distributions to Shareholders:
Per share dividends from net
investment income $0.0888 $0.0390 $0.0186 $0.0134 $0.2077 $0.1148
----------- ----------- ----------- ----------- ----------- -----------
Per share distributions from net
realized gain $0.6886 -- $6.5883 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
* Analysis of Fund Share Transactions:
Shares sold 601,375 384,016 744,370 3,395,712 1,103,469 1,506,526
Shares issued to shareholders in
reinvestment of distributions 99,280 5,717 1,406,946 5,499 44,976 33,495
Less shares repurchased (662,061) (242,365) (631,982) (2,448,161) (771,887) (400,730)
----------- ----------- ----------- ----------- ----------- -----------
Net increase 38,594 147,368 1,519,334 953,050 376,558 1,139,291
=========== =========== =========== =========== =========== ===========
The Statement of Changes in Net Assets shows how the value of each Fund's
net assets has changed since the end of the previous period. The
difference reflects earnings less expenses, any investment and foreign
currency gains and losses, distributions paid to shareholders, if any, and
any increase or decrease in money shareholders invested in each Fund. The
footnotes illustrate the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the per share amount
of distributions made to shareholders of each Fund for the periods
indicated.
See notes to financial statements.
Statements of Changes in Net Assets (continued)
- ------------------------------------------------------------------------------------------------------------------------------
V.A. V.A. V.A.
FINANCIAL INDUSTRIES FUND TECHNOLOGY FUND BOND FUND
------------------------ ------------------------- ------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
DECEMBER 31, 2001 DECEMBER 31, 2001 DECEMBER 31, 2001
2000 (UNAUDITED) 2000(1) (UNAUDITED) 2000 (UNAUDITED)
----------- ----------- ----------- ----------- ----------- -----------
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) $194,288 $231,814 $25,753 ($17,627) $1,040,920 $1,133,626
Net realized gain (loss) 696,899 3,822,425 (193,630) (1,778,652) (152,050) 274,804
Change in net unrealized
appreciation (depreciation) 12,306,484 (11,108,283) (3,889,092) (3,330,550) 1,085,497 (541,491)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from operations 13,197,671 (7,054,044) (4,056,969) (5,126,829) 1,974,367 866,939
----------- ----------- ----------- ----------- ----------- -----------
Distributions to Shareholders: *
From net investment income (169,614) -- (24,458) -- (1,040,858) (1,188,894)
From net realized gain -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total distributions to shareholders (169,614) -- (24,458) -- (1,040,858) (1,188,894)
----------- ----------- ----------- ----------- ----------- -----------
From Fund Share Transactions:
Shares sold 20,739,283 23,159,825 18,589,255 14,331,670 13,994,748 46,649,420
Shares issued to shareholders in
reinvestment of distributions 169,614 -- 24,458 -- 1,040,858 1,166,619
Less shares repurchased (11,882,798) (5,482,782) (490,242) (1,665,604) (3,326,986) (4,974,940)
----------- ----------- ----------- ----------- ----------- -----------
Net increase 9,026,099 17,677,043 18,123,471 12,666,066 11,708,620 42,841,099
----------- ----------- ----------- ----------- ----------- -----------
Net Assets:
Beginning of period 49,312,440 71,366,596 -- 14,042,044 12,530,588 25,172,717
----------- ----------- ----------- ----------- ----------- -----------
End of period (including
undistributed net investment
income (accumulated net
investment loss) of $2,898,
$234,712, $1,295, ($16,332),
$21,480 and ($66,501),
respectively) $71,366,596 $81,989,595 $14,042,044 $21,581,281 $25,172,717 $67,691,861
=========== =========== =========== =========== =========== ===========
Distributions to Shareholders:
Per share dividends from net
investment income $0.0450 -- $0.0143 -- $0.6434 $0.2961
----------- ----------- ----------- ----------- ----------- -----------
Per share distributions from net
realized gain -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
* Analysis of Fund Share Transactions:
Shares sold 1,252,923 1,385,001 1,961,452 2,474,548 1,400,901 4,499,608
Shares issued to shareholders in
reinvestment of distributions 9,578 -- 3,292 -- 104,450 113,006
Less shares repurchased (779,897) (335,670) (48,490) (297,353) (336,738) (475,645)
----------- ----------- ----------- ----------- ----------- -----------
Net increase 482,604 1,049,331 1,916,254 2,177,195 1,168,613 4,136,969
=========== =========== =========== =========== =========== ===========
(1) Commenced operations on May 1, 2000.
See notes to financial statements.
Statements of Changes in Net Assets (continued)
- ------------------------------------------------------------------------------------------------------
V.A. V.A.
MONEY MARKET FUND STRATEGIC INCOME FUND
------------------------- -------------------------
SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED
ENDED JUNE 30, ENDED JUNE 30,
DECEMBER 31, 2001 DECEMBER 31, 2001
2000 (UNAUDITED) 2000 (UNAUDITED)
----------- ----------- ----------- -----------
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $2,278,752 $2,306,924 $2,451,388 $1,475,517
Net realized loss -- -- (700,276) (595,146)
Change in net unrealized
appreciation (depreciation) -- -- (1,322,235) (263,133)
----------- ----------- ----------- -----------
Net increase in net assets
resulting from operations 2,278,752 2,306,924 428,877 617,238
----------- ----------- ----------- -----------
Distributions to Shareholders: *
From net investment income (2,278,752) (2,306,924) (2,359,734) (1,766,663)
From net realized gain -- -- (350,215) --
Tax return of capital -- -- (91,654) --
----------- ----------- ----------- -----------
Total distributions to shareholders (2,278,752) (2,306,924) (2,801,603) (1,766,663)
----------- ----------- ----------- -----------
From Fund Share Transactions:
Shares sold 188,358,513 216,704,153 14,978,386 21,277,833
Shares issued to shareholders in
reinvestment of distributions 2,374,022 2,311,895 2,801,603 1,742,986
Less shares repurchased (149,766,710) (149,438,538) (3,217,447) (3,506,983)
----------- ----------- ----------- -----------
Net increase 40,965,825 69,577,510 14,562,542 19,513,836
----------- ----------- ----------- -----------
Net Assets:
Beginning of period 32,951,507 73,917,332 22,281,983 34,471,799
----------- ----------- ----------- -----------
End of period (including
undistributed net investment
income (loss) (distributions in
excess of net investment income)
of $193, $193, ($126,198) and
($647,782), respectively) $73,917,332 $143,494,842 $34,471,799 $52,836,210
=========== =========== =========== ===========
Distributions to Shareholders:
Per share dividends from net
investment income $0.0576 $0.0232 $0.8345 $0.3978
----------- ----------- ----------- -----------
Per share distributions from net
realized gain -- -- $0.0945 --
----------- ----------- ----------- -----------
* Analysis of Fund Share Transactions:
Shares sold 188,358,513 216,704,153 1,598,355 2,410,662
Shares issued to shareholders in
reinvestment of distributions 2,374,022 2,311,895 302,236 196,644
Less shares repurchased (149,766,710) (149,438,538) (339,848) (393,723)
----------- ----------- ----------- -----------
Net increase 40,965,825 69,577,510 1,560,743 2,213,583
=========== =========== =========== ===========
See notes to financial statements.
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- ------------------------------------------------------------------------------------------------------------------------------
V.A. CORE EQUITY FUND
--------------------------------------------------------------------------------
SIX MONTHS
PERIOD ENDED
ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------------------------------- 2001
1996(1) 1997 1998 1999 2000 (UNAUDITED)
-------- -------- -------- -------- -------- ---------
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.00 $11.11 $14.11 $17.74 $19.70 $17.52
-------- -------- -------- -------- -------- --------
Net Investment Income(2) 0.06 0.16 0.10 0.09 0.08 0.04
Net Realized and Unrealized Gain (Loss) on
Investments 1.12 3.23 3.90 2.36 (1.48) (0.86)
-------- -------- -------- -------- -------- --------
Total from Investment Operations 1.18 3.39 4.00 2.45 (1.40) (0.82)
-------- -------- -------- -------- -------- --------
Less Distributions:
From Net Investment Income (0.06) (0.14) (0.10) (0.09) (0.09) (0.04)
In Excess of Net Investment Income -- -- -- --(3) -- --
From Net Realized Gain (0.01) (0.25) (0.27) (0.40) (0.31) --
In Excess of Net Realized Gain -- -- -- -- (0.38) --
-------- -------- -------- -------- -------- --------
Total Distributions (0.07) (0.39) (0.37) (0.49) (0.78) (0.04)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $11.11 $14.11 $17.74 $19.70 $17.52 $16.66
======== ======== ======== ======== ======== ========
Total Investment Return(4) 11.78%(5,6) 30.68%(6) 28.42% 13.89% (7.11%) (4.68%)(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $1,149 $8,719 $26,691 $44,991 $40,673 $41,136
Ratio of Expenses to Average Net Assets 0.95%(7) 0.95% 0.95% 0.83% 0.85% 0.87%(7)
Ratio of Adjusted Expenses to Average Net
Assets(8) 4.23%(7) 1.59% -- -- -- --
Ratio of Net Investment Income to Average
Net Assets 1.60%(7) 1.24% 0.65% 0.47% 0.45% 0.49%(7)
Portfolio Turnover Rate 24% 53% 55% 77% 97% 43%
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) Not annualized.
(6) The total return would have been lower had certain expenses not been
reduced during the period shown
(7) Annualized.
(8) Does not take into consideration expense reductions during the periods shown.
The Financial Highlights summarizes the impact of the following factors on
a single share for each period indicated: net investment income, gains
(losses), distributions and total investment return of each Fund. It shows
how the Fund's net asset value for a share has changed since the end of the
previous period. Additionally, important relationships between some items
presented in the financial statements are expressed in ratio form.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
---------------------------------------------------------------------------------------------------------------
V.A. RELATIVE VALUE FUND
--------------------------------------------------------
SIX MONTHS
PERIOD ENDED
ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------------ 2001
1998(1) 1999 2000 (UNAUDITED)
-------- -------- -------- --------
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.00 $12.03 $18.03 $10.64
-------- -------- -------- --------
Net Investment Income(2) 0.11 0.10 0.02 0.01
Net Realized and Unrealized Gain (Loss) on
Investments 2.02 6.65 (0.80) 0.61
-------- -------- -------- --------
Total from Investment Operations 2.13 6.75 (0.78) 0.62
-------- -------- -------- --------
Less Distributions:
From Net Investment Income (0.10) (0.10) (0.02) (0.01)
From Net Realized Gain -- (0.65) (6.59) --
-------- -------- -------- --------
Total Distributions (0.10) (0.75) (6.61) (0.01)
-------- -------- -------- --------
Net Asset Value, End of Period $12.03 $18.03 $10.64 $11.25
======== ======== ======== ========
Total Investment Return(3) 21.39%(4,5) 56.65% (4.80%) 5.87%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $17,368 $38,766 $39,043 $51,987
Ratio of Expenses to Average Net Assets 0.85%(6) 0.77% 0.79% 0.75%(6)
Ratio of Adjusted Expenses to Average Net
Assets(7) 1.03%(6) -- -- --
Ratio of Net Investment Income to Average
Net Assets 1.17%(6) 0.66% 0.13% 0.24%(6)
Portfolio Turnover Rate 242% 166% 164% 40%
(1) Commenced operations on January 6, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) Not annualized.
(5) The total return would have been lower had certain expenses not been
reduced during the period shown.
(6) Annualized.
(7) Does not take into consideration expense reductions during the period shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- ------------------------------------------------------------------------------------------------------------------------------
V.A. SOVEREIGN INVESTORS FUND
--------------------------------------------------------------------------------
SIX MONTHS
PERIOD ENDED
ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------------------------------- 2001
1996(1) 1997 1998 1999 2000 (UNAUDITED)
-------- -------- -------- -------- -------- ---------
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.00 $10.74 $13.59 $15.61 $15.96 $15.69
-------- -------- -------- -------- -------- --------
Net Investment Income(2) 0.07 0.22 0.27 0.24 0.21 0.12
Net Realized and Unrealized Gain (Loss) on
Investments 0.76 2.82 2.00 0.35 (0.27) (1.02)
-------- -------- -------- -------- -------- --------
Total from Investment Operations 0.83 3.04 2.27 0.59 (0.06) (0.90)
-------- -------- -------- -------- -------- --------
Less Distributions:
From Net Investment Income (0.07) (0.18) (0.25) (0.24) (0.21) (0.11)
In Excess of Net Investment Income -- -- -- --(3) -- --
From Net Realized Gain (0.02) (0.01) -- -- -- --
Tax Return of Capital -- -- -- --(3) -- --
-------- -------- -------- -------- -------- --------
Total Distributions (0.09) (0.19) (0.25) (0.24) (0.21) (0.11)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $10.74 $13.59 $15.61 $15.96 $15.69 $14.68
======== ======== ======== ======== ======== ========
Total Investment Return(4) 8.30%(5,6) 28.43%(6) 16.88% 3.84% (0.33%) (5.70%)(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $1,111 $12,187 $34,170 $50,254 $55,328 $68,468
Ratio of Expenses to Average Net Assets 0.85%(7) 0.85% 0.74% 0.70% 0.72% 0.70%(7)
Ratio of Adjusted Expenses to Average Net
Assets(8) 3.78%(7) 1.16% -- -- -- --
Ratio of Net Investment Income to Average
Net Assets 1.90%(7) 1.81% 1.88% 1.57% 1.37% 1.59%(7)
Portfolio Turnover Rate 17% 11% 19% 26% 46% 23%
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) Not annualized.
(6) The total return would have been lower had certain expenses not been
reduced during the period shown.
(7) Annualized.
(8) Does not take into consideration expense reductions during the periods shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- ------------------------------------------------------------------------------------------------------------------------------
V.A. FINANCIAL INDUSTRIES FUND
------------------------------------------------------------------------
SIX MONTHS
PERIOD ENDED
ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ---------------------------------------- 2001
1997(1) 1998 1999 2000 (UNAUDITED)
-------- -------- -------- -------- ---------
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.00 $13.44 $14.45 $14.46 $18.34
-------- -------- -------- -------- --------
Net Investment Income(2) 0.11 0.18 0.11 0.06 0.05
Net Realized and Unrealized Gain on
Investments 3.39 0.97 0.06 3.87 (1.80)
-------- -------- -------- -------- --------
Total from Investment Operations 3.50 1.15 0.17 3.93 (1.75)
-------- -------- -------- -------- --------
Less Distributions:
From Net Investment Income (0.05) (0.14) (0.10) (0.05) --
From Net Realized Gain (0.01) --(3) (0.05) -- --
Tax Return of Capital -- -- (0.01) -- --
-------- -------- -------- -------- --------
Total Distributions (0.06) (0.14) (0.16) (0.05) --
-------- -------- -------- -------- --------
Net Asset Value, End of Period $13.44 $14.45 $14.46 $18.34 $16.59
======== ======== ======== ======== ========
Total Investment Return(4) 35.05%(5,6) 8.55% 1.23% 27.16% (9.54%)(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $18,465 $54,569 $49,312 $71,367 $81,990
Ratio of Expenses to Average Net Assets 1.05%(7) 0.92% 0.90% 0.90% 0.90%(7)
Ratio of Adjusted Expenses to Average Net
Assets(8) 1.39%(7) -- -- -- --
Ratio of Net Investment Income to Average
Net Assets 1.32%(7) 1.25% 0.77% 0.36% 0.65%(7)
Portfolio Turnover Rate 11% 38% 72% 41% 53%
(1) Commenced operations on April 30, 1997.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) Not annualized.
(6) The total return would have been lower had certain expenses not been
reduced during the period shown.
(7) Annualized.
(8) Does not take into consideration expense reductions during the period shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- ----------------------------------------------------------------------------------
V.A. TECHNOLOGY FUND
--------------------------
SIX MONTHS
PERIOD ENDED
ENDED JUNE 30,
DECEMBER 31, 2001
2000(1) (UNAUDITED)
-------- --------
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.00 $7.33
-------- --------
Net Investment Income(2) 0.03 (0.01)
Net Realized and Unrealized Loss on
Investments (2.69) (2.05)
-------- --------
Total from Investment Operations (2.66) (2.06)
-------- --------
Less Distributions:
From Net Investment Income (0.01) --
-------- --------
Total Distributions (0.10) $5.27
-------- --------
Net Asset Value, End of Period $7.33 $11.25
======== ========
Total Investment Return(3,4) (26.56%)(5) (28.10%)(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $14,402 $21,581
Ratio of Expenses to Average Net Assets 1.05%(6) 1.05%(6)
Ratio of Adjusted Expenses to Average Net
Assets(7) 1.99%(6) 1.14%(6)
Ratio of Net Investment Income to Average
Net Assets 0.62%(6) (0.22%)(6)
Portfolio Turnover Rate 75% 21%
(1) Commenced operations on May 1, 2000.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) The total returns would have been lower had certain expenses not been
reduced during the period shown.
(5) Not annualized.
(6) Annualized.
(7) Does not take into consideration expense reductions during the period shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
----------------------------------------------------------------------------------------------------------------------------
V.A. BOND FUND
-------------------------------------------------------------------------------
SIX MONTHS
PERIOD ENDED
ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------------------------------- 2001
1996(1) 1997 1998 1999 2000 (UNAUDITED)
-------- -------- -------- -------- -------- ---------
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.00 $10.19 $10.36 $10.51 $9.81 $10.29
-------- -------- -------- -------- -------- --------
Net Investment Income(2) 0.23 0.68 0.63 0.64 0.64 0.28
Net Realized and Unrealized Gain (Loss) on
Investments 0.21 0.24 0.32 (0.70) 0.50 0.01
-------- -------- -------- -------- -------- --------
Total from Investment Operations 0.44 0.92 0.95 (0.06) 1.12 0.29
-------- -------- -------- -------- -------- --------
Less Distributions:
From Net Investment Income (0.23) (0.68) (0.63) (0.64) (0.64) (0.30)
From Net Realized Gain (0.02) (0.07) (0.17) -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions (0.25) (0.75) (0.80) (0.64) (0.64) (0.30)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $10.19 $10.36 $10.51 $9.81 $10.29 $10.28
======== ======== ======== ======== ======== ========
Total Investment Return(3) 4.42%(4,5) 9.30%(5) 9.41%(5) (0.51%)(5) 11.89%(5) 2.78%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $1,056 $3,682 $10,669 $12,531 $25,173 $67,692
Ratio of Expenses to Average Net Assets 0.75%(6) 0.75% 0.75% 0.75% 0.75% 0.68%(6)
Ratio of Adjusted Expenses to Average Net
Assets(7) 4.15%(6) 2.53% 1.34% 1.01% 0.92% --
Ratio of Net Investment Income to Average
Net Assets 6.69%(6) 6.57% 5.93% 6.39% 6.47% 5.50%(6,8)
Portfolio Turnover Rate 45% 193% 367% 307% 298% 195%
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) Not annualized.
(5) The total return would have been lower had certain expenses not been
reduced during the period shown.
(6) Annualized.
(7) Does not take into consideration expense reductions during the periods shown.
(8) Had the Fund not amortized premiums on debt securities, the annualized
ratio of net investment income to average net assets would have been 5.77%.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- -----------------------------------------------------------------------------------------------------------------------------
V.A. MONEY MARKET FUND
-------------------------------------------------------------------------------
SIX MONTHS
PERIOD ENDED
ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------------------------------- 2001
1996(1) 1997 1998 1999 2000 (UNAUDITED)
-------- -------- -------- -------- -------- ---------
Per Share Operating Performance
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------- -------- -------- -------- -------- --------
Net Investment Income(2) 0.02 0.05 0.05 0.05 0.06 0.02
-------- -------- -------- -------- -------- --------
Less Distributions:
From Net Investment Income (0.02) (0.05) (0.05) (0.05) (0.06) (0.02)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======== ======== ======== ======== ======== ========
Total Investment Return(3) 1.61%(4,5) 4.88%(5) 4.87% 4.58% 5.90% 2.33%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $207 $8,377 $16,519 $32,952 $73,917 $143,495
Ratio of Expenses to Average Net Assets 0.75%(6) 0.75% 0.74% 0.66% 0.60% 0.57%(6)
Ratio of Adjusted Expenses to Average Net
Assets(7) 27.48%(6) 1.27% -- -- -- --
Ratio of Net Investment Income to Average
Net Assets 4.68%(6) 4.86% 4.70% 4.55% 5.86% 4.52%(6)
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) Not annualized.
(5) The total return would have been lower had certain expenses not been
reduced during the period shown.
(6) Annualized.
(7) Does not take into consideration expense reductions during the periods shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- -----------------------------------------------------------------------------------------------------------------------------
V.A. STRATEGIC INCOME FUND
-------------------------------------------------------------------------------
SIX MONTHS
PERIOD ENDED
ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------------------------------- 2001
1996(1) 1997 1998 1999 2000 (UNAUDITED)
-------- -------- -------- -------- -------- ---------
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.00 $10.30 $10.47 $10.10 $9.77 $8.97
-------- -------- -------- -------- -------- --------
Net Investment Income(2) 0.27 0.91 0.85 0.80 0.83 0.33
Net Realized and Unrealized Gain (Loss) on
Investments 0.36 0.26 (0.35) (0.33) (0.71) (0.17)
-------- -------- -------- -------- -------- --------
Total from Investment Operations 0.63 1.17 0.50 0.47 0.12 0.16
-------- -------- -------- -------- -------- --------
Less Distributions:
From Net Investment Income (0.27) (0.91) (0.85) (0.80) (0.83) (0.40)
From Net Realized Gain (0.06) (0.09) (0.02) -- (0.09) --
-------- -------- -------- -------- -------- --------
Total Distributions (0.33) (1.00) (0.87) (0.80) (0.92) (0.40)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $10.30 $10.47 $10.10 $9.77 $8.97 $8.73
======== ======== ======== ======== ======== ========
Total Investment Return(3) 6.45%(4,5) 11.77%(5) 4.92%(5) 4.82%(5) 1.40% 1.79%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $2,131 $5,540 $15,019 $22,282 $34,472 $52,836
Ratio of Expenses to Average Net Assets 0.85%(6) 0.85% 0.85% 0.85% 0.76% 0.71%(6)
Ratio of Adjusted Expenses to Average Net
Assets(7) 2.28%(6) 1.37% 0.93% 0.87% -- --
Ratio of Net Investment Income to Average
Net Assets 7.89%(6) 8.77% 8.19% 8.06% 8.91% 7.60%(6,8)
Portfolio Turnover Rate 73% 110% 92% 53%(9) 53% 47%
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) Not annualized.
(5) The total return would have been lower had certain expenses not been
reduced during the period shown.
(6) Annualized.
(7) Does not take into consideration expense reductions during the periods shown.
(8) Had the Fund not amortized premiums on debt securities, the annualized
ratio of net investment income to average net assets would have been 9.10%
(9) Portfolio turnover rate excludes merger activity.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Core Equity Fund
Schedule of Investments
June 30, 2001 (Unaudited)
- -------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the V.A. Core Equity Fund on June 30, 2001. It is divided into two main
categories: common stocks and short-term investments. Common stocks are
further broken down by industry group. Short-term investments, which
represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- -------------- --------------
COMMON STOCKS
Aerospace (1.72%)
General Dynamics Corp. 3,800 $295,678
United Technologies Corp. 5,600 410,256
--------------
705,934
--------------
Automobile/Trucks (1.15%)
Ford Motor Co. 13,000 319,150
Lear Corp.* 4,400 153,560
--------------
472,710
--------------
Banks - United States (4.05%)
Bank of America Corp. 4,600 276,138
Comerica, Inc. 3,100 178,560
FleetBoston Financial Corp. 4,100 161,745
J.P. Morgan Chase & Co. 5,600 249,760
Mellon Financial Corp. 3,300 151,800
U.S. Bancorp 28,400 647,236
--------------
1,665,239
--------------
Beverages (1.08%)
Anheuser-Busch Cos., Inc. 4,600 189,520
PepsiCo, Inc. 5,800 256,360
--------------
445,880
--------------
Building (0.60%)
Black & Decker Corp. (The) 6,300 248,598
--------------
Chemicals (2.55%)
Air Products & Chemicals, Inc. 5,200 237,900
Dow Chemical Co. 16,200 538,650
Praxair, Inc. 5,800 272,600
--------------
1,049,150
--------------
Computers (14.07%)
Adobe Systems, Inc. 2,300 108,100
Cadence Design Systems, Inc.* 6,000 111,780
Cisco Systems, Inc.* 8,600 156,520
Dell Computer Corp.* 14,000 366,100
Electronic Data Systems Corp. 6,100 381,250
First Data Corp. 4,000 257,000
Fiserv, Inc.* 3,500 223,930
International Business Machines Corp. 6,300 711,900
Lexmark International, Inc.* 7,800 524,550
Microsoft Corp.* 25,500 1,861,500
Oracle Corp.* 17,100 324,900
PeopleSoft, Inc.* 3,000 147,690
Sabre Holdings Corp.* 3,800 190,000
SunGard Data Systems, Inc.* 14,100 423,141
--------------
5,788,361
--------------
Cosmetics & Personal Care (0.68%)
Avon Products, Inc. 6,000 277,680
--------------
Diversified Operations (7.27%)
General Electric Co. 39,300 1,915,875
Minnesota Mining & Manufacturing Co. 3,300 376,530
Tyco International Ltd. 12,800 697,600
--------------
2,990,005
--------------
Electronics (6.17%)
Analog Devices, Inc.* 4,200 181,650
Applied Materials, Inc.* 4,100 201,310
Intel Corp. 31,600 924,300
KLA-Tencor Corp.* 3,300 192,951
Linear Technology Corp. 4,900 216,678
LSI Logic Corp.* 7,000 131,600
Maxim Integrated Products, Inc.* 3,600 159,156
Parker- Hannifin Corp. 3,700 157,028
Texas Instruments, Inc. 7,800 245,700
Xilinx, Inc.* 3,100 127,844
--------------
2,538,217
--------------
Energy (0.47%)
Mirant Corp.* 5,600 192,640
--------------
Finance (5.84%)
Citigroup, Inc. 32,600 1,722,584
Concord EFS, Inc.* 4,100 213,241
Washington Mutual, Inc. 12,450 467,498
--------------
2,403,323
--------------
Food (0.56%)
Kraft Foods, Inc. (Class A)* 3,000 93,000
Unilever NV, American Depositary Receipt
(ADR) (Netherlands) 2,300 137,011
--------------
230,011
--------------
Insurance (4.35%)
American International Group, Inc. 5,600 481,600
Hartford Financial Services Group, Inc. (The) 4,900 335,160
Lincoln National Corp. 5,600 289,800
St. Paul Cos., Inc. (The) 6,500 329,485
Torchmark Corp. 4,300 172,903
XL Capital Ltd. (Class A) 2,200 180,620
--------------
1,789,568
--------------
Leisure (0.53%)
Disney (Walt) Co. (The) 7,500 216,675
--------------
Manufacturing (0.31%)
Danaher Corp. 2,300 128,800
--------------
Media (4.26%)
AOL Time Warner, Inc.* 20,600 1,091,800
AT&T Corp. - Liberty Media Group* 16,400 286,836
Viacom, Inc. (Class B)* 7,200 372,600
--------------
1,751,236
--------------
Medical (11.90%)
Abbott Laboratories 5,400 259,254
Allergan, Inc. 2,000 171,000
American Home Products Corp. 7,400 432,456
Bristol-Myers Squibb Co. 7,800 407,940
Invitrogen Corp.* 2,000 111,280
Johnson & Johnson 14,618 730,900
Laboratory Corp. of America
Holdings* 2,200 169,180
Lincare Holdings, Inc.* 5,400 162,054
Merck & Co., Inc. 9,400 600,754
Pfizer, Inc. 34,000 1,361,700
Pharmacia Corp. 3,600 165,420
Schering-Plough Corp. 4,100 148,584
Trigon Healthcare, Inc.* 2,700 175,095
--------------
4,895,617
--------------
Mortgage Banking (1.88%)
Fannie Mae 9,100 774,865
--------------
Office (0.45%)
Avery Dennison Corp. 3,600 183,780
--------------
Oil & Gas (7.25%)
Apache Corp. 2,500 126,875
Chevron Corp. 3,000 271,500
El Paso Corp. 2,300 120,842
Enron Corp. 7,000 343,000
Exxon Mobil Corp. 14,112 1,232,683
Kerr-McGee Corp. 2,400 159,048
Royal Dutch Petroleum Co. (ADR)
(Netherlands) 9,600 559,392
USX - Marathon Group 5,800 171,158
--------------
2,984,498
--------------
Paper & Paper Products (0.56%)
Kimberly-Clark Corp. 4,100 229,190
--------------
Retail (8.78%)
Abercrombie & Fitch Co. (Class A)* 4,100 182,450
Bed Bath & Beyond, Inc.* 5,600 168,000
CVS Corp. 4,600 177,560
Home Depot, Inc. (The) 6,600 307,230
Kohl's Corp.* 7,900 495,567
Lowe's Cos., Inc. 9,200 667,460
May Department Stores Co. (The) 7,400 253,524
Target Corp. 5,600 193,760
TJX Cos., Inc. 9,700 309,139
Walgreen Co. 3,900 133,185
Wal-Mart Stores, Inc. 14,800 722,240
--------------
3,610,115
--------------
Soap & Cleaning Preparations (1.07%)
Colgate-Palmolive Co. 4,100 241,859
Procter & Gamble Co. (The) 3,100 197,780
--------------
439,639
--------------
Telecommunications (6.15%)
Broadwing, Inc.* 6,700 163,815
Comverse Technology, Inc.* 1,800 102,780
QUALCOMM, Inc.* 4,500 263,160
Qwest Communications International, Inc. 17,000 541,790
Sprint Corp* 11,700 282,555
Telephone and Data Systems, Inc. 1,800 195,750
Verizon Communications, Inc. 18,300 979,050
--------------
2,528,900
--------------
Tobacco (1.92%)
Philip Morris Cos., Inc. 15,600 791,700
--------------
Utilities (4.01%)
Allegheny Energy, Inc. 4,400 212,300
Duke Energy Corp. 16,500 643,665
Exelon Corp. 8,100 519,372
SBC Communications, Inc. 6,900 276,414
--------------
1,651,751
--------------
TOTAL COMMON STOCKS
(Cost $36,203,706) (99.63%) 40,984,082
-------------- --------------
INTEREST PAR VALUE
RATE (000s OMITTED)
-------------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.36%)
Investment in a joint repurchase
agreement transaction with UBS Warburg,
Inc. - Dated 06-29-01, due 07-02-01
(Secured by U.S. Treasury Bonds, 10.625%
due 08-15-15 and 6.250% due 08-15-23,
U.S. Treasury Note 5.625% due 11-30-02) 3.97% 558 558,000
--------------
TOTAL SHORT-TERM INVESTMENTS (1.36%) 558,000
-------------- --------------
TOTAL INVESTMENTS (100.99%) 41,542,082
-------------- --------------
OTHER ASSETS AND LIABILITIES, NET (0.99%) (406,090)
-------------- --------------
TOTAL NET ASSETS (100.00%) $41,135,992
============== ==============
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Relative Value Fund
Schedule of Investments
June 30, 2001 (Unaudited)
- -------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the V.A. Relative Value Fund on June 30, 2001. It's divided into three
main categories: common stocks, bonds and short-term investments. Common
stocks and bonds are further broken down by industry group. Short-term
investments, which represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- -------------- --------------
COMMON STOCKS
Aerospace (1.53%)
Raytheon Co. 30,000 $796,500
--------------
Business Services - Misc. (0.84%)
Moody's Corp. 13,000 435,500
--------------
Computers (10.99%)
Computer Associates International, Inc. 51,493 1,853,748
Concord Communications, Inc.* 60,000 540,000
Hyperion Solutions Corp.* 14,000 210,000
MicroStrategy, Inc.* 50,000 140,000
Parametric Technology Corp.* 162,000 2,266,380
Viant Corp.* 22,500 42,075
Wind River Systems, Inc.* 37,950 662,607
--------------
5,714,810
--------------
Containers (0.70%)
Sealed Air Corp.* 9,829 366,130
--------------
Cosmetics & Personal Care (0.11%)
Gillette Co. (The) 1,900 55,081
--------------
Diversified Operations (2.75%)
Tyco International, Ltd. 26,200 1,427,900
--------------
Electronics (14.39%)
Agere Systems, Inc. (Class A)* 403,990 3,029,925
Alpha Industries, Inc. 44,200 1,306,110
Conexant Systems, Inc.* 90,350 808,633
Flextronics International, Ltd.*
(Singapore) 9,000 234,990
MKS Instruments, Inc.* 16,871 485,885
Sanmina Corp.* 8,000 187,280
SBS Technologies, Inc.* 12,000 227,040
Sony Corp. (Japan) 4,800 315,598
Texas Instruments, Inc. 8,000 252,000
Vicor Corp.* 38,900 634,070
--------------
7,481,531
--------------
Fiber Optics (2.87%)
Finisar Corp.* 80,000 1,494,400
--------------
Finance (1.81%)
Citigroup, Inc. 17,841 942,718
--------------
Food (0.32%)
Hain Celestial Group, Inc.* 7,500 165,000
--------------
Insurance (3.65%)
ACE, Ltd. (Bermuda) 17,505 684,270
Ambac Financial Group, Inc. 12,334 717,839
XL Capital, Ltd. (Class A) 6,032 495,227
--------------
1,897,336
--------------
Media (19.30%)
AT&T Corp. - Liberty Media Corp.
(Class A)* 128,244 2,242,988
Clear Channel Communications, Inc.* 11,000 689,700
Cumulus Media, Inc. (Class A)* 75,000 1,018,500
Pegasus Communications Corp.* 120,700 2,715,750
USA Networks, Inc.* 24,000 672,000
Viacom, Inc. (Class B)* 17,000 879,750
XM Satellite Radio Holdings, Inc.
(Class A)* 112,050 1,815,210
--------------
10,033,898
--------------
Medical (8.66%)
Abbott Laboratories 17,500 840,175
Alpharma, Inc. (Class A) 17,000 463,250
Apogent Technologies, Inc.* 32,500 799,500
Bristol-Myers Squibb Co. 10,000 523,000
I-STAT Corp.* 35,000 515,900
Schering-Plough Corp. 37,500 1,359,000
--------------
4,500,825
--------------
Oil & Gas (0.87%)
Unocal Corp. 13,300 454,195
--------------
Retail (1.56%)
McDonald's Corp. 30,000 811,800
--------------
Telecommunications (22.70%)
ANTEC Corp.* 57,750 716,100
CenturyTel, Inc. 10,000 303,000
Corning, Inc. 35,000 584,850
CTC Communications Group, Inc.* 60,000 183,600
Hughes Electronics Corp. 107,500 2,176,875
Lucent Technologies, Inc. 99,253 615,369
Motient Corp.* 30,000 32,100
Nextel Communications, Inc. (Class
A)* 98,200 1,718,500
Nextel Partners, Inc. (Class A)* 33,000 512,160
QUALCOMM, Inc.* 20,000 1,169,600
Sprint Corp. 110,000 2,349,600
TeleCorp PCS, Inc. (Class A)* 30,000 581,100
Verizon Communications, Inc. 16,000 856,000
--------------
11,798,854
--------------
TOTAL COMMON STOCKS
(Cost $53,300,555) (93.05%) 48,376,478
-------------- --------------
INTEREST CREDIT PAR VALUE
RATE RATING** (000s OMITTED)
-------------- -------------- --------------
BONDS
Office (0.27%)
Danka Business Systems Plc,
Conv Note (United Kingdom)
04-01-02 6.750% B+ $500 $140,625
--------------
TOTAL BONDS
(Cost $440,958) (0.27%) 140,625
-------------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (5.51%)
Investment in a joint repurchase
agreement transaction with UBS Warburg,
Inc. - Dated 06-29-01, due 07-02-01
(Secured by U.S. Treasury Bonds, 6.250%
thru 10.625%, due 08-15-15 thru
08-15-23 and U.S. Treasury Notes,
5.625%, due 11-30-02) 3.970% 2,863 2,863,000
--------------
TOTAL SHORT-TERM INVESTMENTS (5.51%) 2,863,000
-------------- --------------
TOTAL INVESTMENTS (98.83%) 51,380,103
-------------- --------------
OTHER ASSETS AND LIABILITIES, NET (1.17%) 606,708
-------------- --------------
TOTAL NET ASSETS (100.00%) $51,986,811
============== ==============
* Non-income producing security.
** Credit ratings are unaudited and rated by Standard & Poor's where
available, or Moody's Investor Services or John Hancock Advisers, Inc.,
where Standard & Poor's ratings are not available.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer.
The percentage shown for each investment category is the total of that
category as a percentage of the net assets of the Fund.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Sovereign Investors Fund
Schedule of Investments
June 30, 2001 (Unaudited)
- -------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the V.A. Sovereign Investors Fund on June 30, 2001. It is divided into
three main categories: common stocks, U.S. government obligations and
short-term investments. Common stocks are further broken down by industry
group. Short-term investments, which represent the Fund's "cash" position,
are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- -------------- --------------
COMMON STOCKS
Advertising (1.07%)
Interpublic Group of Cos., Inc. (The) 25,000 $733,750
--------------
Banks - United States (6.79%)
FleetBoston Financial Corp. 22,000 867,900
Mellon Financial Corp. 25,000 1,150,000
PNC Bank Corp. 21,500 1,414,485
State Street Corp. 10,000 494,900
Wells Fargo & Co. 15,500 719,665
--------------
4,646,950
--------------
Beverages (1.10%)
PepsiCo, Inc. 17,000 751,400
--------------
Chemicals (4.43%)
Air Products & Chemicals, Inc. 20,000 915,000
Dow Chemical Co. 25,000 831,250
Rohm & Haas Co. 39,000 1,283,100
--------------
3,029,350
--------------
Computers (4.95%)
Automatic Data Processing, Inc. 8,000 397,600
Cisco Systems, Inc.* 31,000 564,200
Compaq Computer Corp. 30,000 464,700
International Business Machines Corp. 16,000 1,808,000
Sun Microsystems, Inc.* 10,000 157,200
--------------
3,391,700
--------------
Containers (1.47%)
Bemis Co., Inc. 25,000 1,004,250
--------------
Diversified Operations (2.38%)
Minnesota Mining & Manufacturing Co. 3,500 399,350
Tyco International Ltd. 22,500 1,226,250
--------------
1,625,600
--------------
Electronics (5.13%)
Emerson Electric Co. 12,700 768,350
General Electric Co. 28,800 1,404,000
Intel Corp. 40,000 1,170,000
Texas Instruments, Inc. 5,500 173,250
--------------
3,515,600
--------------
Finance (8.01%)
Citigroup, Inc. 45,225 2,389,689
Household International, Inc. 11,500 767,050
J.P. Morgan Chase & Co. 30,000 1,338,000
Merrill Lynch & Co., Inc. 7,500 444,375
Morgan Stanley Dean Witter & Co. 8,500 545,955
--------------
5,485,069
--------------
Food (0.74%)
Kraft Foods, Inc. (Class A)* 16,435 509,485
--------------
Insurance (2.28%)
AFLAC, Inc. 24,800 780,952
American International Group, Inc. 9,093 781,998
--------------
1,562,950
--------------
Media (1.52%)
Gannett Co., Inc. 5,500 362,450
McGraw-Hill Cos., Inc. (The) 10,200 674,730
--------------
1,037,180
--------------
Medical (10.07%)
Abbott Laboratories 21,000 1,008,210
American Home Products Corp. 23,000 1,344,120
Baxter International, Inc. 22,200 1,087,800
Johnson & Johnson 32,000 1,600,000
Merck & Co., Inc. 9,000 575,190
Pfizer, Inc. 19,250 770,963
Schering-Plough Corp. 14,000 507,360
--------------
6,893,643
--------------
Mortgage Banking (3.40%)
Fannie Mae 15,000 1,277,250
Freddie Mac 15,000 1,050,000
--------------
2,327,250
--------------
Office (1.50%)
Avery Dennison Corp. 20,150 1,028,658
--------------
Oil & Gas (8.22%)
Anadarko Petroleum Corp. 18,000 972,540
Chevron Corp. 17,200 1,556,600
Conoco, Inc. (Class B) 30,000 867,000
Exxon Mobil Corp. 10,184 889,572
Halliburton Co. 23,000 818,800
Royal Dutch Petroleum Co., American Depositary
Receipts (Netherlands) 9,000 524,430
--------------
5,628,942
--------------
Paper & Paper Products (1.55%)
Kimberly-Clark Corp. 19,000 1,062,100
--------------
Retail (2.37%)
Home Depot, Inc. (The) 9,000 418,950
Lowe's Cos., Inc. 7,000 507,850
SYSCO Corp. 16,400 445,260
Target Corp. 7,317 253,168
--------------
1,625,228
--------------
Telecommunications (2.19%)
Verizon Communications 28,000 1,498,000
--------------
Tobacco (1.85%)
Philip Morris Cos., Inc. 25,000 1,268,750
--------------
Utilities (5.48%)
BellSouth Corp. 38,000 1,530,260
SBC Communications, Inc. 22,844 915,130
Xcel Energy, Inc. 46,000 1,308,700
--------------
3,754,090
--------------
TOTAL COMMON STOCKS
(Cost $47,820,735) (76.50%) 52,379,945
-------------- --------------
INTEREST CREDIT PAR VALUE
RATE RATING** (000s OMITTED)
-------------- -------------- --------------
U.S. GOVERNMENT OBLIGATIONS
Government - U.S. (13.85%)
United States Treasury,
Bond 05-15-30 6.25% AAA $2,000 $2,118,420
Bond 02-15-31 5.38 AAA 2,000 1,895,000
Note 09-30-02 5.88 AAA 2,400 2,453,616
Note 02-28-03 4.63 AAA 3,000 3,019,230
--------------
9,486,266
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $9,675,719) (13.85%) 9,486,266
-------------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (9.46%)
Investment in a joint repurchase
agreement transaction with
UBS Warburg, Inc. - Dated
06-29-01, due 07-02-01
(Secured by U.S. Treasury Bonds,
10.625% due 08-15-15 and
6.250% due 08-15-23,
U.S. Treasury Note 5.625%
due 11-30-02) 3.97% 6,474 6,474,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $6,474,000) (9.46%) 6,474,000
-------------- --------------
TOTAL INVESTMENTS (99.81%) 68,340,211
-------------- --------------
OTHER ASSETS AND LIABILITIES, NET (0.19%) 127,618
-------------- --------------
TOTAL NET ASSETS (100.00%) $68,467,829
============== ==============
* Non-income producing security.
** Credit ratings by Moody's Investors Service or John Hancock Advisers,
Inc. where Standard & Poor's ratings are not available.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Financial Industries Fund
Investors Fund
Schedule of Investments
June 30, 2001 (Unaudited)
- -------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the V.A. Financial Industries Fund on June 30, 2001. It's divided into two
main categories: common stocks and short-term investments. Common stocks
are further broken down by industry group. Short-term investments, which
represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- -------------- --------------
COMMON STOCKS
Banks - Foreign (3.33%)
Banco Popular Espanol SA (Spain) 36,500 $1,275,847
Lloyds TSB Group Plc (United
Kingdom) 145,000 1,450,943
--------------
2,726,790
--------------
Banks - Midwest (7.01%)
Fifth Third Bancorp 57,250 3,437,862
Northern Trust Corp. 36,900 2,306,250
--------------
5,744,112
--------------
Banks - Money Center (5.85%)
Citigroup, Inc. 62,000 3,276,080
J.P. Morgan Chase & Co. 34,000 1,516,400
--------------
4,792,480
--------------
Banks - Northeast (2.60%)
State Street Corp. 43,100 2,133,019
--------------
Banks - Southeast (2.95%)
BB&T Corp. 65,900 2,418,530
--------------
Banks - Superregional (13.62%)
Bank of New York Co., Inc. (The) 44,500 2,136,000
FleetBoston Financial Corp. 66,536 2,624,845
PNC Financial Services Group. 15,000 986,850
U.S. Bancorp 106,260 2,421,665
Wells Fargo & Co. 64,500 2,994,735
--------------
11,164,095
--------------
Banks - West (2.45%)
Zions Bancorp. 34,000 2,006,000
--------------
Broker Services (11.21%)
Goldman Sachs Group, Inc. 26,500 2,273,700
Instinet Group Inc.* 3,450 64,308
Lehman Brothers Holdings, Inc. 32,500 2,526,875
Merrill Lynch & Co., Inc. 40,500 2,399,625
Schwab (Charles) Corp. (The) 126,076 1,928,963
--------------
9,193,471
--------------
Computer - Services (2.96%)
Fiserv, Inc.* 38,000 2,431,240
--------------
Diversified Operations (5.01%)
General Electric Co. 62,000 3,022,500
Tyco International Ltd. 20,000 1,090,000
--------------
4,112,500
--------------
Finance - Consumer Loans (8.92%)
American Express Co. 63,900 2,479,320
Household International, Inc. 42,000 2,801,400
MBNA Corp. 61,650 2,031,368
--------------
7,312,088
--------------
Finance - Investment Management (2.73%)
Amvescap Plc (United Kingdom) 129,000 2,240,601
--------------
Insurance - Brokers (3.51%)
Marsh & McLennan Cos., Inc. 28,300 2,858,300
Willis Group Holdings Ltd.* 1,240 22,010
--------------
2,880,310
--------------
Insurance - Life (4.48%)
AFLAC, Inc. 98,400 3,098,616
American General Corp. 12,400 575,980
--------------
3,674,596
--------------
Insurance - Multi Line (4.10%)
AXA (France) 48,000 1,367,371
Loews Corp. 31,000 1,997,330
--------------
3,364,701
--------------
Insurance - Property & Casualty (9.15%)
Allstate Corp. (The) 46,000 2,023,540
Ambac Financial Group, Inc. 37,750 2,197,050
American International Group, Inc. 38,125 3,278,750
--------------
7,499,340
--------------
Mortgage & Real Estate Services (3.53%)
Fannie Mae 34,000 2,895,100
--------------
TOTAL COMMON STOCKS
(Cost $68,696,240) (93.41%) 76,588,973
-------------- --------------
INTEREST PAR VALUE
RATE (000s OMITTED)
-------------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (6.17%)
Investment in a joint repurchase
agreement transaction with UBS Warburg,
Inc. - Dated 06-29-01 due 07-02-01
(Secured by U.S. Treasury Bonds,
10.625% due 08-15-15 and 6.250% due
08-15-23, U.S. Treasury Note 5.625% due
11-30-02) 3.97% $5,059 5,059,000
-------------- --------------
TOTAL SHORT-TERM INVESTMENTS (6.17%) 5,059,000
-------------- --------------
TOTAL INVESTMENTS (99.58%) 81,647,973
-------------- --------------
OTHER ASSETS AND LIABILITIES, NET (0.42%) 341,622
-------------- --------------
TOTAL NET ASETS (100.00%) $81,989,595
============== ==============
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Technology Fund
Schedule of Investments
June 30, 2001 (Unaudited)
- -------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the V.A. Technology Fund on June 30, 2001. It is divided into three main
categories: common stocks, rights and short-term investments. Common stocks
are further broken down by industry group. Short-term investments, which
represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- -------------- --------------
COMMON STOCKS
Advertising (0.29%)
DoubleClick, Inc.* 4,500 $62,820
--------------
Computer - Graphics (1.38%)
Cadence Design Systems, Inc.* 16,000 298,080
--------------
Computer - Integrated Systems (0.68%)
Redback Networks, Inc.* 16,500 147,180
--------------
Computer - Internet Services (6.18%)
Amazon.com, Inc.* 13,500 191,025
Art Technology Group, Inc.* 11,000 63,800
Exodus Communications, Inc.* 19,500 40,170
Infospace, Inc.* 14,000 53,760
Inktomi Corp.* 2,975 28,530
RealNetworks, Inc.* 9,850 115,738
ScreamingMedia, Inc.* 13,250 39,088
TIBCO Software, Inc.* 7,500 95,775
VeriSign, Inc.* 9,500 570,095
VerticalNet, Inc.* 3,400 8,466
Viant Corp.* 1,700 3,179
Vignette Corp.* 14,000 124,180
--------------
1,333,806
--------------
Computer - Local Networks (3.02%)
Cisco Systems, Inc.* 24,000 436,800
JNI Corp.* 7,000 98,000
Lucent Technologies, Inc. 3,600 22,320
Network Appliance, Inc.* 7,000 95,900
--------------
653,020
--------------
Computer - Memory Devices (6.87%)
EMC Corp.* 17,500 508,375
Emulex Corp.* 10,000 404,000
VERITAS Software Corp.* 8,000 532,240
Western Digital Corp.* 9,400 37,600
--------------
1,482,215
--------------
Computer - Micro/Macro (2.18%)
Dell Computer Corp.* 18,000 470,700
--------------
Computer - Services (0.82%)
Unisys Corp.* 12,000 176,520
--------------
Computer - Software (20.53%)
BEA Systems, Inc.* 15,500 476,005
Citrix Systems, Inc.* 15,500 540,950
i2 Technologies, Inc.* 16,000 316,800
Mercury Interactive Corp.* 10,500 628,950
Networks Associates, Inc.* 4,500 56,025
Oracle Corp.* 18,000 342,000
Parametric Technology Corp.* 23,000 321,770
Rational Software Corp.* 18,000 504,900
Siebel Systems, Inc.* 12,000 562,800
SmartForce Plc,* American Depositary Receipt
(ADR) (Ireland) 9,500 334,685
Sun Microsystems, Inc.* 22,000 345,840
--------------
4,430,725
--------------
Electronics - Components Misc. (6.03%)
Flextronics International Ltd.* (Singapore) 19,500 509,145
Sanmina Corp.* 17,000 397,970
Solectron Corp.* 21,500 393,450
--------------
1,300,565
--------------
Electronics - Products Misc. (0.80%)
Aeroflex, Inc.* 16,500 173,250
--------------
Electronics - Semiconductor Components (26.92%)
Amkor Technology, Inc.* 15,000 331,500
Analog Devices, Inc.* 11,000 475,750
Applied Materials, Inc.* 13,000 638,300
Applied Micro Circuits Corp.* 8,000 137,600
ASM Lithography Holding N.V.* (Netherlands) 15,500 344,875
Atmel Corp.* 20,500 276,545
Cypress Semiconductor Corp.* 22,500 536,625
Integrated Device Technology, Inc.* 15,000 475,350
Intel Corp. 4,000 117,000
KLA-Tencor Corp.* 12,000 701,640
Micron Technology, Inc.* 17,500 719,250
MKS Instruments, Inc.* 11,000 316,800
Novellus Systems, Inc.* 8,000 454,320
PRI Automation, Inc.* 300 5,557
Taiwan Semiconductor Manufacturing Co. Ltd.*
(ADR) (Taiwan) 14,995 227,774
Transmeta Corp.* 9,000 50,220
--------------
5,809,106
--------------
Fiber Optics (3.78%)
CIENA Corp.* 8,000 304,000
Finisar Corp.* 21,000 392,280
JDS Uniphase Corp.* 9,500 118,750
--------------
815,030
--------------
Media - Cable TV (3.93%)
AOL Time Warner, Inc.* 16,000 848,000
--------------
Telecom - Equipment (5.21%)
Ericsson (L.M.) Telephone Co. (Class B)
(ADR) (Sweden) 12,500 67,750
Nokia Corp. (ADR) (Finland) 22,500 495,900
QUALCOMM, Inc.* 9,500 555,560
Tut Systems, Inc.* 3,350 5,561
--------------
1,124,771
--------------
Telecom - Services (1.17%)
Global Crossing Ltd.* (Bermuda) 25,000 216,000
Global Light Telecommunications, Inc.* (Canada) 1,600 3,568
Metromedia Fiber Network, Inc. (Class A)* 13,000 26,520
Primus Telecommunications Group, Inc.* 7,750 6,355
--------------
252,443
--------------
TOTAL COMMON STOCKS
(Cost $26,597,872) (89.79%) 19,378,231
------------- --------------
RIGHTS
Seagate Technology, Inc. 5,200 $0
--------------
TOTAL RIGHTS
(Cost $0) (0.00%) 0
------------- --------------
INTEREST PAR VALUE
RATE (000s OMITTED)
-------------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (12.32%)
Investment in a joint repurchase
agreement transaction with
UBS Warburg, Inc. - Dated 06-29-01,
due 07-02-01 (Secured by U.S. Treasury
Bonds, 6.250% thru 10.625% , due
08-15-15 thru 08-15-23 and U.S. Treasury
Notes 5.625% due 11-30-02) 3.97% $2,658 2,658,000
--------------
TOTAL SHORT-TERM INVESTMENTS (12.32%) 2,658,000
-------------- --------------
TOTAL INVESTMENTS (102.11%) 22,036,231
-------------- --------------
OTHER ASSETS AND LIABILITIES, NET (2.11%) (454,950)
-------------- --------------
TOTAL NET ASSETS (100.00%) $21,581,281
============== ==============
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
Portfolio Concentration
June 30, 2001 (Unaudited)
- ---------------------------------------------------------------------------
The V.A. Technology Fund invests primarily in equity securities of
technology companies in the United States and abroad. The concentration of
investments by industry category for individual securities held by the Fund
is shown in the schedule of investments. In addition, concentration of
investments can be aggregated by various countries. The table below shows
the percentage of the Fund's investments at June 30, 2001 assigned to the
various countries.
MARKET VALUE
AS A % OF
COUNTRY DIVERSIFICATION FUND'S NET ASSETS
- ----------------------- -----------------
Bermuda 1.00%
Canada 0.02
Finland 2.30
Ireland 1.55
Netherlands 1.60
Singapore 2.36
Sweden 0.31
Taiwan 1.06
United States 91.91
-------
TOTAL INVESTMENTS 102.11%
=======
John Hancock Funds - Declaration Trust - V.A. Bond Fund
Schedule of Investments
June 30, 2001 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the V.A. Bond Fund on June 30, 2001. It is divided into three main
categories: bonds, preferred stocks and warrants, and short-term
investments. Bonds are further broken down by industry group. Short-term
investments, which represent the Fund's "cash" position, are listed last.
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING** (000s OMITTED) VALUE
- ------------------- -------- ------ ------------ -------------
BONDS
Aerospace (0.79%)
BAE Systems Asset Trust,
Pass Thru Ctf Ser 2001 Class B
12-15-11 (R) 7.156% A $245 $245,159
Lockheed Martin Corp.,
Bond 12-01-29 8.500 BBB- 265 292,685
--------------
537,844
--------------
Agricultural Operations (0.35%)
Archer-Daniels-Midland Co.,
Sr Deb 02-01-31 7.000 A+ 155 149,566
Cargill, Inc.,
Note 05-01-06 (R) 6.250 A+ 85 85,163
--------------
234,729
--------------
Automobile/Trucks (1.49%)
Delphi Automotive Systems Corp.,
Note 06-15-06 6.550 BBB 240 239,755
ERAC USA Finance Co.,
Note 02-15-05 (R) 6.625 BBB+ 19 18,866
Note 06-15-08 (R) 7.350 BBB+ 120 119,290
Note 12-15-09 (R) 7.950 BBB+ 200 204,982
Ford Capital, B.V.,
Gtd Deb (Netherlands)
05-15-02 (Y) 9.875 A 50 51,896
Ford Motor Co.,
Note 07-16-31 7.450 A 65 62,460
Honda Auto Receivables Owner Trust,
Pass Thru Ctf Ser 2001-1 Class A-4
06-19-06 5.560 AAA 310 312,226
--------------
1,009,475
--------------
Banks - Foreign (0.76%)
Abbey National First Capital, B.V.,
Sub Note (United Kingdom)
10-15-04 (Y) 8.200 AA- 30 32,298
Barclays Bank Plc,
Sub Note (United Kingdom)
06-15-49 (R) (Y) 7.375# A+ 160 161,600
Royal Bank of Scotland Group Plc,
Bond (United Kingdom)
03-31-49 (Y) 8.817 A- 30 32,116
Scotland International Finance No. 2,
B.V., Gtd Sub Note (Netherlands)
11-01-06 (R) (Y) 8.850 A 95 104,396
UBS Preferred Funding Trust I,
Gtd Bond 10-01-49 8.622# AA- 165 180,799
--------------
511,209
--------------
Banks - United States (1.90%)
Bank of New York,
Cap Security 12-01-26 (R) 7.780 A- 50 50,356
Bank One Corp.,
Sub Note 08-01-10 7.875 A- 70 75,032
BNP Paribas Capital Trust,
Sub Note 12-27-49 (R) 9.003# A 160 175,101
Capital One Bank,
Sr Note 02-01-06 6.875 BBB- 60 58,792
Colonial Bank
Sub Note 06-01-11 9.375 BBB- 115 118,772
HSBC Holding Plc,
Sub Note (United Kingdom)
07-15-09 (Y) 7.500 A 55 57,491
RBSG Capital Corp.,
Gtd Cap Note 03-01-04 10.125 A 15 16,575
Sanwa Bank, Ltd.,
Sub Note 06-15-11 7.400 BBB 135 131,628
Skandinaviska Enskilda,
Jr Sub Note 12-29-49 (R) 6.500# BBB 250 250,493
Zions Financial Corp.,
Note 05-15-11 (R) 6.950# BBB- 350 353,276
--------------
1,287,516
--------------
Beverages (0.22%)
Canandaigua Brands, Inc.,
Sr Sub Note Ser C 12-15-03 8.750 B+ 30 30,225
Fosters Finance Corp.,
Note 06-15-11 (R) 6.875 BBB+ 120 118,584
--------------
148,809
--------------
Broker Services (0.21%)
Goldman Sachs Group, Inc.,
Bond 01-15-11 6.875 A+ 85 84,464
Salomon Smith Barney Holdings, Inc.,
Note 03-15-06 5.875 A 55 54,552
--------------
139,016
--------------
Building (0.19%)
Vulcan Materials Co.,
Note 02-01-06 6.400 A+ 125 125,734
--------------
Chemicals (1.00%)
Akzo Nobel, Inc.,
Bond 11-15-03 (R) 6.000 A- 45 45,675
Equistar Chemicals L.P./Equistar
Funding Corp.,
Sr Note 02-15-04 8.500 BBB- 130 127,274
Millennium America, Inc.,
Sr Note 06-15-08 (R) 9.250 BBB- 65 65,325
Nova Chemicals Corp.,
Sr Note 05-15-06 7.000 BBB 130 129,180
Potash Corp.,
Note (Canada) 05-31-11 (Y) 7.750 BBB+ 300 311,385
--------------
678,839
--------------
Containers (0.27%)
Sealed Air Corp.,
Gtd Sr Note 07-01-08 (R) 8.750 BBB 80 78,873
Stone Container Corp.,
Sr Note 02-01-11 (R) 9.750 B 100 102,000
--------------
180,873
--------------
Cosmetics & Personal Care (0.17%)
International Flavors & Fragrances, Inc.,
Note 05-15-06 (R) 6.450 BBB+ 115 114,976
--------------
Energy (0.45%)
Enron Corp.,
Note 08-15-05 (R) 8.000 BBB+ 60 61,564
MidAmerican Energy Holdings,
Sr Bond 09-15-28 8.480 BBB- 60 64,083
P&L Coal Holdings Corp.,
Sr Sub Note Ser B 05-15-08 9.625 B 24 25,140
Progress Energy, Inc.,
Sr Note 03-01-11 7.100 BBB 150 150,944
--------------
301,731
--------------
Finance (3.57%)
American Express Credit Account
Master Trust, Pass Thru Ctf
Ser 2000-1 Class A 09-17-07 7.200 AAA 280 296,624
Boeing Capital Corp.,
Sr Note 03-01-11 6.100 AA- 185 180,453
Bombardier Capital, Inc.,
Note 01-15-02 (R) 6.000 A- 30 30,324
Citigroup, Inc.,
Note 01-18-11 6.500 AA- 155 153,726
Ford Motor Credit Co.,
Note 02-01-06 6.875 A 140 142,713
General Motors Acceptance Corp.,
Note 07-15-05 7.500 A 60 62,997
Heller Financial, Inc.,
Sr Note 03-15-06 6.375 A- 115 116,006
Household Finance Corp.,
Sr Note 05-09-05 8.000 A 115 122,880
Note 01-24-06 6.500 A 150 152,407
Note 07-15-10 8.000 A 55 59,150
ING Capital Funding Trust III,
Gtd Trust Preferred Security
12-31-49 8.439# A 50 52,944
Marlin Water Trust/Marlin Water
Capital Corp.,
Sr Sec Note 12-15-01 (R) 7.090 BBB 30 30,263
Midland Funding Corp. II,
Deb Ser A 07-23-05 11.750 BB+ 150 165,375
Pemex Project Funding Master Trust,
Gtd Bond 10-13-10 (R) 9.125 BB+ 190 199,346
Standard Credit Master Trust,
Ser 1995-1 Class A 01-07-07 8.250 AAA 400 433,124
Takefuji Corp.,
Sr Note (Japan) 04-15-11 (R) (Y) 9.200 A- 95 98,023
Verizon Global Funding Corp.,
Bond 12-01-30 (R) 7.750 A+ 110 114,510
Yanacocha Receivables Master Trust,
Pass Thru Ctf Ser 1997-A
06-15-04 (R) 8.400 BBB- 3 2,783
--------------
2,413,648
--------------
Food (0.08%)
Earthgrains Co. (The),
Sr Note 08-01-03 8.375 BBB 50 51,335
--------------
Government - Foreign (1.08%)
Brazil, Federal Republic of,
Bond (Brazil) 04-15-14 (Y) 8.000 BB- 339 250,592
Colombia, Republic of,
Gtd Note (Colombia) 04-09-11 (Y) 9.750 BBB 135 137,700
Nova Scotia, Province of,
Deb (Canada) 11-15-19 (Y) 8.250 A- 20 23,190
Quebec, Government of,
Deb (Canada) 01-22-11 (Y) 6.125 A+ 105 102,162
Quebec, Province of,
Deb (Canada) 09-15-29 (Y) 7.500 A+ 205 218,645
--------------
732,289
--------------
Government - U.S. (28.15%)
United States Treasury,
Bond 08-15-17 8.875 AAA 277 363,607
Bond 02-15-23 7.125 AAA 675 773,928
Bond 05-15-30 6.250 AAA 4,085 4,326,873
Infl Indxd Note 01-15-07 3.375 AAA 541 550,347
Note 08-15-03 5.750 AAA 5,655 5,815,772
Note 02-15-05 7.500 AAA 2,295 2,497,603
Note 07-15-06 7.000 AAA 1,582 1,715,980
Note 05-15-08 5.625 AAA 1,145 1,190,079
Note 08-15-10 5.750 AAA 1,780 1,821,207
--------------
19,055,396
--------------
Government - U.S. Agencies (29.71%)
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf
12-01-12 to 05-01-16 6.500 AAA 2,420 2,427,789
15 Yr Pass Thru Ctf
11-01-14 to 02-01-16 7.000 AAA 904 920,088
15 Yr Pass Thru Ctf 12-01-14 5.500 AAA 516 498,568
15 Yr Pass Thru Ctf
05-01-16 to 06-01-16 6.000 AAA 1,273 1,228,800
Note 03-15-11 5.500 AAA 1,780 1,692,104
Note 01-15-30 7.125 AAA 1,650 1,758,784
Pass Thru Ctf Ser 1997-M8
Class A-1 01-25-22 6.940 AAA 3 2,628
30 Yr Pass Thru Ctf
06-01-30 to 02-01-31 7.500 AAA 1,330 1,358,115
30 Yr Pass Thru Ctf
12-01-30 to 06-01-31 7.000 AAA 1,795 1,782,649
30 Yr Pass Thru Ctf
02-01-31 to 05-01-31 6.000 AAA 179 174,590
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 07-15-26 8.000 AAA 20 21,180
30 Yr Pass Thru Ctf
04-15-28 to 06-15-29 6.500 AAA 2,405 2,381,979
30 Yr Pass Thru Ctf
08-15-28 to 06-15-31 7.000 AAA 3,857 3,901,733
30 Yr Pass Thru Ctf 12-15-30 7.500 AAA 1,915 1,964,829
--------------
20,113,836
--------------
Insurance (0.67%)
AXA,
Sub Note (France) 12-15-30 (Y) 8.600 A- 95 106,238
Equitable Life Assurance Society USA,
Surplus Note 12-01-05 (R) 6.950 A+ 15 15,499
Hartford Life, Inc.,
Sr Note 03-01-31 7.375 A 55 55,370
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) 7.625 AA 5 5,075
MONY Group, Inc. (The),
Sr Note 12-15-05 7.450 A- 215 220,313
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) 7.500 AA- 5 4,878
Sun Canada Financial Co.,
Gtd Sub Note 12-15-07 (R) 6.625 AA- 20 21,046
URC Holdings Corp.,
Sr Note 06-30-06 (R) 7.875 AA+ 25 27,056
--------------
455,475
--------------
Leisure (0.68%)
Harrah's Operating Co., Inc.,
Note 06-01-07 (R) 7.125 BBB- 180 177,475
Gtd Sr Sub Note 12-15-05 7.875 BB+ 40 40,600
HMH Properties, Inc.,
Gtd Sr Sec Note Ser A 08-01-05 7.875 BB 30 29,325
MGM Mirage, Inc.,
Gtd Sr Note 09-15-10 8.500 BBB- 165 172,135
Station Casinos, Inc.,
Sr Note 02-15-08 8.375 BB- 20 20,100
Waterford Gaming LLC/Waterford
Gaming Finance Corp.,
Sr Note 03-15-10 (R) 9.500 B+ 20 19,600
--------------
459,235
--------------
Media (2.96%)
Adelphia Communications Corp.,
Sr Note 03-01-05 9.500 B+ 80 77,600
Sr Note 06-15-11 10.250 B+ 75 72,937
Sr Note Ser B 10-01-02 9.250 B+ 17 17,170
Sr Note Ser B 07-15-03 8.125 B+ 15 14,475
AOL Time Warner, Inc.,
Bond 04-15-31 7.625 BBB+ 165 164,959
British Sky Broadcasting Group Plc,
Gtd Sr Note (United Kingdom)
07-15-09 (Y) 8.200 BB+ 40 39,550
Charter Comm. Holdings, LLC/Charter
Comm. Holdings Capital Corp.,
Sr Note 01-15-11 11.125 B+ 20 21,000
Sr Note 05-15-11 (R) 10.000 B+ 60 60,000
Clear Channel Communications, Inc.,
Sr Note 06-15-05 7.875 BBB- 320 335,133
Continental Cablevision, Inc.,
Sr Note 05-15-06 8.300 A 120 129,203
CSC Holdings, Inc.,
Sr Note 04-01-11 (R) 7.625 BB+ 185 176,175
Sr Sub Deb 05-15-16 10.500 BB- 20 22,050
EchoStar DBS Corp.,
Sr Note 02-01-09 9.375 B+ 35 34,125
Garden State Newspapers, Inc.,
Sr Sub Note 07-01-11 8.625 B+ 45 41,850
Jones Intercable, Inc.,
Sr Note 04-15-08 7.625 BBB 90 92,255
Lenfest Communications, Inc.,
Sr Note 11-01-05 8.375 BBB 40 43,022
Mediacom LLC/Mediacom Capital Corp.,
Sr Note Ser B 04-15-08 8.500 B+ 20 18,900
Sr Note 01-15-13 (R) 9.500 B+ 85 81,387
News America Holdings, Inc.,
Gtd Sr Deb 08-10-18 8.250 BBB- 125 126,495
News America, Inc.,
Gtd Sr Note 04-30-28 7.300 BBB- 55 49,284
TCI Communications, Inc.,
Sr Deb 02-15-26 7.875 A 155 156,310
Time Warner, Inc.,
Deb 01-15-13 9.125 BBB+ 58 66,402
Viacom, Inc.,
Gtd Sr Note 01-30-06 6.400 A- 80 81,114
Gtd Sr Note 01-30-06 (R) 6.400 A- 85 85,000
--------------
2,006,396
--------------
Medical (1.15%)
Dynacare, Inc.,
Sr Note (Canada) 01-15-06 (Y) 10.750 B+ 37 37,555
Fresenius Medical Care Capital Trust II,
Gtd Trust Preferred Security
02-01-08 7.875 B+ 10 9,750
Fresenius Medical Care Capital Trust IV,
Gtd Trust Preferred Security
06-15-11 (R) 7.875 B+ 95 92,625
HCA - The Healthcare Co.,
Sr Note 06-01-06 7.125 BB+ 340 332,772
Note 09-01-10 8.750 BB+ 35 37,187
HEALTHSOUTH Corp.,
Sr Note 02-01-08 8.500 BBB- 55 55,412
Quest Diagnostic, Inc.,
Gtd Sr Note 07-12-06 6.750 BBB- 135 133,694
Tenet Healthcare Corp.,
Sr Note 01-15-05 8.000 BB+ 20 20,525
Triad Hospitals, Inc.,
Gtd Sr Note 05-01-09 (R) 8.750 B- 60 61,050
--------------
780,570
--------------
Metal (0.48%)
Newmont Mining Corp.,
Note 05-15-11 8.625 BBB 100 98,155
Phelps Dodge Corp.,
Sr Note 06-01-11 8.750 BBB 150 148,447
WMC Finance (USA), Ltd.,
Gtd Note (Australia) 11-15-03 (Y) 6.500 A 80 81,391
--------------
327,993
--------------
Mortgage Banking (2.47%)
AMRESCO Residential Securities Corp.
Mortgage Loan Trust,
Pass Thru Ctf Ser 1998-1 Class A-6
08-25-27 6.510 AAA 143 144,462
Citibank Credit Card Master Trust I,
Class A Credit Card Part Cert
Ser 1997-2 02-15-04 6.550 AAA 130 131,665
Commercial Mortgage Acceptance Corp.,
Pass Thru Ctf Ser 1999-C1
Class A-1 08-15-08 6.790 Aaa 70 72,135
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1995-2
Class A-5 08-15-25 8.100 AAA 9 8,947
Credit Suisse First Boston Mortgage
Securities Corp.,
Commercial Mtg Pass Thru Ctf
Ser 1998-C1 Class A-1A 12-17-07 6.260 AAA 239 242,101
EQCC Home Equity Loan Trust,
Pass Thru Ctf Ser 1997-3 Class A-9
02-15-29 6.570 AAA 145 146,029
GMAC Commercial Mortgage
Securities, Inc.,
Pass Thru Ctf Ser 1997-C1 Class A-2
07-15-29 6.853 Aaa 50 51,484
Pass Thru Ctf Ser 1998-C1 Class A-1
05-15-30 6.411 Aaa 244 246,751
IMC Home Equity Loan Trust,
Pass Thru Ctf Ser 1998-1 Class A-4
03-20-25 6.600 AAA 15 15,112
LB Commercial Conduit Mortgage Trust,
Pass Thru Ctf Ser 1999-C1 Class A-1
08-15-07 6.410 Aaa 50 51,424
Money Store Home Equity Trust (The),
Pass Thru Ctf Ser 1997-D Class AF-7
12-15-38 6.485 AAA 15 15,019
Morgan Stanley Capital I, Inc.,
Pass Thru Ctf Ser 1997-WF1 Class A-1
10-15-06 (R) 6.830 AAA 217 223,581
Pass Thru Ctf Ser 1999-CAM1 Class A-3
11-15-08 6.920 AAA 140 143,948
Salomon Brothers Mortgage
Securities VII, Inc.,
Mtg Pass Thru Ctf Ser 1997-HUD2
Class A-2 07-25-24 6.750 Aaa 6 6,022
Saxon Asset Securities Trust,
Pass Thru Ctf Ser 2000-2 Class AF-2
06-25-15 7.965 AAA 105 106,804
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1997-A1 Class A-8
06-15-28 7.220 AAA 8 8,313
Pass Thru Ctf Ser 1997-B Class A-6
10-15-28 6.900 AAA 56 57,666
--------------
1,671,463
--------------
Oil & Gas (1.22%)
Alberta Energy Co., Ltd.,
Note (Canada) 09-15-30 (Y) 8.125 BBB+ 200 218,028
Anadarko Petroleum Corp.,
Deb 05-15-28 7.150 BBB+ 75 72,898
Chesapeake Energy Corp.,
Gtd Sr Note 04-01-11 (R) 8.125 B+ 45 41,962
Forest Oil Corp.,
Sr Note 06-15-08 (R) 8.000 BB 80 78,000
Louis Dreyfus Natural Gas Corp.,
Note 12-01-07 6.875 BBB 40 39,764
Occidental Petroleum Corp.,
Sr Deb 09-15-09 10.125 BBB- 15 17,936
Ocean Energy, Inc.,
Gtd Sr Sub Note Ser B 07-15-07 8.875 BB+ 20 21,070
Petrobras International Finance Co.,
Sr Note 07-06-11 (R)+ 9.750 Baa1 70 69,825
Petroleum Geo-Services ASA,
Sr Note (Norway) 03-30-28 (Y) 7.125 BBB- 50 41,356
Santa Fe Snyder Corp.,
Sr Sub Note 06-15-07 8.750 BBB+ 20 21,254
Transocean Sedco Forex, Inc.,
Note 04-15-31 (R) 7.500 A- 115 115,139
Valero Energy Corp.,
Note 06-15-05 8.375 BBB- 80 85,584
--------------
822,816
--------------
Paper & Paper Products (1.34%)
Georgia-Pacific Corp.,
Sr Note 05-15-06 7.500 BBB- 120 120,336
Sr Note 05-15-31 8.875 BBB- 135 136,505
International Paper Co.,
Sr Note 07-08-05 8.125 BBB 260 274,950
Stora Enso Oyj,
Sr Note (Finland) 05-15-11 (Y) 7.375 BBB+ 370 375,391
--------------
907,182
--------------
Real Estate Operations (0.31%)
EOP Operating, L.P.,
Sr Note 02-15-05 6.625 BBB+ 170 172,827
Liberty Property, L.P.,
Med Term Note 06-05-02 6.600 BBB 40 40,300
--------------
213,127
--------------
Real Estate Investment Trust (0.62%)
Cabot Industrial Properties, L.P.,
Note 05-01-04 7.125 BBB 25 25,319
Camden Property Trust,
Sr Note 04-15-04 7.000 BBB 30 30,510
Health Care Property Investors, Inc.,
Note 01-15-07 7.500 BBB+ 20 19,450
Healthcare Realty Trust, Inc.,
Sr Note 05-01-11 8.125 BBB- 105 105,262
Mack-Cali Realty, L.P.,
Sr Note 02-15-11 7.750 BBB 210 212,102
ProLogis Trust,
Sr Note 04-15-04 6.700 BBB+ 25 25,355
--------------
417,998
--------------
Retail (0.60%)
Delhaize America Inc.,
Note 04-15-11 (R) 8.125 BBB- 110 114,325
Kmart Corp.,
Sr Note 06-15-08 (R) 9.875 BB+ 125 122,812
Kohl's Corp.,
Note 03-01-11 (R) 6.300 A- 170 170,326
--------------
407,463
--------------
Telecommunications (4.48%)
AT&T Canada, Inc.,
Sr Disc Note, Step Coupon
(10.750%, 11-01-02) (Canada)
11-01-07 (A) Zero BBB 135 127,836
Sr Note (Canada) 08-15-07 (Y) 12.000 BBB 15 16,350
AT&T Wireless Group,
Sr Note 03-01-31 (R) 8.750 BBB 260 270,150
BellSouth Capital Funding Corp.,
Deb 02-15-30 7.875 AA- 80 85,398
Citizens Communications Co.,
Sr Note 05-15-06 8.500 BBB 115 118,050
Sr Note 05-15-11 9.250 BBB 115 120,778
Cox Communications, Inc.,
Note 11-01-10 7.750 BBB 155 162,359
Crown Castle International Corp.,
Sr Note 05-15-11 9.000 B 30 26,400
Sr Note 08-01-11 (R) 9.375 B 65 58,012
Deutsche Telekom International
Finance B.V., Gtd Bond (Netherlands)
06-15-05 (Y) 7.750 A- 230 240,295
Gtd Bond (Netherlands)
06-15-30 (Y) 8.250 A- 130 131,891
Dominion Resources, Inc.,
Sr Note Ser A 06-15-10 8.125 BBB+ 60 64,725
France Telecom,
Bond (France) 03-01-31 (R) (Y) 8.500 A- 195 204,368
LCI International, Inc.,
Sr Note 06-15-07 7.250 BBB+ 30 29,945
Qwest Capital Funding, Inc.,
Bond 02-15-31 (R) 7.750 BBB+ 260 254,072
Sprint Capital Corp.,
Gtd Note 01-30-06 7.125 BBB+ 120 120,824
Gtd Sr Note 11-15-28 6.875 BBB+ 200 168,076
Telefonos de Mexico S.A. de C.V.,
Sr Note (Mexico) 01-26-06 (R) (Y) 8.250 BB+ 200 206,500
Telus Corp.,
Note 06-01-11 8.000 BBB+ 200 203,000
Triton PCS, Inc.,
Gtd Sr Sub Note 02-01-11 9.375 B- 30 28,800
VoiceStream Wireless Corp.,
Sr Note 09-15-09 11.500 A- 20 23,000
WorldCom, Inc.,
Bond 05-15-31 8.250 BBB+ 135 135,498
Note 05-15-06 8.000 BBB+ 225 233,154
--------------
3,029,481
--------------
Transportation (1.39%)
America West Airlines,
Pass Thru Ctf Ser 1996-1B
01-02-08 6.930 A- 3 3,275
Burlington Northern Santa Fe Corp.,
Deb 08-15-30 7.950 BBB+ 255 268,849
Continental Airlines, Inc.,
Pass Thru Ctf Ser 1997-2C
06-30-04 7.206 BBB 102 105,177
Pass Thru Ctf Ser 1999-1A
02-02-19 6.545 AA+ 56 54,377
Delta Air Lines, Inc.,
Note 12-15-05 7.700 BBB- 100 98,336
Northwest Airlines, Inc.,
Gtd Note 03-15-04 8.375 BB 25 24,571
Gtd Note 06-01-06 8.875 BB 115 109,250
Pass Thru Ctf Ser 1996-1D
01-02-15 8.970 BBB- 4 4,544
NWA Trust,
Sr Note Ser A 12-21-12 9.250 AA 36 39,337
Railcar Trust No. 1992-1,
Pass Thru Ser 1992-1 Class A
06-01-04 7.750 AAA 54 56,053
United Air Lines, Inc.,
Pass Thru Ctf Ser 2000-1 Class A-1
01-01-14 7.783 AAA 71 72,830
Pass Thru Ctf Ser 2000-2 Class A-1
04-01-12 7.032 AAA 66 66,184
US Airways, Inc.,
Pass Thru Ctf Ser 1990-A1
03-19-05 11.200 BB- 29 29,953
Wisconsin Central Transportation Corp.,
Note 04-15-08 6.625 BBB- 8 7,837
--------------
940,573
--------------
Utilities (4.13%)
AES Corp.,
Sr Note 06-01-09 9.500 BB 35 35,700
Sr Note 09-15-10 9.375 BB 20 20,200
Sr Sub Note 07-15-06 10.250 B+ 10 10,250
AES Eastern Energy, L.P.,
Pass Thru Ctf Ser 1999-A
01-02-17 9.000 BBB- 25 25,440
Avon Energy Partners Holdings,
Sr Note (United Kingdom)
12-11-02 (R) (Y) 6.730 BBB+ 40 40,201
Beaver Valley Funding Corp.,
Deb 06-01-07 8.625 BB- 60 62,098
Sec Lease Oblig Bond 06-01-17 9.000 BB- 23 25,188
BVPS II Funding Corp.,
Collateralized Lease Bond
06-01-17 8.890 BB- 5 5,521
Calpine Canada Energy Finance ULC,
Gtd Sr Note (Canada) 05-01-08 (Y) 8.500 BB+ 75 72,619
Calpine Corp.,
Sr Note 08-15-05 8.250 BB+ 65 64,215
Sr Note 04-01-08 7.875 BB+ 15 14,550
Sr Note 02-15-11 8.500 BB+ 60 57,625
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 9.500 BB+ 45 46,575
Sr Sec Note Ser D 11-01-17 7.880 BB+ 20 19,583
CMS Energy Corp.,
Sr Note 05-15-02 8.125 BB 60 60,588
Sr Note 10-15-07 9.875 BB 15 15,825
Sr Note 04-15-11 8.500 BB 25 24,262
Sr Note Ser B 01-15-04 6.750 BB 55 52,525
EIP Funding-PNM,
Sec Fac Bond 10-01-12 10.250 BBB- 38 41,325
Exelon Generation Co., LLC,
Sr Note 06-15-11 (R) 6.950 A- 245 244,811
GG1B Funding Corp.,
Deb 01-15-11 7.430 BBB- 23 23,149
HQI Transelec Chile SA,
Sr Note (Chile) 04-15-11 (R) (Y) 7.875 A- 130 129,499
Hydro-Quebec,
Gtd Bond Ser HY (Canada)
01-15-22 (Y) 8.400 A+ 20 23,040
Iberdrola International B.V.,
Note 10-01-02 7.500 AA- 35 36,136
KeySpan Corp.,
Sr Note 11-15-30 8.000 A 60 64,295
Long Island Lighting Co.,
Deb 03-15-23 8.200 A- 40 41,000
Mirant Americas Generation, Inc.,
Pass Thru Ctf Ser MIR 2001-14
06-15-04 (R) 7.200 BBB- 240 239,282
Sr Note 05-01-11 (R) 8.300 BBB- 100 100,279
Niagara Mohawk Power Corp.,
Sec Fac Bond 01-01-18 8.770 BBB 43 44,418
Northeast Utilities,
Note Ser A 12-01-06 8.580 BBB 6 6,495
NRG Energy, Inc.,
Sr Note 04-01-11 7.750 BBB- 200 202,766
Pinnacle Partners,
Sr Note 08-15-04 (R) 8.830 BBB- 85 86,548
Pinnacle West Capital Corp.,
Sr Note 04-01-06 6.400 BBB 85 83,815
PNPP II Funding Corp.,
Deb 05-30-16 9.120 BB- 40 43,142
PSEG Energy Holdings, Inc.,
Sr Note 02-15-08 (R) 8.625 BBB- 55 55,623
PSEG Power LLC,
Sr Note 04-15-31 (R) 8.625 BBB 130 139,766
Sierra Pacific Power Co.,
1st Mtg Note 06-01-08 (R) 8.000 BBB+ 330 332,277
Sierra Pacific Resources,
Note 05-15-05 8.750 BBB- 45 45,879
TXU Electric Capital V,
Gtd Capital Sec 01-30-37 8.175 BBB- 35 34,428
Waterford 3 Funding Corp.,
Sec Lease Oblig Bond 01-02-17 8.090 BBB- 56 57,528
Xcel Energy, Inc.,
Sr Note 12-01-10 7.000 BBB+ 70 70,198
--------------
2,798,664
--------------
Waste Disposal Service & Equip. (0.04%)
Waste Management, Inc.,
Sr Note 08-01-10 7.375 BBB 30 29,935
--------------
TOTAL BONDS
(Cost 62,794,573) (92.93%) 62,905,626
--------- --------------
NUMBER OF
SHARES OR
WARRANTS
---------
PREFERRED STOCKS AND WARRANTS
CSC Holdings, Inc., 11.125% Ser M,
Preferred Stock 1,040 111,020
CSC Holdings, Inc., 11.750%, Ser H,
Preferred Stock 1,175 124,550
MetroNet Communications Corp.,
Warrant (Canada) (R) (Y)* 5 475
--------------
TOTAL PREFERRED STOCKS AND WARRANTS
(Cost $234,875) (0.35%) 236,045
--------- --------------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- -------------- -------------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (9.25%)
Investment in a joint repurchase
agreement transaction with UBS Warburg,
Inc. - Dated 06-29-01, due 07-02-01
(Secured by U.S. Treasury Bonds, 6.250%
thru 10.625%, due 08-15-15 thru 08-15-23
and U.S. Treasury Notes, 5.625%, due 11-30-02) 3.970% $6,265 6,265,000
-------------- --------------
TOTAL SHORT-TERM INVESTMENTS (9.25%) 6,265,000
-------------- --------------
TOTAL INVESTMENTS (102.53%) 69,406,671
-------------- --------------
OTHER ASSETS AND LIABILITIES, NET (2.53%) (1,714,810)
-------------- --------------
TOTAL NET ASSETS (100.00%) $67,691,861
============== ==============
(A) Cash interest will be paid on this obligation at the stated rate
beginning on the stated date.
(R) These securities are exempt from registration under Rule 144A of
the Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from
registration. Rule 144A securities amounted to $6,955,627 or 10.28% of
net assets as of June 30, 2001.
(Y) Parenthetical disclosure of a foreign country in the security
description represents country of a foreign issuer; however, security is
U. S. dollar denominated.
* Non-income producing security.
** Credit ratings are unaudited and rated by Standard & Poor's where
available, or Moody's Investor Services or John Hancock Advisers, Inc.,
where Standard & Poor's ratings are not available.
*** A portion of these securities having an aggregate value of $424,471
or 0.63% of the Fund's net assets has been purchased as forward
commitments - that is, the Fund has agreed on trade date to take
delivery of and to make payment for this security on a delayed basis
subsequent to the date of this schedule. The purchase price and interest
rate of these securities are fixed at trade date, although the Fund does
not earn any interest on these securities until settlement date. The
Fund has instructed its Custodian Bank to segregate assets with a
current value at least equal to the amount of the forward commitments.
Accordingly, the market value of $433,997 of United States Treasury
Note, 5.750%, 08-15-03, has been segregated to cover the forward
commitments.
+ A portion of this security having an aggregate value of $59,849 or
0.09% of the Fund's net assets, has been purchased on a when-issued
basis. The purchase price and the interest rate of this security is
fixed at trade date, although the Fund does not earn any interest on
this security until settlement date. The Fund has instructed its
Custodian Bank to segregate assets with a current value at least equal
to the amount of its when-issued commitment. Accordingly, the market
value of $61,706 of United States Treasury Note, 5.750%, 08-15-03, has
been segregated to cover the when-issued commitment.
# Represents rate in effect on June 30, 2001.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Money Market Fund
Schedule of Investments
June 30, 2001 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the V.A. Money Market Fund on June 30, 2001.
INTEREST QUALITY PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- -------------------------- -------- ------ -------------- --------------
COMMERCIAL PAPER
Banks - Foreign (7.23%)
Abbey National North America Corp.,
07-12-01 4.630% Tier 1 $2,500 $2,496,463
Deutsche Bank Financial,
07-09-01 4.635 Tier 1 4,000 3,995,880
UBS Finance, Inc.,
08-08-01 5.000 Tier 1 3,900 3,879,417
--------------
10,371,760
--------------
Banks - United States (3.19%)
Wells Fargo,
08-02-01 4.500 Tier 1 4,600 4,581,600
--------------
Beverages (3.81%)
Coca Cola Co.,
08-17-01 4.110 Tier 1 5,500 5,470,488
--------------
Broker Services (3.42%)
Goldman Sachs Group, L.P.,
01-07-02 3.720 Tier 1 5,000 4,901,833
--------------
Building (2.77%)
Halifax Group Plc,
08-23-01 4.140 Tier 1 4,000 3,975,620
--------------
Chemicals (2.63%)
Dow Chemical Co.,
07-06-01 4.220 Tier 1 3,778 3,775,786
--------------
Finance (8.32%)
CIT Group Holdings, Inc.,
09-13-01 3.680 Tier 1 7,000 6,947,049
Household Financial Corp.,
07-09-01 4.550 Tier 1 5,000 4,994,945
--------------
11,941,994
--------------
Insurance (3.48%)
American General Corp.,
07-16-01 4.630 Tier 1 5,000 4,990,354
--------------
Mortgage Banking (4.86%)
Countrywide Home Loans,
07-27-01 3.770 Tier 1 7,000 6,980,941
--------------
TOTAL COMMERCIAL PAPER
(Cost $56,990,376) (39.71%) 56,990,376
-------------- --------------
CORPORATE INTEREST-BEARING OBLIGATIONS
Banks - United States (2.11%)
First Chicago NBD Corp.,
11-01-01 6.300 Tier 1 3,000 3,024,748
--------------
Finance (5.20%)
Associates Corp. of N. A.,
10-15-01 6.450 Tier 1 4,415 4,446,933
General Electric Capital Corp.,
09-17-01 6.330 Tier 1 3,000 3,014,754
--------------
7,461,687
--------------
TOTAL CORPORATE INTEREST-BEARING OBLIGATIONS
(Cost $10,486,435) (7.31%) 10,486,435
-------------- --------------
U.S. GOVERNMENT OBLIGATIONS
Government - U.S. Agencies (39.56%)
Federal Home Loan Bank,
07-18-01 4.650 Tier 1 5,000 4,989,021
08-01-01 4.060 Tier 1 6,400 6,377,625
08-09-01 8.220 Tier 1 1,000 1,002,967
02-01-02 6.750 Tier 1 2,135 2,170,842
Federal Home Loan Mortgage Corp.,
07-05-01 4.570 Tier 1 5,000 4,997,461
08-09-01 3.880 Tier 1 6,500 6,472,678
Federal National Mortgage Assn.,
07-05-01 4.570 Tier 1 3,000 2,998,477
08-09-01 3.850 Tier 1 13,000 12,945,779
08-16-01 3.860 Tier 1 6,000 5,970,407
11-08-01 3.870 Tier 1 7,000 6,902,175
04-19-02 3.770 Tier 1 2,000 1,938,842
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $56,766,274) (39.56%) 56,766,274
-------------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (13.31%)
Investment in a joint repurchase
agreement transaction with UBS Warburg,
Inc. - Dated 06-29-01, due 07-02-01
(Secured by U.S. Treasury Bond, 6.875%
due 08-15-25 and U.S. Treasury Note,
5.625% due 11-30-02) 3.970% 19,099 19,099,000
-------------- --------------
TOTAL SHORT-TERM INVESTMENTS (13.31%) 19,099,000
-------------- --------------
TOTAL INVESTMENTS (99.89% 143,342,085
-------------- --------------
OTHER ASSETS AND LIABILITIES, NET (0.11%) 152,757
-------------- --------------
TOTAL NET ASSETS (100.00%) $143,494,842
============== ==============
* Quality ratings indicate the categories of eligible securities, as
defined by Rule 2a-7 of the Investment Company Act of 1940, owned by the
Fund.
The percentage shown for each investment category is the total value of
that category expressed as a percentage of the net assets of the Fund.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Strategic Income Fund
Schedule of Investments
June 30, 2001 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the V.A. Strategic Income Fund on June 30, 2001. It is divided into four
main categories: bonds, common stocks, preferred stocks and warrants, and
short-term investments. Bonds are further broken down by industry group.
Short-term investments, which represent the Fund's "cash" position, are
listed last.
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- -------------------------- -------- ------ -------------- --------------
BONDS
Advertising (0.19%)
Go Outdoor Systems Holding S.A.,
Sr Sub Note (France)
07-15-09 (E) 10.500% B- $100 $99,099
--------------
Banks - United States (0.39%)
Colonial Bank,
Sub Note 06-01-11 9.375 BBB- 200 206,560
--------------
Chemicals (0.52%)
Huntsman ICI Chemicals LLC,
Sr Sub Note 07-01-09 10.125 B 150 147,000
Trikem S.A.,
Bond (Brazil) 07-24-07 (R) (Y) 10.625 B+ 200 130,000
--------------
277,000
--------------
Electronics (0.16%)
Communications Instruments, Inc.,
Sr Sub Note Ser B 09-15-04 10.000 B- 100 86,000
--------------
Energy (0.13%)
AEI Resources, Inc./AEI Resources
Holdings, Inc.,
Note 12-15-05 (B) (R) 10.500 D 100 70,000
--------------
Finance (0.17%)
PTC International Finance II S.A.,
Sr Sub Note (Luxembourg)
12-01-09 (E) (R) 11.250 B+ 100 88,088
--------------
Food (0.34%)
Agrilink Foods, Inc.,
Sr Sub Note 11-01-08 11.875 B- 200 182,000
--------------
Government - Foreign (24.66%)
Arabia, Republic of,
Bond (Egypt) 07-11-11 (Y) 8.750 BBB- 300 301,800
Brazil, Federative Republic of,
Bond (Brazil) 01-11-06 (Y) 10.250 BB- 300 288,000
Bond (Brazil) 03-06-30 (Y) 12.250 BB- 750 631,500
Deb (Brazil) 04-15-14 (Y) 8.000 BB- 677 501,184
Unsub Note (Brazil) 07-26-07 (Y) 11.250 BB- 100 96,250
Unsub Note (Brazil) 10-15-09 (Y) 14.500 BB- 700 728,000
Bulgaria, Government of,
Bond (Variable Rate after
07-01-00) (Bulgaria) 07-28-12 (Y) 3.000 B+ 880 715,000
Canada, Government of,
Bond (Canada) 12-01-02 # 6.000 AA+ 275 184,246
Bond (Canada) 12-01-05 # 8.750 AAA 300 221,478
Bond (Canada) 12-01-06 # 7.000 AAA 2,000 1,396,372
Bond (Canada) 06-01-08 # 6.000 AAA 250 167,035
Bond (Canada) 06-01-09 # 5.500 AAA 750 483,344
Bond (Canada) 06-01-10 # 5.500 AA+ 575 368,857
Bond (Canada) 06-01-29 # 5.750 AA+ 75 47,691
Colombia, Republic of,
Note (Colombia) 06-13-06 (Y) 10.500 BB 300 309,258
Note (Colombia) 04-09-11 (Y) 9.750 BBB 500 510,000
Mexican, United States
Bond (Mexico) 03-12-13 (E) 7.375 BB+ 500 429,268
Note (Mexico) 01-14-11 (Y) 8.375 BB+ 475 477,375
Sr Note (Mexico) 03-12-08 (Y) 8.625 BB+ 250 259,500
New Zealand, Government of,
Bond (New Zealand) 04-15-03 # 5.500 AAA 500 199,650
Bond (New Zealand) 11-15-11 # 6.000 AAA 500 190,972
Panama, Republic of, Bond (Panama)
02-08-11 (Y) 9.625 BB+ 1,000 1,010,000
Peru, Republic of,
Deb (Variable Rate after 03-07-07)
(Peru) 03-07-17 (Y) 4.000 BB- 800 500,000
Russia, Federation of,
Unsub Note (Russia) 06-26-07 (Y) 10.000 B- 1,135 1,010,150
Unsub Note (Russia) 07-24-18 (Y) 11.000 B 1,125 973,125
Unsub Note (7.50% 03-31-07)
(Russia) 03-31-30 (Y) 5.000 B 650 307,450
Venezuela, Republic of,
Floating Rate Bond Ser DL (Venezuela)
12-18-07 (Y) 7.375 B 310 258,449
Bond (Venezuela) 09-15-27 (Y) 9.250 B 675 465,750
--------------
13,031,704
--------------
Government - U.S. (39.23%)
United States Treasury,
Bond 08-15-01 13.375 AAA 6,700 6,776,447
Bond 08-15-05 6.500 AAA 400 423,436
Bond 08-15-05 10.750 AAA 400 485,000
Bond 02-15-16 9.250 AAA 615 820,447
Bond 08-15-19 8.125 AAA 1,090 1,357,213
Bond 08-15-23 6.250 AAA 600 624,372
Bond 11-15-28 5.250 AAA 2,000 1,826,880
Note 08-31-02 6.250 AAA 3,870 3,967,369
Note 08-15-04 7.250 AAA 590 633,330
Note 05-15-05 6.500 AAA 1,300 1,374,542
Note 08-15-07 6.125 AAA 940 985,675
Note 02-15-11 5.000 AAA 1,500 1,455,225
--------------
20,729,936
--------------
Leisure (2.18%)
Ameristar Casinos, Inc.,
Sr Sub Note 02-15-09 (R) 10.750 B- 200 208,500
HMH Properties, Inc.,
Sr Note Ser B 08-01-08 7.875 BB 100 94,000
Jupiters Ltd.,
Sr Note (Australia) 03-01-06 (Y) 8.500 BB+ 150 147,750
Penn National Gaming, Inc.,
Sr Sub Note 03-01-08 (R) 11.125 B- 200 207,000
Station Casinos, Inc.,
Sr Note 02-15-08 (R) 8.375 BB- 200 201,000
Sun International Hotels Ltd.,
Sr Sub Note (Bahamas)
12-15-07 (Y) 8.625 B+ 100 100,500
Waterford Gaming LLC,
Sr Note 03-15-10 (R) 9.500 B+ 199 195,020
--------------
1,153,770
--------------
Machinery (0.17%)
Columbus McKinnon Corp.,
Sr Sub Note 04-01-08 8.500 B 100 87,000
--------------
Media (5.25%)
Adelphia Communications Corp.,
Sr Note 06-15-11 10.250 B+ 350 340,375
AMFM Operating, Inc.,
Sr Sub Deb 10-31-06 12.625 B- 64 71,025
Callahan Nordheim-Westfalen GmbH
Sr Note (Germany) 07-15-11 (E) 14.125 B- 500 353,622
Charter Communications Holdings LLC/
Charter Comm. Holdings Capital Corp.,
Sr Note 01-15-11 11.125 B+ 300 315,000
Sr Note 05-15-11 (R) 10.000 B+ 200 200,000
Diamond Holdings Plc,
Bond (United Kingdom)
02-01-08 # 10.000 B- 50 52,826
DIVA Systems Corp.,
Sr Disc Note Ser B, Step Coupon
(12.625%, 03-01-03)
03-01-08 (A) Zero B- 250 35,000
Fox Kids Worldwide, Inc.,
Sr Disc Note, Step Coupon
(10.25% 11-15-02) 11-01-07 (A) Zero B 400 356,000
Garden State Newspapers, Inc.,
Sr Sub Note 07-01-11 8.625 B+ 200 186,000
Sr Sub Note Ser B 10-01-09 8.750 B+ 200 188,000
Innova S. de R.L.,
Sr Note (Mexico) 04-01-07 (Y) 12.875 B- 200 178,000
Pegasus Communications Corp.,
Sr Note Ser B 08-01-07 12.500 CCC+ 400 396,000
STC Broadcasting, Inc.,
Sr Sub Note 03-15-07 11.000 B- 100 99,500
--------------
2,771,348
--------------
Medical (0.28%)
Select Medical Corp.,
Sr Sub Note 06-15-09 (R) 9.500 B 150 147,750
--------------
Oil & Gas (2.51%)
Chesapeake Energy Corp.,
Sr Note 04-01-11 (R) 8.125 B+ 300 279,750
Comstock Resources, Inc.,
Sr Note 05-01-07 11.250 B 100 106,000
Ocean Rig Norway A.S.,
Sr Sec Note (Norway) 06-01-08 (Y) 10.250 CCC 200 176,000
Parker Drilling Co.,
Sr Note 11-15-06 9.750 B+ 300 304,500
PEMEX Project Funding Master Trust,
Gtd Note 02-15-08 (R) 8.500 BB+ 200 206,000
Pennzoil-Quaker State Co.,
Note 12-01-02 9.400 BB+ 250 252,410
--------------
1,324,660
--------------
Paper & Paper Products (1.61%)
Corporacion Durango S.A. de C.V.,
Sr Note (Mexico) 08-01-06 (Y) 13.125 BB- 300 300,000
Grupo Industrial Durango S.A.,
Note (Mexico) 08-01-03 (Y) 12.625 BB- 200 210,000
Kappa Beheer BV,
Sr Sub Note (Netherlands)
07-15-09 (E) (R) 10.625 B 150 135,308
Stone Container Corp.,
Sr Note 02-01-11 (R) 9.750 B 200 204,000
--------------
849,308
--------------
Telecommunications (3.73%)
American Cellular Corp.,
Sr Sub Note 10-15-09 (R) 9.500 B 200 188,000
Comunicacion Celular S.A.,
Sr Def Bond (Colombia)
03-01-05 (R) (Y) 14.125 B 100 91,000
Esprit Telecom Group Plc,
Sr Note (United Kingdom)
12-15-07 (B) (Y) 11.500 D 100 2,588
Sr Note (Deutsche Mark)
06-15-08 (B) # 11.000 D 140 1,213
Grupo Iusacell S.A. de C.V.,
Sr Note (Mexico) 12-01-06 (Y) 14.250 B+ 200 212,000
GT Group Telecom, Inc.,
Sr Disc Note, Step Coupon
(13.25%, 02-01-05) (Canada)
02-01-10 (A) (Y) Zero B- 200 56,000
Intercel, Inc.,
Unit (Sr Disc. Note & Warrant),
02-01-06 12.000 B 200 206,000
Ionica Plc,
Sr Disc Note, Step Coupon
(15.00%, 05-01-02) (United Kingdom)
05-01-07 (A) (Y) Zero Ca 200 2,250
McCaw International Ltd.,
Sr Disc Note, Step Coupon
(13.00%, 04-15-02) 04-15-07 (A) Zero B- 500 165,000
MetroNet Communications Corp.,
Sr Discount Note, Step Coupon
(10.75%, 11-01-02) (Canada)
11-01-07 (A) (Y) Zero BBB 200 189,386
Sr Note (Canada) 08-15-07 (Y) 12.000 BBB 50 54,500
Nextel International, Inc.,
Sr Note 08-01-10 (R) 12.750 B- 100 50,000
NorthEast Optic Network, Inc.,
Sr Note 08-15-08 12.750 B- 100 28,000
ONO Finance Plc,
Sr Sub Note (United Kingdom)
05-01-09 (E) 13.000 CCC+ 100 63,525
Sr Note (United Kingdom)
07-15-10 (E) 14.000 CCC+ 200 132,132
Pronet Inc.,
Sr Sub Note 06-15-05 11.875 D 280 28,000
TeleCorp PCS, Inc.,
Sr Sub Disc Note, Step Coupon
(11.625%, 04-15-04) 04-15-09 (A) Zero B3 175 106,750
Telewest Communications Plc,
Sr Disc Note, Step Coupon
(9.25%, 04-15-04)
(United Kingdom)
04-15-09 (A) (Y) Zero B+ 100 67,618
Sr Note (United Kingdom)
02-01-10 (R) # 9.875 B+ 100 114,105
Triton PCS, Inc.,
Sr Sub Note 02-01-11 (R) 9.375 CCC+ 100 96,000
VoiceStream Wireless Corp.,
Sr Note 09-15-09 11.500 B- 100 115,000
--------------
1,969,067
--------------
Telecommunications - Services (2.63%)
COLT Telecom Group Plc, (United Kingdom)
Sr Note (Deutsche Mark)
07-31-08# 7.625 B 300 105,235
Crown Castle International Corp.,
Sr Disc Note, Step Coupon
(10.625%, 11-15-02)
11-15-07 (A) Zero B 150 115,125
Energis Plc,
Sr Note (United Kingdom)
06-15-09 (R) # 9.500 B+ 130 164,818
Jazztel Plc,
Sr Note (United Kingdom)
12-15-09 (E) 13.250 CCC+ 200 62,678
Nextel Partners, Inc.,
Sr Disc Note, Step Coupon
(14.00%, 02-01-04)
02-01-09 (A) Zero CCC+ 390 218,400
NTL Communications Corp.,
Sr Note Ser B 10-01-08 11.500 B- 100 67,000
Sr Note Ser B, Step Coupon
(12.375%, 10-01-03)
10-01-08 (A) Zero B- 150 63,000
Orion Network Systems,
Sr Note 01-15-07 11.250 B+ 100 40,000
Time Warner Telecom, Inc.
Sr Note 02-01-11 10.125 B- 200 179,000
Time Warner Telecom LLC,
Sr Note 07-15-08 9.750 B 200 177,000
Tritel PCS, Inc.,
Sr Sub Disc Note Step Coupon
(12.75%, 05-15-04) 05-15-09 (A) Zero B3 100 63,000
United Pan-Europe Communicatons N.V.,
Sr Disc Note, Step Coupon
(13.375%, 11-01-04) (Netherlands)
11-01-09 (A) (E) Zero B- 40 10,164
Sr Note (Netherlands)
11-01-07 (E) 10.875 B- 40 19,312
Sr Note (Netherlands)
11-01-09 (E) 11.250 B- 65 31,381
Versatel Telecom International NV,
Sr Note (Netherlands)
05-15-08 (Y) 13.250 B- 100 38,000
Sr Note Ser EU (Netherlands)
07-15-09 (E) 11.875 B- 100 33,033
--------------
1,387,146
--------------
Transportation (0.63%)
CHC Helicopter Corp.,
Sr Sub Note (Canada)
07-15-07 (E) 11.750 B2 200 189,728
Fine Air Services Corp.,
Sr Note 06-01-08 (B) 9.875 D 105 6,296
North American Van Lines, Inc.,
Sr Sub Note 12-01-09 (R) 13.375 B- 150 138,000
--------------
334,024
--------------
Utilities (1.60%)
CMS Energy Corp.,
Sr Note 10-15-07 9.875 BB 200 211,000
Midland Funding Corp. II,
Deb Ser A 07-23-05 11.750 BB 200 220,500
Deb Ser B 07-23-06 13.250 BB 150 173,625
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico)
11-15-09 (R) (Y) 9.625 BB+ 90 93,841
Niagara Mohawk Power Corp.,
Sec Fac Bond 01-01-18 8.770 BBB 141 145,650
--------------
844,616
--------------
TOTAL LONG-TERM DEBT
(Cost $47,783,506) (86.38%) 45,639,076
-------------- --------------
NUMBER OF
SHARES OR
WARRANTS
--------------
COMMON STOCKS
AT&T Canada, Inc., Common Stock
(Canada) (Y)** 2,000 60,260
GT Group Telecom, Inc. (Class B), Common Stock
(Canada) (Y)** 982 4,439
KLM Royal Dutch Airlines N.V.,
American Depositary Receipt (ADR)
Common Stock (Netherlands) (Y) 397 7,007
Kraft Foods, Inc. (Class A)** 1,540 47,740
Nortek, Inc., Common Stock** 704 21,979
Versatel Telecom International N.V.,
ADR Common Stock (Netherlands)
(Y)** 1,333 3,786
--------------
145,211
--------------
TOTAL COMMON STOCKS
(Cost $164,806) (0.27%) 145,211
-------------- --------------
PREFERRED STOCKS AND WARRANTS
Allegiance Telecom, Inc. Warrant** 250 15,000
Comunicacion Celular S.A., Warrant
(Colombia) (Y)** 100 0
DIVA Systems Corp. Warrant (R)** 750 938
Loral Space & Communications Ltd.
Warrant** 100 175
ONO Finance Plc, Warrant (United
Kingdom) (E) (R)** 50 1,271
ONO Finance Plc, Warrant (United
Kingdom) (R) (Y)** 50 1,500
XO Communications Inc., 14%
Preferred Stock 2,505 75,150
--------------
94,034
--------------
TOTAL PREFERRED STOCKS AND WARRANTS
(Cost $158,153) (0.18%) 94,034
-------------- --------------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- -------------- -------------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (23.19%)
Investment in a joint repurchase
agreement transaction with UBS Warburg,
Inc. - Dated 06-29-01, due 07-02-01
(Secured by U.S. Treasury Bonds, 10.625%
due 08-15-15 and 6.250% due 08-15-23,
U.S. Treasury Note 5.625% due 11-30-02) 3.970% $12,252 $12,252,000
-------------- --------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $12,252,000) (23.19%) 12,252,000
-------------- --------------
TOTAL INVESTMENTS (110.02%) 58,130,321
-------------- --------------
OTHER ASSETS AND LIABILITIES, NET (10.02%) (5,294,111)
-------------- --------------
TOTAL NET ASSETS (100.00%) $52,836,210
============== ==============
* Credit ratings are unaudited and rated by Moody's Investor Service or
John Hancock Advisers, Inc. where Standard & Poor's ratings are not
available.
** Non-income producing security.
*** Represents rate in effect on June 30, 2001.
# Par value of foreign bonds is expressed in local currency, as
shown parenthetically in security description.
(A) Cash interest will be paid on this obligation at the stated
rate beginning on the stated date.
(B) Non-income producing issuer, filed for protection under
Federal Bankruptcy Code or is in default on interest payment.
(E) Parenthetical disclosure of a country in the security
description represents country of issuer; however, security is euro
denominated.
(R) These securities are exempt from registration under rule 144A
of the Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $3,211,889 or 6.08% of the fund's net
assets as of June 30, 2001.
(Y) Parenthetical disclosure of a foreign country in the security
description represents country of foreign issuer; however, security is U.S.
dollar denominated.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
Portfolio Concentration
June 30, 2001 (Unaudited)
- -------------------------------------------------------------------------
The V.A. Strategic Income Fund invests primarily in securities issued in
the United States of America. The performance of this Fund is closely tied
to the economic and financial conditions of the countries within which it
invests. The concentration of investments by industry category for
individual securities held by the Fund is shown in the schedule of
investments. In addition, concentration of investments can be aggregated
by various countries. The table below shows the percentages of the Fund's
investments at June 30, 2001 assigned to country categories.
MARKET VALUE
AS A % OF
COUNTRY DIVERSIFICATION FUND'S NET ASSETS
- ----------------------- -----------------
Australia 0.28%
Bahamas 0.19
Canada 6.48
Colombia 1.72
Egypt 0.57
France 0.19
Luxembourg 0.17
Mexico 4.09
Netherlands 0.53
Russia 4.34
United Kingdom 1.11
United States 88.97
Venezuela 1.38
-------
TOTAL INVESTMENTS 110.02%
=======
Additionally, the concentration of investments can be aggregated by the
quality rating for each debt security.
MARKET VALUE
AS A % OF
QUALITY DISTRIBUTION FUND'S NET ASSETS
- -------------------- -----------------
AAA 44.27%
AA 1.14
BBB 2.99
BB 14.25
B 21.07
CCC 2.46
D 0.20
-------
TOTAL BONDS 86.38%
=======
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock V.A. Core Equity Fund ("V.A. Core Equity Fund"), John Hancock
V.A. Relative Value Fund ("V.A. Relative Value Fund"), John Hancock V.A.
Sovereign Investors Fund ("V.A. Sovereign Investors Fund"), John Hancock
V.A. Financial Industries Fund ("V.A. Financial Industries Fund"), John
Hancock V.A. Technology Fund ("V.A. Technology Fund"), John Hancock V.A.
Bond Fund ("V.A. Bond Fund"), John Hancock V.A. Money Market Fund ("V.A.
Money Market Fund") and John Hancock V.A. Strategic Income Fund ("V.A.
Strategic Income Fund") (each a "Fund," collectively, the "Funds") are
separate series of John Hancock Declaration Trust (the "Trust"), an
open-end management investment company registered under the Investment
Company Act of 1940. The Trust, organized as a Massachusetts business
trust in 1995, consists of fifteen different series as of June 30, 2001.
The other series of the Trust are reported in a separate shareholders'
report. Each Fund currently has one class of shares with equal rights as
to voting, redemption, dividends and liquidation within its respective
Funds. The Trustees may authorize the creation of additional series from
time to time to satisfy various investment objectives. An insurance
company issuing a Variable Contract that participates in the Trust will
vote shares of the Funds held by the insurance company's separate accounts
as required by law. In accordance with current law and interpretations
thereof, participating insurance companies are required to request voting
instructions from policy owners and must vote shares of the Funds in
proportion to the voting instructions received.
The investment objective of the V.A. Core Equity Fund is to seek
above-average total return, consisting of capital appreciation and income.
The investment objective of the V.A. Relative Value Fund is to seek the
highest total return (capital appreciation plus current income) that is
consistent with reasonable safety of capital. The investment objective of
the V.A. Sovereign Investors Fund is to seek long-term growth of capital
and income without assuming undue market risks. The investment objective
of the V.A. Financial Industries Fund is to seek capital appreciation. The
investment objective of the V.A. Technology Fund is to seek long-term
growth of capital. The investment objective of the V.A. Bond Fund is to
seek a high level of current income consistent with prudent investment
risk. The investment objective of the V.A. Money Market Fund is to seek
maximum current income consistent with capital preservation and liquidity.
The investment objective of the V.A. Strategic Income Fund is to seek a
high level of current income.
Significant accounting policies of the Funds are as follows:
VALUATION OF INVESTMENTS Securities in the Funds' portfolios (except for
V.A. Money Market Fund) are valued on the basis of market quotations,
valuations provided by independent pricing services or, if quotations are
not readily available, or the value has been materially affected by events
occurring after the closing of a foreign market, at fair value as
determined in good faith in accordance with procedures approved by the
Trustees. Short-term debt investments maturing within 60 days are valued
at amortized cost, which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency
Translation" below.
The V.A. Money Market Fund's portfolio of securities is valued at
amortized cost, in accordance with Rule 2a-7 of the Investment Company Act
of 1940, which approximates market value. The amortized cost method
involves valuing a security at its cost on the date of purchase and
thereafter assuming a constant amortization to maturity of the difference
between the principal amount due at maturity and the cost of the security
to the Fund. Interest income on certain portfolio securities such as
negotiable bank certificates of deposit and interest-bearing notes is
accrued daily and included in interest receivable.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Funds, along with other registered
investment companies having a management contract with John Hancock
Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley
Financial Group, Inc., may participate in a joint repurchase agreement
transaction. Aggregate cash balances are invested in one or more large
repurchase agreements, whose underlying securities are obligations of the
U.S. government and/or its agencies. The Funds' custodian bank receives
delivery of the underlying securities for the joint account on the Funds'
behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially expressed
in terms of foreign currencies are translated into U.S. dollars based on
London currency exchange quotations as of 5:00 p.m., London time, on the
date of any determination of the net asset value of the Funds.
Transactions affecting statement of operations accounts and net realized
gain (loss) on investments are translated at the rates prevailing at the
dates of the transactions.
The Funds do not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain
or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on
the Funds' books and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains and losses arise
from changes in the value of assets and liabilities, other than
investments in securities, resulting from changes in the exchange rate.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on sales
of investments are determined on the identified cost basis. Capital gains
realized on some foreign securities are subject to foreign taxes, which
are accrued, as applicable. Some securities may be purchased on a
"when-issued" or "forward delivery" basis, which means that the securities
will be delivered to the Funds at a future date, usually beyond customary
settlement date.
DISCOUNT AND PREMIUM ON SECURITIES The Funds accrete discount and amortize
premium from par value on securities from either the date of issue or the
date of purchase over the life of the security.
EXPENSES The majority of the expenses are directly identifiable to an
individual fund. Expenses that are not readily identifiable to a specific
fund will be allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
ORGANIZATION EXPENSES Expenses incurred in connection with the
organization of the Funds have been capitalized and are being charged to
the Funds' operations ratably over a five-year period that began with the
commencement of the investment operations of the Funds.
BANK BORROWINGS The Funds (except for V.A. Money Market Fund) are
permitted to have bank borrowings for temporary or emergency purposes,
including the meeting of redemption requests that otherwise might require
the untimely disposition of securities. The Funds have entered into a
syndicated line of credit agreement with various banks. This agreement
enables the Funds to participate with other funds managed by the Adviser
in an unsecured line of credit with banks, which permit borrowings up to
$500 million, collectively. Interest is charged to each fund, based on its
borrowing. In addition, a commitment fee is charged to each fund based on
the average daily unused portion of the line of credit and is allocated
among the participating Funds. The Funds had no borrowing activities under
the line of credit during the period ended June 30, 2001.
SECURITIES LENDING The Funds may lend securities to certain qualified
brokers who pay the Funds negotiated lender fees. These fees are included
in interest income. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Funds may bear
the risk of delay of the loaned securities in recovery or even loss of
rights in the collateral, should the borrower of the securities fail
financially. At June 30, 2001, the V.A. Relative Value and V.A. Technology
Funds loaned securities having a market value of $1,765,629 and $262,760,
collateralized by securities in the amount of $1,800,942 and $268,015,
respectively.
OPTIONS The Funds (except for V.A. Money Market Fund) may enter into
option contracts. Listed options will be valued at the last quoted sales
price on the exchange on which they are primarily traded. Over-the-counter
options are valued at the mean between the last bid and asked prices. Upon
the writing of a call or put option, an amount equal to the premium
received by a Fund will be included in the Statement of Assets and
Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked to market to reflect the current
market value of the written option.
The Funds may use option contracts to manage their exposure to the price
volatility of financial instruments. Writing puts and buying calls will
tend to increase the Funds' exposure to the underlying instruments and
buying puts and writing calls will tend to decrease the Funds' exposure to
the underlying instruments, or hedge other Funds' investments.
The maximum exposure to loss for any purchased options will be limited to
the premium initially paid for the option. In all other cases, the face
(or "notional") amount of each contract at value will reflect the maximum
exposure of a Fund in these contracts, but the actual exposure will be
limited to the change in value of the contract over the period the
contract remains open.
Risks may also arise if counterparties do not perform under the contracts'
terms ("credit risk") or if a Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options
have minimal credit risk as the exchanges act as counterparties to each
transaction, and only present liquidity risk in highly unusual market
conditions. To minimize credit and liquidity risks in over-the-counter
option contracts, the Funds will continuously monitor the creditworthiness
of all their counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Funds'
year-end Statements of Assets and Liabilities. The Funds had no written
option transactions during the period ended June 30, 2001.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Funds (except for V.A.
Core Equity, V.A. Sovereign Investors and V.A. Money Market Funds) may
enter into forward foreign currency exchange contracts as a hedge against
the effect of fluctuations in currency exchange rates. A forward foreign
currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date at a set price. The aggregate principal
amounts of the contracts are marked to market daily at the applicable
foreign currency exchange rates. Any resulting unrealized gains and losses
are included in the determination of the Funds' daily net assets. The
Funds record realized gains and losses at the time the forward foreign
currency exchange contract is closed out or offset by a matching contract.
Risks may arise upon entering these contracts from the potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Funds' Statements of Assets and Liabilities.
The Funds may also purchase and sell forward contracts to facilitate the
settlement of foreign currency denominated portfolio transactions, under
which they intend to take delivery of the foreign currency. Such contracts
normally involve no market risk if they are offset by the currency amount
of the underlying transaction.
The Funds had the following open forward foreign currency exchange
contracts at June 30, 2001:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION/
CURRENCY COVERED BY CONTRACT MONTH (DEPRECIATION)
- -------- ------------------- ---------- ------------
V.A. STRATEGIC INCOME FUND
Buys
Pound Sterling 255,500 Jul 01 ($7,045)
=======
Sells
Pound Sterling 523,700 Jul 01 $21,244
Pound Sterling 218,500 Aug 01 5,485
Pound Sterling 196,900 Sep 01 ($3,669)
-------
$23,060
=======
FEDERAL INCOME TAXES The Funds qualify as "regulated investment companies"
by complying with the applicable provisions of the Internal Revenue Code
and will not be subject to federal income tax on taxable income which is
distributed to shareholders. Therefore, no federal income tax provision is
required.
For federal income tax purposes, the following Funds had capital loss
carryforwards available to the extent provided by regulators to offset
future net realized capital gains:
CAPITAL LOSS
CARRYFORWARD EXPIRING
-------------------------------------
FUND 12/31/2006 12/31/2007 12/31/2008
- ---- ---------- ---------- ----------
V.A. Sovereign Investors Fund $157,877 $101,159 $1,206,695
V.A. Financial Industries Fund -- 2,140,648 1,313,228
V.A. Technology Fund -- -- 14,000
V.A. Bond Fund -- 67,593 215,568
V.A. Strategic Income Fund 4,130 136,493 455,777
Expired capital loss carryforwards are reclassified to capital paid-in, in
the year of expiration.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment
securities is recorded on the ex-dividend date or, in the case of some
foreign securities, on the date thereafter when the Funds identify the
dividends. Interest income on investment securities is recorded on the
accrual basis. The Funds may place debt obligations on non-accrual status
and reduce related interest income by ceasing current accruals and writing
off interest receivables when the collection of interest has become
doubtful. Foreign income may be subject to foreign withholding taxes,
which are accrued as applicable.
The Funds record distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ
from accounting principles generally accepted in the United States of
America.
USE OF ESTIMATES The preparation of these financial statements, in
accordance with accounting principles generally accepted in the United
States of America, incorporates estimates made by management in
determining the reported amount of assets, liabilities, revenues and
expenses of the Funds. Actual results could differ from these estimates.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
The Funds have an investment management contract with the Adviser. Under
the investment management contract, the Funds pay monthly management fees
to the Adviser equivalent, on an annual basis, to the following:
RATE AS A PERCENTAGE OF
FUND AVERAGE DAILY NET ASSETS
- ---- ------------------------
V.A. Core Equity Fund 0.70%
V.A. Relative Value Fund 0.60
V.A. Sovereign Investors Fund 0.60
V.A. Financial Industries Fund 0.80
V.A. Technology Fund 0.80
V.A. Bond Fund 0.50
V.A. Money Market Fund 0.50
V.A. Strategic Income Fund 0.60
V.A. Core Equity Fund and the Adviser have a subadvisory contract with
Independence Investment LLC ("Independence"), formerly Independence
Investment Associates, Inc. Independence is a wholly owned indirect
subsidiary of John Hancock Life Insurance Company ("JHLICo"). The V.A.
Technology Fund and the Adviser have a subadvisory contract with American
Fund Advisors, Inc. The Funds are not responsible for payment of
subadvisers' fees.
The Adviser has agreed to limit each Fund's expenses (excluding the
management fee), to 0.25% of each Fund's average daily net assets at least
until April 30, 2002. Accordingly, the Adviser reduced the V.A. Technology
Fund's expenses by $7,551 for the period ended June 30, 2001. The Adviser
reserves the right to terminate this limitation in the future.
The Funds have an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Funds. The compensation for the
period was at an annual rate 0.02% of the average net assets of the Funds.
Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or officers
of the Adviser and/or its affiliates, as well as Trustees of the Funds.
The compensation of unaffiliated Trustees is borne by the Funds. The
unaffiliated Trustees may elect to defer for tax purposes their receipt of
this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Funds make investments into other John Hancock
Funds, as applicable, to cover their liability for the deferred
compensation. Investments to cover the Funds' deferred compensation
liability are recorded on the Funds' books as an other asset. The deferred
compensation liability and the related other asset are always equal and
are marked to market on a periodic basis to reflect any income earned by
the investment as well as any unrealized gains or losses. The Deferred
Compensation Plan investments had no impact on the operations of the
Funds.
The Adviser and other subsidiaries of John Hancock Life Insurance Company
owned the following shares of beneficial interest of the Funds as of June
30, 2001:
FUND SHARES OF BENEFICIAL INTEREST
- ---- -----------------------------
V.A. Technology Fund 50,095
V.A. Bond Fund 135,931
V.A. Money Market Fund 123,982
V.A. Strategic Income Fund 557,187
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities for the Funds, other than
short-term securities and obligations of the U.S. government, during the
period ended June 30, 2001, were as follows:
FUND PURCHASES SALES
- ---- ----------- -----------
V.A. Core Equity Fund 19,622,904 16,593,115
V.A. Relative Value Fund 23,534,078 15,426,044
V.A. Sovereign Investors Fund 27,892,613 12,218,212
V.A. Financial Industries Fund 50,251,626 36,764,543
V.A. Technology Fund 16,391,057 2,346,666
V.A. Bond Fund 107,129,045 66,899,002
V.A. Strategic Income Fund 33,658,235 16,521,059
The cost of investments owned at June 30, 2001 (including short-term
investments) and gross unrealized appreciation and depreciation of
investments for federal income tax purposes, were as follows:
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND COST APPRECIATION DEPRECIATION (DEPRECIATION)
- ---- ----------- ------------ ------------ ------------
V.A. Core Equity Fund $36,789,999 $6,623,422 $1,871,339 $4,752,083
V.A. Relative Value Fund 56,604,513 6,392,678 11,617,088 (5,224,410)
V.A. Sovereign Investors Fund 63,970,454 8,074,640 3,704,883 4,369,757
V.A. Financial Industries Fund 73,777,334 10,566,411 2,695,772 7,870,639
V.A. Technology Fund 29,303,387 1,187,668 8,454,824 (7,267,156)
V.A. Bond Fund 69,426,695 399,880 419,904 (20,024)
V.A. Money Market Fund 143,342,085 -- -- --
V.A. Strategic Income Fund 60,832,493 571,358 3,273,530 (2,702,172)
NOTE D --
CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 2001, the Funds adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies, as revised, and began
amortizing premiums on debt securities. Prior to this date, the Funds did
not amortize premiums on debt securities. The cumulative effect of this
accounting change had no impact on the total net assets of the Funds, but
resulted in the following reduction in the cost of the investments and a
corresponding increase/decrease in unrealized appreciation/depreciation on
investments, based on securities held as of December 31,2000:
REDUCTION IN THE COST
FUND OF THE INVESTMENTS
- ---- ---------------------
V.A. Bond Fund $32,713
V.A. Strategic Income Fund 230,438
The effect of this change in the period ended June 30, 2001 was as
follows:
INCREASE/
DECREASE IN DECREASE
REDUCTION IN NET REALIZED IN NET
THE COST OF GAIN/LOSS INVESTMENT
FUND INVESTMENTS ON INVESTMENTS INCOME
- ---- ----------- -------------- ----------
V.A. Bond Fund $26,706 $28,562 $55,268
V.A. Strategic Income Fund 243,590 47,556 291,146
The effect of this change on the per share operating performance and the
annualized ratio of net investment income to average net assets in the
period ended June 30, 2001 was as follows:
INCREASE/
DECREASE IN NET DECREASE
DECREASE REALIZED AND IN NET
IN NET UNREALIZED INVESTMENT
INVESTMENT LOSS/GAIN INCOME TO
INCOME ON INVESTMENTS AVERAGE
FUND PER SHARE PER SHARE NET ASSETS
- ---- --------- -------------- ----------
V.A. Bond Fund $0.02 $0.02 0.27%
V.A. Strategic Income Fund 0.06 0.06 1.50
The Statements of Changes in Net Assets and the Financial Highlights for
prior periods have not been restated to reflect this change in
presentation.
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.]
John Hancock Funds, Inc.
MEMBER NASD
101 Huntington Avenue
Boston, MA 02199-7603
1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds.com
This report is for the information of the shareholders of the John
Hancock Declaration Trust.
A recycled logo in lower left hand corner with caption "Printed on
Recycled Paper."
RVASA 6/01
8/01
SEMIANNUAL REPORT
Declaration Trust
Equity V.A. 500 Index Fund
V.A. Large Cap Growth Fund
V.A. Mid Cap Growth Fund
V.A. Small Cap Growth Fund
- ------------------------------------------------------
International V.A. International Fund
- ------------------------------------------------------
Sector V.A. Regional Bank Fund
- ------------------------------------------------------
Income V.A. High Yield Bond Fund
JUNE 30, 2001
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS".]
Table of Contents
1) CEO Corner 3
2) Portfolio Manager Commentary
These commentaries reflect the views of the portfolio managers or
portfolio management teams through the end of the period discussed in
this report. Of course, the managers' or team's views are subject to
change as market and other conditions warrant.
Equity
V.A. 500 Index Fund 4
V.A. Large Cap Growth Fund 7
V.A. Mid Cap Growth Fund 10
V.A. Small Cap Growth Fund 13
International
V.A. International Fund 16
Sector
V.A. Regional Bank Fund 19
Income
V.A. High Yield Bond Fund 22
3) Financial Statements 25
4) Notes to Financial Statements 57
TRUSTEES
Dennis S. Aronowitz*
Richard P. Chapman, Jr.
William J. Cosgrove*
John M. DeCiccio
Richard A. Farrell*
Maureen R. Ford
Gail D. Fosler
William F. Glavin
Dr. John A. Moore
Patti McGill Peterson
John W. Pratt*
* Members of the Audit Committee
OFFICERS
Maureen R. Ford
Chairman, President and
Chief Executive Officer
William L. Braman
Executive Vice President and
Chief Investment Officer
Richard A. Brown
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Senior Vice President and Secretary
William H. King
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIANS
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
V.A. High Yield Bond Fund
V.A. Large Cap Growth Fund
V.A. Mid Cap Growth Fund
V.A. Regional Bank Fund
V.A. Small Cap Growth Fund
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
V.A. 500 Index Fund
V.A. International Fund
TRANSFER AGENT
John Hancock Annuity Servicing Office
529 Main Street (X-4)
Charlestown, Massachusetts 02129
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
SUB-INVESTMENT ADVISER
Nicholas-Applegate Capital Management LP
600 West Broadway
San Diego, California 92101
V.A. International Fund
ISSUER
John Hancock
Life Insurance Company
John Hancock Variable
Life Insurance Company*
200 Clarendon Street
Boston, Massachusetts 02117
*Not Licensed in New York
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
CEO CORNER
[A 1" x 1" photo of Maureen R. Ford, Chairman and Chief Executive Officer,
flush right next to first paragraph.]
DEAR SHAREHOLDERS:
The U.S. stock market has had a rough beginning in 2001, as last year's
downward spiral continued due to growing concern over the slowing economy
and a parade of disappointing earnings announcements. The Standard & Poor's
500 Index, a leading benchmark of large-cap stocks, fell by 6.69% in the
first six months of the year. The Federal Reserve aggressively began to
attack the economic slowdown with interest-rate cuts totaling 2.75
percentage points between January and the end of June. By April, investors
began to believe the worst might be over, prompting a sharp stock rally
that month. Bonds wound up outperforming stocks overall.
Even with the spring upturn, the stock market remains indecisive, as
investors try to get a clearer sense of the timetable for economic and
corporate recovery. More than ever, this is a time to keep a long-term
investment perspective and check in with your investment professional to
ensure that your portfolio is adequately diversified.
In the midst of this year's market disappointments, one significant event
occurred that has positive short- and long-term implications for
investors. On June 7, President George W. Bush signed into law the most
sweeping tax-cut bill in two decades. The bill's first benefit comes this
summer in the form of a tax refund, ranging from $300 to $600, to almost
everyone who filed a 2000 tax return. Gradual cuts in taxes will follow
the rebate checks. For investors, the bill also provides a number of extra
incentives for retirement and college savings through changes to IRA and
401(k) plan contributions and enhancements to Education IRAs, among other
things.
The new tax law has a variety of provisions, many of which are phased in
over a number of years. We encourage you to consult with your investment
professional to determine how to take the best, and most timely, advantage
of the benefits it contains.
Sincerely,
/S/ MAUREEN R. FORD
MAUREEN R. FORD, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY JAMES D. SCHANTZ, CFA, PORTFOLIO MANAGER
John Hancock
V.A. 500 Index Fund
S&P 500 Index loses ground as economy slows
For the stocks that make up the Standard & Poor's 500 Index, the first six
months of 2001 can be neatly divided between their poor showing during the
first calendar quarter and their rebound in the second quarter. In the
first three months of the year, a weakening economy and surprisingly poor
corporate earnings reports caused the Index to drop by nearly 12%. But
from April through the end of June, stocks rebounded as sentiment shifted,
lifting the S&P 500 Index by nearly 6%, thereby cutting the Index's loss
back to -6.69% for the first half of the year.
"Interestingly,
the technology
sector provided
the Index with
some of its best
performers, as
well as its
biggest losers."
Despite the continual drumbeat of bad economic news, job cuts and earnings
warnings, consumer and investor confidence rose, thanks to hopes that the
Federal Reserve Board's aggressive rate-cutting campaign could prevent the
economy from free falling into a recession. The Fed lowered rates six
times during as many months, with three of the cuts coming in April, May
and June. The rate cuts lowered corporate borrowing costs, pumped money
into the U.S. economy and fanned hopes that corporate earnings and stocks
prices would improve. Even the depressed manufacturing sector exhibited
signs that the worst could be behind it.
[Table at bottom left hand column entitled "Top Five Stock Holdings." The
first listing is General Electric 4.3%, the second is Microsoft 3.5%, the
third ExxonMobil 2.7%, the fourth Citigroup 2.3% and the fifth Pfizer 2.2%.
A note below the table reads "As a percentage of net assets on June 30,
2001."]
Fund performance and strategy explained
John Hancock V.A. 500 Index Fund had a total return of -6.88% at net asset
value for the six-month period ended June 30, 2001. By comparison, the
average variable annuity S&P 500 Index objective fund had a total return
of -6.86%, according to Lipper, Inc. Historical performance information
can be found on page six.
In managing the Fund, our goal is to have our holdings closely track those
of the S&P 500 Index, while minimizing the costs associated with buying
and selling shares of stocks. Although there are frequent changes in the
composition of the Index, we re-balance the Fund's holdings less
frequently to minimize transaction costs. When we get additional money
into the Fund that cannot immediately be deployed into Index components,
we buy S&P 500 futures, which allow us to participate in the Index's
performance without incurring the higher transaction costs of buying
stocks.
[A 1 1/2" x 2" photo at bottom right side of page of John Hancock V.A. 500
Index Fund. Caption below reads "Jim Schantz."]
Technology: leaders and laggards
Interestingly, the technology sector provided the Index with some of its
best performers, as well as its biggest losers. Microsoft, for example,
surged more than 68% during the first six months of 2001. In contrast to
some other technology suppliers, the company rode the wave of strong
demand for corporate software and easily topped reduced expectations for
profits and revenues. The company's shares also got a boost in late June
when a U.S. appeals court tossed out a lower court's order to split the
company. Other computer giants, such as industry titans IBM and Dell
Computers, also flourished, posting gains of roughly 33% and 49%,
respectively. Investors enthused about the combination of Internet and
media companies AOL and Time Warner pushed its combined stock up about
52%.
[Bar chart at the top of left hand column with heading "Fund Performance."
Under the heading is a note that reads "For the six months ended June 30,
2001." The chart is scaled in increments of 2% with -8% at the bottom and
0% at the top. The first bar represents the -6.88% total return for John
Hancock V.A. 500 Index Fund. The second bar represents the -6.86% total
return for Average variable annuity S&P 500 Index objective fund. A note
below the chart reads "The total return for John Hancock V.A. 500 Index
Fund is at net asset value with all distributions reinvested. The average
variable annuity S&P 500 Index objective fund is tracked by Lipper, Inc.
See the following page for historical performance information."]
In contrast, some well-known technology stocks -- including some of last
year's best performers -- proved to be the biggest detractors from the
Index's performance. Cisco Systems, the leading provider of data
networking products to businesses, slumped more than 52% and was the
biggest detractor from the Index's performance on a
capitalization-weighted basis. Data storage companies EMC and Nortel
Networks also were hit hard, suffering losses of about 55% and 71%
respectively.
Topping the list of the Index's best performers was Bank of America, which
exceeded earnings expectations thanks to improvement in its core custody
business (the management of stock certificates and other securities held
by clients), growth in asset management fees and rising trading revenues.
AT&T gained 27% during the period, driven by its ability to meet
scaled-back earnings expectations. Philip Morris returned roughly 17%
thanks to improving results in many of its businesses, including tobacco
and food. The nation's second-largest home-improvement retailer Lowe's was
up more than 63% as the company continued to benefit from the strong
housing market and falling interest rates.
Health care, telecom hit hard
As bad as some of the technology sector's losses were, the health-care
sector's declines were worse. An absence of exciting new products either
in the research pipeline or recently brought to market, coupled with
investors' speedy rotation out of defensive names into higher growth
stocks in the spring, took its toll on pharmaceutical companies
Bristol-Myers Squibb and Pfizer. Communications equipment companies such
as JDS Uniphase and Corning suffered losses of roughly 70% each as telecom
providers drastically reduced their plans to build out their systems.
"The stock market
enters the second
half of 2001 under
a cloud of
uncertainty."
Outlook
The stock market enters the second half of 2001 under a cloud of
uncertainty. For the most part, corporate earnings remain weak and CEOs
continue to complain about a lack of "visibility," meaning they have no
clear idea of when earnings will improve. Although job cuts continue,
consumer confidence has remained strong and has provided a cushion against
the declining technology and manufacturing sectors. Whether or not this
continues to be the case in the second half is anyone's guess. On the
other hand, the six interest-rate cuts delivered in the first half,
coupled with tax cuts, may put enough money into the economy to pull it
out of its doldrums. But regardless of how the stock market performs, our
goal will be to closely track the performance of the S&P 500 Index. The
Fund's returns, as always, will be dictated by the performance of that
Index.
A LOOK AT PERFORMANCE
For the period ended June 30, 2001
SINCE
SIX ONE INCEPTION
MONTHS YEAR (8/29/96)
------- ------- -------
Cumulative Total Returns (6.88%) (15.08%) 89.26%
Average Annual Total Returns -- (15.08%) 14.10%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
Note to Performance
The Fund's performance results reflect any applicable expense reductions,
without which the expenses would increase and results would have been less
favorable. These reductions can be terminated in the future.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. 500 Index Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Standard & Poor's 500 Index -- an unmanaged
index that includes 500 widely traded common stocks and is often used as a
measure of stock market performance. It is not possible to invest in an index.
Line chart with the heading John Hancock V.A. 500 Index Fund, representing
the growth of a hypothetical $10,000 investment over the life of the fund.
Within the chart are two lines. The first line represents the Standard &
Poor's 500 Index and is equal to $20,142 as of June 30, 2001. The second
line represents the value of the hypothetical $10,000 investment made in
the John Hancock V.A. 500 Index Fund on August 29, 1996 and is equal to
$18,926 as of June 30, 2001.
BY WILLIAM L. BRAMAN, ROBERT UEK AND PAUL J. BERLINGUET
FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
V.A. Large Cap Growth Fund
Corporate profits and economy weaken, stock prices remain erratic
Throughout the six months ended June 30, 2001, the stock market continued
to provide investors with a steady diet of unease. The year began in the
midst of a well-rounded bear market that had depressed stock prices,
especially in the technology sector, and greatly diminished investor
confidence. The Federal Reserve Board aggressively entered the scene,
injecting liquidity into the financial markets with six successive cuts in
short-term interest rates amounting to a total of 2.75 percentage points.
By June's end, the federal funds rate stood at 3.75%, down from 6.50% in
December 2000.
[Table at bottom left hand column entitled "Top Five Stock Holdings." The
first listing is General Electric 5.9%, the second is Tyco International
5.7%, the third Cisco Systems 4.5%, the fourth AOL Time Warner 4.3% and the
fifth Wal-Mart Stores 4.2%. A note below the table reads "As a percentage
of net assets on June 30, 2001."]
In response to the Fed's initial actions, stock prices rebounded in April
and May, lending credence to the widely held view that the worst of the
rout may be over. Near period's end, the market's second quarter
pre-announcement season was under way. A number of high-profile companies
- -- particularly in, but not limited to, the technology sector -- predicted
weaker-than-expected profits and some even admitted to dire financial
straits. Stock prices came under pressure once again and the broad market,
as measured by the Standard & Poor's 500 Index, lost ground in the period,
returning -6.69% for the first six months of the year.
"As the period
progressed,
our objective
increasingly
became
broader
diversification..."
Fund performance
For the six months ended June 30, 2001, John Hancock V.A. Large Cap Growth
Fund produced a total return of -25.12% at net asset value. This compares
with the -14.71% return posted by the average variable annuity large-cap
growth fund, according to Lipper, Inc. Historical performance information
can be found on page 9.
Many technology positions reduced or eliminated
The Fund's weighting in technology, which is greater than that of its
peers, along with individual stock selection within the telecommunications
equipment group during the first calendar quarter, were the primary causes
of its relative underperformance. As the second quarter began, however, we
shifted the Fund's technology exposure away from a number of
telecommunications equipment, networking and fiber-optics-related stocks
- -- the technology subsectors that were hit particularly hard by the
deterioration in capital equipment spending. We sold such names as Nortel
Networks, Ericsson, PMC Sierra, Broadcom, JDS Uniphase and Corning. We
also pared or eliminated positions in hardware names such as Sun
Microsystems, EMC, Compaq and IBM. By period's end, the Fund's technology
weighting was trimmed to roughly 30% of net assets.
[Bar chart at the top of left hand column with heading "Fund Performance."
Under the heading is a note that reads "For the six months ended June 30,
2001." The chart is scaled in increments of 6% with -30% at the bottom and
0% at the top. The first bar represents the -25.12% total return for John
Hancock V.A. Large Cap Growth Fund. The second bar represents the -14.71%
total return for Average variable annuity large-cap growth fund. A note
below the chart reads "The total return for John Hancock V.A. Large Cap
Growth Fund is at net asset value with all distributions reinvested. The
average variable annuity large-cap growth fund is tracked by Lipper, Inc.
See the following page for historical performance information."]
Redefined tech focus helps in Q2
We redeployed our tech assets into software-related companies as well as
semiconductor capital equipment stocks, either adding to existing
portfolio holdings or initiating new positions in such names as Microsoft,
Amdocs Ltd., Electronic Data Systems, Intel, Applied Materials and
Novellus Systems. Many of the software companies we pursued exhibit
greater predictability in their future earnings potential than many other
technology names right now, while the semiconductor stocks appealed to us
because we believe the ones we've chosen are poised to benefit when new
order momentum resumes. The portfolio's reconfiguration within the
technology arena proved timely, as the stock prices of many networking
companies hit new lows after they were eliminated from the portfolio. In
fact, the Fund's revised technology exposure helped the portfolio regain
some previously lost ground and outperform its Lipper peer group in the
second quarter.
"...stock
prices may
continue to
take two steps
forward and
one step back
through
calendar
year end...
Broader diversification the best strategy
Throughout the period, the market has taken its cues from corporate profit
announcements and leading economic indicators and we, in turn, have taken
our cues from the market. It now appears the long-awaited turnaround in
corporate profitability is not within easy reach as investors had hoped
earlier this year. As the period progressed, our objective increasingly
became broader diversification in tandem with a focus on companies that
demonstrate a clear visibility in their earnings stream. We applied this
approach not only to the technology sector but also to health-care,
consumer-oriented companies, financial names and those issues with a
cyclical bias.
Over the period, we bolstered the Fund's stake in health-care stocks. We
did so in favor of niche players, those health-care companies with higher
growth potential than the traditional pharmaceutical companies, which are
currently contending with leaner product pipelines. We also sold
health-care equipment companies such as Waters, which is suffering from a
manufacturing slump in health-care's research and development area. Newly
purchased, or bolstered, positions include Allergan, a specialty eye-care
pharmaceutical company; Amgen, an established biotech company; and
Stryker, a medical device company benefiting from changing demographics
and a new product cycle.
We made a small foray into consumer-staple companies such as
Anheuser-Busch and Philip Morris and initiated a position in Viacom, a
media conglomerate with a broad spectrum of advertising delivery mediums.
We purchased American Express and Goldman Sachs, two financial service
companies with diversified business models, as well as home-improvement
retailer Lowe's.
Outlook
Going forward, we anticipate a turn for the better in business conditions,
based on the Fed's commitment to ease monetary policy to spur economic
growth. The critical factor remains timing. Historically, business and
investment conditions tend to improve six to 12 months after a concerted
effort by the Fed to improve financial liquidity. We are still in the
midst of a lengthy campaign, with the possibility of even further rate
cuts ahead. Therefore, stock prices may continue to take two steps forward
and one step back through calendar year end, as investors struggle to
regain confidence in the viability of corporate America's long-term growth
potential.
A LOOK AT PERFORMANCE
For the period ended June 30, 2001
SINCE
SIX ONE INCEPTION
MONTHS YEAR (8/29/96)
------- ------- -------
Cumulative Total Returns (25.12%) (46.31%) (16.98%)
Average Annual Total Returns -- (46.31%) (3.78%)
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
Note to Performance
The Fund's performance results reflect any applicable expense reductions,
without which the expenses would increase and results would have been less
favorable. These reductions can be terminated in the future.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Large Cap Growth Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Russell Top 200 Growth Index -- an unmanaged
index which measures the performance of the Russell Top 200 companies with
higher price-to-book ratios and higher forecasted growth values. It is not
possible to invest in an index.
Line chart with the heading John Hancock V.A. Large Cap Growth Fund,
representing the growth of a hypothetical $10,000 investment over the life
of the fund. Within the chart are two lines. The first line represents the
Russell Top 200 Growth Index and is equal to $18,766 as of June 30, 2001.
The second line represents the value of the hypothetical $10,000 investment
made in the John Hancock V.A. Large Cap Growth Fund on August 29, 1996 and
is equal to $8,302 as of June 30, 2001.
BY PAUL J. BERLINGUET AND TIMOTHY N. MANNING
FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
V.A. Mid Cap Growth Fund
Mid-cap growth stocks tumble as market continues to head south
The stock market's progress in the first half of 2001 was a tale best told
in two parts. During the first quarter, the market went through a brutal
meltdown that rocked nearly all sectors. Leading the decline were
technology and telecommunications stocks, which looked overly expensive
relative to deteriorating business fundamentals. Safer-haven sectors like
finance and energy moved into favor. Early in the second quarter, the
market reversed course, thanks to lower interest rates and anecdotal
reports that business was stabilizing at some companies. Amid the relief
rally that marked the second quarter, however, volatility continued as
many companies announced missed earnings. The Standard & Poor's 500 Index
closed the six months ended June 30, 2001 with a -6.69% return. By
comparison, the Russell Midcap Growth Index returned -12.96% due to its
heavier concentrations in technology, telecom and biotechnology names.
"We trimmed
more volatile
names in the
telecom,
biotech and
software
sectors..."
Disappointing performance
John Hancock V.A. Mid Cap Growth Fund had a sizable, but average, stake in
technology -- about one-third of assets -- but was dogged by weak stock
performance. Higher-than-average investments in telecom and biotech also
eroded performance, leaving the Fund with a -23.39% return at net asset
value for the first six months of the year. By comparison, the average
variable annuity multi-cap growth fund returned -16.18%, according to
Lipper, Inc. Historical performance information appears on page 12.
[Table at bottom left hand column entitled "Top Five Stock Holdings." The
first listing is Shire Pharmaceuticals 2.2%, the second is VeriSign 2.1%,
the third USA Education 2.1%, the fourth Mercury Interactive 2.0% and the
fifth Dobson Communications 2.0%. A note below the table reads "As a
percentage of net assets on June 30, 2001."]
Disappointments in telecom and biotech
Among the biggest drags on performance were our stakes in competitive
local exchange carriers like McLeodUSA and XO Communications, both of
which fell sharply amid the downturn in telecom spending. As the outlook
for the sector remained uncertain, we decided to cut our losses and sell.
Several stocks in the volatile biotech area also cost the Fund dearly,
including Waters and Applera Corp. - Applied Biosystems Group, both of
which supply analytical equipment to biotech companies, which cut back on
spending in 2001. Millennium Pharmaceuticals, a company that provides
genetic information to pharmaceutical companies, and Immunex, a
biopharmaceutical company that develops drugs to treat autoimmune
disorders, also posted steep declines. In the technology area, our
investments in Brocade Communications Systems, which make switches for
storage systems, and Aeroflex, which makes optical test equipment used in
the build-out of fiber-optic networks, tumbled as spending slowed.
Gains in retail and finance
Tempering these losses were our retail investments, including Abercrombie
& Fitch, Bed Bath & Beyond, Coach and Staples, which we had built up early
in the year. All rallied nicely as consumers kept spending and investors
anticipated an economic recovery, and we took profits. Our finance
investments also did quite well. Transaction processors like Concord EFS
and Fiserv benefited from their predictable revenue streams, while USA
Education (formerly Sallie Mae), a student loan company, attracted
interest following a recent acquisition. Other top gainers included
Scientific-Atlanta, a leading producer of digital set top boxes for cable
television, KLA-Tencor, which provides inspection systems for
semiconductor capital equipment, and King Pharmaceuticals, a specialty
pharmaceutical company with a new cardiovascular drug that has quickly
gained market share.
[Bar chart at the top of left hand column with heading "Fund Performance."
Under the heading is a note that reads "For the six months ended June 30,
2001." The chart is scaled in increments of 5% with -25% at the bottom and
0% at the top. The first bar represents the -23.39% total return for John
Hancock V.A. Mid Cap Growth Fund. The second bar represents the -16.18%
total return for Average variable annuity multi-cap fund. A note below the
chart reads "The total return for John Hancock V.A. Mid Cap Growth Fund is
at net asset value with all distributions reinvested. The average variable
annuity multi-cap fund is tracked by Lipper, Inc. See the following page
for historical performance information."]
Focus on predictability
In the spring, we stepped up the Fund's emphasis on companies with
predictable earnings growth and the potential for dominant market share.
These businesses have proven they can do well even in a sluggish economy.
We trimmed more volatile names in the telecom, biotech and software
sectors, buying instead stocks like Amdocs, which provides telecom
carriers with outsourcing solutions for customer service and billing. This
is a company with no competition and more than 75% of its revenues for
next year guaranteed by long-term contracts. We also increased our stake
in VeriSign, a software company that is a leader in Internet domain
registration, and Dobson Communications, a wireless company that has
longer-term contracts with major carriers and little direct competition in
the rural markets it serves.
Buying opportunities
Much of our buying was in the medical area (about 22% of net assets),
where we focused on companies with predictable earnings, including
health-care service companies like WellPoint Health Networks and specialty
pharmaceuticals like Shire Pharmaceuticals. We also increased our
investment in media stocks, which we expect to benefit as the economy
recovers and ad spending increases. Among our additions were USA Networks,
a company with great management and media assets, and Charter
Communications, a cable company that is adding subscribers at the same
time that its build-out expenditures are coming to an end. In the
technology sector, we increased our investment in Mercury Interactive, a
software testing company that has strong growth prospects.
"By the fourth
quarter, the
market should
benefit from
easier
year-over-year
earnings
comparisons as
well as
improved
corporate
revenues."
A look ahead
The Federal Reserve cut interest rates six times between January and June.
Typically, interest-rate moves take six to 12 months before they work
their way through the economy. This means we could be looking at a
recovery by late in the year. Fortunately, inflation and unemployment have
both remained pretty low and tax refunds should give a boost to consumer
confidence and spending. Given an improved economic outlook, we expect
stock prices to climb in the second half of the year. The third quarter,
however, could be rocky as investors digest recent earnings
disappointments. By the fourth quarter, the market should benefit from
easier year-over-year earnings comparisons as well as improved corporate
revenues. We are especially optimistic about the outlook for mid-cap
stocks, which have historically beaten larger-cap stocks on the way out of
a downturn, and remain at reasonable valuations.
A LOOK AT PERFORMANCE
For the period ended June 30, 2001
SINCE
SIX ONE INCEPTION
MONTHS YEAR (1/7/98)
------- ------- -------
Cumulative Total Returns (23.39%) (36.99%) 16.54%
Average Annual Total Returns -- (36.99%) 4.50%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
Note to Performance
The Fund's performance results reflect any applicable expense reductions,
without which the expenses would increase and results would have been less
favorable. These reductions can be terminated in the future.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Mid Cap Growth Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in both the Standard & Poor's 500 Index and the Russell
Midcap Growth Index. The Standard & Poor's 500 Index is an unmanaged index
that includes 500 widely traded common stocks and is a commonly used
measure of stock market performance. The Russell Midcap Growth Index is an
unmanaged index that contains those securities from the Russell Midcap
Index with a greater-than-average growth orientation. It is not possible
to invest in an index.
Line chart with the heading John Hancock V.A. Mid Cap Growth Fund,
representing the growth of a hypothetical $10,000 investment over the life
of the fund. Within the chart are three lines. The first line represents
the Russell Midcap Growth Index and is equal to $13,697 as of June 30,
2001. The second line represents the Standard & Poor's 500 Index and is
equal to $13,201 as of June 30, 2001. The third line represents the value
of the hypothetical $10,000 investment made in the John Hancock V.A. Mid
Cap Growth Fund on January 7, 1998 and is equal to $11,654 as of June 30,
2001.
BY BERNICE S. BEHAR, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
ANURAG PANDIT, CFA, PORTFOLIO MANAGER
John Hancock
V.A. Small Cap Growth Fund
Slowing economy, deteriorating corporate profits hold stocks back
The stock market remained in turmoil during the first six months of 2001,
as the economy continued to slow and investors reacted to a steady stream
of bad corporate earnings news. Fast-growing, high-priced growth stocks --
which started struggling a year ago -- kept sagging, particularly in the
technology and telecommunications sectors. With the exception of a
three-week surge in January sparked by a surprise interest-rate cut by the
Federal Reserve, the first quarter of 2001 was especially difficult for
stocks, despite the Fed's aggressive action to prevent a recession. But by
April, the Fed had cut rates enough that investors began to hope the worst
was over for the economy, and stocks rallied, including technology. The
sector remained volatile and under pressure through the end of June,
however, as business conditions showed no signs of improving. Small-cap
stocks outperformed large caps, but growth stocks continued to trail value
stocks by a substantial margin, producing a large variance in performance
between the two major indexes that track small-cap stock performance. In
the first six months of 2001, the Russell 2000 Value Index gained 12.84%,
while the Russell 2000 Growth Index was essentially flat, returning 0.14%.
[Table at bottom left hand column entitled "Top Five Stock
Holdings." The first listing is Microsemi 1.4%, the second is Corporate
Executive Board 1.4%, the third Columbia Sportswear 1.3%, the fourth
Accredo Health 1.3% and the fifth Education Management 1.3%. A note below
the table reads "As a percentage of net assets on June 30, 2001."]
Fund performance
For the six months ended June 30, 2001, John Hancock V.A. Small Cap Growth
Fund posted a total return of -8.06% at net asset value. That compared
with the -4.06% return of the average variable annuity small-cap growth
fund, according to Lipper, Inc. Historical performance information can be
found on page 15.
"Companies
having any
connection
to the
telecommunications
industry
suffered in
particular..."
[A 1 1/2" x 2" photo at bottom right side of page of John Hancock V.A.
Small Cap Growth Fund. Caption below reads "Bernice Behar."]
Our relative underperformance stemmed from our emphasis on defensive
sectors of the market -- including pharmaceutical stocks and health-care
services companies like LifePoint Hospitals. This held us back in the
first three weeks of the year, when the Fed's surprise rate cut boosted
more aggressive, low-quality tech stocks that we chose not to own. Our
defensive stance also caused us to miss much of the gains in the
biotechnology sector during the period. We took profits and cut our
biotech stake significantly in January, given the sector's strong move in
2000 based on what we believe to be unrealistic expectations. We also had
concerns about bottlenecks in the FDA approval process. However, even
though the group was volatile during the period, the stocks produced good
results and our underweighting worked against us. One of our best
performers, however, was Covance, a contract research company that
provides product development services to both the biotech and
pharmaceutical industries. On the other hand we were disappointed by CV
Therapeutics, which served us very well last year, but saw its stock drop
precipitously this year after it announced disappointing results from a
clinical trial for one of its drugs.
[Bar chart at the top of left hand column with heading "Fund Performance."
Under the heading is a note that reads "For the six months ended June 30,
2001." The chart is scaled in increments of 2% with -10% at the bottom and
0% at the top. The first bar represents the -8.06% total return for John
Hancock V.A. Small Cap Growth Fund. The second bar represents the -4.06%
total return for Average variable annuity small-cap growth fund. A note
below the chart reads "The total return for John Hancock V.A. Small Cap
Growth Fund is at net asset value with all distributions reinvested. The
average variable annuity small-cap growth fund is tracked by Lipper, Inc.
See the following page for historical performance information."]
"The real
question mark
is when
corporate
earnings will
make a
comeback."
Telecom and IT consultants hit hard
Companies having any connection to the telecommunications industry
suffered in particular during this period, as demand for all types of
products and services ground to a halt and companies ran into trouble
getting additional financing to finish building out their networks. This
impacted anyone along the supply chain, including Fund holding M-Systems
Flash Disk Pioneers, a telecom-focused semiconductor company. Our stake in
information technology (IT) consulting companies also hurt us as demand
for IT services slowed dramatically, even for companies with strong
franchises and niche markets like Forrester Research and Management
Network Group. While the technology and telecommunications sectors
produced negative results as a whole, our stock selection helped us fare
better than the tech portion of the Russell 2000 Growth Index, and we did
have some outstanding performers. Our biggest contributor to performance
was also our top holding, Microsemi, a semiconductor company offering a
broad range of products to a wide customer base, which has protected it in
this difficult economic environment.
Individual standouts
We had some standout performances from a range of small companies that fit
our investment criteria of producing accelerating and sustainable earnings
growth, and having dominant market positions and strong managements. These
included Tweeter Home Entertainment, a company we've owned for a while
whose strong franchise in consumer electronics is beginning to be
recognized, and Columbia Sportswear, a niche apparel company with great
brand recognition and tremendous relationships with some of the
fast-growing retailers. Our radio stocks also rebounded off their lows.
Earnings stability counts
In a tough environment for growth stocks, we continued to position
ourselves in areas where we believe there is a relative amount of earnings
stability. This caused us to maintain a lighter stake in tech and telecom
and an increased exposure to health care and energy, a sector that has
produced the highest earnings results so far this year. Unfortunately, the
market has not rewarded energy stocks on balance in this period, assuming
that the level of earnings growth was unsustainable in the midst of the
economic slowdown and building inventories. While we believe the long-term
outlook is positive, the more near-term economic and inventory issues have
caused us to begin paring our energy stake.
Outlook
After six rate cuts totalling 2.75%, it appears the Fed is getting close
to the end of its rate-cutting cycle, and the economy should soon begin to
feel its effects. The real question mark is when corporate earnings will
make a comeback. While we believe in the strong long-term potential of
tech and telecom, we believe it's going to take more time for these
sectors to turn around, as excess capacity needs to be absorbed. As a
result, we believe more reliable earnings growth lies, for now, in other
sectors.
A LOOK AT PERFORMANCE
For the period ended June 30, 2001
SINCE
SIX ONE INCEPTION
MONTHS YEAR (8/29/96)
------- ------- -------
Cumulative Total Returns (8.06%) (30.62%) 44.70%
Average Annual Total Returns -- (30.62%) 7.94%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
Note to Performance
The Fund's performance results reflect any applicable expense reductions,
without which the expenses would increase and results would have been less
favorable. These reductions can be terminated in the future.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Small Cap Growth Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Russell 2000 Index and the Russell 2000 Growth
Index. The Russell 2000 Index is an unmanaged small-cap index that is
comprised of 2,000 U.S. stocks. The Russell 2000 Growth Index is an
unmanaged index that contains Russell 2000 Index stocks with a
greater-than-average growth orientation. It is not possible to invest in
an index.
Line chart with the heading John Hancock V.A. Small Cap Growth Fund,
representing the growth of a hypothetical $10,000 investment over the life
of the fund. Within the chart are three lines. The first line represents
the Russell 2000 Index and is equal to $16,393 as of June 30, 2001. The
second line represents the value of the hypothetical $10,000 investment
made in the John Hancock V.A. Small Cap Growth Fund on August 29, 1996 and
is equal to $14,470 as of June 30, 2001. The third line represents the
Russell 2000 Growth Index and is equal to $13,401 as of June 30, 2001.
BY LORETTA MORRIS AND RANDY KAHN FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
V.A. International Fund
Overseas markets struggle in first half of 2001
Despite a transition to an easing bias by central banks worldwide, the
difficulties experienced by international equities in 2000 persisted in
the first half of 2001. As represented by the MSCI All-World Country Free
ex-U.S. Index, non-U.S. stocks shed 13.56% of their value during the
six-month period ended June 30.
"Currently, we
are
identifying
compelling
opportunities
in the energy,
health care,
and consumer
services
sectors."
The contagion that began to spread early last year during the sell-off of
technology, media and telecommunications (TMT) stocks continued to linger
into 2001. Contributing to this weakness was a tightening bias by central
banks worldwide in 2000. All told, there were nearly 130 interest-rate
hikes in 2000 and the cumulative effect of tighter monetary policy
ultimately precipitated a sharp slowdown in global growth. This
deceleration in growth prompted a shift toward an easing bias, and through
June 30 there had been more than 70 interest-rate reductions by central
bankers globally. However, the European Central Bank reduced rates only
once as it continued to adhere to its stated mission of battling inflation
rather than stimulating growth. As a result, the euro fell to near-record
lows against the dollar at the year's halfway mark.
[Pie chart at bottom left hand column with heading "Portfolio
Diversification." The chart is divided into seven sections (from top to
left): Short-term Investments & Other 7%, Latin America 1%, Pacific Rim
ex-Japan 7%, Japan 18%, U.K. & Ireland 22%, Continental Europe 39% and
Canada 6%. A note below the chart reads "As a percentage of net assets on
June 30, 2001."]
In eurozone countries, which observers thought would be relatively immune
to the stagnation that took hold of the United States in late 2000,
economic indicators deteriorated rapidly in the second quarter of this
year. In particular, Germany -- the region's largest economy -- suffered
higher-than-expected rates of unemployment and inflation, and an erosion
of consumer confidence as a result.
Japan has also fared poorly in 2001. Early in the year, political
uncertainty over the fate of former Prime Minister Yoshiro Mori, the
lingering overhang of bad debts, and a reluctance of the country's
consumers to spend in a deflationary environment combined to pressure the
Japanese stock market. Although the country's main stock index, the
Nikkei, rallied briefly in April after the election of popular new Prime
Minister Junichiro Koizumi, the market slumped again in May and June as
the magnitude of Japan's problems weighed on investor sentiment.
Fund performance
For the six months ended June 30, 2001, John Hancock V.A. International
Fund posted a total return of -19.26% at net asset value. In comparison,
the average variable annuity international fund returned -14.34% during
the same period. See page 18 for historical performance information.
The Fund's relative underperformance stemmed in large part from holdings
in the volatile TMT arena, electric utilities and money-center banks.
Specifically, Alcatel of France, Colt Telecom of Britain, and British
Telecom were among the portfolio's weakest performers in the first half of
2001, as corporate expenditures on telecommunications equipment and
services plummeted. On a country basis, stock selection in Japan and the
United Kingdom negatively influenced returns during the period. On the
positive side, stock selection in Irish and Danish equities helped limit
Fund declines, as did holdings in biotechnology, apparel and automotive
equipment companies.
[Bar chart at the top of left hand column with heading "Fund Performance."
Under the heading is a note that reads "For the six months ended June 30,
2001." The chart is scaled in increments of 4% with -20% at the bottom and
0% at the top. The first bar represents the -19.26% total return for John
Hancock V.A. International Fund. The second bar represents the -14.34%
total return for Average variable annuity international fund. A note below
the chart reads "The total return for John Hancock V.A. International Fund
is at net asset value with all distributions reinvested. The average
international fund is tracked by Lipper, Inc. See the following page for
historical performance information."]
Stakes boosted in Japan, U.K. and France
During the period, we shifted assets out of Japan early in the year,
reducing exposure from 21% of the Fund's holdings at the end of 2000 to
10% as of January 31, 2001. As the situation there seemed to improve with
the election of Prime Minister Koizumi, we increased holdings to reach 18%
as of June 30. As a result of our bottom-up stock selection process
centered on positive, sustainable change, we also identified opportunities
in the United Kingdom and France. The percentage of U.K. equities rose
from 10% to 19% during the period, while French stocks increased from 6%
to 10%.
On a sector-by-sector basis, we increased the Fund's energy holdings, as
tight supplies and growing demand pushed fuel prices higher. Meanwhile, we
significantly reduced exposure to the beleaguered technology sector. As of
June 30, 2001, the Fund was overweighted in energy and consumer durable
stocks relative to its benchmark MSCI index and underweighted in the
financial services and technology sectors. The Fund's country weightings
were largely in line with the benchmark.
Looking ahead
Despite a difficult environment for equity investors spanning more than a
year now, we believe that international markets continue to offer
compelling investment opportunities. Falling interest rates should begin
to fuel a recovery in worldwide equity markets. The case for international
investing also remains compelling amid the positive themes of structural
changes such as tax and pension reform and deregulation, especially in
Europe. The trend toward a rising equity culture in Europe and Japan also
bodes well for international equity markets. Finally, non-U.S. equities'
share of world market capitalization has increased over the last three
decades, rising from 30% in the 1970s to more than 50% today. We believe
international markets remain home to many companies with sound
fundamentals.
"Falling
interest rates
should begin
to fuel a
recovery in
worldwide
equity
markets."
No matter how difficult the market environment may become, we will never
waver from the proven philosophy and process that has served our clients
so well over time. We remain committed to our discipline of finding the
companies exhibiting the fastest growth in earnings, and we continue to
find stocks with sustainable positive change at attractive valuations.
Currently, we are identifying compelling opportunities in the energy,
health-care and consumer services sectors. The TMT group's fundamentals
continue to deteriorate and we expect them to worsen in the short term.
However, our dynamic process is designed to turn change into capital
appreciation, so we will continue to search for candidates in this
fast-moving sector.
- -----------------------------------------------------------------------------
International investing involves special risks such as political,
economic and currency risks and differences in accounting standards and
financial reporting.
A LOOK AT PERFORMANCE
For the period ended June 30, 2001
SINCE
SIX ONE INCEPTION
MONTHS YEAR (8/29/96)
------- ------- -------
Cumulative Total Returns (19.26%) (31.56%) 4.08%
Average Annual Total Returns -- (31.56%) 0.83%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
Note to Performance
The Fund's performance results reflect any applicable expense reductions,
without which the expenses would increase and results would have been less
favorable. These reductions can be terminated in the future.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. International Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Morgan Stanley Capital International (MSCI) All
Country World Free Ex-U.S. Index, which measures the performance of a
broad range of developed and emerging stock markets. The index represents
securities that are freely traded on a variety of equity exchanges around
the world. It is not possible to invest in an index.
Line chart with the heading John Hancock V.A. International Fund,
representing the growth of a hypothetical $10,000 investment over the life
of the fund. Within the chart are two lines. The first line represents the
MSCI All Country World Free Ex-U.S. Index and is equal to $11,688 as of
June 30, 2001. The second line represents the value of the hypothetical
$10,000 investment made in the John Hancock V.A. International Fund on
August 29, 1996 and is equal to $10,408 as of June 30, 2001.
BY JAMES K. SCHMIDT, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
THOMAS M. FINUCANE AND THOMAS C. GOGGINS, PORTFOLIO MANAGERS
John Hancock
V.A. Regional Bank Fund
Smaller banks outperform other financial stocks
in a difficult six months for the stock market
The first six months of 2001 were marked by a dramatically slowing
economy, a relentless stream of disappointing corporate profit
announcements and a distressed stock market that produced negative
results. In response to the sagging economy, the Federal Reserve Board cut
short-term interest rates six times for a total of 2.75 percentage points
in a bid to avoid a recession. Banks and thrifts with the most sensitivity
to falling rates were lifted by the Fed's easing stance, as were the
smaller banks that struggled last year. While financial stocks as a group
held up better than the broad stock market, those connected to the
increasingly dicey stock market, like asset managers and brokerage houses,
were hit hard, as were financial companies whose valuations ran up the
most by the end of last year. For the six months ended June 30, 2001, the
Standard & Poor's Major Regional Bank Index returned -2.59%, while the
broad market, as measured by the Standard & Poor's 500 Index, returned
- -6.69%.
[Table at bottom left hand column entitled "Top Five Stock
Holdings." The first listing is Valley National Bancorp 4.0%, the second is
Mid-State Bancshares 3.9%, the third Fifth Third Bancorp 3.6%, the fourth
Umpqua Holdings 3.6% and the fifth Pacific Capital Bancorp 3.5%. A note
below the table reads "As a percentage of net assets on June 30, 2001."]
"...financial
stocks as a
group held up
better than the
broad stock
market..."
Fund performance
John Hancock V. A. Regional Bank Fund produced a very solid result during
the period due to our focus on the outperforming mid-sized regional and
smaller banks. For the six months ended June 30, 2001, the Fund posted a
total return of 8.10% at net asset value. That compared with the 0.54%
return of the average open-end financial services fund and the -14.72%
return of the average variable annuity specialty/miscellaneous fund,
according to Lipper, Inc. See page 21 for historical performance
information.
[A 1 1/2" x 2" photo at bottom right side of page of John Hancock V.A.
Regional Bank Fund. Caption below reads "Jim Schmidt."]
Small and interest-sensitive banks dominate
Not surprisingly, the Fund's holdings in banks and thrifts with the
greatest sensitivity to falling rates were some of our best performers,
including Community First Bankshares, Charter One Financial, SouthTrust
and First Financial Holdings. Conversely, the banks with the highest
price-to-earnings ratios, which had risen the most last year, like Mellon
Financial and Wells Fargo, lost ground. Small capitalization banks whose
stock prices had grown very cheap after last year's lag also boosted our
performance, including Financial Institutions, Umpqua Holdings, Cascade
Bancorp and Independent Bank Corp. Their stocks were also lifted by
several other factors, including their potential inclusion in the Russell
2000 Index, the banks' relative underexposure to areas of heightened loan
concern (i.e., telecommunications loans) and their improved margin
outlooks in the falling-rate environment.
[Bar chart at the top of left hand column with heading "Fund Performance."
Under the heading is a note that reads "For the six months ended June 30,
2001." The chart is scaled in increments of 5% with -15% at the bottom and
10% at the top. The first bar represents the 8.10% total return for John
Hancock V.A. Regional Bank Fund. The second bar represents the 0.54% total
return for Average open-end financial services fund. The third bar
represents the -14.72% total return for Average variable annuity
specialty/miscellaneous fund. A note below the chart reads "The total
return for John Hancock V.A. Regional Bank Fund is at net asset value with
all distributions reinvested. The average open-end financial services fund
and variable annuity specialty/miscellaneous fund are tracked by Lipper,
Inc. See the following page for historical performance information."]
"Falling
rates and an
economy that is
growing
moderately are
usually two
good
ingredients for
bank-stock
performance."
Banks poised for above-market growth
With the economy in a slower mode and interest rates continuing to
decline, bank loan growth should be at a slower 5% pace. At the same time,
bank margins have stabilized, expenses are under control and banks
continue to buy back stock. Even though the level of non-performing assets
rose in the period, it is still very low -- at less than one percent of
total assets -- and we do not believe it will rise much above one percent.
With this backdrop, banks should be able to generate single-digit
earnings-per-share growth, which, while modest compared to prior years,
still tops the negative profit outlook for the broad market.
Slow pace for bank mergers
Although merger activity was generally slow during the period, we did have
three of our banks involved in takeover offers. The headline transaction
was First Union's bid to acquire Wachovia, later complicated by the
arrival of Sun Trust as a hostile suitor. We believe many years of
consolidation are still ahead in the banking industry, as the
extraordinary number of institutions gets whittled down to a more
efficient level. Although many valuable bank franchises are trading at
very reasonable prices, the pool of banks able to undertake a sizable
acquisition has shrunk due to low valuation and uncertain benefits from
past deals. Only a handful of the nation's top banks have unblemished
records that leave them in a good position to pursue further transactions.
It will take time and a greater number of merger success stories before
other powerful banks resume acquisition programs.
Outlook
Although the Fed's aggressive move to stabilize the economy appears to be
winding down, its efforts should begin to have a positive effect later
this year, and we expect the U.S. economy to avoid a recession and produce
modest growth for the rest of 2001. Falling rates and an economy that is
growing moderately are usually two good ingredients for bank-stock
performance. In this environment, we will keep adding to our stake in
higher-quality banks and reducing positions in banks in which we are less
certain about their loan portfolios.
- -----------------------------------------------------------------------------
Sector investing is subject to greater risks than the market as a whole.
A LOOK AT PERFORMANCE
For the period ended June 30, 2001
SINCE
SIX ONE INCEPTION
MONTHS YEAR (5/1/98)
------- ------- -------
Cumulative Total Returns 8.10% 40.65% 13.46%
Average Annual Total Returns -- 40.65% 4.07%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
Note to Performance
The Fund's performance results reflect any applicable expense reductions,
without which the expenses would increase and results would have been less
favorable. These reductions can be terminated in the future.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. Regional Bank Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Standard & Poor's 500 Index -- an unmanaged
index that includes 500 widely traded common stocks and is often used as a
measure of stock market performance. It is not possible to invest in an
index.
Line chart with the heading John Hancock V.A. Regional Bank Fund,
representing the growth of a hypothetical $10,000 investment over the life
of the fund. Within the chart are two lines. The first line represents the
Standard & Poor's 500 Index and is equal to $11,469 as of June 30, 2001.
The second line represents the value of the hypothetical $10,000 investment
made in the John Hancock V.A. Regional Bank Fund on May 1, 1998 and is
equal to $11,282 as of June 30, 2001.
BY ARTHUR N. CALAVRITINOS, CFA, PORTFOLIO MANAGEMENT TEAM LEADER; AND
JANET L. CLAY, CFA, AND FREDERICK L. CAVANAUGH, JR., PORTFOLIO MANAGERS
John Hancock
V.A. High Yield Bond Fund
High-yield bonds outperform stocks in a difficult environment
During the first six months of 2001, high-yield bonds rebounded off last
year's lows and outperformed stocks, as market conditions remained choppy.
A dramatically slowing economy prompted a slew of earnings disappointments
and sent the stock market into a tailspin. Investors fled the once-favored
technology and telecommunications sectors and sought safety in more
defensive areas like energy, health care and high-quality bonds. These
bonds were also boosted by six interest-rate cuts by the Federal Reserve
since January that brought short-term rates down from 6.50% at the end of
2000 to 3.75% by the end of June.
"Our increased
weighting in
energy
companies
served us well
as the price
of oil and gas
spiked..."
[Pie chart at bottom left hand column with heading "Portfolio
Diversification." The chart is divided into six sections (from top to
left): Short-Term Investments & Other 5%, Foreign Government Bonds 1%,
Preferred Stock & Warrants 9%, Common Stock 8%, Foreign Corporate Bonds 20%
and U.S. Corporate Bonds 57%. A note below the chart reads "As a percentage
of net assets on June 30, 2001."]
With the rate cuts, investors began seeking higher levels of income in the
high-yield, or junk, bond market as the year progressed. But this sector
of the bond market still had a rougher road than government and
high-quality corporate bonds. Not only do high-yield bonds carry a greater
degree of risk because of their below-investment-grade credit ratings, but
they also tend to move more in line with the stock market because their
fortunes are so closely tied to their underlying credits. With the
deteriorating economic conditions, the number of companies defaulting on
their debt payments grew and investors turned to higher-quality issues.
Except for a brief period in January after the Fed's first rate cut, many
start-up telecommunications companies -- which make up the largest
component of the high-yield market -- were particularly hard hit, as they
increasingly were unable to get funding for the next phases of their
business plans. On a technical level, a lack of liquidity, or ease of
trading, also continued to stymie the high-yield universe. Despite these
challenges, high-yield bonds still outperformed the stock market,
returning 3.93% for the six months ended June 30, 2001, as measured by the
Lehman Brothers High Yield Index, while the Standard & Poor's 500 Index
lost 6.69%. But there was great disparity between better-quality
high-yield bonds, rated Ba, which returned 8.27%, and lower-quality junk
bonds with higher yields, such as bonds rated B, which returned 1.30%, as
measured by Lehman Brothers.
[A 1 1/2" x 2" photo at bottom right side of page of John Hancock V.A. High
Yield Bond Fund. Caption below reads "Arthur Calavritinos."]
Fund performance
For the six months ended June 30, 2001, John Hancock V.A. High Yield Bond
Fund posted a total return of 2.46% at net asset value, compared with the
1.10% return of the average variable annuity high current yield fund,
according to Lipper, Inc. Historical performance information can be found
on page 24.
[Bar chart at the top of left hand column with heading "Fund Performance."
Under the heading is a note that reads "For the six months ended June 30,
2001." The chart is scaled in increments of 1% with 0% at the bottom and 3%
at the top. The first bar represents the 2.46% total return for John
Hancock V.A. High Yield Bond Fund. The second bar represents the 1.10%
total return for Average variable annuity high current yield fund. A note
below the chart reads "The total return for John Hancock V.A. High Yield
Bond Fund is at net asset value with all distributions reinvested. The
average variable annuity high current yield fund is tracked by Lipper, Inc.
See the following page for historical performance information."]
While we outperformed our peers, our absolute performance was held back by
our significant stake in Asia Pulp & Paper (APP), which recently filed for
bankruptcy protection and is in the process of restructuring its debt.
APP's main mistake was focusing too much on expanding capacity and not
enough on paying down debt. But it remains a very low-cost paper producer
with world-class assets, and we intend to hold on until a plan is worked
out. In contrast, our top holding, Timberwest, a Canadian timber company
with good assets and an attractive yield, served us well.
Telecommunications cut
Our stake in telecommunications company Nextel Communications -- one of
our top holdings -- also detracted from performance in the period when,
after holding in longer than most, it finally was taken down by the market
after lowering its cash-flow estimates. But we still like the company,
which, unlike many telecom start-ups, actually has a business that makes
money, with a franchise and national brand name recognition for its
cell-phone/paging technology. We are more wary about other telecom names,
and throughout the year we continued to cut our stake to a significantly
underweighted position, down from 14% in December. We continue to believe
that the sector still faces challenges until demand catches up to the
current oversupply of telecom goods and services.
Energy, media emerging markets boosted
Our increased weighting in energy companies served us well as the price of
oil and gas spiked and exploration and development expanded. We had
several companies get taken over, including Gothic Production, a natural
gas exploration and production company bought out by Chesapeake.
Well-servicing company Key Energy, natural gas producer Grey Wolf, and CHC
Helicopter, which provides transportation to offshore oil rigs, were all
solid performers. A number of energy companies have been so successful
that they have called back their higher-yielding bonds that we owned and
reissued lower-yielding bonds. To the extent that our energy bonds get
called, we are reducing our stake in the sector in search of
higher-yielding bonds.
"We will keep
underweighted
in telecom..."
We upped our media exposure by buying the stock and bonds of direct
satellite TV company Pegasus Communications, which we believe is
undervalued compared with its competitors. We also increased our stake in
emerging-market bonds, particularly in Latin America, as this region has
bounced back better than others.
Outlook
We expect pressures to remain on the telecommunications sector, with the
potential for more failures ahead. As long as the economy remains weak, we
anticipate further action by the Fed, which should help spark an economic
rebound, but not until some time next year. We will keep underweighted in
telecom, selectively focused on companies we believe have the best chances
of survival, and apply our value style toward maintaining a portfolio that
provides shareholders with a high level of current income and the
potential for price gains.
See the prospectus for the risks of investing in high-yield bonds.
International investing involves special risks such as political, economic
and currency risks and differences in accounting standards and financial
reporting.
A LOOK AT PERFORMANCE
For the period ended June 30, 2001
SINCE
SIX ONE INCEPTION
MONTHS YEAR (1/6/98)
------- ------- -------
Cumulative Total Returns 2.46% (3.35%) (1.81%)
Average Annual Total Returns -- (3.35%) (0.52%)
YIELD
For the period ended June 30, 2001
SEC 30-DAY
YIELD
-------
John Hancock V.A. High Yield
Bond Fund 12.43%
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested. Performance figures reflect the effect of investment-related
charges on the underlying funds, but do not include insurance and other
charges levied at the separate account level.
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
Note to Performance
The Fund's performance results reflect any applicable expense reductions,
without which the expenses would increase and results would have been less
favorable. These reductions can be terminated in the future.
WHAT HAPPENED TO
A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the John Hancock
V.A. High Yield Bond Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Lehman Brothers High Yield Bond Index -- an
unmanaged index of fixed-income securities that are similar, but not
identical, to the bonds in the Fund's portfolio. It is not possible to
invest in an index.
Line chart with the heading John Hancock V.A. High Yield Bond Fund,
representing the growth of a hypothetical $10,000 investment over the life
of the fund. Within the chart are two lines. The first line represents the
Lehman Brothers High Yield Bond Index and is equal to $10,205 as of June
30, 2001. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock V.A. High Yield Bond Fund on January 6,
1998 and is equal to $9,819 as of June 30, 2001.
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Statements of Assets and Liabilities
June 30, 2001 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
V.A. V.A. V.A. V.A. V.A. V.A. V.A.
500 INDEX LARGE CAP MID CAP SMALL CAP INTERNATIONAL REGIONAL BANK HIGH YIELD
FUND GROWTH FUND GROWTH FUND GROWTH FUND FUND FUND BOND FUND
----------- ----------- ----------- ----------- ------------- ------------- -----------
Assets:
Investments at value (cost -
$12,948,504, $6,081,968,
$6,065,678, $11,380,649,
$6,273,184, $8,818,705 and
$8,523,041, respectively) $17,836,392 $6,328,151 $5,930,239 $13,193,181 $5,944,661 $11,104,314 $5,947,408
Joint repurchase agreements
(cost - $911,000, none, $503,000,
$111,000, $262,000, $743,000 and
$85,000, respectively) 911,000 -- 503,000 111,000 262,000 743,000 85,000
----------- ----------- ----------- ----------- ------------- ------------- -----------
18,747,392 6,328,151 6,433,239 13,304,181 6,206,661 11,847,314 6,032,408
Cash 714 -- 436 476 -- 947 934
Foreign currency at value
(cost - none, none, none, none,
$1,750, none and none, respectively) -- -- -- -- 1,747 -- --
Cash segregated for futures
contracts 34,500 -- -- -- -- -- --
Receivable for investments sold 24,953 29,445 51,675 156,578 24,356 34,311 30,528
Receivable for shares sold -- -- 1,045 28,103 -- -- --
Dividends and interest receivable 13,314 2,251 1,333 625 12,090 26,509 221,690
Receivable for futures variation
margin 2,350 -- -- -- -- -- --
Receivable for forward foreign
currency exchange contracts sold -- -- -- -- 3,314 -- 15,994
Deferred organization expense 360 360 -- 360 360 -- --
Receivable from affiliates 29,130 -- -- -- -- -- --
Other assets 700 279 49 1,039 186 296 129
----------- ----------- ----------- ----------- ------------- ------------- -----------
Total assets 18,853,413 6,360,486 6,487,777 13,491,362 6,248,714 11,909,377 6,301,683
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Due to custodian -- 68,079 -- -- 207 -- --
Payable for investments purchased 389,390 -- 158,629 140,681 167,849 -- --
Payable for shares repurchased -- 185 94 7,664 -- 374 147
Dividends payable -- -- -- -- -- -- 3,869
Payable for securities on loan -- -- -- -- 1,040,206 -- --
Payable for forward foreign
currency exchange contracts
purchased -- -- -- -- 33 -- 589
Payable to affiliates -- 1,571 2,089 8,369 3,889 7,862 2,592
Accounts payable and accrued
expenses 44,530 10,815 11,791 21,633 37,954 12,898 10,126
----------- ----------- ----------- ----------- ------------- ------------- -----------
Total liabilities 433,920 80,650 172,603 178,347 1,250,138 21,134 17,323
- ---------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 12,497,928 11,191,616 8,932,394 15,584,510 6,711,524 11,970,766 9,547,853
Accumulated net realized gain
(loss) on investments
and foreign currency transactions 1,051,931 (5,135,699) (2,451,411) (4,033,684) (1,334,074) (2,368,502) (649,560)
Net unrealized appreciation
(depreciation) of investments,
futures and translation of assets
and liabilities in foreign
currencies 4,869,674 246,183 (135,439) 1,812,532 (326,048) 2,285,609 (2,561,856)
Undistributed (distributions in
excess of) net investment income
(accumulated net investment loss) (40) (22,264) (30,370) (50,343) (52,826) 370 (52,077)
----------- ----------- ----------- ----------- ------------- ------------- -----------
Net assets $18,419,493 $6,279,836 $6,315,174 $13,313,015 $4,998,576 $11,888,243 $6,284,360
=================================================================================================================================
Net Asset Value Per Share:
(Based on 1,227,183, 816,304,
546,313, 1,005,607, 562,479,
1,120,720, and 974,905 shares,
respectively, of beneficial
interest outstanding - unlimited
number of shares authorized with
no par value) $15.01 $7.69 $11.56 $13.24 $8.89 $10.61 $6.45
=================================================================================================================================
The Statement of Assets and Liabilities is each Fund's balance sheet and shows the value of what the Fund owns,
is due and owes on June 30, 2001. You'll also find the net asset value per share as of that date.
See notes to financial statements.
Statements of Operations
Six months ended June 30, 2001 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
V.A. V.A. V.A. V.A. V.A. V.A. V.A.
500 INDEX LARGE CAP MID CAP SMALL CAP INTERNATIONAL REGIONAL BANK HIGH YIELD
FUND GROWTH FUND GROWTH FUND GROWTH FUND FUND FUND BOND FUND
----------- ----------- ----------- ----------- ------------- ------------- -----------
Investment Income:
Dividends (net of foreign
withholding tax of $592, $288,
$11, none, $6,579, none and
$1,130, respectively) $119,367 $18,031 $7,239 $7,782 $45,360 $132,955 $32,206
Interest 16,871 1,563 3,426 2,967 8,316 14,565 363,443
Securities lending -- -- -- 14,066 3,924 1,581 --
----------- ----------- ----------- ----------- ------------- ------------- -----------
Total investment income 136,238 19,594 10,665 24,815 57,600 149,101 395,649
- --------------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment management fee 25,568 31,324 30,771 56,311 26,093 48,380 19,741
Custodian fee 80,141 7,713 9,276 22,531 61,690 5,049 6,102
Auditing fee 7,438 5,951 5,951 7,438 5,951 5,917 5,951
Miscellaneous 5,237 388 90 159 73 320 162
Printing 2,187 3,303 1,224 578 2,170 830 778
Accounting and legal services fee 2,001 817 803 1,469 568 1,183 644
Organization expense 1,053 1,053 -- 1,053 1,053 -- --
Trustees' fees 683 352 300 503 190 422 194
Legal fees 110 80 45 88 673 71 675
Registration and filing fees 8 352 8 8 40 9 21
Interest expense -- 1,324 252 673 -- 52 --
----------- ----------- ----------- ----------- ------------- ------------- -----------
Total expenses 124,426 52,657 48,720 90,811 98,501 62,233 34,268
Less expense reductions (88,630) (10,890) (7,693) (15,729) (65,160) -- (6,302)
- --------------------------------------------------------------------------------------------------------------------------------
Net expenses 35,796 41,767 41,027 75,082 33,341 62,233 27,966
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 100,442 (22,173) (30,362) (50,267) 24,259 86,868 367,683
- --------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments 751,294 (3,369,813) (1,746,838) (1,792,517) (497,721) 577,019 (419,180)
Futures (66,957) -- -- -- -- -- --
Foreign currency transactions -- -- -- -- (316,985) -- (9,107)
Change in unrealized appreciation
(depreciation) on:
Investments (2,396,941) 638,393 (725,291) 27,433 (533,372) 170,852 180,171
Futures (36,061) -- -- -- -- -- --
Translation of assets and
liabilities in foreign currencies -- -- -- -- 4,430 -- 46,517
----------- ----------- ----------- ----------- ------------- ------------- -----------
Net realized and unrealized
gain (loss) (1,748,665) (2,731,420) (2,472,129) (1,765,084) (1,343,648) 747,871 (201,599)
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations ($1,648,223) ($2,753,593) ($2,502,491) ($1,815,351) ($1,319,389) $834,739 $166,084
================================================================================================================================
The Statement of Operations summarizes for each of the Funds the investment income earned and expenses incurred in operating
the Fund. It also shows net gains (losses) for the period stated.
See notes to financial statements.
Statements of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
V.A. V.A. V.A.
500 INDEX FUND LARGE CAP GROWTH FUND MID CAP GROWTH FUND
------------------------ ------------------------ ------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
DECEMBER 31, 2001 DECEMBER 31, 2001 DECEMBER 31, 2001
2000 (UNAUDITED) 2000 (UNAUDITED) 2000 (UNAUDITED)
----------- ----------- ----------- ----------- ----------- -----------
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) $284,283 $100,442 ($116,390) ($22,173) ($55,546) ($30,362)
Net realized gain (loss) 510,070 684,337 (1,715,484) (3,369,813) (691,193) (1,746,838)
Change in net unrealized
appreciation (depreciation) (3,816,126) (2,433,002) (4,414,002) 638,393 (1,246,996) (725,291)
----------- ----------- ----------- ----------- ----------- -----------
Net decrease in net assets
resulting from operations (3,021,773) (1,648,223) (6,245,876) (2,753,593) (1,993,735) (2,502,491)
----------- ----------- ----------- ----------- ----------- -----------
Distributions to Shareholders: *
From net investment income (279,659) (105,489) -- -- -- --
From net realized gain (92,786) -- (643,661) -- (78,273) --
----------- ----------- ----------- ----------- ----------- -----------
Total distributions to shareholders (372,445) (105,489) (643,661) -- (78,273) --
----------- ----------- ----------- ----------- ----------- -----------
From Fund Share Transactions:
Shares sold 2,172,521 473,627 5,563,562 237,611 12,664,811 306,649
Shares issued to shareholders in
reinvestment of distributions 372,407 105,489 643,661 -- 78,273 --
Less shares repurchased (12,009,903) (5,499,934) (8,885,412) (3,508,388) (5,552,026) (2,970,834)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) (9,464,975) (4,920,818) (2,678,189) (3,270,777) 7,191,058 (2,664,185)
----------- ----------- ----------- ----------- ----------- -----------
Net Assets:
Beginning of period 37,953,216 25,094,023 21,871,932 12,304,206 6,362,800 11,481,850
----------- ----------- ----------- ----------- ----------- -----------
End of period (including
undistributed net investment
income (loss) (distributions in
excess of net investment income)
of $5,007, ($40), ($91),
($22,264), ($8) and ($30,370),
respectively) $25,094,023 $18,419,493 $12,304,206 $6,279,836 $11,481,850 $6,315,174
=========== =========== =========== =========== =========== ===========
Distributions to Shareholders:
Per share dividends from net
investment income $0.1530 $0.0825 -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Per share distributions from net
realized gain $0.0585 -- $0.5666 -- $0.1010 --
----------- ----------- ----------- ----------- ----------- -----------
* Analysis of Fund Share Transactions:
Shares sold 123,028 30,367 376,363 27,503 699,219 23,775
Shares issued to shareholders in
reinvestment of distributions 21,738 7,183 62,310 -- 5,222 --
Less shares repurchased (694,943) (358,048) (628,273) (408,950) (313,149) (238,537)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) (550,177) (320,498) (189,600) (381,447) 391,292 (214,762)
=========== =========== =========== =========== =========== ===========
The Statement of Changes in Net Assets shows how the value of each Fund's
net assets has changed since the end of the previous period. The
difference reflects earnings less expenses, any investment and foreign
currency gains and losses, distributions paid to shareholders, if any, and
any increase or decrease in money shareholders invested in each Fund. The
footnotes illustrate the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the per share amount
of distributions made to shareholders of each Fund for the periods
indicated.
See notes to financial statements.
Statements of Changes in Net Assets (continued)
- -----------------------------------------------------------------------------------------------------------------------------
V.A. V.A. V.A.
SMALL CAP GROWTH FUND INTERNATIONAL FUND REGIONAL BANK FUND
------------------------ ------------------------ ------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
DECEMBER 31, 2001 DECEMBER 31, 2001 DECEMBER 31, 2001
2000 (UNAUDITED) 2000 (UNAUDITED) 2000 (UNAUDITED)
----------- ----------- ----------- ----------- ----------- -----------
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ($194,883) ($50,267) $17,595 $24,259 $271,788 $86,868
Net realized gain (loss) (2,221,923) (1,792,517) (451,324) (814,706) (2,865,401) 577,019
Change in net unrealized
appreciation (depreciation) (5,140,485) 27,433 (2,179,238) (528,942) 4,087,137 170,852
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from operations (7,557,291) (1,815,351) (2,612,967) (1,319,389) 1,493,524 834,739
----------- ----------- ----------- ----------- ----------- -----------
Distributions to Shareholders: *
From net investment income -- -- (107,471) -- (275,181) (86,394)
From net realized gain (1,193,201) -- (238,923) -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total distributions to shareholders (1,193,201) -- (346,394) -- (275,181) (86,394)
----------- ----------- ----------- ----------- ----------- -----------
From Fund Share Transactions:
Shares sold 18,612,044 445,018 1,932,741 85,169 1,198,441 652,155
Shares issued to shareholders in
reinvestment of distributions 1,193,201 -- 346,394 -- 275,181 86,394
Less shares repurchased (12,149,701) (5,088,314) (1,364,748) (1,096,843) (9,253,630) (3,332,081)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) 7,655,544 (4,643,296) 914,387 (1,011,674) (7,780,008) (2,593,532)
----------- ----------- ----------- ----------- ----------- -----------
Net Assets:
Beginning of period 20,866,610 19,771,662 9,374,613 7,329,639 20,295,095 13,733,430
----------- ----------- ----------- ----------- ----------- -----------
End of period (including
undistributed net investment
income (loss) (distributions in
excess of net investment income)
of ($76), ($50,343), ($77,085),
($52,826), ($104) and $370,
respectively) $19,771,662 $13,313,015 $7,329,639 $4,998,576 $13,733,430 $11,888,243
=========== =========== =========== =========== =========== ===========
Distributions to Shareholders:
Per share dividends from net
investment income -- -- $0.1684 -- $0.1686 $0.0732
----------- ----------- ----------- ----------- ----------- -----------
Per share distributions from net
realized gain $0.9031 -- $0.3744 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
* Analysis of Fund Share Transactions:
Shares sold 888,422 33,471 131,349 8,932 150,452 65,385
Shares issued to shareholders in
reinvestment of distributions 86,905 -- 31,955 -- 33,504 8,780
Less shares repurchased (658,355) (400,835) (104,357) (112,301) (1,166,423) (342,613)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) 316,972 (367,364) 58,947 (103,369) (982,467) (268,448)
=========== =========== =========== =========== =========== ===========
See notes to financial statements.
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------
V.A.
HIGH YIELD BOND FUND
------------------------
SIX MONTHS
YEAR ENDED
ENDED JUNE 30,
DECEMBER 31, 2001
2000 (UNAUDITED)
----------- -----------
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $1,037,461 $367,683
Net realized gain (loss) 141,324 (428,287)
Change in net unrealized
appreciation (depreciation) (1,666,407) 226,688
----------- -----------
Net increase (decrease) in net
assets resulting from operations (487,622) 166,084
----------- -----------
Distributions to Shareholders: *
From net investment income (1,039,972) (391,044)
From net realized gain (241,224) --
----------- -----------
Total distributions to shareholders (1,281,196) (391,044)
----------- -----------
From Fund Share Transactions:
Shares sold 858,489 697,429
Shares issued to shareholders in
reinvestment of distributions 1,281,195 387,175
Less shares repurchased (2,438,764) (1,793,918)
----------- -----------
Net decrease (299,080) (709,314)
----------- -----------
Net Assets:
Beginning of period 9,286,532 7,218,634
----------- -----------
End of period (including
distributions in excess of net
investment income of ($4,802) and
($52,077), respectively) $7,218,634 $6,284,360
=========== ===========
Distributions to Shareholders:
Per share dividends from net
investment income $0.9394 $0.3885
----------- -----------
Per share distributions from net
realized gain $0.2290 --
----------- -----------
* Analysis of Fund Share Transactions:
Shares sold 110,078 105,067
Shares issued to shareholders in
reinvestment of distributions 172,859 58,318
Less shares repurchased (320,600) (268,727)
----------- -----------
Net decrease (37,663) (105,342)
=========== ===========
See notes to financial statements.
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- ------------------------------------------------------------------------------------------------------------------------------
V.A. 500 INDEX FUND
--------------------------------------------------------------------------------
SIX MONTHS
PERIOD ENDED
ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------------------------------- 2001
1996(1) 1997 1998 1999 2000 (UNAUDITED)
-------- -------- -------- -------- -------- ---------
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.00 $10.44 $12.62 $15.23 $18.09 $16.21
-------- -------- -------- -------- -------- --------
Net Investment Income(2) 0.17 0.30 0.20 0.17 0.14 0.07
Net Realized and Unrealized Gain (Loss) on
Investments 0.98 2.72 3.37 2.98 (1.81) (1.19)
-------- -------- -------- -------- -------- --------
Total from Investment Operations 1.15 3.02 3.57 3.15 (1.67) (1.12)
-------- -------- -------- -------- -------- --------
Less Distributions:
From Net Investment Income (0.16) (0.30) (0.20) (0.17) (0.15) (0.08)
From Net Realized Gain (0.55) (0.54) (0.76) (0.11) (0.06) --
In Excess of Net Realized Gain -- -- -- (0.01) -- --
-------- -------- -------- -------- -------- --------
Total Distributions (0.71) (0.84) (0.96) (0.29) (0.21) (0.08)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $10.44 $12.62 $15.23 $18.09 $16.21 $15.01
======== ======== ======== ======== ======== ========
Total Investment Return(3,4) 11.49%(5) 29.51% 28.44% 20.81% (9.28%) (6.88%)(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $4,049 $20,008 $26,457 $37,953 $25,094 $18,419
Ratio of Expenses to Average Net Assets 0.60%(6) 0.36% 0.35% 0.35% 0.35% 0.35%(6)
Ratio of Adjusted Expenses to Average Net
Assets(7) 1.31%(6) 0.83% 0.92% 0.75% 0.93% 1.22%(6)
Ratio of Net Investment Income to Average
Net Assets 4.57%(6) 2.45% 1.44% 1.06% 0.86% 0.98%(6)
Portfolio Turnover Rate 0% 9% 47% 5% 7% 3%
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Does not take into consideration expense reductions during the periods shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- ------------------------------------------------------------------------------------------------------------------------------
V.A. LARGE CAP GROWTH FUND
--------------------------------------------------------------------------------
SIX MONTHS
PERIOD ENDED
ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------------------------------- 2001
1996(1) 1997 1998 1999 2000 (UNAUDITED)
-------- -------- -------- -------- -------- ---------
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.00 $9.39 $10.73 $13.37 $15.77 $10.27
-------- -------- -------- -------- -------- --------
Net Investment Loss(2) (0.01) (0.04) --(3) (0.04) (0.08) (0.02)
Net Realized and Unrealized Gain (Loss) on
Investments (0.60) 1.38 2.64 2.80 (4.85) (2.56)
-------- -------- -------- -------- -------- --------
Total from Investment Operations (0.61) 1.34 2.64 2.76 (4.93) (2.58)
-------- -------- -------- -------- -------- --------
Less Distributions:
From Net Realized Gain -- -- -- (0.36) (0.57) --
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $9.39 $10.73 $13.37 $15.77 $10.27 $7.69
======== ======== ======== ======== ======== ========
Total Investment Return(4) (6.10%)(5,6) 14.27%(6) 24.60%(6) 20.71%(6) (31.30%) (25.12%)(5,6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $994 $3,733 $10,372 $21,872 $12,304 $6,280
Ratio of Expenses to Average Net Assets 1.00%(7) 1.00% 1.00% 1.00% 0.96% 1.00%(7)
Ratio of Adjusted Expenses to Average Net
Assets(8) 4.76%(7) 2.37% 1.33% 1.02% -- 1.26%(7)
Ratio of Net Investment Loss to Average Net
Assets (0.23%)(7) (0.39%) (0.00%) (0.25%) (0.59%) (0.53%)(7)
Portfolio Turnover Rate 68% 136% 176% 172% 170% 38%
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) Not annualized.
(6) The total return would have been lower had certain expenses not been
reduced during the period shown
(7) Annualized.
(8) Does not take into consideration expense reductions during the periods shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- ----------------------------------------------------------------------------------------------------------------
V.A. MID CAP GROWTH FUND
--------------------------------------------------------
SIX MONTHS
PERIOD ENDED
ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------------ 2001
1998(1) 1999 2000 (UNAUDITED)
-------- -------- -------- --------
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.00 $11.03 $17.21 $15.09
-------- -------- -------- --------
Net Investment Income (Loss)(2) 0.01 (0.03) (0.08) (0.05)
Net Realized and Unrealized Gain (Loss) on
Investments 1.03 6.23 (1.94) (3.48)
-------- -------- -------- --------
Total from Investment Operations 1.04 6.20 (2.02) (3.53)
-------- -------- -------- --------
Less Distributions:
From Net Investment Income (0.01) -- -- --
From Net Realized Gain -- (0.02) (0.10) --
Tax Return of Capital --(3) -- -- --
-------- -------- -------- --------
Total Distributions (0.01) (0.02) (0.10) --
-------- -------- -------- --------
Net Asset Value, End of Period $11.03 $17.21 $15.09 $11.56
======== ======== ======== ========
Total Investment Return(4,5) 10.35%(6) 56.18% (11.73%) (23.39%)(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $1,779 $6,363 $11,482 $6,315
Ratio of Expenses to Average Net Assets 1.00%(7) 1.00% 1.00% 1.00%(7)
Ratio of Adjusted Expenses to Average Net
Assets(8) 4.23%(7) 2.36% 1.10% 1.19%(7)
Ratio of Net Investment Income (Loss) to
Average Net Assets 0.06%(7) (0.23%) (0.42%) (0.74%)(7)
Portfolio Turnover Rate 103% 136% 155% 71%
(1) Commenced operations on January 7, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(6) Not annualized.
(7) Annualized.
(8) Does not take into consideration expense reductions during the periods shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- ------------------------------------------------------------------------------------------------------------------------------
V.A. SMALL CAP GROWTH FUND
--------------------------------------------------------------------------------
SIX MONTHS
PERIOD ENDED
ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------------------------------- 2001
1996(1) 1997 1998 1999 2000 (UNAUDITED)
-------- -------- -------- -------- -------- ---------
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.00 $9.32 $10.35 $12.00 $19.76 $14.40
-------- -------- -------- -------- -------- --------
Net Investment Income (Loss)(2) 0.02 (0.02) (0.06) (0.10) (0.13) (0.04)
Net Realized and Unrealized Gain (Loss) on
Investments (0.68) 1.05 1.71 8.29 (4.33) (1.12)
-------- -------- -------- -------- -------- --------
Total from Investment Operations (0.66) 1.03 1.65 8.19 (4.46) (1.16)
-------- -------- -------- -------- -------- --------
Less Distributions:
From Net Investment Income (0.02) --(3) -- -- -- --
From Net Realized Gain -- -- -- (0.43) (0.90) --
-------- -------- -------- -------- -------- --------
Total Distributions to Shareholders (0.02) -- -- (0.43) (0.90) --
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $9.32 $10.35 $12.00 $19.76 $14.40 $13.24
======== ======== ======== ======== ======== ========
Total Investment Return(4,5) (6.62%)(6) 11.06% 15.94% 68.52% (22.33%) (8.06%)(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $975 $3,841 $8,232 $20,867 $19,772 $13,313
Ratio of Expenses to Average Net Assets 1.00%(7) 1.00% 1.00% 1.00% 1.00% 1.00%(7)
Ratio of Adjusted Expenses to Average Net
Assets(8) 5.19%(7) 2.72% 1.63% 1.38% 1.10% 1.21%(7)
Ratio of Net Investment Income (Loss) to
Average Net Assets 0.62%(7) (0.16%) (0.59%) (0.76%) (0.68%) (0.67%)(7)
Portfolio Turnover Rate 31% 79% 93% 120% 104% 40%
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(6) Not annualized.
(7) Annualized.
(8) Does not take into consideration expense reductions during the periods shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- ------------------------------------------------------------------------------------------------------------------------------
V.A. INTERNATIONAL FUND
--------------------------------------------------------------------------------
SIX MONTHS
PERIOD ENDED
ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------------------------------- 2001
1996(1) 1997 1998 1999 2000 (UNAUDITED)
-------- -------- -------- -------- -------- ---------
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.00 $11.23 $10.50 $12.18 $15.45 $11.01
-------- -------- -------- -------- -------- --------
Net Investment Income(2) 0.07 0.05 0.07 0.07 0.03 0.04
Net Realized and Unrealized Gain (Loss) on
Investments 1.20 (0.13) 1.69 3.75 (3.93) (2.16)
-------- -------- -------- -------- -------- --------
Total from Investment Operations 1.27 (0.08) 1.76 3.82 (3.90) (2.12)
-------- -------- -------- -------- -------- --------
Less Distributions:
From Net Investment Income (0.04) (0.01) (0.07) (0.08) (0.17) --
In Excess of Net Investment Income -- -- (0.01) (0.02) -- --
From Net Realized Gain -- (0.64) -- (0.45) (0.37) --
-------- -------- -------- -------- -------- --------
Total Distributions (0.04) (0.65) (0.08) (0.55) (0.54) --
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $11.23 $10.50 $12.18 $15.45 $11.01 $8.89
======== ======== ======== ======== ======== ========
Total Investment Return(3,4) 12.75%(5) (0.54%) 16.75% 31.55% (25.17%) (19.26%)(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $2,267 $3,792 $7,201 $9,375 $7,330 $4,999
Ratio of Expenses to Average Net Assets 1.15%(6) 1.15% 1.15% 1.15% 1.15% 1.15%(6)
Ratio of Adjusted Expenses to Average Net
Assets(7) 3.13%(6) 2.04% 3.13% 2.51% 3.24% 3.40%(6)
Ratio of Net Investment Income to Average
Net Assets 2.03%(6) 0.43% 0.59% 0.52% 0.19% 0.84%(6)
Portfolio Turnover Rate 14% 273% 89% 116% 177% 176%
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Does not take into consideration expense reductions during the periods shown.
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- ----------------------------------------------------------------------------------------------------------------
V.A. REGIONAL BANK FUND
--------------------------------------------------------
SIX MONTHS
PERIOD ENDED
ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------------ 2001
1998(1) 1999 2000 (UNAUDITED)
-------- -------- -------- --------
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.00 $9.28 $8.56 $9.89
-------- -------- -------- --------
Net Investment Income(2) 0.09 0.12 0.16 0.07
Net Realized and Unrealized Gain (Loss) on
Investments (0.74) (0.57) 1.34 0.72
-------- -------- -------- --------
Total from Investment Operations (0.65) (0.45) 1.50 0.79
-------- -------- -------- --------
Less Distributions:
From Net Investment Income (0.07) (0.12) (0.17) (0.07)
From Net Realized Gain --(3) (0.15) -- --
-------- -------- -------- --------
Total Distributions (0.07) (0.27) (0.17) (0.07)
-------- -------- -------- --------
Net Asset Value, End of Period $9.28 $8.56 $9.89 $10.61
======== ======== ======== ========
Total Investment Return(4) (6.43%)(5,6) (4.86%) 17.91% 8.10%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $20,256 $20,295 $13,733 $11,888
Ratio of Expenses to Average Net Assets 1.05%(7) 1.00% 1.01% 1.03%(7)
Ratio of Adjusted Expenses to Average Net
Assets(8) 1.14%(7) -- -- --
Ratio of Net Investment Income to Average
Net Assets 1.39%(7) 1.30% 1.92% 1.44%(7)
Portfolio Turnover Rate 28% 49% 32% 9%
(1) Commenced operations on May 1, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment.
(5) Not annualized.
(6) The total return would have been lower had certain expenses not been
reduced during the period shown
(7) Annualized.
(8) Does not take into consideration expense reductions during the period shown
See notes to financial statements.
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- ----------------------------------------------------------------------------------------------------------------
V.A. HIGH YIELD BOND FUND
--------------------------------------------------------
SIX MONTHS
PERIOD ENDED
ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------------ 2001
1998(1) 1999 2000 (UNAUDITED)
-------- -------- -------- --------
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.00 $8.22 $8.31 $6.68
-------- -------- -------- --------
Net Investment Income(2) 0.90 0.88 0.94 0.36
Net Realized and Unrealized Gain (Loss) on
Investments (1.82) 0.16 (1.40) (0.20)
-------- -------- -------- --------
Total from Investment Operations (0.92) 1.04 (0.46) 0.16
-------- -------- -------- --------
Less Distributions:
From Net Investment Income (0.84) (0.88) (0.94) (0.39)
From Net Realized Gain -- (0.07) (0.23) --
Tax Return of Capital (0.02) -- -- --
-------- -------- -------- --------
Total Distributions (0.86) (0.95) (1.17) (0.39)
-------- -------- -------- --------
Net Asset Value, End of Period $8.22 $8.31 $6.68 $6.45
======== ======== ======== ========
Total Investment Return(3,4) (9.80%)(5) 13.12% (6.08%) 2.46%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $8,120 $9,287 $7,219 $6,284
Ratio of Expenses to Average Net Assets 0.85%(6) 0.85% 0.85% 0.85%(6)
Ratio of Adjusted Expenses to Average Net
Assets(7) 1.15%(6) 1.03% 1.24% 1.04%(6)
Ratio of Net Investment Income to Average
Net Assets 9.85%(6) 10.56% 12.12% 11.18%(6,8)
Portfolio Turnover Rate 102% 122% 56% 33%
(1) Commenced operations on January 6, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) The total returns would have been lower had certain expenses not been
reduced during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Does not take into consideration expense reductions during the periods shown.
(8) Had the Fund not amortized premiums on debt securities, the annualized
ratio of net investment income to average net assets would have been 11.40%
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. 500 Index Fund
Schedule of Investments
June 30, 2001 (Unaudited)
- -------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the V.A. 500 Index Fund on June 30, 2001. It is divided into two main
categories: common stocks and short-term investments. Common stocks are
further broken down by industry group. Short-term investments, which
represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- -------------- --------------
COMMON STOCKS
Advertising (0.29%)
Interpublic Group of Companies,
Inc. (The) 607 $17,815
Omnicom Group, Inc. 300 25,800
TMP Worldwide, Inc.* 172 10,320
--------------
53,935
--------------
Aerospace (1.18%)
Boeing Co. (The) 1,411 78,452
General Dynamics Corp. 325 25,288
Goodrich (B.F.) Co. (The) 167 6,343
Lockheed Martin Corp. 702 26,009
Northrop Grumman Corp. 138 11,054
Raytheon Co. 575 15,266
United Technologies Corp. 761 55,751
--------------
218,163
--------------
Automobiles/Trucks (0.94%)
Cummins Engine Co., Inc. 67 2,593
Dana Corp. 239 5,578
Delphi Automotive Systems Corp. 906 14,433
Eaton Corp. 111 7,781
Ford Motor Co. 2,959 72,643
General Motors Corp. 887 57,078
PACCAR, Inc. 124 6,376
Ryder System, Inc. 98 1,921
Visteon Corp. 212 3,897
--------------
172,300
--------------
Banks - United States (5.40%)
AmSouth Bancorp. 599 11,076
Bank of America Corp. 2,592 155,598
Bank of New York Co., Inc. 1,190 57,120
Bank One Corp. 1,885 67,483
BB&T Corp. 659 24,185
Comerica, Inc. 289 16,646
Fifth Third Bancorp 931 55,907
First Union Corp. 1,587 55,450
FleetBoston Financial Corp. 1,752 69,116
Huntington Bancshares, Inc. 406 6,638
KeyCorp. 687 17,896
Mellon Financial Corp. 772 35,512
National City Corp. 972 29,918
Northern Trust Corp. 360 22,500
PNC Bank Corp. 467 30,724
Regions Financial Corp. 368 11,776
SouthTrust Corp. 550 14,300
State Street Corp. 526 26,032
SunTrust Banks, Inc. 472 30,576
Synovus Financial Corp. 469 14,717
U.S. Bancorp 3,082 70,239
Union Planters Corp. 222 9,679
Wachovia Corp. 340 24,191
Wells Fargo Co. 2,776 128,890
Zions Bancorp. 149 8,791
--------------
994,960
--------------
Beverages (2.04%)
Anheuser-Busch Cos., Inc. 1,452 59,822
Brown-Forman Corp. 111 7,097
Coca-Cola Co. (The) 4,023 181,035
Coca-Cola Enterprises, Inc. 680 11,118
Coors (Adolph) Co. (Class B) 60 3,011
Pepsi Bottling Group, Inc. 233 9,343
PepsiCo, Inc. 2,368 104,666
--------------
376,092
--------------
Broker Services (1.47%)
Bear Stearns Cos., Inc. 170 10,025
Lehman Brothers Holdings, Inc. 399 31,022
Merrill Lynch & Co., Inc. 1,357 80,402
Morgan Stanley Dean Witter & Co. 1,800 115,614
Schwab (Charles) Corp. 2,242 34,303
--------------
271,366
--------------
Building (0.60%)
Black & Decker Corp. 131 5,169
Centex Corp. 96 3,912
Danaher Corp. 231 12,936
Georgia-Pacific Corp. 365 12,355
Kaufman & Broad Home Corp. 72 2,172
Louisiana-Pacific Corp. 169 1,982
Masco Corp. 744 18,570
Pulte Corp. 68 2,899
Sherwin-Williams Co. 253 5,617
Snap-on, Inc. 93 2,247
Stanley Works (The) 138 5,779
Vulcan Materials Co. 163 8,761
Weyerhauser Co. 348 19,130
Willamette Industries, Inc. 177 8,762
--------------
110,291
--------------
Business Services - Misc. (0.50%)
Block, H&R, Inc. 148 9,553
Cendant Corp.* 1,378 26,871
Convergys Corp.* 276 8,349
Equifax, Inc. 232 8,510
Moody's Corp. 255 8,543
Paychex, Inc. 604 24,160
Robert Half International, Inc. 284 7,069
--------------
93,055
--------------
Chemicals (0.69%)
Air Products & Chemicals, Inc. 369 16,882
Dow Chemical Co. 1,452 48,279
Eastman Chemical Co. 125 5,954
Engelhard Corp. 211 5,442
FMC Corp.* 50 3,428
Great Lakes Chemical Corp. 81 2,499
Hercules, Inc. 175 1,978
PPG Industries, Inc. 272 14,299
Praxair, Inc. 260 12,220
Rohm & Haas Co. 356 11,712
Sigma-Aldrich Corp. 122 4,712
--------------
127,405
--------------
Computers (12.17%)
Adobe Systems, Inc. 387 18,189
Apple Computer, Inc.* 564 13,113
Autodesk, Inc. 87 3,245
Automatic Data Processing, Inc. 1,010 50,197
BMC Software, Inc.* 394 8,881
BroadVision, Inc.* 442 2,210
Cabletron Systems, Inc.* 305 6,969
Cisco Systems, Inc.* 11,837 215,433
Citrix Systems, Inc.* 299 10,435
Compaq Computer Corp. 2,732 42,319
Computer Associates International,
Inc. 932 33,552
Computer Sciences Corp.* 273 9,446
Compuware Corp.* 595 8,324
Dell Computer Corp.* 4,207 110,013
Electronic Data Systems Corp. 757 47,313
EMC Corp.* 3,569 103,679
First Data Corp. 634 40,735
Fiserv, Inc.* 201 12,860
Gateway 2000, Inc.* 522 8,587
Hewlett-Packard Co. 3,142 89,861
IMS Health, Inc. 477 13,595
International Business Machines Corp. 2,810 317,530
Intuit, Inc.* 337 13,477
Lexmark International Group, Inc.
(Class A)* 207 13,921
Mercury Interactive Corp.* 134 8,027
Microsoft Corp.* 8,704 635,392
NCR Corp.* 156 7,332
Network Appliance, Inc.* 526 7,206
Novell, Inc.* 514 2,925
Oracle Corp.* 9,079 172,501
Palm, Inc.* 917 5,566
Parametric Technology Corp.* 427 5,974
PeopleSoft, Inc.* 475 23,384
Sabre Holdings Corp.* 215 10,750
Sapient Corp.* 199 1,940
Siebel Systems, Inc.* 733 34,378
Sun Microsystems, Inc.* 5,267 82,797
Unisys Corp.* 512 7,532
VERITAS Software Corp.* 643 42,779
--------------
2,242,367
--------------
Consumer Products - Misc. (0.01%)
American Greetings Corp. (Class A) 103 1,133
--------------
Containers (0.08%)
Ball Corp. 45 2,140
Bemis Co., Inc. 85 3,414
Pactiv Corp.* 257 3,444
Sealed Air Corp.* 135 5,029
--------------
14,027
--------------
Cosmetics & Personal Care (0.41%)
Alberto Culver Co. (Class B) 92 3,868
Avon Products, Inc. 384 17,772
Gillette Co. 1,705 49,428
International Flavors & Fragrances, Inc. 155 3,895
--------------
74,963
--------------
Diversified Operations (2.57%)
Crane Co. 97 3,007
Du Pont (E.I.) De Nemours & Co. 1,687 81,381
Fortune Brands, Inc. 247 9,475
Honeywell International, Inc. 1,309 45,802
Illinois Tool Works, Inc. 492 31,144
ITT Industries, Inc. 142 6,284
Johnson Controls, Inc. 140 10,146
Loews Corp. 319 20,553
Minnesota Mining & Manufacturing Co. 640 73,024
National Service Industries, Inc. 67 1,512
Textron, Inc. 228 12,549
TRW, Inc. 202 8,282
Tyco International Ltd. 3,132 170,694
--------------
473,853
--------------
Electronics (9.49%)
Advanced Micro Devices, Inc.* 556 16,057
Agilent Technologies, Inc.* 739 24,018
Altera Corp.* 625 18,125
American Power Conversion Corp.* 315 4,961
Analog Devices, Inc.* 582 25,172
Applied Materials, Inc.* 1,315 64,567
Applied Micro Circuits Corp.* 486 8,359
Broadcom Corp. (Class A)* 421 18,002
Conexant Systems, Inc.* 400 3,580
Emerson Electric Co. 693 41,927
General Electric Co. 16,065 783,169
Grainger (W.W.), Inc. 154 6,339
Intel Corp. 10,876 318,123
Jabil Circuit, Inc.* 309 9,536
KLA-Tencor Corp.* 300 17,541
Linear Technology Corp. 514 22,729
LSI Logic Corp.* 584 10,979
Maxim Integrated Products, Inc.* 531 23,476
Micron Technology, Inc. 964 39,620
Molex Inc. 316 11,543
Motorola, Inc. 3,552 58,821
National Semiconductor Corp.* 280 8,154
Novellus Systems, Inc.* 230 13,062
Parker-Hannifin Corp. 189 8,021
PerkinElmer, Inc. 163 4,487
Power-One, Inc.* 127 2,113
QLogic Corp.* 149 9,603
Rockwell International Corp. 296 11,284
Sanmina Corp.* 517 12,103
Solectron Corp.* 1,057 19,343
Tektronix, Inc. 152 4,127
Teradyne, Inc.* 282 9,334
Texas Instruments, Inc. 2,808 88,452
Thomas & Betts Corp. 94 2,075
Vitesse Semiconductor Corp.* 297 6,249
Xilinx, Inc.* 538 22,187
--------------
1,747,234
--------------
Energy (0.20%)
Calpine Corp.* 483 18,257
Mirant Corp.* 549 18,886
--------------
37,143
--------------
Engineering (0.03%)
Fluor Corp. 128 5,779
--------------
Fiber Optics (0.14%)
JDS Uniphase Corp.* 2,129 26,613
--------------
Finance (5.20%)
American Express Co. 2,140 83,032
Capital One Financial Corp. 337 20,220
Charter One Financial, Inc. 334 10,655
Citigroup, Inc. 8,133 429,748
Concord EFS, Inc.* 390 20,284
Franklin Resources, Inc. 428 19,590
Golden West Financial Corp. 257 16,510
Household International, Inc. 750 50,025
J.P. Morgan Chase & Co. 3,211 143,211
MBNA Corp. 1,378 45,405
Price (T. Rowe) Associates, Inc. 199 7,441
Providian Financial Corp. 462 27,350
Stilwell Financial, Inc. 355 11,914
USA Education, Inc. 264 19,272
Washington Mutual, Inc. 1,419 53,283
--------------
957,940
--------------
Food (1.38%)
Archer-Daniels-Midland Co. 1,022 13,286
Campbell Soup Co. 660 16,995
ConAgra, Inc. 869 17,215
General Mills, Inc. 460 20,139
Heinz (H.J.) Co. 564 23,062
Hershey Foods Corp. 221 13,638
Kellogg Co. 656 19,024
Quaker Oats Co. 214 19,528
Ralston Purina Group 501 15,040
Sara Lee Corp. 1,272 24,092
Unilever NV, American Depositary Receipts (ADR)
(Netherlands) 924 55,043
Wrigley (WM) Jr. Co. 365 17,100
--------------
254,162
--------------
Furniture (0.04%)
Leggett & Platt, Inc. 317 6,984
--------------
Household (0.13%)
Maytag Corp. 123 3,599
Newell Rubbermaid, Inc. 431 10,818
Tupperware Corp. 94 2,202
Whirlpool Corp. 108 6,750
--------------
23,369
--------------
Instruments - Scientific (0.11%)
Applera Corp. - Applied Biosystems Group 341 9,122
Millipore Corp. 76 4,710
Thermo Electron Corp.* 293 6,452
--------------
20,284
--------------
Insurance (4.22%)
Aetna, Inc. 230 5,950
AFLAC, Inc. 850 26,767
Allstate Corp. (The) 1,172 51,556
Ambac Financial Group, Inc. 171 9,952
American General Corp. 807 37,485
American International Group, Inc. 3,770 324,220
Aon Corp. 424 14,840
Chubb Corp. (The) 283 21,913
CIGNA Corp. 242 23,188
Cincinnati Financial Corp. 260 10,270
Conseco, Inc. 546 7,453
Hartford Financial Services Group, Inc. (The) 383 26,197
Jefferson Pilot Corp 246 11,887
John Hancock Financial Services, Inc. 498 20,049
Lincoln National Corp. 304 15,732
Marsh & McLennan Cos., Inc. 446 45,046
MBIA, Inc. 240 13,363
MetLife, Inc. 1,213 37,579
MGIC Investment Corp. 173 12,567
Progressive Corp. 119 16,088
SAFECO Corp. 207 6,107
St. Paul Cos., Inc. (The) 347 17,589
Torchmark Corp. 203 8,163
UnumProvident Corp. 390 12,527
--------------
776,488
--------------
Internet Services (2.16%)
America Online, Inc.* 7,166 379,798
Yahoo! Inc.* 917 18,331
--------------
398,129
--------------
Leisure (1.28%)
Brunswick Corp. 142 3,412
Carnival Corp. (Class A) 946 29,042
Disney (Walt) Co., (The) 3,380 97,648
Eastman Kodak Co. 469 21,893
Harley-Davidson, Inc. 489 23,022
Harrah's Entertainment, Inc.* 190 6,707
Hasbro, Inc. 279 4,032
Hilton Hotels Corp. 597 6,925
Marriott International, Inc. (Class A) 394 18,652
Mattel, Inc. 697 13,187
Starwood Hotels & Resorts
Worldwide, Inc. 321 11,967
--------------
236,487
--------------
Linen Supply & Related (0.07%)
Cintas Corp. 273 12,626
--------------
Machinery (0.39%)
Caterpiller Tractor, Inc. 555 27,778
Cooper Industries, Inc. 151 5,978
Deere & Co. 380 14,383
Dover Corp. 329 12,387
Ingersoll-Rand Co. 259 10,671
--------------
71,197
--------------
Media (2.10%)
Clear Channel Communications, Inc.* 950 59,565
Comcast Corp. 1,528 66,315
Dow Jones & Co., Inc. 140 8,359
Gannett Co., Inc. 428 28,205
Knight-Ridder, Inc. 118 6,997
McGraw-Hill Cos., Inc. (The) 316 20,903
Meredith Corp. 80 2,865
New York Times Co. (Class A) 258 10,836
Tribune Co. 483 19,325
Univision Communications, Inc.
(Class A)* 337 14,417
Viacom, Inc. (Class B)* 2,879 148,988
--------------
386,775
--------------
Medical (12.26%)
Abbott Laboratories 2,505 120,265
Allergan, Inc. 213 18,211
American Home Products Corp. 2,126 124,243
Medical (continued)
Amgen, Inc.* 1,687 102,367
Bard (C.R.), Inc. 82 4,670
Bausch & Lomb, Inc. 87 3,153
Baxter International, Inc. 958 46,942
Becton, Dickinson & Co. 417 14,924
Biogen, Inc.* 240 13,046
Biomet, Inc. 289 13,889
Boston Scientific Corp.* 649 11,033
Bristol-Myers Squibb Co. 3,143 164,379
Cardinal Health, Inc. 721 49,749
Chiron Corp.* 307 15,657
Forest Laboratories, Inc.* 285 20,235
Guidant Corp. 497 17,892
HCA - The Healthcare Co. 869 39,270
HEALTHSOUTH Corp.* 630 10,061
Humana, Inc.* 275 2,709
Johnson & Johnson 4,897 244,850
King Pharmaceuticals, Inc.* 277 14,889
Lilly (Eli) & Co. 1,818 134,532
Manor Care, Inc.* 166 5,270
McKesson HBOC, Inc. 461 17,112
MedImmune, Inc.* 344 16,237
Medtronic, Inc. 1,955 89,950
Merck & Co., Inc. 3,708 236,978
Pall Corp. 199 4,682
Pfizer Inc. 10,210 408,910
Pharmacia Corp. 2,104 96,679
Quintiles Transnational Corp.* 189 4,772
Schering-Plough Corp. 2,366 85,744
St. Jude Medical, Inc.* 139 8,340
Stryker Corp. 317 17,387
Tenet Healthcare Corp.* 524 27,033
UnitedHealth Group, Inc. 513 31,678
Watson Pharmaceutical, Inc.* 171 10,540
Wellpoint Health Networks, Inc.* 102 9,612
--------------
2,257,890
--------------
Metal (0.64%)
Alcan Aluminium Ltd. (Canada) 516 21,682
Alcoa Inc. 1,396 55,002
Barrick Gold Corp. (Canada) 640 9,696
Freeport-McMoran Copper & Gold, Inc. (Class B)* 233 2,575
Homestake Mining Co. 426 3,302
Inco, Ltd. (Canada) 294 5,074
Newmont Mining Corp. 316 5,881
Phelps Dodge Corp. 127 5,271
Placer Dome, Inc. (Canada) 530 5,194
Timken Co. (The) 97 1,643
Worthington Industries, Inc. 138 1,877
--------------
117,197
--------------
Mortgage Banking (1.22%)
Countrywide Credit Industries, Inc. 192 8,809
Fannie Mae 1,618 137,773
Freddie Mac 1,120 78,400
--------------
224,982
--------------
Office (0.22%)
Avery Dennison Corp. 178 9,087
Deluxe Corp. 114 3,295
Pitney Bowes, Inc. 399 16,806
Xerox Corp. 1,123 10,747
--------------
39,935
--------------
Oil & Gas (6.96%)
Amerada Hess Corp. 144 11,635
Anadarko Petroleum Corp. 405 21,882
Apache Corp. 203 10,302
Ashland, Inc. 113 4,531
Baker Hughes, Inc. 543 18,190
Burlington Resources, Inc. 342 13,663
Chevron Corp. 1,037 93,848
Conoco, Inc. (Class B) 1,010 29,189
Devon Energy Corp. 209 10,972
El Paso Energy Corp. 823 43,240
Enron Corp. 1,207 59,143
EOG Resources, Inc. 188 6,683
Exxon Mobil Corp. 5,579 487,326
Halliburton Co. 694 24,706
Kerr-McGee Corp. 153 10,139
McDermott International, Inc. 99 1,153
Nabors Industries, Inc.* 238 8,854
Noble Drilling Corp.* 217 7,107
Occidental Petroleum Corp. 599 15,927
Phillips Petroleum Co. 414 23,598
Rowan Cos., Inc.* 153 3,381
Royal Dutch Petroleum Co. (ADR)
(Netherlands) 3,468 202,080
Schlumberger Ltd. 927 48,807
Sunoco, Inc. 136 4,982
Texaco, Inc. 891 59,341
Tosco Corp. 250 11,012
Transocean Sedco Forex, Inc. 514 21,202
Unocal Corp. 394 13,455
USX - Marathon Group 499 14,725
--------------
1,281,073
--------------
Paper & Paper Products (0.51%)
Boise Cascade Corp. 93 3,271
International Paper Co. 781 27,882
Kimberly-Clark Corp. 861 48,130
Mead Corp. (The) 160 4,342
Potlatch Corp. 46 1,583
Temple-Inland, Inc. 80 4,263
Westvaco Corp. 163 3,959
--------------
93,430
--------------
Pollution Control (0.20%)
Allied Waste Industries, Inc.* 319 5,959
Waste Management, Inc. 1,012 31,190
--------------
37,149
--------------
Printing - Commercial (0.03%)
Donnelley (R.R.) & Sons 190 5,643
--------------
Retail (6.80%)
Albertson's, Inc. 655 19,643
AutoZone, Inc.* 181 6,788
Bed Bath & Beyond, Inc.* 467 14,570
Best Buy Co., Inc.* 339 21,533
Big Lots, Inc.* 183 2,503
Circuit City Stores - Circuit City
Group 336 6,048
Costco Wholesale Corp. 728 29,906
CVS Corp. 636 24,550
Darden Restaurants, Inc. 191 5,329
Dillards, Inc. 138 2,107
Dollar General Corp. 535 10,433
Federated Department Stores, Inc.* 320 13,600
Gap, Inc. (The) 1,390 40,310
Genuine Parts Co. 278 8,757
Home Depot, Inc. (The) 3,774 175,680
Kmart Corp.* 792 9,084
Kohl's Corp.* 539 33,811
Kroger Co.* 1,311 32,775
Limited, Inc. (The) 690 11,399
Longs Drug Stores Corp. 61 1,315
Lowe's Cos., Inc. 622 45,126
May Department Stores 483 16,548
McDonald's Corp. 2,092 56,610
Nordstrom, Inc. 216 4,007
Office Depot, Inc.* 481 4,993
Penney (J. C.) Co., Inc. 425 11,203
RadioShack Corp. 300 9,150
Reebok International Ltd.* 95 3,035
Safeway, Inc.* 817 39,216
Sears, Roebuck & Co. 531 22,467
Staples, Inc.* 738 11,801
Starbucks Corp.* 615 14,145
SUPERVALU, Inc. 214 3,756
SYSCO Corp. 1,088 29,539
Target Corp. 1,454 50,308
Tiffany & Co. 236 8,548
TJX Cos., Inc. 453 14,437
Toys R Us, Inc.* 320 7,920
Tricon Global Restaurants, Inc.* 238 10,448
Walgreen Co. 1,646 56,211
Wal-Mart Stores, Inc. 7,231 352,873
Wendy's International, Inc. 184 4,699
Winn-Dixie Stores, Inc. 227 5,932
--------------
1,253,113
--------------
Rubber - Tires & Misc. (0.05%)
Cooper Tire & Rubber Co. 117 1,661
Goodyear Tire & Rubber Co. (The) 257 7,196
--------------
8,857
--------------
Shoes & Related Apparel (0.10%)
Nike, Inc. (Class B) 439 18,434
--------------
Soap & Cleaning Preparations (1.13%)
Clorox Co. 383 12,965
Colgate-Palmolive Co. 907 53,504
Ecolab, Inc. 206 8,440
Procter & Gamble Co. (The) 2,095 133,661
--------------
208,570
--------------
Steel (0.06%)
Allegheny Technologies, Inc. 130 2,352
Nucor Corp. 125 6,111
USX-U.S. Steel Group, Inc. 144 2,902
--------------
11,365
--------------
Telecommunications (4.69%)
ADC Telecommunications, Inc.* 1,264 8,342
Andrew Corp.* 132 2,435
AT&T Corp. 5,580 122,760
Avaya, Inc.* 459 6,288
CenturyTel, Inc. 228 6,908
Citizens Communications Co. 461 5,546
Comverse Technology, Inc.* 277 15,817
Corning, Inc.* 1,504 25,132
Global Crossing Ltd.* (Bermuda) 1,434 12,390
Lucent Technologies, Inc. 5,508 34,150
Nextel Communications, Inc. (Class A)* 1,237 21,648
Nortel Networks Corp. (Canada) 5,153 46,841
QUALCOMM, Inc.* 1,225 71,638
Qwest Communications International, Inc.* 2,687 85,635
Scientific-Atlanta, Inc. 263 10,678
Sprint Corp. 1,515 36,587
Sprint PCS* 1,433 30,609
Symbol Technologies, Inc. 366 8,125
Tellabs, Inc.* 662 12,830
Verizon Communications, Inc. 4,374 234,009
WorldCom, Inc.* 4,671 66,328
--------------
864,696
--------------
Textile (0.06%)
Liz Claiborne, Inc. 85 4,288
VF Corp. 181 6,585
--------------
10,873
--------------
Tobacco (1.02%)
Philip Morris Cos., Inc. 3,558 180,569
UST, Inc. 264 7,619
--------------
188,188
--------------
Transport (0.72%)
AMR Corp.* 249 8,996
Burlington Northern Santa Fe Corp. 634 19,128
CSX Corp. 345 12,503
Delta Air Lines, Inc. 199 8,772
FedEx Corp.* 497 19,979
Navistar International Corp.* 96 2,700
Norfolk Southern Corp. 622 12,875
Southwest Airlines Co. 1,232 22,780
Union Pacific Corp. 401 22,019
US Airways Group, Inc.* 109 2,649
--------------
132,401
--------------
Utilities (4.87%)
AES Corp. (The)* 861 37,066
Allegheny Energy, Inc. 202 9,747
ALLTEL Corp. 506 30,998
Ameren Corp. 222 9,479
American Electric Power Co., Inc. 521 24,055
BellSouth Corp. 3,031 122,058
Cinergy Corp. 257 8,982
CMS Energy Corp. 213 5,932
Consolidated Edison, Inc. 343 13,651
Constellation Energy Group, Inc. 265 11,289
Dominion Resources, Inc. 400 24,052
DTE Energy Co. 267 12,399
Duke Energy Corp. 1,248 48,684
Dynegy, Inc. (Class A) 527 24,506
Edison International 527 5,876
Entergy Corp. 357 13,705
Exelon Corp. 519 33,278
FirstEnergy Corp.* 362 11,642
FPL Group, Inc. 284 17,100
GPU, Inc. 193 6,784
KeySpan Corp. 222 8,099
Kinder Morgan, Inc. 185 9,296
Niagara Mohawk Holdings, Inc.* 259 4,582
NICOR, Inc. 73 2,846
NiSource, Inc. 334 9,128
ONEOK, Inc. 96 1,891
Peoples Energy Corp. 57 2,291
PG&E Corp. 626 7,011
Pinnacle West Capital Corp. 137 6,494
PPL Corp. 236 12,980
Progress Energy, Inc. 333 14,958
Public Service Enterprise Group, Inc. 336 16,430
Reliant Energy, Inc. 481 15,493
SBC Communications, Inc. 5,447 218,207
Sempra Energy 333 9,104
Southern Co. 1,108 25,761
TXU Corp. 415 19,999
Williams Cos., Inc. (The) 784 25,833
Xcel Energy, Inc. 555 15,790
--------------
897,476
--------------
TOTAL COMMON STOCKS
(Cost $12,948,504) (96.83%) 17,836,392
-------------- --------------
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000s OMITTED)
- ------------------- -------------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.95%)
Investment in a joint repurchase
agreement transaction with UBS Warburg,
Inc. - Dated 6-29-01, due 7-02-01
(Secured by U.S. Treasury Bonds 6.875%
and 6.625% due 8-15-25 and 11-30-02) 3.97% $911 911,000
-------------- --------------
TOTAL SHORT-TERM INVESTMENTS (4.95%) 911,000
-------------- --------------
TOTAL INVESTMENTS (101.78%) 18,747,392
-------------- --------------
OTHER ASSETS AND LIABILITIES, NET (1.78%) (327,899)
-------------- --------------
TOTAL NET ASSETS (100.00%) $18,419,493
============== ==============
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. Large Cap Growth Fund
Schedule of Investments
June 30, 2001 (Unaudited)
- -------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the V.A. Large Cap Growth Fund on June 30, 2001. Common stocks are broken
down by industry group.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- -------------- --------------
COMMON STOCKS
Banks - United States (1.15%)
State Street Corp. 1,464 $72,453
--------------
Beverages (1.12%)
Anheuser-Busch Cos., Inc. 1,700 70,040
--------------
Computers (17.97%)
BEA Systems, Inc.* 1,000 30,710
Cisco Systems, Inc.* 15,650 284,830
Electronic Data Systems Corp. 2,000 125,000
EMC Corp.* 4,707 136,738
Microsoft Corp.* 3,450 251,850
Sun Microsystems, Inc.* 6,750 106,110
VeriSign, Inc.* 950 57,010
VERITAS Software Corp.* 2,050 136,387
--------------
1,128,635
--------------
Diversified Operations (11.61%)
General Electric Co. 7,627 371,816
Tyco International Ltd. 6,550 356,975
--------------
728,791
--------------
Electronics (6.94%)
Analog Devices, Inc.* 1,315 56,874
Applied Materials, Inc.* 1,500 73,650
Celestica, Inc. (Canada)* 600 30,900
Intel Corp. 5,000 146,250
Micron Technology, Inc.* 1,400 57,540
Novellus Systems, Inc.* 700 39,753
Xilinx, Inc.* 750 30,930
--------------
435,897
--------------
Fiber Optics (0.97%)
CIENA Corp.* 1,600 60,800
--------------
Finance (8.02%)
Citigroup, Inc. 4,378 231,334
Goldman Sachs Group, Inc. (The) 750 64,350
MBNA Corp. 3,780 124,551
Morgan Stanley Dean Witter & Co. 1,300 83,499
--------------
503,734
--------------
Insurance (2.99%)
American International Group, Inc. 2,182 187,652
--------------
Media (8.65%)
AOL Time Warner, Inc.* 5,110 270,830
Charter Communications, Inc. (Class A)* 3,050 71,217
Clear Channel Communications, Inc.* 2,052 128,660
Viacom, Inc. (Class B)* 1,400 72,450
--------------
543,157
--------------
Medical (20.74%)
Allergan, Inc. 973 83,191
Amgen, Inc.* 2,350 142,598
Cardinal Health, Inc. 3,513 242,397
Express Scripts, Inc.* 800 44,024
Genentech, Inc.* 1,056 58,186
Johnson & Johnson 2,100 105,000
Medtronic, Inc. 2,281 104,949
Pfizer, Inc. 5,928 237,416
Pharmacia Corp. 2,346 107,799
Stryker Corp. 1,400 76,790
UnitedHealth Group, Inc. 550 33,962
Wellpoint Health Networks, Inc.* 700 65,968
--------------
1,302,280
--------------
Oil & Gas (0.46%)
Transocean Sedco Forex, Inc. 700 28,875
--------------
Retail (12.58%)
Bed Bath & Beyond, Inc.* 3,350 100,500
Gap, Inc. (The) 2,600 75,400
Home Depot, Inc. (The) 5,512 256,584
Lowe's Cos., Inc. 1,300 94,315
Wal-Mart Stores, Inc. 5,398 263,422
--------------
790,221
--------------
Telecommunications (5.01%)
Amdocs Ltd.* 700 37,695
American Tower Corp. (Class A) 3,159 65,297
Comverse Technology, Inc.* 1,200 68,520
Nokia Corp., American Depositary
Receipts (Finland) 3,164 69,735
Scientific-Atlanta, Inc. 1,807 73,364
--------------
314,611
--------------
Tobacco (1.45%)
Philip Morris Cos., Inc. 1,800 91,350
--------------
Utilities (1.11%)
AES Corp. (The)* 1,618 69,655
--------------
TOTAL COMMON STOCKS
(Cost $6,081,968) (100.77%) 6,328,151
-------------- --------------
TOTAL INVESTMENTS (100.77%) 6,328,151
-------------- --------------
OTHER ASSETS AND LIABILITIES, NET (0.77%) (48,315)
-------------- --------------
TOTAL NET ASSETS (100.00%) $6,279,836
============== ==============
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
Schedule of Investments
June 30, 2001 (Unaudited)
- -------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the V.A. Mid Cap Growth Fund on June 30, 2001. It's divided into two main
categories: common stocks and short-term investments. Common stocks are
further broken down by industry group. Short-term investments, which
represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- -------------- --------------
COMMON STOCKS
Advertising (1.40%)
Lamar Advertising Co.* 850 $37,400
TMP Worldwide, Inc.* 850 51,000
--------------
88,400
--------------
Banks - United States (1.48%)
Northern Trust Corp. 1,500 93,750
--------------
Beverages (0.59%)
Coors (Adolph) Co. (Class B) 742 37,234
--------------
Broker Services (2.32%)
Legg Mason, Inc. 1,206 60,011
Lehman Brothers Holdings, Inc. 1,113 86,536
--------------
146,547
--------------
Computers (13.04%)
Brocade Communications Systems, Inc.* 2,580 113,494
DST Systems, Inc.* 1,192 62,818
Electronic Arts, Inc.* 600 34,740
Emulex Corp.* 1,350 54,540
Fiserv, Inc.* 1,015 64,940
Mercury Interactive Corp.* 2,070 123,993
Micromuse, Inc.* 2,200 61,578
Parametric Technology Corp.* 8,350 116,817
SunGard Data Systems, Inc.* 1,856 55,699
VeriSign, Inc.* 2,250 135,023
--------------
823,642
--------------
Electronics (12.22%)
Aeroflex, Inc.* 6,694 70,287
ASML Holdings NV* (Netherlands) 1,750 38,937
Atmel Corp.* 5,450 73,520
Capstone Turbine Corp.* 2,950 65,165
Celestica, Inc.* (Canada) 993 51,139
International Rectifier Corp.* 994 33,895
KLA-Tencor Corp.* 500 29,235
Lam Research Corp.* 950 28,168
Micrel, Inc.* 1,200 39,600
National Semiconductor Corp.* 2,364 68,840
Novellus Systems, Inc.* 1,150 65,308
ONI Systems Corp.* 1,950 54,405
PMC-Sierra, Inc.* (Canada) 1,300 40,391
QLogic Corp.* 460 29,647
Tektronix, Inc.* 3,057 82,998
--------------
771,535
--------------
Energy (0.96%)
Calpine Corp.* 1,606 60,707
--------------
Fiber Optics (0.64%)
Finisar Corp.* 2,150 40,162
--------------
Finance (6.23%)
Affiliated Managers Group, Inc.* 1,346 82,779
Concord EFS, Inc.* 1,840 95,698
Providian Financial Corp. 1,443 85,426
USA Education, Inc. 1,776 129,648
--------------
393,551
--------------
Instruments - Scientific (0.52%)
Millipore Corp. 533 33,035
--------------
Insurance (3.59%)
Ace, Ltd. 2,095 81,894
Ambac Financial Group, Inc. 1,148 66,814
Everest Re Group Ltd. (Bermuda) 1,042 77,942
--------------
226,650
--------------
Media (6.52%)
Charter Communications, Inc. (Class A)* 4,650 108,577
Clear Channel Communications, Inc.* 882 55,301
Emmis Communications Corp. (Class A)* 2,150 66,112
Hispanic Broadcasting Corp.* 1,771 50,810
Univision Communications, Inc.
(Class A)* 1,516 64,854
USA Networks, Inc.* 2,350 65,800
--------------
411,454
--------------
Medical (21.68%)
Alkermes, Inc.* 1,730 60,723
Allergan, Inc. 870 74,385
AmeriSource Health Corp. (Class A)* 1,387 76,701
Apogent Technologies, Inc.* 1,686 41,476
Express Scripts, Inc.* 1,200 66,036
Forest Laboratories, Inc.* 1,036 73,556
Genzyme Corp.* 900 54,900
Human Genome Sciences, Inc.* 1,070 64,468
ICOS Corp.* 850 54,400
IDEC Pharmaceuticals Corp.* 1,250 84,612
Inhale Therapeutic Systems, Inc.* 3,150 72,450
Invitrogen Corp.* 800 44,512
MedImmune, Inc.* 1,490 70,328
Oxford Health Plans, Inc.* 2,328 66,581
Shire Pharmaceuticals Group Plc,
American Depositary Receipts (ADR)*
(United Kingdom) 2,502 138,861
Teva Pharmaceutical Industries Ltd.
(ADR) (Israel) 1,301 81,052
Trigon Healthcare, Inc.* 603 39,105
Universal Health Services, Inc.
(Class B)* 1,417 64,474
Varian Medical Systems, Inc.* 979 69,999
Wellpoint Health Networks, Inc.* 751 70,774
--------------
1,369,393
--------------
Oil & Gas (4.91%)
Baker Hughes, Inc. 1,377 46,129
Cooper Cameron Corp.* 1,164 64,951
Santa Fe International Corp. 2,487 72,123
Transocean Sedco Forex, Inc. 1,391 57,379
Weatherford International, Inc.* 1,452 69,696
--------------
310,278
--------------
Retail (4.65%)
Bed Bath & Beyond, Inc.* 2,200 66,000
BJ's Wholesale Club, Inc.* 1,693 90,169
Talbots, Inc. 1,814 79,363
TJX Cos., Inc. 1,820 58,003
--------------
293,535
--------------
Telecommunications (10.80%)
Amdocs Ltd.* 2,026 109,100
American Tower Corp. (Class A)* 3,243 67,033
Comverse Technology, Inc.* 1,570 89,647
Crown Castle International Corp.* 2,975 48,790
Dobson Communications Corp. (Class A)* 7,230 123,271
Global Crossing Ltd.* (Bermuda) 5,493 47,460
Nextel Communications, Inc. (Class A)* 1,250 21,875
Scientific-Atlanta, Inc. 1,959 79,534
Sonus Networks, Inc.* 1,150 26,864
Western Wireless Corp. (Class A)* 1,590 68,370
--------------
681,944
--------------
Textile (1.00%)
Jones Apparel Group, Inc.* 1,462 63,158
--------------
Utilities (1.35%)
Orion Power Holdings, Inc.* 3,581 85,264
--------------
TOTAL COMMON STOCKS
(Cost $6,065,678) (93.90%) 5,930,239
-------------- --------------
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000s OMITTED)
- ------------------- -------------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (7.97%)
Investment in a joint repurchase
agreement transaction with UBS Warburg,
Inc. - Dated 06-29-01, due 07-02-01
(Secured by U.S. Treasury Bonds,
10.625% due 08-15-15 and 6.250% due
08-15-23, and U.S. Treasury Note 5.625%
due 11-30-02) 3.97% $503 503,000
-------------- --------------
TOTAL SHORT-TERM INVESTMENTS (7.97%) 503,000
-------------- --------------
TOTAL INVESTMENTS (101.87%) 6,433,239
-------------- --------------
OTHER ASSETS AND LIABILITIES, NET (1.87%) (118,065)
-------------- --------------
TOTAL NET ASSETS (100.00%) $6,315,174
============== ==============
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
Portfolio Concentration
June 30, 2001 (Unaudited)
- ---------------------------------------------------------------------------
The V.A. Mid Cap Growth Fund invests primarily in common stocks of U.S.
and foreign issuers. The performance of the Fund is closely tied to the
economic and financial conditions within the countries in which it
invests. The concentration of investments by industry category for
individual securities held by the Fund is shown in the Schedule of
Investments.
In addition, concentration of investments can be aggregated by various
countries. The table below shows the percentages of the Fund's investments
at June 30, 2001 assigned to country categories.
MARKET VALUE AS A %
COUNTRY DIVERSIFICATION OF FUND NET ASSETS
- ----------------------- -------------------
Bermuda 1.98%
Canada 1.45
Netherlands 0.62
Israel 1.28
United Kingdom 2.20
United States 94.34
------
TOTAL INVESTMENTS 101.87%
======
John Hancock Funds - Declaration Trust - V.A. Small Cap Growth Fund
Schedule of Investments
June 30, 2001 (Unaudited)
- -------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the V.A. Small Cap Growth Fund on June 30, 2001. It's divided into two
main categories: common stocks and short-term investments. Common stocks
are further broken down by industry group. Short-term investments, which
represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- -------------- --------------
COMMON STOCKS
Advertising (1.27%)
Getty Images, Inc.* 3,800 $99,788
Ventiv Health, Inc.* 3,350 69,144
--------------
168,932
--------------
Banks - United States (2.17%)
Greater Bay Bancorp. 3,450 86,181
Southwest Bancorp. of Texas, Inc.* 3,000 90,630
Sterling Bancshares, Inc. 5,850 112,203
--------------
289,014
--------------
Building (0.61%)
Ryland Group, Inc. (The) 1,600 80,960
--------------
Business Services - Misc. (3.27%)
Corporate Executive Board Co. (The)* 4,450 186,900
Forrester Research, Inc.* 2,800 63,252
On Assignment, Inc.* 5,000 90,000
Profit Recovery Group
International, Inc. (The)* 2,800 32,088
Quanta Services, Inc.* 2,879 63,453
--------------
435,693
--------------
Computers (8.00%)
Advent Software, Inc.* 1,850 117,475
Avocent Corp.* 2,500 56,875
Cerner Corp.* 2,800 117,600
Data Return Corp.* 5,900 10,325
Embarcadero Technologies, Inc.* 3,100 69,161
IntraNet Solutions, Inc.* 2,400 91,320
Macromedia, Inc.* 3,750 67,500
M-Systems Flash Disk Pioneers Ltd.
(Israel)* 8,700 61,770
National Instruments Corp.* 2,250 73,013
NetRatings, Inc.* 6,500 93,600
ScanSource, Inc.* 1,950 92,469
Secure Computing Corp.* 6,900 108,399
Silicon Storage Technology, Inc.* 7,150 72,430
TeleCommunication Systems, Inc.
(Class A)* 10,800 32,400
--------------
1,064,337
--------------
Electronics (14.81%)
Aeroflex, Inc.* 7,000 73,500
Alpha Industries, Inc.* 2,900 85,695
ATMI, Inc.* 3,550 106,500
Brooks Automation, Inc.* 2,050 94,505
CoorsTek, Inc.* 2,300 86,250
Credence Systems Corp.* 3,750 90,900
Cree, Inc.* 2,600 67,977
DDi Corp.* 5,000 100,000
DuPont Photomasks, Inc.* 2,000 96,500
Elantec Semiconductor, Inc.* 2,650 89,543
Electro Scientific Industries, Inc.* 2,650 100,965
LTX Corp.* 4,300 109,908
Microsemi Corp.* 2,650 188,150
Nanometrics, Inc.* 2,650 72,841
Pixelworks, Inc.* 2,600 92,924
Plexus Corp.* 2,000 66,000
PLX Technology, Inc.* 8,500 72,165
PRI Automation, Inc.* 5,400 100,035
Rudolph Technologies, Inc.* 3,050 143,350
Semtech Corp.* 4,450 133,500
--------------
1,971,208
--------------
Energy (0.56%)
Evergreen Solar, Inc.* 3,500 33,600
FuelCell Energy, Inc.* 1,800 41,562
--------------
75,162
--------------
Finance (2.54%)
Actrade Financial Technologies,
Ltd.* 1,366 32,292
Affiliated Managers Group, Inc.* 2,500 153,750
eFUNDS Corp.* 3,150 58,590
Metris Cos., Inc. 2,775 93,545
--------------
338,177
--------------
Food (1.35%)
American Italian Pasta Co. (Class A)* 2,450 113,680
Dean Foods Co. 1,650 66,330
--------------
180,010
--------------
Instruments - Scientific (0.11%)
FEI Co.* 350 14,350
--------------
Insurance (3.56%)
Fidelity National Financial, Inc. 4,350 106,879
HCC Insurance Holdings, Inc. 4,250 104,125
Philadelphia Consolidated Holding Corp.* 1,750 60,865
RenaissanceRe Holdings Ltd.
(Bermuda) 1,550 114,855
StanCorp Financial Group, Inc. 1,850 87,672
--------------
474,396
--------------
Leisure (0.74%)
Expedia, Inc. (Class A)* 1,000 46,600
Extended Stay America, Inc.* 3,450 51,750
--------------
98,350
--------------
Machinery (1.48%)
Global Power Equipment Group, Inc.* 1,350 39,555
Hydril Co.* 4,900 111,573
SureBeam Corp. (Class A)* 2,700 46,224
--------------
197,352
--------------
Media (6.17%)
Entercom Communications Corp.* 2,450 131,344
Insight Communications Co., Inc.* 2,700 67,500
Pegasus Communications Corp.* 3,200 72,000
Radio One, Inc. (Class A)* 3,150 72,450
Radio One, Inc. (Class D)* 5,150 113,558
Regent Communications, Inc.* 14,000 167,860
Scholastic Corp.* 2,700 121,500
Westwood One, Inc.* 2,050 75,543
--------------
821,755
--------------
Medical (18.77%)
Accredo Health, Inc.* 4,550 169,214
Alkermes, Inc.* 3,350 117,585
AmeriSource Health Corp. (Class A)* 2,000 110,600
Apria Healthcare Group, Inc.* 2,150 62,027
Charles River Laboratories
International, Inc.* 1,650 57,337
CIMA Labs, Inc.* 1,000 78,500
COR Therapeutics, Inc.* 2,300 70,150
Covance, Inc.* 5,350 121,177
Cytyc Corp.* 5,150 118,707
DaVita, Inc.* 6,400 130,112
Exelixis, Inc.* 2,300 43,631
Gene Logic, Inc.* 1,200 26,160
Inhale Therapeutic Systems, Inc.* 4,300 98,900
Inspire Pharmaceuticals, Inc.* 1,400 19,600
LifePoint Hospitals, Inc.* 3,400 150,552
Lincare Holdings, Inc.* 4,700 141,047
Mid Atlantic Medical Services, Inc.* 4,300 77,099
Noven Pharmaceuticals, Inc.* 2,050 80,360
NPS Pharmaceuticals, Inc.* 3,750 150,750
Pharmaceutical Product Development, Inc.* 800 24,408
Regeneron Pharmaceuticals, Inc.* 1,850 64,103
Renal Care Group, Inc.* 4,850 159,517
Rightchoice Managed Care, Inc.* 1,200 53,280
Salix Pharmaceuticals, Ltd.* 1,300 32,045
Unilab Corp.* 150 3,780
Urologix, Inc.* 4,350 79,649
Visible Genetics, Inc.* (Canada) 4,150 103,128
Wilson Greatbatch Technologies, Inc.* 5,350 155,150
--------------
2,498,568
--------------
Oil & Gas (8.78%)
Dril-Quip, Inc.* 2,750 59,207
Evergreen Resources, Inc.* 1,500 57,000
FMC Technologies, Inc.* 100 2,065
Hanover Compressor Co.* 3,559 117,767
Horizon Offshore, Inc.* 4,450 60,075
Lone Star Technologies, Inc.* 2,700 97,740
Marine Drilling Cos., Inc.* 4,000 76,440
NATCO Group, Inc. (Class A)* 1,800 15,840
Newfield Exploration Co.* 2,750 88,165
Oceaneering International, Inc.* 3,700 76,775
Patterson-UTI Energy, Inc.* 4,000 71,480
Pride International, Inc.* 4,500 85,500
Spinnaker Exploration Co.* 2,700 107,622
Stone Energy Corp.* 2,350 104,105
Torch Offshore, Inc.* 850 8,458
Universal Compression Holdings, Inc.* 3,700 105,080
Veritas DGC, Inc.* 1,300 36,075
--------------
1,169,394
--------------
Retail (13.63%)
99 Cents Only Stores* 4,435 132,828
Applebee's International, Inc. 750 24,000
bebe stores, inc.* 1,050 30,618
Buca, Inc.* 4,000 87,000
California Pizza Kitchen, Inc.* 3,400 79,050
Columbia Sportswear Co.* 3,375 172,091
Cost Plus, Inc.* 3,250 97,500
Duane Reade, Inc.* 1,100 35,750
Ethan Allen Interiors, Inc. 1,950 63,375
Galyan's Trading Co.* 550 11,220
GoTo.com, Inc.* 4,550 88,497
Hot Topic, Inc.* 3,100 96,410
Krispy Kreme Doughnuts, Inc.* 2,400 96,000
O'Reilly Automotive, Inc.* 1,800 51,660
P.F. Chang's China Bistro, Inc.* 2,800 106,120
Performance Food Group Co.* 4,700 142,081
RARE Hospitality International, Inc.* 3,175 71,755
Skechers U.S.A. (Class A)* 2,350 68,691
Too, Inc.* 3,000 82,200
Tweeter Home Entertainment Group, Inc.* 4,100 144,730
Whole Foods Market, Inc.* 4,900 132,790
--------------
1,814,366
--------------
Schools/Education (4.26%)
Corinthian Colleges, Inc.* 2,750 129,442
Education Management Corp.* 4,200 168,210
SkillSoft Corp.* 1,950 66,788
Strayer Education, Inc. 1,500 73,125
University of Phoenix Online* 3,050 129,625
--------------
567,190
--------------
Telecommunications (3.46%)
AirGate PCS, Inc.* 2,700 140,400
Alamosa Holdings, Inc.* 4,800 78,240
CTC Communications Group, Inc.* 6,650 20,349
Dobson Communications Corp. (Class A)* 2,300 39,215
Metro One Telecommunications, Inc.* 2,050 132,984
SBA Communications Corp.* 1,950 48,263
Tellium, Inc.* 100 1,820
--------------
461,271
--------------
Textile (0.64%)
Nautica Enterprises, Inc.* 700 14,301
Tommy Hilfiger Corp.* 5,050 70,700
--------------
85,001
--------------
Transport (1.52%)
Expeditors International of
Washington, Inc. 1,950 116,998
Forward Air Corp.* 2,850 85,357
--------------
202,355
--------------
Utilities (0.45%)
Beacon Power Corp.* 8,600 59,340
--------------
Waste Disposal Service & Equip. (0.95%)
Waste Connections, Inc.* 3,500 126,000
--------------
TOTAL COMMON STOCKS
(Cost $11,380,649) (99.10%) 13,193,181
-------------- --------------
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000s OMITTED)
- ------------------- -------------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.83%)
Investment in a joint repurchase
agreement transaction with UBS Warburg,
Inc. - Dated 06-29-01, due 07-02-01
(Secured by U.S. Treasury Bonds,
10.625% due 08-15-15 and 6.250% due
08-15-23, and U.S. Treasury Note 5.625%
due 11-30-02) 3.97% $111 111,000
-------------- --------------
TOTAL SHORT-TERM INVESTMENTS (0.83%) 111,000
-------------- --------------
TOTAL INVESTMENTS (99.93%) 13,304,181
-------------- --------------
OTHER ASSETS AND LIABILITIES, NET (0.07%) 8,834
-------------- --------------
TOTAL NET ASSETS (100.00%) $13,313,015
============== ==============
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. International Fund
Schedule of Investments
June 30, 2001 (Unaudited)
- -------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the V.A. International Fund on June 30, 2001. It's divided into two main
categories: common stocks and rights, and short-term investments. Common
stocks are further broken down by country. Short-term investments, which
represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- -------------- --------------
COMMON STOCKS
Brazil (0.37%)
Tele Norte Leste Participacoes SA American Depositary
Receipts (ADR) (Telecommunications) 1,200 $18,312
--------------
Canada (5.89%)
Anderson Exploration Ltd.* (Oil & Gas) 2,500 50,491
Magna International, Inc. (Class A)
(Automobiles/Trucks) 500 30,716
Manulife Financial Corp.
(Insurance) 2,000 55,820
Nortel Networks Corp.
(Telecommunications) 2 18
Precision Drilling Corp.* (Oil & Gas) 1,700 53,108
Suncor Energy, Inc. (Oil & Gas) 1,700 43,239
Talisman Energy, Inc. (Oil & Gas) 1,600 60,944
--------------
294,336
--------------
Denmark (0.89%)
Novo Nordisk A/S (Class B)
(Medical) 1,000 44,275
--------------
France (10.24%)
Alstom (Machinery) 1,800 50,125
Assurances Generales de France
(Insurance) 1,000 55,677
Aventis SA (Medical) 600 47,949
Lafarge SA (Building) 400 34,237
PSA Peugeot Citroen SA
(Automobiles/Trucks) 100 27,178
Sanofi-Synthelabo SA (Medical) 800 52,542
Schneider Electric SA (Machinery) 1,060 58,659
Societe Television Francaise 1
(Media) 1,000 29,203
Total Fina Elf SA (Oil & Gas) 330 46,256
Vivendi Environnement SA
(Utilities) 1,500 63,190
Vivendi Universal SA (Media) 800 46,678
--------------
511,694
--------------
Germany (7.62%)
BASF AG (Chemicals) 1,300 51,338
Bayer AG (Chemicals) 1,400 54,991
Bayerische Motoren Werke AG
(Automobiles/Trucks) 1,200 39,762
Deutsche Bank AG (Banks - Foreign) 500 35,864
Deutsche Telekom AG
(Telecommunications) 1,500 34,220
E.On AG (Utilities) 1,300 68,238
Muenchener Rueckversicherungs-Gesellschaft AG
(Insurance) 147 41,010
SAP AG (Computers) 400 55,562
--------------
380,985
--------------
Hong Kong (4.24%)
Cheung Kong Holdings Ltd. (Real
Estate Operations) 5,000 54,489
China Mobile Ltd.*
(Telecommunications) 7,000 36,886
Citic Pacific Ltd.
(Commercial/Industrial Services) 13,000 40,251
Hutchison Whampoa Ltd.
(Commercial/Industrial Services) 5,000 50,482
Johnson Electric Holdings Ltd.
(Electronics) 22,000 30,039
--------------
212,147
--------------
Ireland (2.88%)
Allied Irish Banks Plc (Banks - Foreign) 3,100 35,729
Bank of Ireland (Banks - Foreign) 2,600 25,779
Bank of Ireland (Banks - Foreign) 1,600 15,864
CRH Plc (Building) 1,800 30,203
Elan Corp. Plc* (ADR) (Medical) 600 36,600
--------------
144,175
--------------
Israel (1.50%)
Check Point Software Technologies, Ltd.*
(Computers) 500 25,285
Teva Pharmaceutical Industries, Ltd. (ADR)
(Medical) 800 49,840
--------------
75,125
--------------
Italy (4.97%)
Autostrade SpA (Transport) 5,500 35,750
Banca Fideuram SpA (Finance) 3,100 29,476
Banca Nazionale del Lavoro* (Banks
- - Foreign) 16,000 50,169
Edison SpA (Utilities) 3,800 34,876
Riunione Adriatica di Sicurta SpA
(Insurance) 5,282 64,995
Telecom Italia SpA
(Telecommunications) 3,700 33,237
--------------
248,503
--------------
Japan (18.28%)
Bridgestone Corp. (Rubber - Tires &
Misc.) 2,000 20,929
Daikin Industries Ltd. (Building) 3,000 55,569
Fast Retailing Co., Ltd. (Retail) 200 34,801
Fuji Photo Film Co., Ltd. (Leisure) 1,000 43,140
Kyocera Corp. (Electronics) 500 44,102
Marui Co., Ltd. (Retail) 1,000 14,433
Matsushita Electric Industrial Co.,
Ltd. (Electronics) 2,000 31,305
Mitsui Fudosan Co., Ltd. (Real
Estate Operations) 4,000 43,108
Mizuho Holdings, Inc. (Banks - Foreign) 8 37,206
Murata Manufacturing Co., Ltd.
(Electronics) 300 19,942
Nintendo Co., Ltd. (Leisure) 100 18,202
Nippon Mitsubishi Oil Corp. (Oil & Gas) 3,000 16,935
Nippon Telegraph & Telephone Corp.
(Telecommunications) 4 20,848
Nissan Motor Co., Ltd.
(Automobiles/Trucks) 12,000 82,848
Nomura Securities Co., Ltd. (Broker
Services) 1,000 19,164
NTT Data Corp. (Telecommunications) 4 21,811
NTT DoCoMo, Inc.
(Telecommunications) 3 52,201
Oriental Land Co., Ltd. (Leisure) 400 29,701
Pioneer Corp. (Electronics) 1,000 30,391
Seven-Eleven Japan Co., Ltd.
(Retail) 1,000 39,051
Sony Corp. (Electronics) 900 59,177
Takeda Chemical Industries Ltd.
(Medical) 1,000 46,508
Tokyo Electron Ltd. (Machinery) 500 30,270
Toray Industries, Inc. (Textile) 8,000 31,946
Yamanouchi Pharmaceutical Co., Ltd.
(Medical) 1,000 28,065
Yamato Transport Co., Ltd.
(Transport) 2,000 41,937
--------------
913,590
--------------
Mexico (0.42%)
America Movil SA de CV Ser L (ADR)
(Telecommunications) 1,000 20,860
--------------
Netherlands (5.65%)
Akzo Nobel NV (Chemicals) 1,130 47,881
Heineken NV (Beverages) 1,375 55,501
ING Groep NV (Banks - Foreign) 850 55,610
Koninklijke Ahold NV (Retail) 1,545 48,444
Qiagen NV* (Medical) 1,400 30,847
Unilever Plc (Food) 5,200 43,866
--------------
282,149
--------------
Portugal (0.91%)
Portugal Telecom, SGPS, SA
(Telecommunications) 6,500 45,389
--------------
Singapore (1.06%)
Singapore Telecommunications Ltd.
(Telecommunications) 51,000 53,183
--------------
South Korea (0.66%)
Korea Telecom Corp. (ADR)
(Telecommunications) 1,500 32,970
--------------
Spain (2.77%)
Iberdrola SA (Utilities) 2,500 32,097
Inditex SA* (Retail) 3,200 51,118
Repsol YPF, SA (Oil & Gas) 2,200 36,356
Telefonica SA (Telecommunications) 1,546 19,076
--------------
138,647
--------------
Sweden (2.08%)
Electrolux AB, Ser B (Machinery) 3,800 52,598
Svenska Handelsbanken AB (Banks - Foreign) 3,600 51,485
--------------
104,083
--------------
Switzerland (3.66%)
Nestle SA (Food) 300 63,791
Novartis AG (Medical) 1,009 36,535
Serona SA* (ADR) (Medical) 1,300 32,435
Swiss Re Co. (Insurance) 25 49,986
--------------
182,747
--------------
Taiwan (1.26%)
Taiwan Semiconductor Manufacturing Co., Ltd.*
(ADR) (Electronics) 2,100 31,899
United Microelectronics Corp.*
(ADR) (Electronics) 3,500 31,150
--------------
63,049
--------------
United Kingdom (18.71%)
Abbey National Plc (Banks - Foreign) 1,500 26,300
AstraZeneca Plc (Medical) 800 37,326
Barclays Plc (Banks - Foreign) 1,600 49,122
BG Group Plc (Oil & Gas) 13,000 51,308
BP Plc (Oil & Gas) 4,600 37,865
British Airways PLC (Transport) 6,700 32,458
British American Tobacco Plc
(Tobacco) 5,200 39,545
British Sky Broadcasting Group Plc*
(Media) 5,200 50,090
Centrica Plc (Utilities) 15,640 50,054
Compass Group Plc (Consumer
Services) 5,500 44,073
Diageo Plc (Beverages) 6,800 74,696
Energis Plc* (Telecommunications) 8,450 22,462
GlaxoSmithKline Plc (Medical) 1,600 45,066
National Grid Group Plc (Utilities) 6,600 48,705
Reckitt Benckiser Plc (Grocery
Products) 4,100 59,184
Royal Bank of Scotland Group Plc
(Banks - Foreign) 2,300 50,757
Scottish Power Plc (Utilities) 5,800 42,719
Shell Transport & Trading Co. Plc
(Oil & Gas) 6,800 56,597
Shire Pharmaceuticals Group Plc*
(Medical) 2,400 43,736
Standard Chartered Plc (Banks - Foreign) 2,600 33,357
Vodafone Group Plc
(Telecommunications) 17,980 39,881
--------------
935,301
--------------
United States (4.06%)
Amdocs Ltd.* (Telecommunications) 400 21,540
Santa Fe International Corp. (Oil & Gas)
1,500 43,500
Schlumberger Ltd. (Oil & Gas) 900 47,385
Transocean Sedco Forex, Inc. (Oil & Gas)
1,000 41,250
XL Capital Ltd. (Class A)
(Insurance) 600 49,260
--------------
202,935
--------------
TOTAL COMMON STOCKS
(Cost $5,232,978) (98.12%) 4,904,455
-------------- --------------
RIGHTS
Portugal (0.00%)
Portugal Telecom, SGPS, SA*
(Telecommunications) 6,500 0
--------------
TOTAL RIGHTS
(Cost $0) (0.00%) 0
-------------- --------------
TOTAL COMMON STOCKS AND RIGHTS
(Cost $5,232,978) (98.12%) 4,904,455
-------------- --------------
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000s OMITTED)
- ------------------- -------------- --------------
Joint Repurchase Agreement (5.24%)
Investment in a joint repurchase
agreement transaction with UBS Warburg,
Inc. - Dated 06-29-01, due 07-02-01
(Secured by U.S. Treasury Bond, 6.875%
due 08-15-25 and U.S. Treasury Note,
5.625% due 11-30-02) 3.97% $262 262,000
-------------- --------------
NUMBER
OF SHARES
--------------
Cash Equivalents (20.81%)
Navigator Securities Lending Prime Portfolio** 1,040,206 1,040,206
-------------- --------------
TOTAL SHORT-TERM INVESTMENTS (26.05%) 1,302,206
-------------- --------------
TOTAL INVESTMENTS (124.17%) 6,206,661
-------------- --------------
OTHER ASSETS AND LIABILITIES, NET (24.17%) (1,208,085)
-------------- --------------
TOTAL NET ASSETS (100.00%) $4,998,576
============== ==============
* Non-income producing security.
** Represents investment of security lending collateral.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
Industry Diversification (Unaudited)
- ---------------------------------------------------------------------------
The Fund primarily invests in securities issued by companies of other
countries. The performance of the Fund is closely tied to the economic
conditions within the countries in which it invests. The concentration of
investments by country for individual securities held by the Fund is shown
in the schedule of investments. In addition, the concentration of
investments can be aggregated by various industry groups. The table below
shows the percentages of the Fund's investments at June 30, 2001 assigned
to the various investment categories.
MARKET VALUE AS A %
INVESTMENT CATEGORIES OF FUND NET ASSETS
- ---------------------- -------------------
Automobiles/Trucks 3.61%
Banks - Foreign 9.35
Beverages 2.60
Broker Services 0.38
Building 2.40
Chemicals 3.09
Commercial/Industrial Services 1.82
Computers 1.62
Consumer Services 0.88
Diversified Operations 2.30
Electronics 4.20
Finance 0.59
Food 2.15
Grocery Products 1.18
Insurance 6.34
Leisure 1.82
Machinery 3.83
Media 1.59
Medical 10.64
Oil & Gas 11.71
Real Estate Operations 1.95
Retail 3.76
Rubber - Tires & Misc. 0.42
Telecommunications 9.46
Textile 0.64
Tobacco 0.79
Transport 2.20
Utilities 6.80
Short-Term Investments 26.05
-------
TOTAL INVESTMENTS 124.17%
=======
John Hancock Funds - Declaration Trust - V.A. Regional Bank Fund
Schedule of Investments
June 30, 2001 (Unaudited)
- -------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the V.A. Regional Bank Fund on June 30, 2001. It's divided into two main
categories: common stocks and short-term investments. Common stocks are
further broken down by industry group. Short-term investments, which
represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- -------------- --------------
COMMON STOCKS
Superregional Banks (7.50%)
Bank One Corp. (OH) 3,000 $107,400
Mellon Financial Corp. (PA) 8,500 391,000
U.S. Bancorp (MN) 5,000 113,950
Wells Fargo & Co. (CA) 6,000 278,580
--------------
890,930
--------------
Banks - Money Center (4.80%)
Citigroup, Inc. (NY) 7,000 369,880
J.P. Morgan Chase & Co. (NY) 4,500 200,700
--------------
570,580
--------------
Banks - United States (71.48%)
BancFirst Corp. (OK) 2,500 100,625
BancWest Corp. (HI) 3,000 103,200
BB&T Corp. (NC) 3,000 110,100
Cascade Bancorp (OR) 21,612 302,568
Chittenden Corp. (VT) 5,000 168,250
City National Corp. (CA) 5,000 221,450
Comerica, Inc. (MI) 3,500 201,600
Commerce Bancshares, Inc. (MO) 10,047 370,734
Community First Bankshares, Inc. (ND) 7,500 172,500
Cullen/Frost Bankers., Inc. (TX) 6,500 220,025
Fifth Third Bancorp (OH) 7,092 425,875
Financial Institutions, Inc. (NY) 9,000 201,600
First Midwest Bancorp., Inc. (IL) 5,000 154,250
FirstMerit Corp. (OH) 5,000 132,000
Independent Bank Corp. (MI) 8,000 196,400
M & T Bank Corp. (NY) 4,000 302,000
Mercantile Bankshares Corp. (MD) 9,500 371,735
Mid-State Bancshares (CA) 25,000 456,000
National Commerce Financial Corp.
(TN) 9,000 219,330
Northern Trust Corp. (IL) 1,500 93,750
Northrim Bank (AK) 16,695 232,227
Pacific Capital Bancorp. (CA) 13,500 411,075
PNC Financial Services Group (PA) 4,000 263,160
Prosperity Bancshares, Inc. (TX) 14,000 335,020
SJNB Financial Corp. (CA) 8,000 345,920
SouthTrust Corp. (AL) 3,000 78,000
Southwest Bancorp. of Texas, Inc.*
(TX) 5,000 151,050
State Street Corp. (MA) 2,000 98,980
Sterling Bancshares, Inc. (TX) 10,000 191,800
Summit Bancshares, Inc. (TX) 12,000 225,840
Texas Regional Bancshares, Inc.
(Class A) (TX) 1,750 70,508
Umpqua Holdings Corp. (OR) 33,000 422,730
Valley National Bancorp. (NJ) 16,485 467,350
Whitney Holding Corp. (LA) 5,000 234,500
Yardville National Bancorp. (NJ) 15,000 210,000
Zions Bancorp. (UT) 4,000 236,000
--------------
8,498,152
--------------
Computers (1.00%)
SEI Investments Co. (PA) 2,500 118,500
--------------
Finance (2.41%)
American Express Co. (NY) 3,000 116,400
Fannie Mae (DC) 2,000 170,300
--------------
286,700
--------------
Insurance (2.06%)
American General Corp. (TX) 1,000 46,450
Hartford Financial Services Group, Inc. (The) (CT) 2,000 136,800
MetLife, Inc. (NY) 2,000 61,960
--------------
245,210
--------------
Thrifts (4.16%)
Charter One Financial, Inc. (OH) 6,017 191,942
First Financial Holdings, Inc. (SC) 5,300 121,900
Warren Bancorp., Inc. (MA) 20,000 180,400
--------------
494,242
--------------
TOTAL COMMON STOCK
(Cost $8,818,705) (93.41%) 11,104,314
-------------- --------------
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000s OMITTED)
- ------------------- -------------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (6.25%)
Investment in a joint repurchase
agreement transaction with UBS Warburg,
Inc. - Dated 06-29-01, due 07-02-01
(Secured by U.S. Treasury Bonds,
10.625% due 08-15-15, and 6.250% due
08-15-23, U.S. Treasury Note 5.625%
due 11-30-02) 3.97% $743 743,000
-------------- --------------
TOTAL SHORT-TERM INVESTMENTS (Cost $743,000) (6.25%) 743,000
-------------- --------------
TOTAL INVESTMENTS (99.66%) 11,847,314
-------------- --------------
OTHER ASSETS AND LIABILITIES, NET (0.34%) 40,929
-------------- --------------
TOTAL NET ASSETS (100.00%) $11,888,243
============== ==============
* Non-income producing security.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
John Hancock Funds - Declaration Trust - V.A. High Yield Bond Fund
Schedule of Investments
June 30, 2001 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the V.A. High Yield Bond Fund on June 30, 2001. It is divided into four
main categories: bonds, common stocks, preferred stocks and warrants, and
short-term investments. Bonds are further broken down by industry group.
Short-term investments, which represent the Fund's "cash" position, are
listed last.
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING** (000s OMITTED) VALUE
- ------------------- -------- ------ ------------ -------------
BONDS
Aerospace (0.06%)
Compass Aerospace Corp.,
Gtd Sr Sub Note Ser D
04-15-05 (B) 10.125% C $25 $4,000
--------------
Agricultural Operations (0.05%)
Iowa Select Farms L.P./ISF Finance, Inc.,
Jr Sec Note 12-01-06 (R) 10.750 Ca 6 3,000
--------------
Automobiles/Trucks (1.10%)
AM General Corp.,
Sr Note Ser B 05-01-02 12.875 B 50 48,500
J.B. Poindexter & Co., Inc.,
Sr Note 05-15-04 12.500 B 25 20,750
--------------
69,250
--------------
Banks - United States (0.82%)
Colonial Bank,
Sub Note 06-01-11 9.375 BB- 50 51,640
--------------
Building (1.15%)
Amatek Industries Property Ltd.,
Sr Sub Note (Australia)
02-15-08 (Y) 12.000 B 25 19,500
WCI Communities, Inc.,
Sr Sub Note 02-15-11 (R) 10.625 B 50 52,500
--------------
72,000
--------------
Business Services - Misc. (0.22%)
AP Holdings, Inc.,
Sr Disc Note, Step Coupon
(11.25%, 03-15-03)
03-15-08 (A) Zero CCC+ 200 14,000
--------------
Chemicals (4.91%)
American Pacific Corp.,
Sr Note 03-01-05 9.250 BB- 30 30,150
Applied Extrusion Technologies, Inc.,
Sr Note 07-01-11 (R) 10.750 B 50 50,625
Sr Note Ser B 04-01-02 11.500 B 25 25,031
Huntsman ICI Chemicals LLC,
Sr Sub Note 07-01-09 10.125 B 100 98,000
Huntsman ICI Holdings LLC,
Sr Disc Note 12-31-09 Zero B+ 75 23,250
Trikem S.A.,
Bond (Brazil) 07-24-07 (R) (Y) 10.625 B+ 125 81,250
--------------
308,306
--------------
Consumer Products Misc. (0.37%)
Diamond Brands Operating Corp.,
Sr Sub Note 04-15-08 (B) 10.125 D 100 14,000
Indesco International, Inc.,
Sr Sub Note 04-15-08 (B) 9.750 D 100 9,000
--------------
23,000
--------------
Containers (3.97%)
Gaylord Container Corp.,
Sr Note Ser B 06-15-07 9.375 B- 15 9,600
Sr Sub Note Ser B 02-15-08 9.875 CCC+ 100 29,000
Kappa Beheer B.V.,
Sr Sub Bond (Netherlands)
07-15-09 (Y) 10.625 B 75 78,750
Sr Sub Bond, Step Coupon
(12.50%, 07-15-04) (Netherlands)
07-15-09 (A) (E) Zero B 100 64,796
Riverwood International Corp.,
Gtd Sr Sub Note 04-01-08 10.875 CCC+ 70 67,550
--------------
249,696
--------------
Cosmetics & Personal Care (0.12%)
Global Health Sciences, Inc.,
Gtd Sr Note 05-01-08 (B) 11.000 D 75 7,500
--------------
Diversified Operations (0.84%)
Diamond Holdings Plc,
Bond (United Kingdom)
02-01-08 # 10.000 B- 50 52,826
--------------
Energy (3.00%)
AEI Resources, Inc./AEI Resources
Holdings, Inc.,
Gtd Note 12-15-05 (B) (R) 10.500 Ca 75 52,500
P&L Coal Holdings Corp.,
Sr Sub Note Ser B 05-15-08 9.625 B 81 84,848
Port Arthur Finance Corp.,
Gtd Sr Sec Note 01-15-09 12.500 BB 50 51,000
--------------
188,348
--------------
Finance (1.57%)
Finova Capital Corp.,
Floating Rate Sr Note 06-18-03 4.128*** D 50 47,000
Takefuji Corp.,
Sr Note (Japan) 04-15-11 (R) (Y) 9.200 A- 50 51,591
--------------
98,591
--------------
Food (4.05%)
Agrilink Foods, Inc.,
Sr Sub Note 11-01-08 11.875 B- 125 113,750
Mastellone Hermanos S.A.,
Sr Note (Argentina) 04-01-08 (Y) 11.750 B+ 125 68,750
RAB Holdings, Inc.,
Sr Note 05-01-08 (R) 13.000 Caa2 120 72,000
--------------
254,500
--------------
Government - Foreign (0.80%)
Panama, Republic of,
Bond (Panama) 02-08-11 (Y) 9.625 BB+ 50 50,500
--------------
Insurance (0.81%)
Willis Corroon Corp.,
Gtd Sr Sub Note 02-01-09 9.000 B+ 50 50,875
--------------
Leisure (3.05%)
Ameristar Casinos, Inc.,
Sr Sub Note 02-15-09 (R) 10.750 B- 50 52,125
Claridge Hotel & Casino Corp.,
1st Mtg Note 02-01-02 (B) 11.750 Ca 50 1,500
Fitzgeralds Gaming Corp.,
Gtd Sr Sec Note Ser B
12-15-04 (B) 12.250 Caa1 50 30,000
Penn National Gaming, Inc.,
Sr Sub Note 03-01-08 (R) 11.125 B- 25 25,875
SC International Services, Inc.,
Sr Sub Note Ser B 09-01-07 9.250 B 30 32,100
Trump Atlantic City Associates,
1st Mtg Note 05-01-06 11.250 B- 75 50,250
--------------
191,850
--------------
Machinery (0.25%)
Glasstech, Inc.,
Sr Note Ser B 07-01-04 12.750 B3 25 15,500
--------------
Manufacturing (0.32%)
ICON Health & Fitness, Inc.,
Gtd Note 09-27-05 12.000 B 22 19,980
--------------
Media (6.93%)
Antenna TV S.A.,
Sr Note (Germany) 07-01-08 (E) 9.750 BB 50 41,927
Callahan Nordheim-Westfalen GmbH,
Sr Note (Germany) 7-15-11 (E) 14.125 B- 50 35,362
DIVA Systems Corp.,
Sr Disc Note Ser B, Step Coupon
(12.625%, 03-01-03)
03-01-08 (A) Zero B- 50 7,000
Fox Family Worldwide, Inc.,
Sr Disc Note, Step Coupon
(10.25%, 11-01-02)
11-01-07 (A) Zero B 80 71,200
ONO Finance Plc,
Sr Sub Note (United Kingdom)
07-15-10 (E) 14.000 CCC+ 50 33,033
Pegasus Communications Corp.,
Sr Note Ser B 08-01-07 12.500 CCC+ 35 34,650
Pegasus Satellite Communications, Inc.,
Sr Disc Note, Step Coupon
(13.50%, 03-01-04)
03-01-07 (A) Zero CCC+ 60 36,600
Regional Independent Media Group Plc,
Sr Disc Note, Step Coupon
(12.875%, 07-01-03)
(United Kingdom)
07-01-08 (A) # Zero B- 20 22,539
Sr Note (United Kingdom)
07-01-08 (Y) 10.500 B- 5 5,050
Sirius Satellite Radio, Inc.,
Sr Disc Note, Step Coupon
(15.00%, 12-01-02)
12-01-07 (A) Zero CCC+ 110 36,300
United International Holdings, Inc.,
Sr Disc Note, Step Coupon
(10.75%, 02-15-03)
02-15-08 (A) Zero B- 75 23,250
XM Satellite Radio, Inc.,
Sr Sec Note 03-15-10 14.000 CCC+ 150 88,500
--------------
435,411
--------------
Medical (1.89%)
Magellan Health Services, Inc.,
Sr Sub Note 02-15-08 9.000 B- 100 94,250
Select Medical Corp.,
Sr Sub Note 06-15-09 (R) 9.500 B 25 24,625
--------------
118,875
--------------
Metal (3.47%)
Doe Run Resources Corp.,
Gtd Sr Note Ser B 03-15-03 11.181*** CCC+ 25 8,500
Gtd Sr Note Ser B 03-15-05 11.250 CCC+ 10 3,400
Freeport-McMoRan Copper & Gold, Inc.,
Sr Note 11-15-06 7.500 CCC 75 50,250
Golden Northwest Aluminum, Inc.,
1st Mtg Note 12-15-06 12.000 B+ 25 13,000
Great Lakes Acquisition Corp.,
Sr Disc Deb, Step Coupon
(13.125%, 05-15-03)
05-15-09 (A) Zero B- 200 80,000
TVX Gold, Inc.,
Conv Sub Note (Canada)
03-28-02 (Y) 5.000 B- 100 63,000
--------------
218,150
--------------
Miscellaneous (0.65%)
Sotheby's Holdings, Inc.,
Note 02-01-09 6.875 BBB 50 41,000
--------------
Oil & Gas (11.09%)
Comstock Resources, Inc.,
Gtd Sr Note 05-01-07 11.250 B 75 79,500
Frontier Oil Corp.,
Sr Sub Note 11-15-09 11.750 B 50 53,500
Giant Industries, Inc.,
Gtd Sr Sub Note 09-01-07 9.000 B+ 50 48,500
Sr Sub Note 11-15-03 9.750 B+ 25 24,563
Great Lakes Carbon Corp.,
Gtd Sr Sub Note Ser B 05-15-08 10.250 B- 50 29,500
Key Energy Services, Inc.,
Conv Sub Note 09-15-04 (R) 5.000 B2 80 74,000
Conv Sub Note 09-15-04 5.000 B2 143 132,275
Sr Sub Note Ser B 01-15-09 14.000 B 93 106,950
Mariner Energy, Inc.,
Sr Sub Note Ser B 08-01-06 10.500 B- 10 9,875
Ocean Rig Norway A.S.,
Gtd Sr Sec Note (Norway)
06-01-08 (Y) 10.250 B- 55 48,400
Universal Compression, Inc.,
Sr Disc Note, Step Coupon
(9.875%, 02-15-03)
02-15-08 (A) Zero B+ 100 90,000
--------------
697,063
--------------
Paper & Paper Products (4.84%)
APP China Group Ltd.,
Unit (Sr Disc Note & Warrant)
(Indonesia) 03-15-10 (B) (R) (Y) 14.000 D 250 37,500
APP Finance (VII) Mauritius Ltd.,
Gtd Note (Indonesia)
04-30-03 (B) (R) (Y) 3.500 D 10 400
Corporacion Durango S.A. de C.V.,
Sr Note (Mexico) 08-01-06 (Y) 13.125 BB- 125 125,000
Grupo Industrial Durango S.A.,
Note (Mexico) 08-01-03 (Y) 12.625 BB- 125 131,250
Sappi BVI Finance Ltd.,
Gtd Conv Bond (South Africa)
08-01-02 (R) (Y) 7.500 BB- 10 9,950
--------------
304,100
--------------
Real Estate Operations (0.02%)
Signature Resorts, Inc.,
Conv Sub Note 01-15-07 (B) 5.750 Caa1 35 1,050
--------------
Retail (0.92%)
Imperial Home Decor Group, Inc,
Gtd Sr Sub Note 03-15-08 (B) 11.000 C 125 625
SpinCycle, Inc.,
Sr Disc Note, Step Coupon
(12.75%, 05-01-01)
05-01-05 (A) Zero CCC+ 25 7,250
St. John Knits International, Inc.,
Sr Sub Note 07-01-09 12.500 B- 50 50,000
--------------
57,875
--------------
Steel (1.54%)
Gulf States Steel, Inc. of Alabama,
1st Mtg Bond 04-15-03 (B) 13.500 Caa3 100 250
LTV Corp. (The),
Gtd Sr Sub Note 11-15-09 (B) 11.750 Ca 50 3,500
Metallurg Holdings, Inc.,
Sr Disc Note, Step Coupon
(12.75%, 07-15-03)
07-15-08 (A) Zero CCC+ 50 23,000
Metallurg, Inc.,
Gtd Sr Note Ser B 12-01-07 11.000 B- 30 27,000
NSM Steel, Inc./NSM Steel Ltd.,
Gtd Sr Sub Mtg Note Ser B
02-01-08 (B) (R) 12.250 D 75 750
Oregon Steel CF&I,
Note 03-31-03 (r) 9.500 B 46 42,321
--------------
96,821
--------------
Telecommunications (6.14%)
CTI Holdings S.A.,
Sr Note, Step Coupon (11.25%,
04-15-03) (Argentina)
04-15-08 (A) (Y) Zero B2 75 29,250
Esprit Telecom Group Plc,
Sr Note (Germany) 06-15-08 (B) # 11.000 D 40 346
Grupo Iusacell S.A. de C.V.,
Sr Note (Mexico) 12-01-06 (Y) 14.250 B+ 100 106,000
GT Group Telecom, Inc.,
Unit (Sr Disc Note & Warrant), Step
Coupon (13.125%, 02-01-05)
02-01-10 (A) 1.000 B- 100 28,000
Jazztel Plc,
Sr Note (United Kingdom)
12-15-09 (E) 13.250 CCC+ 50 15,669
Nextel Partners, Inc.,
Sr Disc Note, Step Coupon
(14.00%, 02-01-04)
02-01-09 (A) Zero CCC+ 15 8,400
NTL Communications Corp.,
Sr Note Ser B 10-01-08 11.500 B 50 33,500
Sr Note Ser B, Step Coupon
(12.375%, 10-01-03)
10-01-08 (A) Zero B 100 42,000
PTC International Finance II S.A.,
Gtd Sr Sub Note (Luxembourg)
12-01-09 (E) 11.250 B+ 25 22,022
Telewest Communications Plc,
Sr Disc Note, Step Coupon
(9.875%, 04-15-04)
(United Kingdom)
04-15-09 (A) # Zero B+ 25 16,904
United Pan-Europe Communications N.V.,
Sr Note (Netherlands)
11-01-07 (E) 10.875 B 50 24,139
Sr Note (Netherlands)
11-01-09 (E) 11.250 Caa1 25 12,070
Versatel Telecom International N.V.,
Sr Note (Netherlands)
05-15-08 (Y) 13.250 B- 125 47,500
--------------
385,800
--------------
Textile (1.51%)
Coyne International Enterprises Corp.,
Sr Sub Note 06-01-08 11.250 CCC 75 31,500
Steel Heddle Group, Inc.,
Sr Disc Deb, Step Coupon (13.75%,
06-01-03) 06-01-09 (A) Zero Caa2 200 10,000
Steel Heddle Manufacturing Co.,
Gtd Sr Sub Note Ser B
06-01-08 (B) 10.625 Caa1 50 7,500
Tropical Sportswear International Corp.,
Sr Sub Note Ser A 06-15-08 11.000 B- 50 46,000
--------------
95,000
--------------
Transport (7.68%)
Amtran, Inc.,
Sr Note 08-01-04 10.500 B+ 50 44,000
Cenargo International Plc,
1st Mtg Note (United Kingdom)
06-15-08 (Y) 9.750 B+ 20 15,200
CHC Helicopter Corp.,
Sr Sub Note (Canada)
07-15-07 (E) 11.750 B2 100 94,864
Fine Air Services, Inc.,
Sr Note 06-01-08 (B) 9.875 Caa1 105 6,296
North American Van Lines, Inc.,
Sr Sub Note 12-01-09 (R) 13.375 B- 100 92,000
Northwest Airlines Corp.,
Gtd Note 03-15-07 8.700 BB 100 96,939
Pacer International, Inc.,
Sr Sub Note 06-01-07 11.750 B- 50 49,000
Pacific & Atlantic Holdings, Inc.,
Sr Sec Note 12-31-07 (R) 10.500 CC 21 10,716
US Airways, Inc.,
Pass Thru Ctf Ser 1993-A3
03-01-13 10.375 B- 75 73,500
--------------
482,515
--------------
Utilities (1.54%)
CMS Energy Corp.,
Sr Note 10-15-07 9.875 BB 25 26,375
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico)
11-15-09 (R) (Y) 9.625 BB+ 68 70,381
--------------
96,756
--------------
Waste Disposal Service & Equip. (2.09%)
Allied Waste North America, Inc.,
Sr Sub Note Ser B 08-01-09 10.000 B+ 125 128,438
Waste Systems International, Inc.,
Gtd Sr Note 01-15-06 (B) 11.500 C 15 3,000
--------------
131,438
--------------
TOTAL BONDS
(Cost $7,053,690) (77.77%) 4,887,216
-------------- --------------
NUMBER OF SHARES
OR WARRANTS
--------------
COMMON STOCKS
American Pacific Corp.** 5,000 $32,200
AMR Corp.** 2,000 72,260
Chesapeake Energy Corp.** 1,872 12,318
Gaylord Container Corp. (Class A)** 6,500 6,825
Grey Wolf, Inc.** 28,850 115,400
International Wireless
Communications Holdings, Inc. 2,417 1,329
KLM Royal Dutch Airlines N.V.
(Netherlands) (Y) 78 1,377
Kraft Foods, Inc. (Class A)** 255 7,905
Nortek, Inc.** 563 17,577
Northwest Airlines Corp.** 6,500 164,125
Pathmark Stores, Inc.** 1,046 25,731
Star Gas Partners, L.P. 3,300 68,805
Waste Systems International, Inc. (B)** 8,715 0
-------------- --------------
TOTAL COMMON STOCKS
(Cost $732,116) (8.37%) 525,852
-------------- --------------
PREFERRED STOCKS AND WARRANTS
Asia Pulp & Paper Co. Ltd., Warrant (R)** 250 3
DIVA Systems Corp., Warrant (R)** 150 188
Gothic Energy Corp., Warrant** 79 31
HF Holdings, Inc., Warrant** 212 106
Hills Stores Co., Warrant** 35,000 0
Nakornthai Strip Mill Plc, Warrant
(Thailand) (R) (Y)** 63,309 63
Nextel Communications, Inc., 11.125%,
Payment-In-Kind, Ser E, Preferred
Stock 208 131,040
ONO Finance Plc, Warrant (United
Kingdom) (R) (Y)** 50 1,500
Pacific & Atlantic Holdings, Inc., 7.50%,
Preferred Stock 1,172 5,860
Pathmark Stores, Inc., Warrant** 740 6,497
Smurfit-Stone Container Corp., 7.00%, Ser A,
Preferred Stock 4,100 79,950
SpinCycle, Inc., Warrant (R)** 25 0
TimberWest Forest Corp., Unit
(Common & Preferred Shares)
(Canada) # 38,000 305,490
Waste Systems International, Inc., 8.00%, Ser E,
Preferred Stock (B)** 160 160
Waste Systems International, Inc.,
Warrant (B) (R)** 225 2
XM Satellite Radio Holdings, Inc.,
Warrant (R)** 150 3,450
--------------
TOTAL PREFERRED STOCKS AND WARRANTS
(Cost $737,235) (8.50%) 534,340
-------------- --------------
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000s OMITTED)
- ------------------- -------------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.35%)
Investment in a joint repurchase
agreement transaction with UBS Warburg,
Inc. - Dated 06-29-01, due 07-02-01
(Secured by U.S. Treasury Bonds,
10.625% due 08-15-15 and 6.250% due
08-15-23, U.S. Treasury Note 5.625%
due 11-30-02) 3.970% $85 85,000
-------------- --------------
TOTAL SHORT-TERM INVESTMENTS (1.35%) 85,000
-------------- --------------
TOTAL INVESTMENTS (95.99%) 6,032,408
-------------- --------------
OTHER ASSETS AND LIABILITIES, NET (4.01%) 251,952
-------------- --------------
TOTAL NET ASSETS (100.00%) $6,284,360
============== ==============
* Credit ratings are unaudited and rated by Moody's Investors Service or
John Hancock Advisers, Inc. where Standard and Poor's ratings are not
available.
** Non-income producing security.
*** Represents rate in effect on June 30, 2001.
# Par value of foreign bonds and common stocks is expressed in local
currency, as shown parenthetically in security description.
(A) Cash interest will be paid on this obligation at the stated rate
beginning on the stated date.
(B) Non-income producing issuer filed for protection under Federal
Bankruptcy Code or is in default of interest payment.
(E) Parenthetical disclosure of a country in the security description
represents country of issuer; however, security is euro denominated.
(R) These securities are exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $766,994, or 12.20% of net assets as of
June 30, 2001.
(Y) Parenthetical disclosure of a foreign country in the security
description represents country of a foreign issuer; however, security is
U.S. dollar denominated.
(r) Direct placement securities are restricted as to resale. They have been
valued in accordance with procedures approved by the Trustees after
consideration of restrictions as to resale, financial condition and
prospects of the issuer, general market conditions and pertinent
information, in accordance with the Fund's By- Laws and the Investment
Company Act of 1940, as amended. The Fund has limited rights to
registration under the Securities Act of 1933 with respect to these
restricted securities.
Additional information on these securities is as follows:
MARKET MARKET
VALUE AS A VALUE AT
ACQUISITION ACQUISITION % OF FUND JUNE 30,
ISSUER, DESCRIPTION DATE COST NET ASSETS 2000
- ------------------- ---- ---- ---------- ----
Oregon Steel CF&I 05-14-98 $44,207 0.67% $42,321
The percentage shown for each investment category is the total value of
that category expressed as a percentage of the net assets of the Fund.
See notes to financial statements.
Portfolio Concentration
June 30, 2001 (Unaudited)
- ---------------------------------------------------------------------------
The V.A. High Yield Bond Fund invests primarily in securities issued
in the United States of America. The performance of this Fund is closely
tied to the economic and financial conditions of the countries within which
it invests. The concentration of investments by industry category for
individual securities held by the Fund is shown in the Schedule of
Investments. In addition, concentration of investments can be aggregated by
various countries. The table below shows the percentages of the Fund's
investments at June 30, 2001 assigned to country categories.
MARKET VALUE AS A %
COUNTRY DIVERSIFICATION OF FUND NET ASSETS
- ----------------------- -------------------
Argentina 1.56%
Australia 0.31
Brazil 1.29
Canada 7.37
Germany 1.24
Indonesia 0.60
Japan 0.82
Luxembourg 0.35
Mexico 6.88
Netherlands 3.64
Norway 0.77
Panama 0.80
South Africa 0.16
United Kingdom 2.59
United States 67.61
------
TOTAL INVESTMENTS 95.99%
======
Additionally, the concentration of investments can be aggregated by the
quality rating for each debt security.
QUALITY DISTRIBUTION
- --------------------
A 0.82%
BBB 1.48
BB 11.25
B 51.14
CCC 9.97
CC 1.13
C 0.12
D 1.86
------
TOTAL BONDS 77.77%
======
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock V.A. 500 Index Fund ("V.A. 500 Index Fund"), John Hancock
V.A. Large Cap Growth Fund ("V.A. Large Cap Growth Fund"), John Hancock
V.A. Mid Cap Growth Fund ("V.A. Mid Cap Growth Fund"), John Hancock V.A.
Small Cap Growth Fund ("V.A. Small Cap Growth Fund"), John Hancock V.A.
International Fund ("V.A. International Fund"), John Hancock V.A. Regional
Bank Fund ("V.A. Regional Bank Fund") and John Hancock V.A. High Yield
Bond Fund ("V.A. High Yield Bond Fund") (each a "Fund," collectively, the
"Funds") are separate series of John Hancock Declaration Trust (the
"Trust"), an open-end management investment company registered under the
Investment Company Act of 1940. The Trust, organized as a Massachusetts
business trust in 1995, consists of fifteen different series as of June
30, 2001. The other series of the Trust are reported in a separate
shareholders' report. Each Fund currently has one class of shares with
equal rights as to voting, redemption, dividends and liquidation within
its respective Funds. The Trustees may authorize the creation of
additional series from time to time to satisfy various investment
objectives. An insurance company issuing a Variable Contract that
participates in the Trust will vote shares of the Funds held by the
insurance company's separate accounts as required by law. In accordance
with current law and interpretations thereof, participating insurance
companies are required to request voting instructions from policy owners
and must vote shares of the Funds in proportion to the voting instructions
received.
The investment objective of the V.A. 500 Index Fund is to provide
investment results that correspond with the total return performance of
the Standard & Poor's 500 Stock Price Index (the "S&P 500 Index"). The
investment objective of the V.A. Large Cap Growth Fund is to seek
long-term capital appreciation. The investment objective of the V.A. Mid
Cap Growth Fund is to seek long-term capital appreciation. The investment
objective of the V.A. Small Cap Growth Fund is to seek long-term capital
appreciation. The investment objective of the V.A. International Fund is
to seek long-term growth of capital. The investment objective of the V.A.
Regional Bank Fund is to seek long-term capital appreciation. The
investment objective of the V.A. High Yield Bond Fund is to seek maximum
current income without assuming undue risk.
Significant accounting policies of the Funds are as follows:
VALUATION OF INVESTMENTS Securities in the Funds' portfolios are valued on
the basis of market quotations, valuations provided by independent pricing
services or, if quotations are not readily available, or the value has
been materially affected by events occurring after the closing of a
foreign market, at fair value as determined in good faith in accordance
with procedures approved by the Trustees. Short-term debt investments
maturing within 60 days are valued at amortized cost, which approximates
market value. All portfolio transactions initially expressed in terms of
foreign currencies have been translated into U.S. dollars as described in
"Foreign Currency Translation" below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Funds, along with other registered
investment companies having a management contract with John Hancock
Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley
Financial Group, Inc., may participate in a joint repurchase agreement
transaction. Aggregate cash balances are invested in one or more large
repurchase agreements, whose underlying securities are obligations of the
U.S. government and/or its agencies. The Funds' respective custodian banks
receive delivery of the underlying securities for the joint account on the
Funds' behalf. The Adviser is responsible for ensuring that the agreement
is fully collateralized at all times.
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially expressed
in terms of foreign currencies are translated into U.S. dollars based on
London currency exchange quotations as of 5:00 p.m., London time, on the
date of any determination of the net asset value of the Funds.
Transactions affecting statement of operations accounts and net realized
gain (loss) on investments are translated at the rates prevailing at the
dates of the transactions.
The Funds do not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain
or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on
the Funds' books and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains and losses arise
from changes in the value of assets and liabilities, other than
investments in securities, resulting from changes in the exchange rate.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on sales
of investments are determined on the identified cost basis. Capital gains
realized on some foreign securities are subject to foreign taxes, which
are accrued, as applicable.
DISCOUNT AND PREMIUM ON SECURITIES The Funds accrete discount and amortize
premium from par value on securities from either the date of issue or the
date of purchase over the life of the security.
EXPENSES The majority of the expenses are directly identifiable to an
individual fund. Expenses that are not readily identifiable to a specific
fund will be allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
ORGANIZATION EXPENSES Expenses incurred in connection with the
organization of the Funds have been capitalized and are being charged to
the Funds' operations ratably over a five-year period that began with the
commencement of the investment operations of the Funds.
BANK BORROWINGS The Funds are permitted to have bank borrowings for
temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. The Funds have entered into a syndicated line of credit
agreement with various banks. This agreement enables the Funds to
participate with other funds managed by the Adviser in an unsecured line
of credit with banks, which permit borrowings up to $500 million,
collectively. Interest is charged to each fund, based on its borrowing. In
addition, a commitment fee is charged to each fund based on the average
daily unused portion of the line of credit and is allocated among the
participating Funds. The Funds had no borrowing activities under the line
of credit during the period ended June 30, 2001.
SECURITIES LENDING The Funds may lend securities to certain qualified
brokers who pay the Funds negotiated lender fees. These fees are included
in interest income. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Funds may bear
the risk of delay of the loaned securities in recovery or even loss of
rights in the collateral, should the borrower of the securities fail
financially. At June 30, 2001, the V.A. International Fund loaned
securities having a market value of $1,034,602, collateralized by cash in
the amount of $1,040,206 and securities with market value of $35,900. The
cash collateral was invested in a short-term instrument.
FINANCIAL FUTURES CONTRACTS The Funds may buy and sell financial futures
contracts. Buying futures tends to increase the Funds' exposure to the
underlying instruments. Selling futures tends to decrease the Funds'
exposure to the underlying instruments or hedge other Funds' instruments.
At the time the Funds enter into financial futures contracts, they are
required to deposit with their custodians specified amounts of cash or
U.S. government securities, known as "initial margin," equal to a certain
percentage of the value of the financial futures contracts being traded.
Each day, the futures contracts are valued at the official settlement
price of the board of trade or U.S. commodities exchange on which they
trade. Subsequent payments to and from the broker, known as "variation
margin," are made on a daily basis as the market price of the financial
futures contract fluctuates. Daily variation margin adjustments, arising
from this "mark to market," are recorded by the Funds as unrealized gains
or losses.
When the contracts are closed, the Funds recognize a gain or loss. Risks
of entering into futures contracts include the possibility that there may
be an illiquid market and/or that a change in the value of the contracts
may not correlate with changes in the value of the underlying securities.
In addition, the Funds could be prevented from opening or realizing the
benefits of closing out futures positions because of position limits or
limits on daily price fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Funds' gains and/or losses can be affected as a result of futures
contracts.
The Funds had the following open financial futures contracts at June 30,
2001:
OPEN UNREALIZED
EXPIRATION CONTRACTS POSITION DEPRECIATION
- -------- --------- -------- ------------
V.A. 500 INDEX FUND
SEPT 01 2 S&P 500 Long ($18,214)
=======
At June 30, 2001, the V.A. 500 Index Fund had deposited $34,500 in a
segregated account to cover margin requirements on open futures contracts.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Funds (except for V.A. 500
Index Fund) may enter into forward foreign currency exchange contracts as
a hedge against the effect of fluctuations in currency exchange rates. A
forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date at a set price. The
aggregate principal amounts of the contracts are marked to market daily at
the applicable foreign currency exchange rates. Any resulting unrealized
gains and losses are included in the determination of the Funds' daily net
assets. The Funds record realized gains and losses at the time the forward
foreign currency exchange contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from the potential
inability of counterparties to meet the terms of the contract and from
unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Funds' Statements of Assets and Liabilities.
The Funds may also purchase and sell forward contracts to facilitate the
settlement of foreign currency denominated portfolio transactions, under
which they intend to take delivery of the foreign currency. Such contracts
normally involve no market risk if they are offset by the currency amount
of the underlying transaction.
The Funds had the following open forward foreign currency exchange
contracts at June 30, 2001:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION/
CURRENCY COVERED BY CONTRACT MONTH (DEPRECIATION)
- -------- ------------------- ---------- ------------
V.A. INTERNATIONAL FUND
Buys
Euro 4,716 Jul 01 ($33)
=======
Sells
Japanese Yen 32,214,883 Sep 01 $3,314
=======
V.A. HIGH YIELD BOND FUND
Buys
Euro 13,000 Jul 01 ($589)
=======
Sells
Euro 246,000 Jul 01 $11,283
Euro 59,000 Aug 01 2,491
Euro 54,400 Sep 01 413
Euro 103,200 Oct 01 38
Pound Sterling 13,750 Jul 01 398
Pound Sterling 54,600 Aug 01 1,371
-------
$15,994
=======
FEDERAL INCOME TAXES The Funds qualify as "regulated investment companies"
by complying with the applicable provisions of the Internal Revenue Code
and will not be subject to federal income tax on taxable income which is
distributed to shareholders. Therefore, no federal income tax provision is
required.
For federal income tax purposes, the following Funds had capital loss
carryforwards available to the extent provided by regulators to offset
future net realized capital gains:
CAPITAL LOSS
CARRYFORWARD
EXPIRING
FUND 12/31/2008
- ---- ----------
V.A. Large Cap Growth Fund 1,306,804
V.A. Mid Cap Growth Fund 633,415
V.A. Small Cap Growth Fund 2,089,105
V.A. International Fund 265,560
V.A. Regional Bank Fund 2,212,041
Expired capital loss carryforwards are reclassified to capital paid-in, in
the year of expiration.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment
securities is recorded on the ex-dividend date or, in the case of some
foreign securities, on the date thereafter when the Funds identify the
dividend. Interest income on investment securities is recorded on the
accrual basis. The Funds may place debt obligations on non-accrual status
and reduce related interest income by ceasing current accruals and writing
off interest receivables when the collection of interest has become
doubtful. Foreign income may be subject to foreign withholding taxes,
which are accrued as applicable.
The Funds record distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ
from accounting principles generally accepted in the United States of
America.
USE OF ESTIMATES The preparation of these financial statements, in
accordance with accounting principles generally accepted in the United
States of America, incorporates estimates made by management in
determining the reported amount of assets, liabilities, revenues and
expenses of the Funds. Actual results could differ from these estimates.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
The Funds have an investment management contract with the Adviser. Under
the investment management contract, the Funds pay monthly management fees
to the Adviser equivalent, on an annual basis, to the following:
RATE AS A PERCENTAGE OF
FUND AVERAGE DAILY NET ASSETS
- ---- ------------------------
V.A. 500 Index Fund 0.35%
V.A. Large Cap Growth Fund 0.75
V.A. Mid Cap Growth Fund 0.75
V.A. Small Cap Growth Fund 0.75
V.A. International Fund 0.90
V.A. Regional Bank Fund 0.80
V.A. High Yield Bond Fund 0.60
V.A. International Fund and the Adviser have a subadvisory contract with
Nicholas-Applegate Capital Management LP. The Fund is not responsible for
payment of subadviser's fees.
The Adviser has agreed to limit the management fee on the V.A. 500 Index
Fund to 0.10% of the Fund's average daily net assets, at least until April
30, 2002. Accordingly, the management fee reduction amounted to $15,341
during the period ended June 30, 2001. The Adviser reserves the right to
terminate this limitation in the future.
The Adviser has agreed to limit each Fund's expenses (excluding the
management fee), to 0.25% of each Fund's average daily net assets at least
until April 30, 2002. Accordingly, the reductions in the Funds' expenses
for the period ended June 30, 2001 amounted to as follows:
FUND FEE REDUCTION
- ---- -------------
V.A. 500 Index Fund $73,289
V.A. Large Cap Growth Fund 10,890
V.A. Mid Cap Growth Fund 7,693
V.A. Small Cap Growth Fund 15,729
V.A. International Fund 65,160
V.A. High Yield Bond Fund 6,302
The Adviser reserves the right to terminate this limitation in the future.
The Funds have an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Funds. The compensation for the
period was at an annual rate 0.02% of the average net assets of the Funds.
The V.A. 500 Index Fund has an agreement with Standard & Poor's ("S&P") to
license certain trademarks and trade names of S&P and of the S&P 500
Index, which is determined, composed and calculated by S&P without regard
to the Adviser or the V.A. 500 Index Fund. (Requisite disclosure regarding
the use of the Standard & Poor's name is included in the Fund's
prospectus.)
Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or officers
of the Adviser and/or its affiliates, as well as Trustees of the Funds.
The compensation of unaffiliated Trustees is borne by the Funds. The
unaffiliated Trustees may elect to defer for tax purposes their receipt of
this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Funds make investments into other John Hancock
Funds, as applicable, to cover their liability for the deferred
compensation. Investments to cover the Funds' deferred compensation
liability are recorded on the Funds' books as an other asset. The deferred
compensation liability and the related other asset are always equal and
are marked to market on a periodic basis to reflect any income earned by
the investment as well as any unrealized gains or losses. The Deferred
Compensation Plan investments had no impact on the operations of the
Funds.
The Adviser and other subsidiaries of John Hancock Life Insurance Company
owned the following shares of beneficial interest of the Funds as of June
30, 2001:
FUND SHARES OF BENEFICIAL INTEREST
- ---- -----------------------------
V.A. International Fund 234,153
V.A. Regional Bank Fund 53,285
V.A. High Yield Bond Fund 303,397
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities for the Funds, other than
short-term securities and obligations of the U.S. government, during the
period ended June 30, 2001, were as follows:
FUND PURCHASES SALES
- ---- ----------- -----------
V.A. 500 Index Fund $601,875 $5,080,671
V.A. Large Cap Growth Fund 3,198,286 6,750,088
V.A. Mid Cap Growth Fund 5,746,356 8,760,588
V.A. Small Cap Growth Fund 6,054,793 10,810,755
V.A. International Fund 10,407,135 9,595,174
V.A. Regional Bank Fund 1,100,972 3,794,866
V.A. High Yield Bond Fund 2,295,915 2,023,988
The cost of investments owned at June 30, 2001 (including short-term
investments) and gross unrealized appreciation and depreciation of
investments for federal income tax purposes, were as follows:
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND COST APPRECIATION DEPRECIATION (DEPRECIATION)
- ---- ----------- ------------ ------------ ------------
V.A. 500 Index Fund $13,903,431 $6,188,493 $1,344,532 $4,843,961
V.A. Large Cap Growth Fund 6,085,183 1,056,859 813,891 242,968
V.A. Mid Cap Growth Fund 6,572,548 629,200 768,509 (139,309)
V.A. Small Cap Growth Fund 11,552,758 3,156,020 1,404,597 1,751,423
V.A. International Fund 6,537,946 171,218 502,503 (331,285)
V.A. Regional Bank Fund $9,630,558 $2,357,634 $140,878 $2,216,756
V.A. High Yield Bond Fund 8,639,726 299,155 2,906,473 (2,607,318)
NOTE D -
CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 2001, the Funds adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies, as revised, and began
amortizing premiums on debt securities. Prior to this date, the Funds did
not amortize premiums on debt securities. The cumulative effect of this
accounting change had no impact on the total net assets of the Funds, but
for the V.A. High Yield Bond Fund resulted in a $23,914 reduction in the
cost of the investments and a corresponding decrease in unrealized
depreciation on investments, based on securities held as of December 31,
2000.
For the V.A. High Yield Bond Fund, the effect of this change in the period
ended June 30, 2001 was to decrease net investment income by $7,389,
decrease unrealized depreciation on investments by $3,483 and decrease net
realized loss on investments by $3,906. The effect of this change on the
per share operating performance and the annualized ratio of net investment
income to average net assets for the period ended June 30, 2001 was as
follows: decrease in net investment income by $0.01 per share, decrease in
net realized and unrealized loss on investments by $0.01 per share and
decrease in the ratio of net investment income to average net assets by
0.22%.
The Statements of Changes in Net Assets and Financial Highlights for prior
periods have not been restated to reflect this change in presentation.
NOTE E -
SHAREHOLDER MEETING
On April 25, 2001 shareholders of V.A. International Fund approved a new
subadvisory management contract among the V.A. International Fund, Adviser
and Nicholas-Applegate Capital Management LP (562,916 FOR; 17,927 AGAINST;
and 41,896 ABSTAINING).
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.]
John Hancock Funds, Inc.
MEMBER NASD
101 Huntington Avenue
Boston, MA 02199-7603
1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds.com
This report is for the information of the shareholders of the John
Hancock Declaration Trust.
A recycled logo in lower left hand corner with caption "Printed on
Recycled Paper."
DVASA 6/01
8/01
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
JOHN HANCOCK LIFE INSURANCE COMPANY
VOTE THIS CARD TODAY!
A PROMPT RESPONSE WILL SAVE THE FUND
THE EXPENSE OF ADDITIONAL MAILINGS
John Hancock V.A. High Yield Bond Fund
Special Meeting of Shareholders to Be Held on
December 5, 2001
Indicate your voting instructions below by filling in the appropriate boxes
using blue or black ink or dark pencil.
This voting instruction card, if properly executed, will be voted in the manner
directed by the contract owner. If this voting instruction is executed and no
direction is made, this voting instruction will be voted for all proposals and
in the discretion of the insurance company upon such other business as may
properly come before the meeting.
Proposal 1. To approve an Agreement and Plan of Reorganization between John
Hancock V.A. High Yield Bond Fund and John Hancock V.A. Strategic Income Fund
("V.A. Strategic Income Fund"). Under this Agreement, V.A. High Yield Bond Fund
would transfer all of its assets to V.A. Strategic Income Fund in exchange for
shares of V.A. Strategic Income Fund. These shares would be distributed
proportionately to the shareholders of V.A. High Yield Bond Fund. V.A. Strategic
Income Fund would also assume V.A. High Yield Bond Fund's liabilities.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THIS CARD.
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
JOHN HANCOCK LIFE INSURANCE COMPANY
VOTE THIS CARD TODAY!
A PROMPT RESPONSE WILL SAVE THE FUND
THE EXPENSE OF ADDITIONAL MAILINGS
JOHN HANCOCK V.A. HIGH YIELD BOND FUND
A series of John Hancock Declaration Trust
These voting instructions will be used by the insurance companies in
connection with a solicitation of proxies by the trustees of the Fund.
The undersigned, revoking previous instructions, hereby instructs the
above-referenced insurance companies to vote all the shares of beneficial
interest of John Hancock V.A. High Yield Bond Fund ("V.A. High Yield Bond Fund")
attributable to the undersigned's variable annuity contract at the Special
Meeting of Shareholders (the "Meeting") of V.A. High Yield Bond Fund to be held
at 101 Huntington Avenue, Boston, Massachusetts, on Wednesday, December 5, 2001
at 9:00 a.m., Eastern time, and at any adjournment(s) of the Meeting. Receipt of
the Proxy Statement dated November 1, 2001 is hereby acknowledged. If not
revoked, this card shall be voted for the proposal.
Kathleen F. Driscoll and Michele G. Van Leer, and each of them, with
power of substitution in each, are hereby instructed to vote the shares held in
the fund portfolio attributable to the undersigned at the special meeting of
shareholders and at any adjornment thereof, as specified on the reverse side.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
Date , 2001 NOTE: Signature(s) should
agree with the name(s) printed herein. When
signing as attorney, executor,
administrator, trustee or guardian, please
give your full name as such. If a
corporation, please sign in full corporate
name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
--------------------------------------------
--------------------------------------------
Signature(s)
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
JOHN HANCOCK LIFE INSURANCE COMPANY
VOTE THIS CARD TODAY!
A PROMPT RESPONSE WILL SAVE THE FUND
THE EXPENSE OF ADDITIONAL MAILINGS
John Hancock V.A. Regional Bank Fund
Special Meeting of Shareholders to Be Held on
December 5, 2001
Indicate your voting instructions below by filling in the appropriate boxes
using blue or black ink or dark pencil.
This voting instruction card, if properly executed, will be voted in the manner
directed by the contract owner. If this voting instruction is executed and no
direction is made, this voting instruction will be voted for all proposals and
in the discretion of the insurance company upon such other business as may
properly come before the meeting.
Proposal 1. To approve an Agreement and Plan of Reorganization between John
Hancock V.A. Regional Bank Fund and John Hancock V.A. Financial Industries Fund
("V.A. Financial Industries Fund"). Under this Agreement, V.A. Regional Bank
Fund would transfer all of its assets to V.A. Financial Industries Fund in
exchange for shares of V.A. Financial Industries Fund. These shares would be
distributed proportionately to the shareholders of V.A. Regional Bank Fund. V.A.
Financial Industries Fund would also assume V.A. Regional Bank Fund's
liabilities.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THIS CARD.
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
JOHN HANCOCK LIFE INSURANCE COMPANY
VOTE THIS CARD TODAY!
A PROMPT RESPONSE WILL SAVE THE FUND
THE EXPENSE OF ADDITIONAL MAILINGS
JOHN HANCOCK V.A. REGIONAL BANK FUND
A series of John Hancock Declaration Trust
These voting instructions will be used by the insurance companies in
connection with a solicitation of proxies by the trustees of the Fund.
The undersigned, revoking previous instructions, hereby instructs the
above-referenced insurance companies to vote all the shares of beneficial
interest of John Hancock V.A. Regional Bank Fund ("V.A. Regional Bank Fund")
attributable to the undersigned's variable annuity contract at the Special
Meeting of Shareholders (the "Meeting") of V.A. Regional Bank Fund to be held at
101 Huntington Avenue, Boston, Massachusetts, on Wednesday, December 5, 2001 at
9:00 a.m., Eastern time, and at any adjournment(s) of the Meeting. Receipt of
the Proxy Statement dated November 1, 2001 is hereby acknowledged. If not
revoked, this card shall be voted for the proposal.
Kathleen F. Driscoll and Michele G. Van Leer, and each of them, with
power of substitution in each, are hereby instructed to vote the shares held in
the fund portfolio attributable to the undersigned at the special meeting of
shareholders and at any adjornment thereof, as specified on the reverse side.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
Date , 2001 NOTE: Signature(s) should
agree with the name(s) printed herein. When
signing as attorney, executor,
administrator, trustee or guardian, please
give your full name as such. If a
corporation, please sign in full corporate
name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
--------------------------------------------
--------------------------------------------
Signature(s)
S:/corpsec/proxy/v.a.votcard
Part B
Statement of Additional Information
JOHN HANCOCK V.A. STRATEGIC INCOME FUND
(a series of John Hancock Declaration Trust)
November 1, 2001
This Statement of Additional Information provides information and is not a
prospectus. It should be read in conjunction with the related proxy statement
and prospectus that is also dated November 1, 2001. This Statement of Additional
Information provides additional information about John Hancock V.A. Strategic
Income Fund and the Fund that it is acquiring, John Hancock V.A. High Yield Bond
Fund. Please retain this Statement of Additional Information for future
reference. A copy of the proxy statement and prospectus can be obtained free of
charge by calling John Hancock Annuity Servicing Office, at 1-800-824-0335.
Table Of Contents
Page
Introduction 3
Additional Information about V.A. Strategic Income Fund 3
General Information and History 3
Investment Objective and Policies 3
Management of Strategic Income Fund 3
Control Persons and Principal Holders of Shares 3
Investment Advisory and Other Services 3
Brokerage Allocation 3
Capital Stock and Other Securities 3
Purchase, Redemption and Pricing of V.A. Strategic Income Fund Shares 3
Tax Status 4
Underwriters 4
Calculation of Performance Data 4
Financial Statements 4
Additional Information about V.A High Yield Bond Fund 4
General Information and History 4
Investment Objective and Policies 4
Management of V.A. High Yield Bond Fund 4
Investment Advisory and Other Services 4
Brokerage Allocation 4
Capital Stock and Other Securities 4
Purchase, Redemption and Pricing of V.A. High Yield Bond Fund 4
Tax Status 5
Underwriters 5
Calculation of Performance Data 5
Financial Statements 5
Exhibits
- --------
A - Statement of Additional Information, dated May 1, 2001, of John
Hancock V.A. Strategic Income Fund including unaudited financial
statements as of June 30, 2001 and audited financial statements as of
December 31, 2000.
B - Statement of Additional Information, dated May 1, 2001, of John
Hancock V.A. High Yield Bond Fund including unaudited financial
statements as of June 30, 2001 and audited financial statements as of
December 31, 2000.
C - Pro forma combined financial statements as of June 30, 2001, assuming
the reorganization of John Hancock V.A. High Yield Bond Fund into John
Hancock V.A. Strategic Income occurred on that date.
2
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in a proxy statement and prospectus dated November 1, 2001.
The proxy statement and prospectus has been sent to the shareholders of V.A.
High Yield Bond Fund in connection with the solicitation by the Trustees of V.A.
High Yield Bond Fund of proxies to be voted at the special meeting of
shareholders of V.A. High Yield Bond Fund to be held on December 5, 2001. This
Statement of Additional Information incorporates by reference the Statement of
Additional Information of V.A. Strategic Income Fund, dated May 1, 2001, and the
Statement of Additional Information of V.A. High Yield Bond Fund, dated May 1,
2001. The V.A. Strategic Income Fund SAI and the V.A. High Yield Bond Fund SAI
are included with this Statement of Additional Information.
Additional Information About V.A. Strategic Income Fund
-------------------------------------------------------
General Information and History
- -------------------------------
For additional information about V.A. Strategic Income Fund generally and its
history, see "Organization of the Trust" in the V.A. Strategic Income Fund SAI.
Investment Objective and Policies
- ---------------------------------
For additional information about Strategic Income Fund's investment objective,
policies and restrictions, see "Investment Policies and Strategies", "Risk
Factors, Investments and Techniques" and "Investment Restrictions" in the V.A.
Strategic Income Fund SAI.
Management of V.A. Strategic Income Fund
- ----------------------------------------
For additional information about the V.A. Strategic Income Fund's Board of
Trustees, officers and management personnel, see "Those Responsible for
Management" in the V.A. Strategic Income Fund SAI.
Control Persons and Principal Holders of Shares
- -----------------------------------------------
For additional information about control persons of V.A. Strategic Income Fund
and principal holders of shares of V.A. Strategic Income Fund, see "Those
Responsible for Management" in the V.A. Strategic Income Fund SAI.
Investment Advisory and Other Services
- --------------------------------------
For additional information about V.A. Strategic Income Fund's investment
adviser, custodian, transfer agent and independent accountants, see "Investment
Advisory and Other Services", "Distribution Contracts", "Shareholder Servicing
Agent", "Custody of Portfolio" and "Independent Auditors" in the V.A. Strategic
Income Fund SAI.
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about V.A. Strategic Income Fund's brokerage
allocation practices, see "Brokerage Allocation" in the V.A. Strategic Income
Fund SAI.
Capital Stock and Other Securities
- ----------------------------------
For additional information about the voting rights and other characteristics of
V.A. Strategic Income Fund's shares of beneficial interest, see "Description of
the Trust's Shares" and "Dividends" in the V.A. Strategic Income Fund SAI.
Purchase, Redemption and Pricing of V.A. Strategic Income Fund Shares
- ---------------------------------------------------------------------
For additional information about the purchase, redemption and pricing of the
Fund's shares, see "Net Asset Value", "Special Redemptions" and "Eligible
Investors" in the V.A. Strategic Income Fund SAI.
3
Tax Status
- ----------
For additional information about the tax status of V.A. Strategic Income Fund,
see "Tax Status" in the V.A. Strategic Income Fund SAI.
Underwriters
- ------------
For additional information about V.A. Strategic Income Fund's principal
underwriter and the distribution contract between the principal underwriter and
V.A. Strategic Income Fund, see "Distribution Contracts" in the V.A. Strategic
Income Fund SAI.
Calculation of Performance Data
- -------------------------------
For additional information about the investment performance of V.A. Strategic
Income Fund, see "Calculation of Performance" in the V.A. Strategic Income Fund
SAI.
Financial Statements
- --------------------
Audited annual financial statements of V.A. Strategic Income Fund at December
31, 2000 and unaudited semi-annual financial statements as of June 30, 2001 are
attached to the V.A. Strategic Income Fund SAI.
Pro forma combined financial statements as of June 30, 2001 are also attached
hereto.
Additional Information About V.A. High Yield Bond Fund
------------------------------------------------------
General Information and History
- -------------------------------
For additional information about V.A. High Yield Bond Fund generally and its
history, see "Organization of the Trust" in the V.A. High Yield Bond Fund SAI.
Investment Objective and Policies
- ---------------------------------
For additional information about V.A. High Yield Bond Fund's investment
objective, policies and restrictions, see "Investment Policies and Strategies",
"Risk Factors, Investments and Techniques" and "Investment Restrictions" in the
V.A. High Yield Bond Fund SAI.
Management of V.A. High Yield Bond Fund
- ---------------------------------------
For additional information about the V.A. High Yield Bond Fund's Board of
Trustees, officers and management personnel, see "Those Responsible for
Management" in the V.A. High Yield Bond Fund SAI.
Investment Advisory and Other Services
- --------------------------------------
For additional information about V.A. High Yield Bond Fund's investment adviser,
custodian, transfer agent and independent accountants, see "Investment Advisory
and Other Services", "Distribution Contracts", "Shareholder Servicing Agent",
"Custody of Portfolio" and "Independent Auditors" in the V.A. High Yield Bond
Fund SAI.
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about V.A. High Yield Bond Fund's brokerage
allocation practices, see "Brokerage Allocation" in the V.A. High Yield Bond
Fund SAI.
Capital Stock and Other Securities
- ----------------------------------
For additional information about the voting rights and other characteristics of
V.A. High Yield Bond Fund's shares of beneficial interest, see "Description of
the Trust's Shares" and "Dividends" in the V.A. High Yield Bond Fund SAI.
Purchase, Redemption and Pricing of about V.A. High Yield Bond Fund Shares
- --------------------------------------------------------------------------
For additional information about the purchase, redemption and pricing, see "Net
Asset Value"; Special Redemptions" and "Eligible Investors" in the V.A. High
Yield Bond Fund SAI.
Tax Status
- ----------
For additional information about the tax status of V.A. High Yield Bond Fund,
see "Tax Status" in the V.A. High Yield Bond Fund SAI.
4
Underwriters
- ------------
For additional information about V.A. High Yield Bond Fund's principal
underwriter and the distribution contract between the principal underwriter and
V.A. High Yield Bond Fund, see "Distribution Contracts" in the V.A. High Yield
Bond Fund SAI.
Calculation of Performance Data
- -------------------------------
For additional information about the investment performance of V.A. High Yield
Bond Fund, see "Calculation of Performance" in the V.A. High Yield Bond Fund
SAI.
Financial Statements
- --------------------
Audited annual financial statements of V.A. High Yield Bond Fund at December 31,
2000 and unaudited semi-annual financial statements as of June 30, 2001 are
attached to the V.A. High Yield Bond Fund SAI.
5
Part B
Statement of Additional Information
JOHN HANCOCK V.A. FINANCIAL INDUSTRIES FUND
(a series of John Hancock Declaration Trust)
November 1, 2001
This Statement of Additional Information provides information and is not a
prospectus. It should be read in conjunction with the related proxy statement
and prospectus that is also dated November 1, 2001. This Statement of Additional
Information provides additional information about John Hancock V.A. Financial
Industries Fund and the Fund that it is acquiring, John Hancock V.A. Regional
Bank Fund. Please retain this Statement of Additional Information for future
reference. A copy of the proxy statement and prospectus can be obtained free of
charge by calling John Hancock Annuity Servicing Office, at 1-800-824-0335.
Table Of Contents
Page
Introduction 3
Additional Information about John Hancock V.A. Financial Industries Fund 3
General Information and History 3
Investment Objective and Policies 3
Management of John Hancock V.A. Financial Industries Fund 3
Control Persons and Principal Holders of Shares 3
Investment Advisory and Other Services 3
Brokerage Allocation 3
Capital Stock and Other Securities 3
Purchase, Redemption and Pricing of John Hancock V.A. Financial Industries Fund Shares 3
Tax Status 4
Underwriters 4
Calculation of Performance Data 4
Financial Statements 4
4
Additional Information about John Hancock V.A. Regional Bank Fund
General Information and History 4
Investment Objective and Policies 4
Management of John Hancock V.A. Regional Bank Fund 4
Investment Advisory and Other Services 4
Brokerage Allocation 4
Capital Stock and Other Securities 4
Purchase, Redemption and Pricing of John Hancock V.A. Regional Bank Fund 4
Tax Status 5
Underwriters 5
Calculation of Performance Data 5
Financial Statements 5
Exhibits
A - Statement of Additional Information, dated May 1, 2001, of John
Hancock V.A. Financial Industries Fund including unaudited financial
statements as of June 30, 2001 and audited financial statements as of
December 31, 2000.
B - Statement of Additional Information, dated May 1, 2001, of John
Hancock V.A. Regional Bank Fund including unaudited financial
statements as of June 30, 2001 and audited financial statements as of
December 31, 2000.
C - Pro forma combined financial statements as of June 30, 2001, assuming
the reorganization of John Hancock V.A. Regional Bank Fund into John
Hancock V.A. Financial Industries Fund occurred on that date.
2
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in a proxy statement and prospectus dated November 1, 2001.
The proxy statement and prospectus has been sent to the shareholders of V.A.
Regional Bank Fund in connection with the solicitation by the Trustees of V.A.
Regional Bank Fund of proxies to be voted at the special meeting of shareholders
of V.A. Regional Bank Fund to be held on December 5, 2001. This Statement of
Additional Information incorporates by reference the Statement of Additional
Information of V.A. Financial Industries Fund, dated May 1, 2001, and the
Statement of Additional Information of V.A. Regional Bank Fund, dated May 1,
2001. The V.A. Financial Industries Fund SAI and the V.A. Regional Bank Fund SAI
are included with this Statement of Additional Information.
Additional Information About V.A. Financial Industries Fund
-----------------------------------------------------------
General Information and History
- -------------------------------
For additional information about V.A. Financial Industries Fund generally and
its history, see "Organization of the Trust" in the V.A. Financial Industries
Fund SAI.
Investment Objective and Policies
- ---------------------------------
For additional information about V.A. Financial Industries Fund's investment
objective, policies and restrictions, see "Investment Policies and Strategies",
Risk Factors, Investments and Techniques" and "Investment Restrictions" in the
V.A. Financial Industries Fund SAI.
Management of V.A. Financial Industries Fund
- --------------------------------------------
For additional information about the V.A. Financial Industries Fund's Board of
Trustees, officers and management personnel, see "Those Responsible for
Management" in the V.A. Financial Industries Fund SAI.
Control Persons and Principal Holders of Shares
- -----------------------------------------------
For additional information about control persons of V.A. Financial Industries
Fund and principal holders of shares of V.A. Financial Industries Fund, see
"Those Responsible for Management" in the V.A. Financial Industries Fund SAI.
Investment Advisory and Other Services
- --------------------------------------
For additional information about V.A. Financial Industries Fund's investment
adviser, custodian, transfer agent and independent accountants, see "Investment
Advisory and Other Services", "Distribution Contracts", "Shareholder Servicing
Agent", "Custody of Portfolio" and "Independent Auditors" in the V.A. Financial
Industries Fund SAI.
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about V.A. Financial Industries Fund's brokerage
allocation practices, see "Brokerage Allocation" in the V.A. Financial
Industries Fund SAI.
Capital Stock and Other Securities
- ----------------------------------
For additional information about the voting rights and other characteristics of
V.A. Financial Industries Fund's shares of beneficial interest, see "Description
of the Trust's Shares" and "Dividends" in the V.A. Financial Industries Fund
SAI.
Purchase, Redemption and Pricing of V.A. Financial Industries Fund Shares
- -------------------------------------------------------------------------
For additional information about the purchase, redemption and pricing of the
Fund's shares, see "Net Asset Value", "Special Redemptions" and "Eligible
Investors" in the V.A. Financial Industries Fund SAI.
3
Tax Status
- ----------
For additional information about the tax status of V.A. Financial Industries
Fund, see "Tax Status" in the V.A. Financial Industries Fund SAI.
Underwriters
- ------------
For additional information about V.A. Financial Industries Fund's principal
underwriter and the distribution contract between the principal underwriter and
V.A. Financial Industries Fund, see "Distribution Contracts" in the V.A.
Financial Industries Fund SAI.
Calculation of Performance Data
- -------------------------------
For additional information about the investment performance of V.A. Financial
Industries Fund, see "Calculation of Performance" in the V.A. Financial
Industries Fund SAI.
Financial Statements
- --------------------
Audited annual financial statements of V.A. Financial Industries Fund at
December 31, 2000 and unaudited semi-annual financial statements as of June 30,
2001 are attached to the V.A. Financial Industries Fund SAI.
Pro forma combined financial statements as of June 30, 2001 are also attached
hereto.
Additional Information About V.A. Regional Bank Fund.
-----------------------------------------------------
General Information and History
- -------------------------------
For additional information about V.A. Regional Bank Fund generally and its
history, see "Organization of the Trust" in the V.A. Regional Bank Fund SAI.
Investment Objective and Policies
- ---------------------------------
For additional information about V.A. Regional Bank Fund's investment objective,
policies and restrictions, see "Investment Policies and Strategies", "Risk
Factors, Investments and Techniques" and "Investment Restrictions" in the V.A.
Regional Bank Fund SAI.
Management of V.A. Regional Bank Fund
- -------------------------------------
For additional information about the V.A. Regional Bank Fund's Board of
Trustees, officers and management personnel, see "Those Responsible for
Management" in the V.A. Regional Bank Fund SAI.
Investment Advisory and Other Services
- --------------------------------------
For additional information about V.A. Regional Bank Fund's investment adviser,
custodian, transfer agent and independent accountants, see "Investment Advisory
and Other Services", "Distribution Contracts", "Shareholders Servicing Agent",
"Custody of Portfolio" and "Independent Auditors" in the V.A. Regional Bank Fund
SAI.
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about V.A. Regional Bank Fund's brokerage allocation
practices, see "Brokerage Allocation" in the V.A. Regional Bank Fund SAI.
Capital Stock and Other Securities
- ----------------------------------
For additional information about the voting rights and other characteristics of
V.A. Regional Bank Fund's shares of beneficial interest, see "Description of the
Trust's Shares" and "Dividends" in the V.A. Regional Bank Fund SAI.
Purchase, Redemption and Pricing of about V.A. Regional Bank Fund Shares
- ------------------------------------------------------------------------
For additional information about the purchase, redemption and pricing of the
Fund's shares, see "Net Asset Value", Special Redemptions" and "Eligible
Investors" in the V.A. Regional Bank Fund SAI.
4
Tax Status
- ----------
For additional information about the tax status of V.A. Regional Bank Fund, see
"Tax Status" in the V.A. Regional Bank Fund SAI.
Underwriters
- ------------
For additional information about V.A. Regional Bank Fund's principal underwriter
and the distribution contract between the principal underwriter and V.A.
Regional Bank Fund, see "Distribution Contracts" in the V.A. Regional Bank Fund
SAI.
Calculation of Performance Data
- -------------------------------
For additional information about the investment performance of V.A. Regional
Bank Fund, see "Calculation of Performance" in the V.A. Regional Bank Fund SAI.
Financial Statements
- --------------------
Audited annual financial statements of V.A. Regional Bank Fund at December 31,
2000 and unaudited semi-annual financial statements as of June 30, 2001 are
attached to the V.A. Regional Bank Fund SAI.
5
JOHN HANCOCK DECLARATION TRUST
Statement of Additional Information
May 1, 2001
John Hancock V.A. Core Equity Fund
John Hancock V.A. 500 Index Fund
John Hancock V.A. Large Cap Growth Fund
John Hancock V.A. Mid Cap Growth Fund
John Hancock V.A. Relative Value Fund
John Hancock V.A. Small Cap Growth Fund
John Hancock V.A. Sovereign Investors Fund
John Hancock V.A. International Fund
John Hancock V.A. Financial Industries Fund
John Hancock V.A. Regional Bank Fund
John Hancock V.A. Technology Fund
John Hancock V.A. Bond Fund
John Hancock V.A. High Yield Bond Fund
John Hancock V.A. Money Market Fund
John Hancock V.A. Strategic Income Fund
(each, a "Fund" and collectively, the "Funds")
This Statement of Additional Information provides information about John Hancock
Declaration Trust (the "Trust") and the Funds, in addition to the information
that is contained in the Funds' current Prospectuses. (the "Prospectuses").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectuses, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Annuity Servicing Office
529 Main Street (X-4)
Charlestown, Massachusetts 02129
1-800-824-0335
Table of Contents
Page
Organization of the Trust................................................ 3
Eligible Investors....................................................... 3
Investment Policies and Strategies....................................... 4
Equity................................................................... 4
International............................................................ 7
Sector................................................................... 8
Income................................................................... 10
Risk Factors Investments and Techniques.................................. 12
Investment Restrictions.................................................. 33
Those Responsible for Management......................................... 37
Investment Advisory and Other Services................................... 42
Distribution Contracts................................................... 47
Net Asset Value.......................................................... 47
Special Redemptions...................................................... 48
Description of the Trust's Shares........................................ 48
Dividends................................................................ 50
Tax Status............................................................... 50
Calculation of Performance............................................... 53
Brokerage Allocation..................................................... 56
Shareholder Servicing Agent.............................................. 58
Custody of Portfolio..................................................... 59
Independent Auditors .................................................... 59
Appendix - Description of Bond Ratings................................... A-1
Financial Statements..................................................... F-1
2
ORGANIZATION OF THE TRUST
John Hancock Declaration Trust (the "Trust") is an open-end investment
management company organized as a Massachusetts business trust under the laws of
the Commonwealth of Massachusetts. The Trust currently has fifteen series of
shares designated as: John Hancock V.A. International Fund ("International
Fund"); John Hancock V.A. Regional Bank Fund ("Regional Bank Fund"); John
Hancock V.A. Financial Industries Fund ("Financial Industries Fund"); John
Hancock V.A. Technology Fund ("Technology Fund"); John Hancock V.A. Small Cap
Growth Fund ("Small Cap Growth Fund") (formerly John Hancock V.A. Emerging
Growth Fund); John Hancock Mid Cap Growth Fund ("Mid Cap Growth Fund") (formerly
John Hancock V.A. Special Opportunities Fund); John Hancock V.A. Large Cap
Growth Fund ("Large Cap Growth Fund") (formerly John Hancock V.A. Growth Fund);
John Hancock V.A. Relative Value Fund ("Relative Value Fund") (formerly John
Hancock V.A. Large Cap Value Fund and before that, John Hancock V.A. Growth and
Income Fund); John Hancock V.A. Core Equity Fund ("Core Equity Fund") (formerly
John Hancock V.A. Independence Equity Fund); John Hancock V.A. Sovereign
Investors Fund ("Sovereign Investors Fund"); John Hancock V.A. 500 Index Fund
("500 Index Fund"); John Hancock V.A. Bond Fund ("Bond Fund") (formerly John
Hancock V.A. Sovereign Bond Fund); John Hancock V.A. Strategic Income Fund
("Strategic Income Fund"); John Hancock V.A. High Yield Bond Fund ("High Yield
Bond Fund"); and John Hancock V.A. Money Market Fund ("Money Market Fund").
The investment adviser of each Fund is John Hancock Advisers, Inc. (the
"Adviser"). The Adviser is an indirect wholly-owned subsidiary of John Hancock
Life Insurance Company (formerly John Hancock Mutual Life Insurance Company);
(the "Life Company"), a Massachusetts life insurance company chartered in 1862,
with national headquarters at John Hancock Place, Boston, Massachusetts. The
Life Company is wholly owned by John Hancock Financial Services, Inc., a
Delaware Corporation, organized in February, 2000. The International Fund's
Sub-adviser is Nicholas-Applegate Capital Management ("Nicholas-Applegate"). The
investment Sub-adviser of Core Equity Fund is Independence Investment LLC
("Independence"). The Technology Fund's Sub-adviser is American Fund Advisors,
Inc. ("AFA"). Together AFA, Independence and Nicholas-Applegate are sometimes
referred to herein collectively as the "Sub-advisers" or, individually, as the
"Sub-adviser." The Sub-advisers are responsible for providing investment advice
to their respective Funds, subject to the review of the trustees and overall
supervision of the Adviser. Independence is a wholly owned indirect subsidiary
of the Life Company.
ELIGIBLE INVESTORS
The following information supplements the discussion of each Fund's investment
objective and policies discussed in the Prospectuses. The Funds are designed to
serve as investment vehicles for variable annuity and variable life insurance
contracts (the "Variable Contracts") offered by the separate accounts of various
insurance companies. Participating insurance companies are the owners of shares
of beneficial interest in each Fund of the Trust. In accordance with any
limitations set forth in their Variable Contracts, contract holders may direct,
through their participating insurance companies, the allocation of amounts
available for investment among the Funds. Instructions for any such allocation,
or for the purchase or redemption of shares of a Fund, must be made by the
investor's participating insurance company's separate account as the owner of
the Fund's shares. The rights of participating insurance companies as owners of
shares of a Fund are different from the rights of contract holders under their
Variable Contracts. The term "shareholder" in this Statement of Additional
Information refers only to participating insurance companies, and not to
contract holders.
3
INVESTMENT POLICIES AND STRATEGIES
Each Fund has its own distinct investment objective and policies. In striving to
meet its objective, each Fund will face the challenges of changing business,
economic and market conditions. There is no assurance that the Funds will
achieve their investment objectives. The following information supplements the
discussion of each Fund's investment objective and policies as discussed in the
prospectuses.
Each Fund has adopted investment restrictions detailed in the "Investment
Restrictions" section of this Statement of Additional Information. Some of these
restrictions may help to reduce investment risk. Those restrictions designated
as fundamental may not be changed without shareholder approval. Each Fund's
investment objective, investment policies and non-fundamental restrictions,
however, may be changed by a vote of the Trustees without shareholder approval.
If there is a change in a Fund's investment objective, investors should consider
whether the Fund remains an appropriate investment in light of their current
financial position and needs.
EQUITY
Core Equity Fund
The CORE EQUITY FUND seeks above-average total return (capital appreciation plus
income). To pursue this goal, the Fund normally invests at least 65% of assets
in a diversified portfolio of primarily large capitalization stocks. The
portfolio's risk profile is similar to that of the Standard & Poor's 500 Stock
Index. Consequently, the Fund invests in a number of industry groups without
concentrating in any particular industry.
The managers select from a menu of stocks of approximately 550 companies that
evolves over time. Approximately 70% to 80% of these companies also are included
in the S&P 500 Index. The Sub-adviser's investment research team is organized by
industry and tracks these companies to develop earnings estimates and five-year
projections for growth. A series of proprietary computer models use this
in-house research to rank the stocks according to their combination of: (1)
value, meaning they appear to be underpriced; and (2) improving fundamentals,
meaning they show potential for strong growth.
The Fund may invest in certain other types of equity and debt securities,
including securities of foreign issuers which are U.S. dollar denominated and
traded on a U.S. exchange in the form of common stocks or American Depositary
Receipts.
The fixed income securities of the Fund will be rated "investment grade" (i.e.,
rated BBB or better by Standard & Poor's Ratings Group ("S&P") or Baa or better
by Moody's Investors Service, Inc. ("Moody's")) or, if unrated, determined to be
of investment grade quality by the Adviser or Sub-adviser.
500 Index Fund
The 500 INDEX FUND seeks to provide investment results that correspond to the
total return performance of the Standard & Poor's 500 Stock Price Index ("S&P
500 Index"). To pursue this goal, the Fund normally invests at least 80% of its
total assets in common stocks of the companies that comprise the S&P 500 Index.
The Fund tries to allocate the stocks held in its portfolio in approximately the
same proportions as they are represented in the S&P 500 Index, in an attempt to
minimize the degree to which the Fund's investment results (before Fund
expenses) differ from those of the Index ("tracking error"). This "indexing"
technique is a passive approach to investing and is designed for long-term
investors seeking a diversified portfolio of common stocks. Unlike other equity
4
funds which seek to "beat" stock market averages, the Fund attempts to "match"
the total return performance of the S&P 500 Index and thus provide a predictable
return relative to the benchmark. The degree to which the Fund's performance
correlates with that of the S&P 500 Index will depend upon the size and cash
flows of the Fund, the liquidity of the securities represented in the Index and
the Fund's expenses, among other factors. There is no fixed number of component
stocks in which the Fund will invest, and there can be no assurance that the
Fund's total return will match that of the S&P 500 Index. For a description of
the investment characteristics of the S&P 500 Index, see "The S&P 500 Index."
If John Hancock Financial Services, Inc. or any other affiliated company of John
Hancock Advisers, Inc. (each an "Affiliated Company") is included in the S&P 500
Index, the Fund may purchase the Affiliated Company's stock and maintain its
position in that stock in the approximate percentage that the Affiliated Company
is represented on the S&P 500 Index. The Fund's purchase of an Affiliated
Company's stock must also be in compliance with Rule 12d3-1(a) and (b).
If extraordinary circumstances warrant, the Fund may exclude a stock held in the
S&P 500 Index and include a similar stock in its place if doing so will help the
Fund achieve its objective. Additionally, the Fund may invest in certain
short-term fixed income securities such as cash equivalents, although cash and
cash equivalents are normally expected to represent less than 1% of the Fund's
assets (excluding cash and cash equivalents segregated in relation to futures
contracts). The Fund may also enter into futures contracts and options in order
to invest uncommitted cash balances, to maintain liquidity to meet shareholder
redemptions, or to minimize trading costs. The Fund will not invest in cash
equivalents, futures contracts or options as part of a temporary defensive
strategy.
Large Cap Growth Fund
The LARGE CAP GROWTH FUND seeks long-term capital appreciation. To pursue this
goal, the Fund normally invests at least 65% of assets in stocks of
large-capitalization companies (companies in the capitalization range of the
Russell Top 200 Growth Index, which was $0.88 billion to $415.79 billion as of
March 31, 2001).
In choosing individual securities, the managers use fundamental financial
analysis to identify companies with: (1) strong cash flows; (2) secure market
franchises; and (3) sales growth that outpaces their industries.
When management believes that current market or economic conditions warrant, the
Fund may retain cash or invest in preferred stocks and other types of equity and
debt securities. Fixed income securities held by the Fund may be rated as low as
C by S&P or Moody's. No more than 5% of the Fund's assets will be invested in
fixed income securities rated lower than BBB by S&P or Baa by Moody's or, if
unrated, determined to be of comparable quality by the Adviser. The Fund may
invest up to 15% of assets in foreign securities.
Mid Cap Growth Fund
The MID CAP GROWTH FUND seeks long-term capital appreciation. To pursue this
goal, the Fund normally invests at least 80% of assets in stocks of medium
capitalization companies (companies in the capitalization range of the Russell
MidCap Growth Index, which was $0.02 billion to $19.37 billion as of March 31,
2001.)
In choosing individual securities, the manager looks for companies with growth
stemming from a combination of gains in market share and increased operating
efficiency. The manager considers broad economic trends, demographic factors,
technological changes, consolidation trends and legislative initiatives.
5
The Fund may invest up to 10% of total assets in the securities of foreign
issuers, including, but not limited to, common stocks, sponsored or unsponsored
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
and Global Depositary Receipts ("GDRs"), convertible preferred stocks, preferred
stocks and warrants. Under normal conditions, the Fund may not invest more than
10% of assets in cash and/or cash equivalents (except cash segregated in
relation to futures, forward and option contracts). In addition, under normal
conditions, the Fund will not invest in any fixed income securities. However, in
abnormal conditions, the fund may temporarily invest in U.S. government
securities with maturities of up to three years, and may also invest more than
10% of total assets in cash and/or cash equivalents (including U.S. government
securities maturing in 90 days or less). The Fund may not invest more than 5% of
assets at the time of purchase in any one security (other than U.S. government
securities).
Relative Value Fund
The RELATIVE VALUE FUND seeks the highest total return (capital appreciation
plus current income) that is consistent with reasonable safety of capital. To
pursue this goal, the Fund invests in a diversified portfolio of stocks, bonds
and money market securities. Although the Fund may concentrate in any of these
asset classes, under normal circumstances it invests primarily in stocks.
In selecting equity securities for the Fund, the portfolio manager emphasizes
issuers whose equity securities trade at valuation ratios lower than comparable
issuers. Some of the valuation tools used include price to earnings, price to
cash flow and price to sales ratios and earnings discount models. The Fund's
portfolio will also include securities that the manager considers to have the
potential for capital appreciation, due to potential recognition of earnings
power or asset value which is not fully reflected in the securities' current
market value. The manager attempts to identify investments which possess
characteristics such as high relative value, intrinsic value, going concern
value, net asset value and replacement book value. The manager also considers an
issuer's financial strength, competitive position, projected future earnings and
dividends and other investment criteria.
The Fund may invest in U.S. Government securities and corporate bonds, notes and
other debt securities of any maturity. The Fund may invest up to 15% of its net
assets in junk bonds, including convertible securities, that may be rated as low
as CC by S&P, Ca by Moody's or their unrated equivalents. The Fund may also
invest up to 25% of its total assets in foreign securities (35% during adverse
U.S. market conditions).
The Fund is managed by Timothy E. Quinlisk, CFA. Mr. Quinlisk is a Senior Vice
President of the Adviser and has managed the Fund since 1998 except between
January and March 2000.
Small Cap Growth Fund
The SMALL CAP GROWTH FUND seeks long-term capital appreciation. To pursue this
goal, the Fund normally invests at least 80% of total assets in stocks of small
capitalization companies (companies in the capitalization range of the Russell
2000 Growth Index, which was $10 million to $4.20 billion on March 31, 2001.)
The managers look for companies in the emerging growth phase of development that
are not yet widely recognized. The Fund also may invest in established companies
that, because of new management, products or opportunities, offer the
possibility of accelerated earnings. For a description of some of the investment
characteristics of smaller capitalization companies, see "Smaller Capitalization
Companies."
The Fund may invest up to 10% of total assets in the securities of foreign
issuers, including, but not limited to, common stocks, sponsored or unsponsored
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs"), convertible preferred stocks, preferred
stocks and warrants. Under normal conditions, the Fund may not invest more than
6
10% of assets in cash or cash equivalents (except cash segregated in relation to
futures, forward and option contracts). In addition, under normal conditions,
the Fund will not invest in any fixed income securities. However, in abnormal
conditions, the fund may temporarily invest in U.S. government securities and
U.S. government agency securities with maturities of up to three years, and may
also invest more than 10% of total assets in cash and/or cash equivalents
(including U.S. government securities maturing in 90 days or less). The Fund may
not invest more than 5% of total assets at time of purchase in any one security
(other than U.S. government securities).
Sovereign Investors Fund
The SOVEREIGN INVESTORS FUND seeks long-term growth of capital and income
without assuming undue market risks. To pursue these goals, the Fund typically
invests most of its assets in a diversified portfolio of stocks. Under normal
conditions, at least 80% of the Fund's stock investments are in companies within
the capitalization range of the Standard & Poor's 500 Index. On March 31, 2001,
that range was $0.67 million to $415.79 billion.
While there is considerable flexibility in the investment grade and type of
security in which the Fund may invest, the Fund currently uses a strategy of
investing at least 65% of stock investments in companies which have a record of
having increased their dividend payout in each of the preceding ten or more
years. This "dividend performers" strategy can be changed at any time. The Fund
may also invest a smaller portion of its assets in corporate and U.S. Government
fixed income securities. For defensive purposes, however, the Fund may
temporarily hold a larger percentage of high grade liquid preferred stock or
fixed income securities. The amount of the Fund's assets that may be invested in
either equity or fixed income securities is not restricted and is based upon the
judgement of the management team of what might best achieve the Fund's
investment objective.
The Fund's portfolio securities are selected mainly for their investment
character based upon generally accepted elements of intrinsic value, including
industry position, management, financial strength, earning power, marketability
and prospects for future growth. The distribution or mix of various types of
investments is based on general market conditions, the level of interest rates,
business and economic conditions, and the availability of investments in the
equity and fixed income markets.
The fund may not invest more than 5% of total assets at time of purchase in any
one security (other than U.S. government securities). Under normal conditions,
the fund may not invest more than 10% of assets in cash or cash equivalents
(except cash segregated in relation to futures, forward and option contracts).
Fixed income securities held by the Fund may be rated as low as C by S&P or
Moody's. No more than 5% of the Fund's assets will be invested in fixed income
securities rated lower than BBB by S&P or Baa by Moody's or, if unrated,
determined to be of comparable quality by the Adviser. If any security in
Sovereign Investors Fund's portfolio falls below the Fund's minimum credit
quality standards, as a result of a rating downgrade or the Adviser's
determination, the Fund will dispose of the security as promptly as possible
while attempting to minimize any loss.
INTERNATIONAL
International Fund
The INTERNATIONAL FUND seeks long-term growth of capital. To pursue this goal,
the Fund normally invests at least 80% of total assets in stocks of foreign
companies. The Fund may invest up to 30% of total assets in emerging markets as
classified by Morgan Stanley Capital International (MSCI). For a description of
some of the investment characteristics of foreign securities, see "Foreign
Securities and Emerging Countries." Generally, the Fund's portfolio contains
securities of issuers from at least three countries other than the United
States.
7
In managing the portfolio, the managers focus on a "bottom-up" analysis on the
financial conditions and competitiveness of individual foreign companies. In
analyzing specific companies for possible investment, the managers ordinarily
look for several of the following characteristics: above-average per share
earnings growth; high return on invested capital; a healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; effective research, product development and marketing;
and general operating characteristics that will enable the companies to compete
successfully in their respective markets. The managers consider whether to sell
a particular security when any of those factors materially changes. The managers
allocate the Fund's assets among securities of countries that are expected to
provide the best opportunities for meeting the Fund's investment objective.
The Fund's foreign equities may include, but are not limited to, common stocks,
convertible preferred stocks, preferred stocks, warrants, American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global Depositary
Receipts ("GDRs"). The Fund may not invest more than 5% of total assets at time
of purchase in any one security (other than U.S. government securities).
SECTOR
Financial Industries Fund
The FINANCIAL INDUSTRIES FUND seeks capital appreciation. To pursue this goal,
the Fund normally invests at least 65% of its total assets in equity securities
of U.S. and foreign financial services companies.
A financial services company is a firm that in its most recent fiscal year
either (i) derived at least 50% of its revenues or earnings from financial
services activities, or (ii) devoted at least 50% of its assets to such
activities. Financial services companies provide financial services to consumers
and businesses and include the following types of U.S. and foreign firms:
commercial banks, thrift institutions and their holding companies; consumer and
industrial finance companies; diversified financial services companies;
investment banks; securities brokerage and investment advisory firms; financial
holding companies; financial technology companies; real estate-related firms;
leasing firms; insurance brokerages; and various firms in all segments of the
insurance industry such as multi-line, property and casualty, and life insurance
companies and insurance holding companies.
In managing the portfolio, the managers focus primarily on stock selection
rather than industry allocation. The managers use a strategy of investing in
financial services companies that are currently undervalued, appear to be
positioned for a merger, or are in a position to benefit from regulatory
changes. This strategy can be changed at any time. For a description of the
investment characteristics of the Financial Industries, see "Financial
Industries."
To avoid the need to sell equity securities to meet redemption requests, and to
provide flexibility to take advantage of investment opportunities, the Fund may
invest up to 15% of its net assets in investment grade short-term securities.
The Fund may invest in debt securities of financial services companies and in
debt and equity securities of companies outside of the financial services
sector. The Fund may invest up to 5% of its net assets in below-investment grade
debt securities, rated as low as CCC by S&P or Caa by Moody's or, if unrated,
determined to be of comparable quality by the Adviser.
8
Regional Bank Fund
The REGIONAL BANK FUND seeks long-term capital appreciation. To pursue this
goal, the Fund normally invests at least 65% of total assets in stocks of
regional banks and lending companies, including commercial and industrial banks,
savings and loan associations and bank holding companies that receive a
substantial portion of their income from banks.
A regional bank is one that provides full service banking (i.e., savings
accounts, checking accounts, commercial lending and real estate lending), whose
assets are primarily of domestic origin, and which typically has a principal
office outside of New York City and Chicago. The Fund may invest in banks that
are not Federal Deposit Insurance Corporation insured (including any state or
federally chartered savings and loan association). Although the managers will
primarily seek opportunities for capital appreciation, many of the regional
banks in which the Fund may invest pay regular dividends. Accordingly, the Fund
also expects to receive moderate income.
The Fund may also invest in other financial services companies, including
companies with significant lending operations and "money center" banks. A "money
center" bank is one with a strong international banking business and a
significant percentage of international assets, which is typically located in
New York or Chicago. In seeking growth opportunities, the Fund's management team
may target banks with some or all of the following characteristics: (1) strong
market position in a region with a healthy economy; (2) undiscovered fundamental
strength evidenced by a low stock price relative earnings; (3) the potential to
benefit from a merger or acquisition. For a description of the investment
characteristics of the Banking Industry, see the "Banking Industry."
To avoid the need to sell equity securities to meet redemption requests, and to
provide flexibility to take advantage of investment opportunities, the Fund may
invest up to 15% of its net assets in investment grade short-term securities.
The Fund may invest up to 5% of its net assets in below-investment grade debt
securities of Banks rated as low as CCC by S&P or Caa by Moody's or, if unrated,
determined to be of comparable quality by the Adviser.
Technology Fund
The TECHNOLOGY FUND seeks long-term growth of capital. To pursue this goal, the
Fund invests principally in equity securities of companies that rely extensively
on technology in their product development or operations.
Under normal market conditions, at least 65% of the Fund's total assets are
invested in securities of the technology companies noted above. The Fund's
portfolio is primarily comprised of U.S. and foreign common stocks and
securities convertible into common stocks, including convertible bonds,
convertible preferred stocks and warrants.
Investments in U.S. and foreign companies that rely extensively on technology in
product development or operations may be expected to benefit from scientific
developments and the application of technical advances resulting from improving
technology in many different fields, such as computer software and hardware
(including internet-related technology), semiconductors, telecommunications,
defense and commercial electronics, data storage and retrieval, biotechnology
and others. Generally, investments will be made in securities of a company that
relies extensively on technology in product development or operations only if a
significant part of its assets are invested in, or a significant part of its
total revenue or net income is derived from, technology. For a description of
the investment characteristics of the technology industry, see
"Technology-Intensive Companies."
9
The Fund may invest up to 10% of its net assets in fixed income securities that,
at the time of investment, are rated CC or higher by Standard & Poor's Ratings
Group ("Standard & Poor's") or Ca or higher be Moody's Investors Service, Inc.
("Moody's") or their equivalent, and unrated fixed income securities of
comparable quality as determined by the Adviser.
When market conditions suggest a need for a defensive investment strategy, the
Fund may temporarily invest in short-term obligations of or securities
guaranteed by the U.S. Government or its agencies or instrumentalities, high
quality bank certificates of deposit and commercial paper. This temporary
investment strategy is not designed to achieve the Fund's primary investment
objective.
INCOME
Bond Fund
The BOND FUND seeks to generate a high level of current income consistent with
prudent investment risk. To pursue this goal, the Fund normally invests at least
65% of total assets in a diversified portfolio of debt securities. These include
corporate bonds and debentures, as well as U.S. government and agency
securities. In addition, the Fund contemplates at least 75% of the value of its
total assets will be in (1) debt securities that have, at the time of purchase,
a rating within the four highest grades as determined by Moody's Investors
Service, Inc. ("Moody's") (Aaa, Aa, A or Baa) or Standard & Poor's ("S&P") (AAA,
AA, A, or BBB); (2) debt securities of banks, the U.S. Government and its
agencies or instrumentalities and other issuers which, although not rated as a
matter of policy by either Moody's or S&P, are considered by the Fund to have
investment quality comparable to securities receiving ratings within the four
highest grades; and (3) cash and cash equivalents. Under normal conditions, the
Fund may not invest more than 10% of total assets in cash and/or cash
equivalents (except cash segregated in relation to futures, forward and options
contracts).
The Fund may also invest up to 25% of its total assets in fixed income
securities rated below BBB by S&P or below Baa by Moody's or their respective
equivalent ratings or in securities which are unrated. The Fund may invest in
securities rated as low as CC or Ca and unrated securities of comparable credit
quality as determined by the Adviser. These ratings indicate obligations that
are highly speculative and often in default. Securities rated lower than Baa or
BBB are high risk securities generally referred to as "junk bonds." See "High
Yield/High Risk Debt Obligations." for a description of the risks and
characteristics of the various ratings categories.
The Fund may acquire individual securities of any maturity and is not subject to
any limits as to the average maturity of its overall portfolio.
The Fund may invest in securities of United States and foreign issuers. It is
anticipated that under normal conditions, the Fund will not invest more than 25%
of its total assets in foreign securities (excluding U.S. dollar-denominated
Canadian securities).
High Yield Bond Fund
The HIGH YIELD BOND FUND seeks to maximize current income without assuming undue
risk. Capital appreciation is a secondary goal. In pursuing these goals, the
Fund normally invests at least 65% of its total assets in U.S. and foreign bonds
rated Baa or lower by Moody's or BBB or lower by S&P or in unrated securities of
comparable quality as determined by the Adviser. Up to 30% of the Fund's total
assets may be invested in junk bonds rated Ca by Moody's or CC by S&P or in
unrated securities of comparable quality as determined by the adviser. See
"Lower Rated High Yield / High Risk Debt Obligations." for a description of the
risks and characteristics of the various ratings categories. Up to 40% of the
Fund's total assets may be invested in the securities of issuers in the electric
utility and telecommunications industries. For all other industries, the
limitation is 25% of assets. The Fund may also invest up to 20% of its net
assets in U.S. or foreign equities.
10
The types of debt securities in which the Fund may invest include, but are not
limited to, domestic and foreign corporate bonds, debentures, notes, convertible
securities, preferred stocks, municipal obligations and government obligations.
For liquidity and flexibility, the Fund may place up to 35% of its total assets
in investment-grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. The Fund also may
invest in certain higher-risk investments, including options, futures and
restricted securities. See "RISK FACTORS, INVESTMENTS AND TECHNIQUES."
Money Market Fund
The MONEY MARKET FUND seeks the maximum current income that is consistent with
maintaining liquidity and preserving capital. The Fund invests in high-quality
money market instruments including, but not limited to, U.S. Government,
municipal and foreign government securities; obligations of supranational
organizations (e.g., the World Bank and the International Monetary Fund);
obligations of U.S. and foreign banks and other lending institutions; corporate
obligations; repurchase agreements and reverse repurchase agreements. All of the
Fund's investments are denominated in U.S. dollars.
At the time the Money Market Fund acquires its investments, they will be rated
(or issued by an issuer that is rated with respect to a comparable class of
short-term debt obligations) in one of the two highest rating categories for
short-term debt obligations assigned by at least two nationally recognized
rating organizations (or one rating organization if the obligation was rated by
only one such organization). These high quality securities are divided into
"first tier" and "second tier" securities. First tier securities have received
the highest rating from at least two rating organizations while second tier
securities have received ratings within the two highest categories from at least
two rating agencies, but do not qualify as first tier securities. The Fund may
also purchase obligations that are not rated, but are determined by the Adviser,
based on procedures adopted by the Trust's Board of Trustees, to be of
comparable quality to rated first or second tier securities. The Fund may not
purchase any second tier security if, as a result of its purchase (a) more than
5% of its total assets would be invested in second tier securities or (b) more
than 1% of its total assets or $1 million (whichever is greater) would be
invested in the second tier securities of a single issuer.
The Fund seeks to maintain a constant $1.00 share price although there can be no
assurance it will do so. All of the Fund's investments will mature in 397 days
or less. The Fund will maintain an average dollar-weighted portfolio maturity of
90 days or less.
Strategic Income Fund
The STRATEGIC INCOME FUND seeks a high level of current income. In pursuing this
goal, the Fund invests primarily in the following categories of securities:
foreign government and foreign corporate securities from developed and emerging
countries, U.S. Government and agency securities and lower-rated high yield,
high risk, fixed income securities of U.S. issuers. Under normal circumstances,
the Fund's assets are invested in each of the foregoing three categories.
However, from time to time the Fund may invest up to 100% of its total assets in
any one category. The Fund may invest up to 10% of its net assets in common
stocks and similar equity securities of U.S. and foreign companies. No more than
25% of the Fund's total assets, at the time of purchase, will be invested in
government securities of any one foreign country. The fixed income securities in
11
which the Fund may invest include bonds, debentures, notes (including variable
and floating rate instruments), preferred and preference stock, zero coupon
bonds, payment-in-kind securities, increasing rate note securities,
participation interests, multiple class passthrough securities, collateralized
mortgage obligations, stripped debt securities, other mortgage-backed
securities, asset-backed securities and other derivative debt securities.
Variable and floating rate instruments, mortgage-backed securities and
asset-backed securities are derivative instruments that derive their value from
an underlying security. Derivative securities are subject to additional risks.
See "Risks Associated With Specific Types of Derivative Debt Securities."
The Fund generally intends to keep its average credit quality in the investment
grade range. However, the Fund may invest up to 100% of total assets in fixed
income securities rated below Baa by Moody's or below BBB by S&P, or in
securities which are unrated. The Fund may invest in securities rated as low as
Ca or CC, which may indicate that the obligations are highly speculative and in
default. Fixed income securities rated below Baa or BBB are commonly called
"junk bonds." See "Lower Rated High Yield / High Risk Debt Obligations." for a
description of the risks and characteristics of the various ratings categories.
RISK FACTORS, INVESTMENTS AND TECHNIQUES
Banking Industry. Since the Regional Bank Fund's investments will be
concentrated in the banking industry, it will be subject to risks in addition to
those that apply to the general equity market. Events may occur which
significantly affect the entire banking industry. Thus, the Fund's share value
may at times increase or decrease at a faster rate than the share value of a
mutual fund with investments in many industries. In addition, despite some
measure of deregulation, banks and other lending institutions are still subject
to extensive governmental regulation which limits their activities. The
availability and cost of funds to these entities is crucial to their
profitability. Consequently, volatile interest rates and general economic
conditions can adversely affect their financial performance and condition. The
Fund is not a complete investment program. Because the Fund's investments are
concentrated in the banking industry, an investment in the Fund may be subject
to greater market fluctuations than a fund that does not concentrate in a
particular industry. Thus, it is recommended that an investment in the Fund be
considered only one portion of your overall investment portfolio.
Banks, finance companies and other financial services organizations are subject
to extensive governmental regulations which may limit both the amounts and types
of loans and other financial commitments which may be made and the interest
rates and fees which may be charged. The profitability of these concerns is
largely dependent upon the availability and cost of capital funds, and has shown
significant recent fluctuation as a result of volatile interest rate levels.
Volatile interest rates will also affect the market value of debt securities
held by the Fund. In addition, general economic conditions are important to the
operations of these concerns, with exposure to credit losses resulting from
possible financial difficulties of borrowers potentially having an adverse
effect.
Financial Industries. Since the Financial Industries Fund's investments will be
concentrated in the financial services sector, it will be subject to risks in
addition to those that apply to the general equity and debt markets. Events may
occur which significantly affect the sector as a whole or a particular segment
in which the Fund invests. Accordingly, the Fund may be subject to greater
market volatility than a fund that does not concentrate in a particular economic
sector or industry. Thus, it is recommended that an investment in the Fund be
only a portion of your overall investment portfolio.
In addition, most financial services companies are subject to extensive
governmental regulation which limits their activities and may (as with insurance
rate regulation) affect the ability to earn a profit from a given line of
business. Certain financial services businesses are subject to intense
competitive pressures, including market share and price competition. The removal
of regulatory barriers to participation in certain segments of the financial
services sector may also increase competitive pressures on different types of
firms. For example, recent legislation removing traditional barriers between
banking and investment banking activities will allow large commercial banks to
compete for business that previously was the exclusive domain of securities
firms. Similarly, the removal of regional barriers in the banking industry has
intensified competition within the industry.
12
The availability and cost of funds to financial services firms is crucial to
their profitability. Consequently, volatile interest rates and general economic
conditions can adversely affect their financial performance.
Financial services companies in foreign countries are subject to similar
regulatory and interest rate concerns. In particular, government regulation in
certain foreign countries may include controls on interest rates, credit
availability, prices and currency movements. In some cases, foreign governments
have taken steps to nationalize the operations of banks and other financial
services companies. See "Foreign Securities & Emerging Countries."
Technology-Intensive Companies. Since the Technology Fund's investments will be
concentrated in technology-intensive companies, it will be subject to risks in
addition to those that apply to the general equity and debt markets. Securities
prices of technology-intensive companies have tended to be subject to greater
volatility than securities prices in many other industries, due to particular
factors affecting these industries. Competitive pressures may also have a
significant effect on the financial condition of technology-intensive companies.
For example, if the development of new technology continues to advance at an
accelerated rate, and the number of companies and product offerings continues to
expand, the companies could become increasingly sensitive to short product
cycles and aggressive pricing. Accordingly, the Fund's performance will be
particularly susceptible to factors affecting these companies as well as the
economy as a whole.
Smaller Capitalization Companies. Smaller capitalization companies may have
limited product lines, market and financial resources, or they may be dependent
on smaller or less experienced management groups. In addition, trading volume
for these securities may be limited. Historically, the market price for these
securities has been more volatile than for securities of companies with greater
capitalization. However, securities of companies with smaller capitalization may
offer greater potential for capital appreciation since they may be overlooked
and thus undervalued by investors.
Common Stocks. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or class of shareholders,
including holders of such entity's preferred stock and other senior equity.
Ownership of common stock usually carries with it the right to vote and,
frequently, an exclusive right to do so. Each Fund (other than Financial
Industries Fund, Regional Bank Fund and Technology Fund) will diversify its
investments in common stocks of companies in a number of industry groups. Common
stocks have the potential to outperform fixed income securities over the long
term. Common stocks provide the most potential for growth, yet are the more
volatile of the two asset classes.
Fixed Income Securities. Fixed income investments of each Fund may include
bonds, notes, preferred stock and convertible fixed income securities issued by
U.S. corporations or the U.S. Government and its political subdivisions. Under
normal conditions, Mid Cap Growth Fund and Small Cap Growth Fund will not invest
in any fixed income securities (other than preferred stock and cash
equivalents).
13
Fixed income securities of corporate and governmental issuers are subject to the
risk of an issuer's inability to meet principal and interest payments on the
obligations (credit risk) and may also be subject to price volatility due to
factors such as interest rate sensitivity, market perception of the issuer's
creditworthiness and general market liquidity (market risk). Debt securities
will be selected based upon credit risk analysis of issuers, the characteristics
of the security and interest rate sensitivity of the various debt issues
available from a particular issuer as well as analysis of the anticipated
volatility and liquidity of the fixed income instruments. The longer a Fund's
average portfolio maturity, the more the value of the portfolio and the net
asset value of the Fund's shares will fluctuate in response to changes in
interest rates. An increase in rates will generally decrease the value of the
Fund's securities, while a decline in interest rates will generally increase
their value.
Preferred Stocks. Each Fund (other than 500 Index Fund and Money Market Fund)
may invest in preferred stock. Preferred stock generally has a preference as to
dividends and upon liquidation over an issuer's common stock but ranks junior to
debt securities in an issuer's capital structure. Preferred stock generally pays
dividends in cash (or additional shares of preferred stock) at a defined rate
but, unlike interest payments on debt securities, preferred stock dividends are
payable only if declared by the issuer's board of directors. Dividends on
preferred stock may be cumulative, meaning that, in the event the issuer fails
to make one or more dividend payments on the preferred stock, no dividends may
be paid on the issuer's common stock until all unpaid preferred stock dividends
have been paid. Preferred stock also may be subject to optional or mandatory
redemption provisions.
Convertible Securities. Each Fund (other than 500 Index Fund and Money Market
Fund) may invest in convertible securities, which may include corporate notes or
preferred stock but are ordinarily long-term debt obligations of the issuer
convertible at a stated exchange rate into common stock of the same or another
issuer. The Mid Cap Growth Fund and Small Cap Growth Fund may only invest in
convertible preferred stock.
As with all debt securities, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline. The market value of convertible securities can also be heavily
dependent upon the changing value of the equity securities into which these
securities are convertible depending on whether the market price of the
underlying security exceeds the conversion price. Convertible securities
generally rank senior to common stocks in an issuer's capital structure and
consequently entail less risk than the issuer's common stock. However, the
extent of such risk reduction depends upon the degree to which the convertible
security sells above its value as a fixed income security. In evaluating a
convertible security, the Adviser or relevant Sub-adviser will give primary
emphasis to the attractiveness of the underlying common stock.
The S&P 500 Index. The S&P 500 Index is a capitalization weighted index
comprised of 500 industrial, utility, transportation and financial companies in
the United States markets. The S&P 500 Index represents approximately 75% of the
total market capitalization of stocks traded in the U.S. equity market. The
inclusion of a stock in the S&P 500 Index in no way implies that Standard &
Poor's believes the stock to be an attractive investment.
Because of the market-value weighting, the 50 largest companies in the S&P 500
Index currently account for approximately 54.80% of the Index. Typically,
companies included in the S&P 500 Index are the largest and most dominant firms
in their respective industries. As of March 31, 2001, the five largest companies
in the Index were: General Electric (3.99%), Microsoft (2.81%), Exxon Mobil
(2.71%), Pfizer (2.49%) and Citigroup (2.17%). The largest industry categories
were: major pharmaceuticals (5.88%), integrated oil (5.12%), major
telecommunications (5.11%), and major banks (4.43%)
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for use by John Hancock Advisers, Inc. ("the Adviser"). The 500 Index Fund is
not sponsored, endorsed, sold or promoted by Standard & Poor's. Standard &
Poor's makes no representation or warranty, express or implied, to the
purchasers of the Fund or any member of the public regarding the advisability of
investing in securities generally or in the 500 Index Fund particularly or the
ability of the S&P 500 Index to track general stock market performance. Standard
& Poor's only relationship to the Adviser is the licensing of certain trademarks
14
and trade names of Standard & Poor's and of the S&P 500 Index, which is
determined, composed and calculated by Standard & Poor's without regard to the
Adviser or the 500 Index Fund. Standard & Poor's has no obligation to take the
needs of the Adviser or the purchasers of the 500 Index Fund into consideration
in determining, composing or calculating the S&P 500 Index. Standard & Poor's is
not responsible for and has not participated in the determination of the prices
and amount of the 500 Index Fund, the timing of the issuance or sale of the 500
Index Fund or in the determination or calculation of the equation by which the
500 Index Fund is to be converted into cash. Standard & Poor's has no obligation
or liability in connection with the administration, marketing or trading of the
500 Index Fund.
STANDARD & POOR'S DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
S&P 500 INDEX OR ANY DATA INCLUDED THEREIN AND STANDARD & POOR'S SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. STANDARD & POOR'S
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY JOHN
HANCOCK ADVISERS, INC., THE TRUST, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF
THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. STANDARD & POOR'S MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL STANDARD & POOR'S HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
"SPDRS" AND OTHER INVESTMENT COMPANIES. Subject to the Fund's non-fundamental
restriction (d), the Fund may invest in Standard & Poor's Depository Receipts
("SPDRs"), other exchange traded funds and other investment companies that are
designed to track the S&P 500 Index. These investments have many of the same
risks as direct investments in common stocks. The market value of these
investment companies are expected to rise and fall as the S&P 500 Index rises
and falls. If the Fund invests in an investment company, it would, in addition
to its own expenses, indirectly bear its ratable share of the investment
company's expenses. SPDRs represent an ownership interest in the SPDR Trust,
which holds a portfolio of common stocks that closely tracks the price
performance and dividend yield of the S&P 500 Index. SPDRs trade on the American
Stock Exchange like shares of common stock.
Foreign Securities and Emerging Countries. Each Fund (other than Core Equity
Fund, 500 Index Fund, Sovereign Investors Fund and Money Market Fund) may invest
in U.S. Dollar and foreign denominated securities of foreign issuers. The Core
Equity Fund, 500 Index Fund, Sovereign Investors Fund and Money Market Fund may
only invest in U.S. dollar denominated securities including those of foreign
issuers which are traded on a U.S. Exchange. The International Fund, Small Cap
Growth Fund, Technology Fund, High Yield Bond Fund and Strategic Income Fund may
also invest securities of foreign issuers located in countries with emerging
economies or securities markets.
Investing in obligations of non-U.S. issuers and foreign banks, particularly
securities of issuers located in emerging countries, may entail greater risks
than investing in similar securities of U.S. issuers. These risks include (i)
social, political and economic instability; (ii) the small current size of the
markets for many such securities and the currently low or nonexistent volume of
trading, which may result in a lack of liquidity and in greater price
volatility; (iii) certain national policies which may restrict a Fund's
investment opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; (iv) foreign taxation; and
(v) the absence of developed structures governing private or foreign investment
or allowing for judicial redress for injury to private property. Investing in
securities of non-U.S. companies may entail additional risks due to the
potential political and economic instability of certain countries and the risks
of expropriation, nationalization, confiscation or the imposition of
restrictions on foreign investment and on repatriation of capital invested. In
the event of such expropriation, nationalization or other confiscation by any
country, a Fund could lose its entire investment in any such country.
15
In addition, even though opportunities for investment may exist in foreign
countries, and in particular emerging markets, any change in the leadership or
policies of the governments of those countries or in the leadership or policies
of any other government which exercises a significant influence over those
countries, may halt the expansion of or reverse the liberalization of foreign
investment policies now occurring and thereby eliminate any investment
opportunities which may currently exist. Investors should note that upon the
accession to power of authoritarian regimes, the governments of a number of
Latin American countries previously expropriated large quantities of real and
personal property similar to the property which may be represented by the
securities purchased by the Funds. The claims of property owners against those
governments were never finally settled. There can be no assurance that any
property represented by foreign securities purchased by a Fund will not also be
expropriated, nationalized, or otherwise confiscated. If such confiscation were
to occur, a Fund could lose a substantial portion of its investments in such
countries. A Fund's investments would similarly be adversely affected by
exchange control regulations in any of those countries. Certain countries in
which the Funds may invest may have vocal minorities that advocate radical
religious or revolutionary philosophies or support ethnic independence. Any
disturbance on the part of such individuals could carry the potential for
widespread destruction or confiscation of property owned by individuals and
entities foreign to such country and could cause the loss of a Fund's investment
in those countries.
Certain countries prohibit or impose substantial restrictions on investments in
their capital markets, particularly their equity markets, by foreign entities
such as the Funds. As illustrations, certain countries require governmental
approval prior to investments by foreign persons, or limit the amount of
investment by foreign persons in a particular company, or limit the investment
by foreign persons to only a specific class of securities of a company that may
have less advantageous terms than securities of the company available for
purchase by nationals. Moreover, the national policies of certain countries may
restrict investment opportunities in issuers or industries deemed sensitive to
national interests. In addition, some countries require governmental approval
for the repatriation of investment income, capital or the proceeds of securities
sales by foreign investors. A Fund could be adversely affected by delays in, or
a refusal to grant, any required governmental approval for repatriation, as well
as by the application to it of other restrictions on investments.
Foreign companies are subject to accounting, auditing and financial standards
and requirements that differ, in some cases significantly, from those applicable
to U.S. companies. In particular, the assets, liabilities and profits appearing
on the financial statements of such a company may not reflect its financial
position or results of operations in the way they would be reflected had such
financial statements been prepared in accordance with U.S. generally accepted
accounting principles. Most foreign securities held by the Funds will not be
registered with the SEC and such issuers thereof will not be subject to the
SEC's reporting requirements. Thus, there will be less available information
concerning foreign issuers of securities held by the Funds than is available
concerning U.S. issuers. In instances where the financial statements of an
issuer are not deemed to reflect accurately the financial situation of the
issuer, the Adviser or relevant Sub-adviser will take appropriate steps to
evaluate the proposed investment, which may include on-site inspection of the
issuer, interviews with its management and consultations with accountants,
bankers and other specialists. There is substantially less publicly available
information about foreign companies than there are reports and ratings published
about U.S. companies and the U.S. Government. In addition, where public
information is available, it may be less reliable than such information
regarding U.S. issuers.
Because the Funds (other than Core Equity Fund, 500 Index Fund, Sovereign
Investors Fund and Money Market Fund) may invest, and International Fund will
(under normal circumstances) invest, a portion of their total assets in
securities which are denominated or quoted in foreign currencies, the strength
or weakness of the U.S. dollar against such currencies may account for part of
the Funds' investment performance. A decline in the value of any particular
16
currency against the U.S. dollar will cause a decline in the U.S. dollar value
of a Fund's holdings of securities denominated in such currency and, therefore,
will cause an overall decline in the Fund's net asset value and any net
investment income and capital gains to be distributed in U.S. dollars to
shareholders of the Fund.
The rate of exchange between the U.S. dollar and other currencies is determined
by several factors including the supply and demand for particular currencies,
central bank efforts to support particular currencies, the movement of interest
rates, the pace of business activity in certain other countries and the U.S.,
and other economic and financial conditions affecting the world economy.
Although the Funds value their respective assets daily in terms of U.S. dollars,
the Funds do not intend to convert their holdings of foreign currencies into
U.S. dollars on a daily basis. However, the Funds may do so from time to time,
and investors should be aware of the costs of currency conversion. Although
currency dealers do not charge a fee for conversion, they do realize a profit
based on the difference ("spread") between the prices at which they are buying
and selling various currencies. Thus, a dealer may offer to sell a foreign
currency to a Fund at one rate, while offering a lesser rate of exchange should
the Fund desire to sell that currency to the dealer.
Securities of foreign issuers, and in particular many emerging country issuers,
may be less liquid and their prices more volatile than securities of comparable
U.S. issuers. In addition, foreign securities exchanges and brokers are
generally subject to less governmental supervision and regulation than in the
U.S., and foreign securities exchange transactions are usually subject to fixed
commissions, which are generally higher than negotiated commissions on U.S.
transactions. In addition, foreign securities exchange transactions may be
subject to difficulties associated with the settlement of such transactions.
Delays in settlement could result in temporary periods when assets of a Fund are
uninvested and no return is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to a Fund due
to subsequent declines in value of the portfolio security or, if the Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser.
The Funds' investment income or, in some cases, capital gains from stock or
securities of foreign issuers may be subject to foreign withholding or other
foreign taxes, thereby reducing the Funds' net investment income and/or net
realized capital gains. See "Tax Status."
Foreign Currency Transactions. Each Fund (other than Core Equity Fund, 500 Index
Fund, Sovereign Investors Fund and Money Market Fund) may engage in foreign
currency transactions. Foreign currency transactions may be conducted on a spot
(i.e., cash) basis at the spot rate for purchasing or selling currency
prevailing in the foreign exchange market.
Each Fund (other than Core Equity Fund, 500 Index Fund, Sovereign Investors
Fund, and Money Market Fund) may also enter into forward foreign currency
exchange contracts to hedge against fluctuations in currency exchange rates
affecting a particular transaction or portfolio position. Forward contracts are
agreements to purchase or sell a specified currency at a specified future date
and price set at the time of the contract. Transaction hedging is the purchase
or sale of forward foreign currency contracts with respect to specific
receivables or payables of a Fund accruing in connection with the purchase and
sale of its portfolio securities quoted or denominated in the same or related
foreign currencies. Portfolio hedging is the use of forward foreign currency
contracts to offset portfolio security positions denominated or quoted in the
same or related foreign currencies. A Fund may elect to hedge less than all of
its foreign portfolio positions as deemed appropriate by the Adviser. The Funds
will not engage in speculative forward foreign currency exchange transactions.
17
If a Fund purchases a forward contract, the Fund will segregate cash or liquid
securities in a separate account in an amount equal to the value of the Fund's
total assets committed to the consummation of such forward contract. The assets
in the segregated account will be valued at market daily and if the value of the
securities in the separate account declines, additional cash or securities will
be placed in the account so that the value of the account will be equal the
amount of the Fund's commitment in forward contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Funds to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates.
Repurchase Agreements. Each Fund may enter into repurchase agreements. In a
repurchase agreement the Fund buys a security for a relatively short period
(usually not more than seven days) subject to the obligation to sell it back to
the issuer at a fixed time and price plus accrued interest. Each Fund will enter
into repurchase agreements only with member banks of the Federal Reserve System
and with "primary dealers" in U.S. government securities. The Adviser or
relevant Sub-adviser will continuously monitor the creditworthiness of the
parties with whom a Fund enters into repurchase agreements.
Each Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, a Fund could experience delays in liquidating
the underlying securities and could experience losses, including the possible
decline in the value of the underlying securities during the period in which the
Fund seeks to enforce its rights thereto, possible subnormal levels of income or
lack of access to income during this period, as well as the expense of enforcing
its rights. A Fund will not invest in a repurchase agreement maturing in more
than seven days, if such investment, together with other illiquid securities
held by the Fund would exceed 15% (10% for Money Market Fund) of the Fund's net
assets.
Reverse Repurchase Agreements. Each Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by a Fund. Reverse repurchase agreements involve
the risk that the market value of securities purchased by a Fund with proceeds
of the transaction may decline below the repurchase price of the securities sold
by a Fund which it is obligated to repurchase. A Fund will also continue to be
subject to the risk of a decline in the market value of the securities sold
under the agreements because it will reacquire those securities upon effecting
their repurchase. To minimize various risks associated with reverse repurchase
agreements, a Fund will establish and maintain a separate account consisting of
highly liquid securities, of any type or maturity, in an amount at least equal
to the repurchase prices of the securities (plus any accrued interest thereon)
under such agreements. In addition, a Fund will not enter into reverse
repurchase agreements and other borrowings exceeding in the aggregate 33 1/3% of
the market value of its total assets. A Fund will enter into reverse repurchase
agreements only with selected registered broker/dealers or with federally
insured banks or savings and loan associations which are approved in advance as
being creditworthy by the Trustees. Under procedures established by the
Trustees, the Adviser will monitor the creditworthiness of the firms involved.
18
Restricted Securities. Each Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on section 4(2) of the 1933 Act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. The Fund will not invest more than 15% (10% for Money
Market Fund) of its net assets in illiquid investments. If the Trustees
determine, based upon a continuing review of the trading markets for specific
Section 4(2) paper or Rule 144A securities, that they are liquid, they will not
be subject to the 15% limit on illiquid investments. The Trustees have adopted
guidelines and delegated to the Adviser the daily function of determining and
monitoring the liquidity of restricted securities. The Trustees, however, will
retain sufficient oversight and be ultimately responsible for the
determinations. The Trustees will carefully monitor the Fund's investments in
these securities, focusing on such important factors, among others, as
valuation, liquidity and availability of information. This investment practice
could have the effect of increasing the level of illiquidity in the Fund if
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities.
Options on Securities, Securities Indices and Currency. Mid Cap Growth Fund,
Small Cap Growth Fund and Sovereign Investors Fund may each purchase and write
(sell) call and put options on any index based on securities in which it may
invest. Each other Fund (except Money Market Fund) may purchase and write (sell)
call and put options on any securities in which it may invest, on any securities
index based on securities in which it may invest or on any currency in which
Fund investments may be denominated. These options may be listed on national
domestic securities exchanges or foreign securities exchanges or traded in the
over-the-counter market. Each Fund may write covered put and call options and
purchase put and call options as a substitute for the purchase or sale of
securities or currency, or to protect against declines in the value of portfolio
securities and against increases in the cost of securities to be acquired. Each
Fund, other than the International Fund, Mid Cap Growth Fund, Small Cap Growth
Fund and Sovereign Investors Fund, may also write and purchase options to
enhance total return.
Writing Covered Options. A call option on securities or currency written by a
Fund obligates the Fund to sell specified securities or currency to the holder
of the option at a specified price if the option is exercised at any time before
the expiration date. A put option on securities or currency written by a Fund
obligates the Fund to purchase specified securities or currency from the option
holder at a specified price if the option is exercised at any time before the
expiration date. Options on securities indices are similar to options on
securities, except that the exercise of securities index options requires cash
settlement payments and does not involve the actual purchase or sale of
securities. In addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. Writing covered call options may
deprive a Fund of the opportunity to profit from an increase in the market price
of the securities or foreign currency assets in its portfolio. Writing covered
put options may deprive a Fund of the opportunity to profit from a decrease in
the market price of the securities or foreign currency assets to be acquired for
its portfolio.
All call and put options written by the Funds are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities,
either of which may be quoted or denominated in any currency, in a segregated
account maintained by the affected Fund's custodian with a value at least equal
to the Fund's obligation under the option, (ii) entering into an offsetting
forward commitment and/or (iii) purchasing an offsetting option or any other
option which, by virtue of its exercise price or otherwise, reduces the Fund's
net exposure on its written option position. A written call option on securities
is typically covered by maintaining the securities that are subject to the
option in a segregated account. Each Fund may cover call options on a securities
index by owning securities whose price changes are expected to be similar to
those of the underlying index.
Each Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
19
Purchasing Options. A Fund would normally purchase call options in anticipation
of an increase, or put options in anticipation of a decrease ("protective
puts"), in the market value of securities or currencies of the type in which it
may invest. Each Fund may also sell call and put options to close out its
purchased options.
The purchase of a call option would entitle Fund, in return for the premium
paid, to purchase specified securities or currency at a specified price during
the option period. A Fund would ordinarily realize a gain on the purchase of a
call option if, during the option period, the value of such securities or
currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
The purchase of a put option would entitle a Fund, in exchange for the premium
paid, to sell specified securities or currency at a specified price during the
option period. The purchase of protective puts is designed to offset or hedge
against a decline in the market value of the Fund's portfolio securities or the
currencies in which they are denominated. Put options may also be purchased by a
Fund for the purpose of affirmatively benefiting from a decline in the price of
securities or currencies which it does not own. A Fund would ordinarily realize
a gain if, during the option period, the value of the underlying securities or
currency decreased below the exercise price sufficiently to cover the premium
and transaction costs; otherwise the Fund would realize either no gain or a loss
on the purchase of the put option. Gains and losses on the purchase of put
options may be offset by countervailing changes in the value of a Fund's
portfolio securities.
Each Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which a Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If a Fund is unable
to effect a closing purchase transaction with respect to covered options it has
written, the Fund will not be able to sell the underlying securities or
currencies or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if a Fund is unable to effect a closing sale
transaction with respect to options it has purchased, it would have to exercise
the options in order to realize any profit and will incur transaction costs upon
the purchase or sale of underlying securities or currencies.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
20
A Fund's ability to terminate over-the-counter options is more limited than with
exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities or currency markets.
Futures Contracts and Options on Futures Contracts. Mid Cap Growth Fund, Small
Cap Growth Fund and Sovereign Investors Fund may each purchase and sell futures
contracts on any index based on securities in which it may invest for hedging or
other non-speculative purposes. The International Fund may purchase and sell
various types of futures contracts and options on these futures contracts to
hedge against changes in interest rates, securities prices, or currency exchange
rates or for other non-speculative purposes. To seek to increase total return or
hedge against changes in interest rates, securities prices or currency exchange
rates, each other Fund except Money Market Fund may purchase and sell various
kinds of futures contracts, and purchase and write call and put options on these
futures contracts. Each Fund may also enter into closing purchase and sale
transactions with respect to any of these contracts and options. The futures
contracts may be based on various securities (such as U.S. Government
securities), securities indices, foreign currencies and any other financial
instruments and indices. All futures contracts entered into by a Fund are traded
on U.S. or foreign exchanges or boards of trade that are licensed, regulated or
approved by the Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments or
currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities or currency will usually be
liquidated in this manner, a Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that a Fund proposes to acquire or the
exchange rate of currencies in which portfolio securities are quoted or
denominated. When securities prices are falling, a Fund can seek to offset a
decline in the value of its current portfolio securities through the sale of
futures contracts. When securities prices are rising, a Fund, through the
purchase of futures contracts, can attempt to secure better rates or prices than
might later be available in the market when it effects anticipated purchases. A
Fund may seek to offset anticipated changes in the value of a currency in which
its portfolio securities, or securities that it intends to purchase, are quoted
or denominated by purchasing and selling futures contracts on such currencies.
A Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated decline
in market prices or foreign currency rates that would adversely affect the
dollar value of the Fund's portfolio securities. Such futures contracts may
include contracts for the future delivery of securities held by a Fund or
21
securities with characteristics similar to those of a Fund's portfolio
securities. Similarly, a Fund may sell futures contracts on any currencies in
which its portfolio securities are quoted or denominated or in one currency to
hedge against fluctuations in the value of securities denominated in a different
currency if there is an established historical pattern of correlation between
the two currencies.
If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for a Fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in a Fund's portfolio may
be more or less volatile than prices of such futures contracts, the Adviser will
attempt to estimate the extent of this volatility difference based on historical
patterns and compensate for any differential by having the Fund enter into a
greater or lesser number of futures contracts or by attempting to achieve only a
partial hedge against price changes affecting the Fund's portfolio securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of a Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available. Subject to
the limitations imposed on International Fund, Mid Cap Growth Fund, Small Cap
Growth Fund, and Sovereign Investors Fund, as described above, a Fund may also
purchase futures contracts as a substitute for transactions in securities or
foreign currency, to alter the investment characteristics of or currency
exposure associated with portfolio securities or to gain or increase its
exposure to a particular securities market or currency.
Options on Futures Contracts. Each Fund (other than the Money Market Fund) may
purchase and write options on the futures contracts described above for the same
purposes as its transactions in futures contracts. The purchase of put and call
options on futures contracts will give a Fund the right (but not the obligation)
for a specified price to sell or to purchase, respectively, the underlying
futures contract at any time during the option period. As the purchaser of an
option on a futures contract, a Fund obtains the benefit of the futures position
if prices move in a favorable direction but limits its risk of loss in the event
of an unfavorable price movement to the loss of the premium and transaction
costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of a Fund's assets. By writing a call
option, a Fund becomes obligated, in exchange for the premium (upon exercise of
the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that a Fund intends to purchase. However, a
Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by each Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. A Fund's ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid market.
22
Other Considerations. The International Fund, Mid Cap Growth Fund, Small Cap
Growth Fund, and Sovereign Investors Fund may each engage in futures and related
options transactions for hedging or other non-speculative purposes. Each other
Fund (except Money Market Fund) will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that a Fund is using futures and
related options for hedging purposes, futures contracts will be sold to protect
against a decline in the price of securities (or the currency in which they are
quoted or denominated) that the Fund owns or futures contracts will be purchased
to protect the Fund against an increase in the price of securities (or the
currency in which they are quoted or denominated) it intends to purchase. Each
Fund will determine that the price fluctuations in the futures contracts and
options on futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or securities or instruments which
it expects to purchase. As evidence of its hedging intent, each Fund expects
that on 75% or more of the occasions on which it takes a long futures or option
position (involving the purchase of futures contracts), the Fund will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities (or assets denominated in the related currency) in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
To the extent that a Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
establish with the custodian a segregated account consisting of cash or liquid
securities in an amount equal to the underlying value of such contracts and
options.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance for a Fund than if it
had not entered into any futures contracts or options transactions.
Perfect correlation between a Fund's futures positions and portfolio positions
will be impossible to achieve. In the event of an imperfect correlation between
a futures position and a portfolio position which is intended to be protected,
the desired protection may not be obtained and a Fund may be exposed to risk of
loss. In addition, it is not possible to hedge fully or protect against currency
fluctuations affecting the value of securities denominated in foreign currencies
because the value of such securities is likely to fluctuate as a result of
independent factors not related to currency fluctuations.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent a Fund from closing out
positions and limiting its losses.
Rights and Warrants. Each Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price, subject to the Fund's Investment
Restrictions. Generally, warrants and stock purchase rights do not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered
23
to entail greater investment risk than certain other types of investments. In
addition, the value of warrants and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit or loss to be realized from the investment
of a given amount of Fund's assets as compared with investing the same amount in
the underlying stock.
Government Securities. Each Fund may invest in government securities. However,
under normal conditions, Mid Cap Growth Fund and Small Cap Growth Fund will not
invest in any fixed income securities, with the exception of cash equivalents
(which include U.S. Government securities maturing in 90 days or less). In
abnormal conditions, these funds may temporarily invest in U.S. Government
securities and U.S. Government agency securities with maturities of up to three
years, and may also invest more than 10% of total assets in cash and/or cash
equivalents. Certain U.S. Government securities, including U.S. Treasury bills,
notes and bonds, and Government National Mortgage Association certificates
("GNMA"), are supported by the full faith and credit of the United States.
Certain other U.S. Government securities, issued or guaranteed by Federal
agencies or government sponsored enterprises, are not supported by the full
faith and credit of the United States, but may be supported by the right of the
issuer to borrow from the U.S. Treasury. These securities include obligations of
the Federal Home Loan Mortgage Corporation ("FHLMC"), and obligations supported
by the credit of the instrumentality, such as Federal National Mortgage
Association Bonds ("FNMA"). No assurance can be given that the U.S. Government
will provide financial support to such Federal agencies, authorities,
instrumentalities and government sponsored enterprises in the future.
Municipal Obligations. The High Yield Bond Fund may invest in a variety of
municipal obligations which consist of municipal bonds, municipal notes and
municipal commercial paper.
Municipal Bonds. Municipal bonds are issued to obtain funds for various public
purposes including the construction of a wide range of public facilities such as
airports, highways, bridges, schools, hospitals, housing, mass transportation,
streets and water and sewer works. Other public purposes for which municipal
bonds may be issued include refunding outstanding obligations, obtaining funds
for general operating expenses and obtaining funds to lend to other public
institutions and facilities. In addition, certain types of industrial
development bonds are issued by or on behalf of public authorities to obtain
funds for many types of local, privately operated facilities. Such debt
instruments are considered municipal obligations if the interest paid on them is
exempt from federal income tax. The payment of principal and interest by issuers
of certain obligations purchased by the Fund may be guaranteed by a letter of
credit, note repurchase agreement, insurance or other credit facility agreement
offered by a bank or other financial institution. Such guarantees and the
creditworthiness of guarantors will be considered by the Adviser in determining
whether a municipal obligation meets the Fund's investment quality requirements.
No assurance can be given that a municipality or guarantor will be able to
satisfy the payment of principal or interest on a municipal obligation.
Municipal Notes. Municipal notes are short-term obligations of municipalities,
generally with a maturity ranging from six months to three years. The principal
types of such notes include tax, bond and revenue anticipation notes and project
notes.
Municipal Commercial Paper. Municipal commercial paper is a short-term
obligation of a municipality, generally issued at a discount with a maturity of
less than one year. Such paper is likely to be issued and meet seasonal working
capital needs of a municipality or interim construction financing. Municipal
commercial paper is backed in many cases by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks and other institutions.
24
Issuers of municipal obligations are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power of ability of any one or more issuers to pay when due
the principal of and interest on their municipal obligations may be affected.
The yields of municipal bonds depend upon, among other things, general money
market conditions, general conditions of the municipal bond market, size of a
particular offering, the maturity of the obligation and rating of the issue. The
ratings of S&P, Moody's and Fitch Investors Service ("Fitch") represent their
respective opinions on the quality of the municipal bonds they undertake to
rate. It should be emphasized, however, that ratings are general and not
absolute standards of quality. Consequently, municipal bonds with the same
maturity, coupon and rating may have different yields and municipal bonds of the
same maturity and coupon with different ratings may have the same yield. Many
issuers of securities chose not to have their obligations rated. Although
unrated securities eligible for purchase by the Fund must be determined to be
comparable in quality to securities having certain specified ratings, the market
for unrated securities may not be as broad for rated securities since many
investors rely on rating organizations for credit appraisal.
Swaps, Caps, Floors and Collars. As one way of managing exposure to different
types of investments, Bond Fund, Strategic Income Fund and High Yield Bond Fund
may enter into interest rate swaps and other types of swap agreements such as
caps, collars and floors. Each of these Funds may also enter into currency
swaps. In a typical interest rate swap, one party agrees to make regular
payments equal to a floating interest rate times a "notional principal amount,"
in return for payments equal to a fixed rate times the same amount, for a
specified period of time. If a swap agreement provides for payments in different
currencies, the parties might agree to exchange the notional principal amount as
well. Swaps may also depend on other prices or rates, such as the value of an
index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of
investment to another. For example, if a Fund agrees to exchange payments in
dollars for payments in a foreign currency, the swap agreement would tend to
decrease the Fund's exposure to U.S. interest rates and increase its exposure to
foreign currency and interest rates. Caps and floors have an effect similar to
buying or writing options. Depending on how they are used, swap agreements may
increase or decrease the overall volatility of a Fund's investments and its
share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on a
Fund's performance. Swap agreements are subject to the risk of a counterparty's
failure to perform, and may decline in value if the counterparty's
creditworthiness deteriorates. A Fund may also suffer losses if it is unable to
terminate outstanding swap agreements or reduce its exposure through offsetting
transactions. A Fund will maintain in a segregated account or liquid debt
securities equal to the net amount, if any, of the excess of the Fund's
obligations over its entitlements with respect to swap, cap, collar or floor
transactions.
25
Participation Interests. The Technology Fund, Bond Fund, High Yield Bond Fund,
and Strategic Income Fund may invest in participation interests. Participation
interests, which may take the form of interests in or assignments of certain
loans, are acquired from banks who have made these loans or are members of a
lending syndicate. A Fund's investments in participation interests may be
subject to its 15% limitation on investments in illiquid securities. The
Technology Fund may purchase only those participation interests that mature in
60 days or less, or, if maturing in more than 60 days, that have a floating rate
that is automatically adjusted at least once every 60 days.
Pay-In-Kind, Delayed and Zero Coupon Bonds. The Bond Fund, Strategic Income
Fund, High Yield Bond Fund and Technology Fund may invest in pay-in-kind,
delayed and zero coupon bonds. These are securities issued at a discount from
their face value because interest payments are typically postponed until
maturity. The amount of the discount rate varies depending on factors including
the time remaining until maturity, prevailing interest rates, the security's
liquidity and the issuer's credit quality. These securities also may take the
form of debt securities that have been stripped of their interest payments. The
market prices of pay-in-kind, delayed and zero coupon bonds generally are more
volatile than the market prices of interest-bearing securities and are likely to
respond to a greater degree to changes in interest rates than interest-bearing
securities having similar maturities and credit quality. The Funds' investments
in pay-in-kind, delayed and zero coupon bonds may require a Fund to sell certain
of its portfolio securities to generate sufficient cash to satisfy certain
income distribution requirements.
Structured or Hybrid Notes. The Bond Fund, Strategic Income Fund, High Yield
Bond Fund, and Technology Fund may invest in "structured" or "hybrid" notes. The
distinguishing feature of a structured or hybrid note is that the amount of
interest and/or principal payable on the note is based on the performance of a
benchmark asset or market other than fixed income securities or interest rates.
Examples of these benchmarks include stock prices, currency exchange rates and
physical commodity prices. Investing in a structured note allows a Fund to gain
exposure to the benchmark market while fixing the maximum loss that the Fund may
experience in the event that market does not perform as expected. Depending on
the terms of the note, a Fund may forego all or part of the interest and
principal that would be payable on a comparable conventional note; a Fund's loss
cannot exceed this foregone interest and/or principal. An investment in
structured or hybrid notes involves risks similar to those associated with a
direct investment in the benchmark asset.
Indexed Securities. High Yield Bond Fund may invest in indexed securities,
including floating rate securities that are subject to a maximum interest rate
("capped floaters") and leveraged inverse floating rate securities ("inverse
floaters") (up to 10% of the Fund's total assets). The interest rate or, in some
cases, the principal payable at the maturity of an indexed security may change
positively or inversely in relation to one or more interest rates, financial
indices or other financial indicators ("reference prices"). An indexed security
may be leveraged to the extent that the magnitude of any change in the interest
rate or principal payable on an indexed security is a multiple of the change in
the reference price. Thus, indexed securities may decline in value due to
adverse market changes in interest rates or other reference prices.
Custodial Receipts. Each Fund, other than Mid Cap Growth Fund and Small Cap
Growth Fund, may acquire custodial receipts with respect to U.S. Government
securities. Such custodial receipts evidence ownership of future interest
payments, principal payments or both on certain notes or bonds. These custodial
receipts are known by various names, including Treasury Receipts, Treasury
Investors Growth Receipts ("TIGRs"), and Certificates of Accrual on Treasury
Securities ("CATS"). For certain securities law purposes, custodial receipts are
not considered U.S. Government securities.
Bank and Corporate Obligations. Each of the Funds may invest in commercial
paper. Commercial paper represents short-term unsecured promissory notes issued
in bearer form by banks or bank holding companies, corporations and finance
companies. The commercial paper purchased by the Funds consists of direct U.S.
Dollar denominated obligations of domestic or foreign issuers. Bank obligations
26
in which a Fund may invest include certificates of deposit, bankers' acceptances
and fixed time deposits. Certificates of deposit are negotiable certificates
issued against funds deposited in a commercial bank for a definite period of
time and earning a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Fixed time deposits are bank
obligations payable at a stated maturity date and bearing interest at a fixed
rate. Fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Bank notes and bankers' acceptances rank junior to domestic deposit
liabilities of the bank and pari passu with other senior, unsecured obligations
of the bank. Bank notes are not insured by the Federal Deposit Insurance
Corporation or any other insurer. Deposit notes are insured by the Federal
Deposit Insurance Corporation only to the extent of $100,000 per depositor per
bank.
Mortgage-Backed Securities. Each Fund (other than Mid Cap Growth Fund and Small
Cap Growth Fund) may invest in mortgage pass-through certificates and
multiple-class pass-through securities, such as real estate mortgage investment
conduits ("REMIC") pass-through certificates, collateralized mortgage
obligations ("CMOs") and stripped mortgage-backed securities ("SMBS"), and other
types of "Mortgage-Backed Securities" that may be available in the future.
Guaranteed Mortgage Pass-Through Securities. Guaranteed mortgage pass-through
securities represent participation interests in pools of residential mortgage
loans and are issued by U.S. Governmental or private lenders and guaranteed by
the U.S. Government or one of its agencies or instrumentalities, including but
not limited to the Government National Mortgage Association ("Ginnie Mae"), the
Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan
Mortgage Corporation ("Freddie Mac"). Ginnie Mae certificates are guaranteed by
the full faith and credit of the U.S. Government for timely payment of principal
and interest on the certificates. Fannie Mae certificates are guaranteed by
Fannie Mae, a federally chartered and privately owned corporation, for full and
timely payment of principal and interest on the certificates. Freddie Mac
certificates are guaranteed by Freddie Mac, a corporate instrumentality of the
U.S. Government, for timely payment of interest and the ultimate collection of
all principal of the related mortgage loans.
Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations.
CMOs and REMIC pass-through or participation certificates may be issued by,
among others, U.S. Government agencies and instrumentalities as well as private
issuers. CMOs and REMIC certificates are issued in multiple classes and the
principal of and interest on the mortgage assets may be allocated among the
several classes of CMOs or REMIC certificates in various ways. Each class of
CMOs or REMIC certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Generally, interest is paid or accrues on all
classes of CMOs or REMIC certificates on a monthly basis.
Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac
certificates but also may be collateralized by other mortgage assets such as
whole loans or private mortgage pass- through securities. Debt service on CMOs
is provided from payments of principal and interest on collateral of mortgaged
assets and any reinvestment income thereon.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended (the "Code"), invests in certain mortgages
primarily secured by interests in real property and other permitted investments
and issues "regular" and "residual" interests. The Funds do not intend to
acquire REMIC residual interests.
27
Stripped Mortgage-Backed Securities. SMBS are derivative multiple-class
mortgage-backed securities. SMBS are usually structured with two classes that
receive different proportions of interest and principal distributions on a pool
of mortgage assets. A typical SMBS will have one class receiving some of the
interest and most of the principal, while the other class will receive most of
the interest and the remaining principal. In the most extreme case, one class
will receive all of the interest (the "interest only" class) while the other
class will receive all of the principal (the "principal only" class). The yields
and market risk of interest only and principal only SMBS, respectively, may be
more volatile than those of other fixed income securities. The staff of the
Securities and Exchange Commission ("SEC") considers privately issued SMBS to be
illiquid.
Risk Factors Associated with Mortgage-Backed Securities. Investing in
Mortgage-Backed Securities involves certain risks, including the failure of a
counterparty to meet its commitments, adverse interest rate changes and the
effects of prepayments on mortgage cash flows. In addition, investing in the
lowest tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities. Further, the yield
characteristics of Mortgage-Backed Securities differ from those of traditional
fixed income securities. The major differences typically include more frequent
interest and principal payments (usually monthly), the adjustability of interest
rates, and the possibility that prepayments of principal may be made
substantially earlier than their final distribution dates.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Under certain interest
rate and prepayment rate scenarios, a Fund may fail to recoup fully its
investment in Mortgage-Backed Securities notwithstanding any direct or indirect
governmental, agency or other guarantee. When a Fund reinvests amounts
representing payments and unscheduled prepayments of principal, it may receive a
rate of interest that is lower than the rate on existing adjustable rate
mortgage pass-through securities. Thus, Mortgage-Backed Securities, and
adjustable rate mortgage pass-through securities in particular, may be less
effective than other types of U.S. Government securities as a means of "locking
in" interest rates.
Conversely, in a rising interest rate environment, a declining prepayment rate
will extend the average life of many Mortgage-Backed Securities. This
possibility is often referred to as extension risk. Extending the average life
of a Mortgage-Backed Security increases the risk of depreciation due to future
increases in market interest rates.
Asset-Backed Securities. The Bond Fund, Strategic Income Fund and High Yield
Bond Fund may invest in securities that represent individual interests in pools
of consumer loans and trade receivables similar in structure to Mortgage-Backed
Securities. The assets are securitized either in a pass-through structure
(similar to a mortgage pass-through structure) or in a pay-through structure
(similar to a CMO structure). Although the collateral supporting asset-backed
securities generally is of a shorter maturity than mortgage loans and
historically has been less likely to experience substantial prepayments, no
assurance can be given as to the actual maturity of an asset-backed security
because prepayments of principal may be made at any time. Payments of principal
and interest typically are supported by some form of credit enhancement, such as
a letter of credit, surety bond, limited guarantee by another entity or having a
priority to certain of the borrower's other securities. The degree of credit
enhancement varies, and generally applies to only a fraction of the asset-backed
security's par value until exhausted. If the credit enhancement of an
asset-backed security held by a Fund has been exhausted, and if any required
payments of principal and interest are not made with respect to the underlying
loans, a Fund may experience losses or delays in receiving payment.
28
Asset-backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can be
expected to accelerate. Accordingly, a Fund's ability to maintain positions in
these securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the returns
of principal at comparable yields is subject to generally prevailing interest
rates at that time.
Credit card receivables are generally unsecured and the debtors on such
receivables are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set-off
certain amounts owed on the credit cards, thereby reducing the balance due.
Automobile receivables generally are secured, but by automobiles rather than
residential real property. Most issuers of automobile receivables permit the
loan servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
Risks Associated With Specific Types of Derivative Debt Securities. Different
types of derivative debt securities are subject to different combinations of
prepayment, extension and/or interest rate risk. Conventional mortgage
pass-through securities and sequential pay CMOs are subject to all of these
risks, but are typically not leveraged. Thus, the magnitude of exposure may be
less than for more leveraged Mortgage-Backed Securities.
The risk of early prepayments is the primary risk associated with interest only
debt securities ("IOs"), leveraged floating rate securities whose yield changes
in the same direction, rather than inversely to, a referenced interest rate
("super floaters"), other leveraged floating rate instruments and
Mortgage-Backed Securities purchased at a premium to their par value. In some
instances, early prepayments may result in a complete loss of investment in
certain of these securities.
The primary risks associated with certain other derivative debt securities are
the potential extension of average life and/or depreciation due to rising
interest rates. These securities include floating rate securities based on the
Cost of Funds Index ("COFI floaters"), other "lagging rate" floating rate
securities, floating rate securities that are subject to a maximum interest rate
("capped floaters"), Mortgage-Backed Securities purchased at a discount,
leveraged inverse floating rate securities ("inverse floaters"), principal only
debt securities ("POs"), certain residual or support tranches of CMOs and index
amortizing notes. Index amortizing notes are not Mortgage-Backed Securities, but
are subject to extension risk resulting from the issuer's failure to exercise
its option to call or redeem the notes before their stated maturity date.
Leveraged inverse IOs combine several elements of the Mortgage-Backed Securities
described above and thus present an especially intense combination of
prepayment, extension and interest rate risks.
Planned amortization class ("PAC") and target amortization class ("TAC") CMO
bonds involve less exposure to prepayment, extension and interest rate risks
than other Mortgage-Backed Securities, provided that prepayment rates remain
within expected prepayment ranges or "collars." To the extent that prepayment
rates remain within these prepayment ranges, the residual or support tranches of
PAC and TAC CMOs assume the extra prepayment, extension and interest rate risks
associated with the underlying mortgage assets.
29
Other types of floating rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced to below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to depreciation in the event of an
unfavorable change in the spread between two designated interest rates. X-reset
floaters have a coupon that remains fixed for more than one accrual period.
Thus, the type of risk involved in these securities depends on the terms of each
individual X-reset floater.
Brady Bonds. The Bond Fund, High Yield Bond Fund and Strategic Income Fund may
invest in Brady Bonds and other sovereign debt securities of countries that have
restructured or are in the process of restructuring sovereign debt pursuant to
the Brady Plan. Brady Bonds are debt securities described as part of a
restructuring plan created by U.S. Treasury Secretary Nicholas F. Brady in 1989
as a mechanism for debtor nations to restructure their outstanding external
indebtedness (generally, commercial bank debt). In restructuring its external
debt under the Brady Plan framework, a debtor nation negotiates with its
existing bank lenders as well as multilateral institutions such as the World
Bank and the International Monetary Fund (the "IMF"). The Brady Plan facilitates
the exchange of commercial bank debt for newly issued bonds (known as Brady
Bonds). The World Bank and the IMF provide funds pursuant to loan agreements or
other arrangements which enable the debtor nation to collateralize the new Brady
Bonds or to repurchase outstanding bank debt at a discount. Under these
arrangements the IMF debtor nations are required to implement domestic monetary
and fiscal reforms. These reforms have included the liberalization of trade and
foreign investment, the privatization of state-owned enterprises and the setting
of targets for public spending and borrowing. These policies and programs seek
to promote the debtor country's ability to service its external obligations and
promote its economic growth and development. The Brady Plan only sets forth
general guiding principles for economic reform and debt reduction, emphasizing
that solutions must be negotiated on a case-by-case basis between debtor nations
and their creditors. The Adviser believes that economic reforms undertaken by
countries in connection with the issuance of Brady Bonds make the debt of
countries which have issued or have announced plans to issue Brady Bonds an
attractive opportunity for investment.
Brady Bonds may involve a high degree of risk, may be in default or present the
risk of default. Agreements implemented under the Brady Plan to date are
designed to achieve debt and debt-service reduction through specific options
negotiated by a debtor nation with its creditors. As a result, the financial
packages offered by each country differ. The types of options have included the
exchange of outstanding commercial bank debt for bonds issued at 100% of face
value of such debt, bonds issued at a discount of face value of such debt, bonds
bearing an interest rate which increases over time and bonds issued in exchange
for the advancement of new money by existing lenders. Certain Brady Bonds have
been collateralized as to principal due at maturity by U.S. Treasury zero coupon
bonds with a maturity equal to the final maturity of such Brady Bonds, although
the collateral is not available to investors until the final maturity of the
Brady Bonds. Collateral purchases are financed by the IMF, the World Bank and
the debtor nations' reserves. In addition, the first two or three interest
payments on certain types of Brady Bonds may be collateralized by cash or
securities agreed upon by creditors. Although Brady Bonds may be collateralized
by U.S. Government securities, repayment of principal and interest is not
guaranteed by the U.S. Government.
Ratings as Investment Criteria. In general, the ratings of Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Ratings Group ("S&P") and Fitch
Investors Service ("Fitch") represent the opinions of these agencies as to the
quality of the securities which they rate. It should be emphasized, however,
that such ratings are relative and subjective and are not absolute standards of
quality. These ratings will be used by the Funds as initial criteria for the
selection of debt securities. Among the factors which will be considered are the
long-term ability of the issuer to pay principal and interest and general
economic trends. Appendix A contains further information concerning the ratings
of Moody's, S&P and Fitch and their significance.
30
Subsequent to its purchase by a Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither of these events will require the sale of the securities by the
Fund (other than Sovereign Investors Fund), but the Adviser will consider the
event in its determination of whether the Fund should continue to hold the
securities. If any security in Sovereign Investors Fund's portfolio falls below
the Fund's minimum credit quality standards, as a result of a rating downgrade
or the Adviser's or Sub-adviser's determination, the Fund will dispose of the
security as promptly as possible while attempting to minimize any loss.
Lower Rated High Yield/High Risk Debt Obligations. Strategic Income Fund,
Regional Bank Fund, Financial Industries Fund, Relative Value Fund, Sovereign
Investors Fund, Large Cap Growth Fund, Technology Fund, Bond Fund and High Yield
Bond Fund may invest in high yield/high risk, fixed income securities rated
below investment grade (e.g., rated below Baa by Moody's or below BBB by S&P).
Ratings are based largely on the historical financial condition of the issuer.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better or
worse than the rating would indicate.
See the Appendix to this Statement of Additional Information which describes the
characteristics of corporate bonds in the various rating categories. These Funds
may invest in comparable quality unrated securities which, in the opinion of the
Adviser or relevant Sub-adviser, offer comparable yields and risks to those
securities which are rated.
Debt obligations rated in the lower ratings categories, or which are unrated,
involve greater volatility of price and risk of loss of principal and income. In
addition, lower ratings reflect a greater possibility of an adverse change in
financial condition affecting the ability of the issuer to make payments of
interest and principal. The market price and liquidity of lower rated fixed
income securities generally respond to short term corporate and market
developments to a greater extent than do the price and liquidity of higher rated
securities because such developments are perceived to have a more direct
relationship to the ability of an issuer of such lower rated securities to meet
its ongoing debt obligations.
Reduced volume and liquidity in the high yield/high risk bond market or the
reduced availability of market quotations will make it more difficult to dispose
of the bonds and to value accurately a Fund's assets. The reduced availability
of reliable, objective data may increase a Fund's reliance on management's
judgment in valuing high yield/high risk bonds. In addition, a Fund's
investments in high yield/high risk securities may be susceptible to adverse
publicity and investor perceptions, whether or not justified by fundamental
factors. In the past, economic downturns and increases in interest rates have
caused a higher incidence of default by the issuers of lower-rated securities
and may do so in the future, particularly with respect to highly leveraged
issuers
Each Fund (other than Money Market Fund) may acquire individual securities of
any maturity and is not subject to any limits as to the average maturity of its
overall portfolio. The longer the Fund's average portfolio maturity, the more
the value of the portfolio and the net asset value of the Fund's shares will
fluctuate in response to changes in interest rates. An increase in interest
rates will generally reduce the value of the Fund's portfolio securities and the
Fund's shares, while a decline in interest rates will generally increase their
value.
Lending of Securities. Each Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. A
Fund may reinvest any cash collateral in short-term securities and money market
funds. When a Fund lends portfolio securities, there is a risk that the borrower
may fail to return the securities involved in the transaction. As a result, the
Fund may incur a loss or, in the event of the borrower's bankruptcy, the Fund
may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Funds not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
31
Short Sales. Large Cap Growth Fund and Financial Industries Fund may engage in
short sales in order to profit from an anticipated decline in the value of a
security. Each Fund (except for 500 Index Fund, International Fund, Mid Cap
Growth Fund, Small Cap Growth Fund, Sovereign Investors Fund, Technology Fund
and Money Market Fund) may also engage in short sales to attempt to limit its
exposure to a possible market decline in the value of its portfolio securities
through short sales of securities which the Adviser believes possess volatility
characteristics similar to those being hedged. To effect such a transaction, a
Fund must borrow the security sold short to make delivery to the buyer. A Fund
then is obligated to replace the security borrowed by purchasing it at the
market price at the time of replacement. Until the security is replaced, a Fund
is required to pay to the lender any accrued interest or dividends and may be
required to pay a premium.
A Fund will realize a gain if the security declines in price between the date of
the short sale and the date on which the Fund replaces the borrowed security. On
the other hand, a Fund will incur a loss as a result of the short sale if the
price of the security increases between those dates. The amount of any gain will
be decreased, and the amount of any loss increased, by the amount of any
premium, interest or dividends a Fund may be required to pay in connection with
a short sale. The successful use of short selling as a hedging device may be
adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.
Under applicable guidelines of the staff of the SEC, if a Fund engages in short
sales, it must put in a segregated account (not with the broker) an amount of
cash or liquid securities equal to the difference between (a) the market value
of the securities sold short and (b) any cash or U.S. Government securities
required to be deposited as collateral with the broker in connection with the
short sale (not including the proceeds from the short sale). In addition, until
a Fund replaces the borrowed security, it must daily maintain the segregated
account at such a level that the amount deposited in it plus the amount
deposited with the broker as collateral will equal the current market value of
the securities sold short. Except for short sales against the box, the amount of
the Fund's net assets that may be committed to short sales is limited and the
securities in which short sales are made must be listed on a national securities
exchange.
Short selling may produce higher than normal portfolio turnover which may result
in increased transaction costs to a Fund.
Forward Commitment and When-Issued Securities. Each Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. A Fund will engage in when- issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, a Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When a Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date a Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities, of any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
32
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, a Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The International Fund, Large Cap Growth Fund, Relative Value
Fund, Mid Cap Growth Fund, Small Cap Growth Fund, Technology Fund, Bond Fund,
Strategic Income Fund and High Yield Bond Fund engage in short-term trading in
response to stock market conditions, changes in interest rates or other economic
trends and developments, or to take advantage of yield disparities between
various fixed income securities in order to realize capital gains or improve
income. Short term trading may have the effect of increasing portfolio turnover
rate.
The remaining Funds do not intend to invest for the purpose of seeking
short-term profits. These Funds' particular portfolio securities may be changed,
however, without regard to the holding period of these securities when the
Adviser or relevant Sub-adviser deems that this action will help achieve the
Fund's objective given a change in an issuer's operations or in general market
conditions.
The portfolio turnover rate for each Fund is shown in the section captioned
"Financial Highlights" in the prospectuses. A high rate of portfolio turnover
(100% or greater) involves corresponding higher transaction expenses and may
make it more difficult for a Fund to qualify as a regulated investment company
for Federal income tax purposes.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. Each Fund has adopted the following
fundamental investment restrictions which will not be changed without the
approval of a majority of the applicable Fund's outstanding voting securities.
Under the Investment Company Act of 1940, as amended (the "1940 Act"), and as
used in the Prospectuses and this Statement of Additional Information, a
"majority of the outstanding voting securities" means approval by the lesser of
(1) the holders of 67% or more of the Fund represented at a meeting if the more
than 50% of the Fund's outstanding shares of the Fund are present in person or
by proxy or (2) more than 50% of the outstanding shares.
Each Fund (other than Money Market Fund) may not:
1. Issue senior securities, except as permitted by paragraphs 2,
5 and 6 below. For purposes of this restriction, the issuance
of shares of beneficial interest in multiple classes or
series, the deferral of the Trustees' fees and the purchase or
sale of options, futures contracts, forward commitments, swaps
and repurchase agreements entered into in accordance with the
Fund's investment policies within the meaning of paragraph 6
below, are not deemed to be senior securities.
2. Borrow money, except for the following extraordinary or
emergency purposes: (i) from banks for temporary or short-term
purposes or for the clearance of transactions; (ii) in
connection with the redemption of Fund shares or to finance
failed settlements of portfolio trades without immediately
liquidating portfolio securities or other assets; and (iii) in
order to fulfill commitments or plans to purchase additional
securities pending the anticipated sale of other portfolio
securities or assets, but only if after each such borrowing
there is asset coverage of at least 300% as defined in the
1940 Act. For purposes of this investment restriction, the
deferral of trustees' fees and short sales, transactions in
futures contracts and options on futures contracts, securities
or indices and forward commitment transactions shall not
constitute borrowing. This restriction does not apply to
transactions in reverse repurchase agreements in amounts not
to exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed) taken at market value.
33
3. Act as an underwriter, except to the extent that, in
connection with the disposition of portfolio securities, the
Fund may be deemed to be an underwriter for purposes of the
Securities Act of 1933 (the "1933 Act").
4. Purchase or sell real estate except that the Fund may (i)
acquire or lease office space for its own use, (ii) invest in
securities of issuers that invest in real estate or interests
therein, (iii) invest in securities that are secured by real
estate or interests therein, (iv) purchase and sell
mortgage-related securities and (v) hold and sell real estate
acquired by the Fund as a result of the ownership of
securities.
5. Invest in commodities, except the Fund may purchase and sell
options on securities, securities indices and currency,
futures contracts on securities, securities indices and
currency and options on such futures, forward foreign currency
exchange contracts, forward commitments, securities index put
or call warrants, interest rate and currency swaps, interest
rate caps, floors and collars and repurchase agreements
entered into in accordance with the Fund's investment
policies.
6. Make loans, except that the Fund (1) may lend portfolio
securities in accordance with the Fund's investment policies
up to 33 1/3% of the Fund's total assets taken at market
value, (2) enter into repurchase agreements, and (3) purchase
all or a portion of an issue of debt securities, bank loan
participation interests, bank certificates of deposit,
bankers' acceptances, debentures or other securities, whether
or not the purchase is made upon the original issuance of the
securities.
7. Purchase the securities of issuers conducting their
principal activity in the same industry if, immediately after
such purchase, the value of its investments in such industry
would equal or exceed 25% of its total assets taken at market
value at the time of such investment, except that the Regional
Bank Fund will invest more than 25% of its total assets in the
banking industry. The Financial Industries Fund will
ordinarily invest more than 25% of its assets in the financial
services sector. The Technology Fund will ordinarily invest
more than 25% of its total assets in the technology industry.
The High Yield Bond Fund may invest up to 40% of the value of
its total assets in the securities of issuers in the electric
utility and telephone industries. This limitation does not
apply to investments in obligations of the U.S. Government or
any of its agencies, instrumentalities or authorities.
8. For each Fund, with respect to 75% of total assets [see
non-fundamental investment restriction (f)], purchase
securities of an issuer (other than the U.S. Government, its
agencies, instrumentalities or authorities), if:
(a) such purchase would cause more than 5% of the Fund's
total assets taken at market value to be invested in
the securities of such issuer; or
(b) such purchase would at the time result in more than
10% of the outstanding voting securities of such
issuer being held by the Fund.
34
Money Market Fund may not:
1. Issue senior securities. For purposes of this restriction, the
issuance of shares of beneficial interest in multiple classes
or series, the deferral of the Trustees' fees and transactions
in repurchase agreements or reverse repurchase agreements are
not deemed to be senior securities.
2. Borrow money, except from banks to meet redemptions in amounts
not exceeding 33 1/3% (taken at the lower of cost or current
value) of its total assets (including the amount borrowed).
The Fund does not intend to borrow money during the coming
year, and will do so only as a temporary measure for
extraordinary purposes or to facilitate redemptions. The Fund
will not purchase securities while any borrowings are
outstanding. This restriction does not apply to the purchase
of reverse repurchase agreements in amounts not to exceed 33
1/3% of the value of the Fund's total assets (including the
amount borrowed) taken at market value.
3. Act as an underwriter, except to the extent that, in
connection with the disposition of portfolio securities, the
Fund may be deemed to be an underwriter for purposes of the
1933 Act.
4. Write, purchase or otherwise invest in any put, call, straddle
or spread option or buy or sell real estate, commodities or
commodity futures contracts.
5. Make loans, except that the Fund (1) may lend portfolio
securities in accordance with the Fund's investment policies
up to 33 1/3% of the Fund's total assets taken at market
value, (2) enter into repurchase agreements, and (3) purchase
all or a portion of an issue of debt securities, bank loan
participation interests, bank certificates of deposit,
bankers' acceptances, debentures or other securities, whether
or not the purchase is made upon the original issuance of the
securities.
6. Purchase the securities of issuers conducting their principal
activity in the same industry if, immediately after such
purchase, the value of its investments in such industry would
equal or exceed 25% of its total assets taken at market value
at the time of such investment. This limitation does not apply
to investments in obligations of the U.S. Government or any of
its agencies, instrumentalities or authorities.
7. With respect to 75% of total assets, purchase securities of
an issuer (other than the U.S. Government, its agencies,
instrumentalities or authorities), if:
(a) such purchase would cause more than 5% of the Fund's
total assets taken at market value to be invested in
the securities of such issuer; or
(b) such purchase would at the time result in more than
10% of the outstanding voting securities of such
issuer being held by the Fund.
Non-Fundamental Investment Restrictions. The following restrictions are
designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
Each Fund (other than Money Market Fund) may not:
(a) Purchase securities on margin or make short sales, unless,
by virtue of its ownership of other securities, the Fund has
the right to obtain securities equivalent in kind and amount
to the securities sold and, if the right is conditional, the
sale is made upon the same conditions, except (i) in
connection with arbitrage transactions, (ii) for hedging the
Fund's exposure to an actual or anticipated market decline in
35
the value of its securities, (iii) to profit from an
anticipated decline in the value of a security, and (iv) for
obtaining such short-term credits as may be necessary for the
clearance of purchases and sales of securities. The 500 Index
Fund, International Fund, Mid Cap Growth Fund, Small Cap
Growth Fund Sovereign Investors Fund, and Technology Fund may
not make short sales.
(b) Purchase a security if, as a result, (i) more than 10% of
the Fund's total assets would be invested in the securities of
other investment companies, (ii) the Fund would hold more than
3% of the total outstanding voting securities of any one
investment company, or (iii) more than 5% of the Fund's total
assets would be invested in the securities of any one
investment company. These limitations do not apply to (a) the
investment of cash collateral, received by the Fund in
connection with lending the Fund's portfolio securities, in
the securities of open-end investment companies or (b) the
purchase of shares of any investment company in connection
with a merger, consolidation, reorganization or purchase of
substantially all of the assets of another investment company.
Subject to the above percentage limitations the Fund may, in
connection with the John Hancock Group of Funds Deferred
Compensation Plan for Independent Trustees/Directors, purchase
securities of other investment companies within the John
Hancock Group of Funds.
(c) Invest in securities which are illiquid if, as a result, more
than 15% of its net assets would consist of such securities,
including repurchase agreements maturing in more than seven
days, securities that are not readily marketable, restricted
securities not eligible for resale pursuant to Rule 144A under
the 1933 Act and privately issued stripped mortgage-backed
securities. The adviser will determine on a case by case basis
whether a particular OTC option is illiquid.
(d) Invest for the purpose of exercising control over or
management of any company.
In addition:
(e) Under normal conditions, Bond Fund, Mid Cap Growth Fund, Small
Cap Growth Fund and Sovereign Investors Fund may not invest
more than 10% of total assets in cash and/or cash equivalents
(except cash segregated in relation to futures, forward and
option contracts).
(f) International Fund, Mid Cap Growth Fund, Small Cap Growth Fund
and Sovereign Investors Fund may not invest more than 5% of
total assets at time of purchase in any one security (other
than U.S. government securities).
(g) Under normal conditions Mid Cap Growth Fund and Small Cap
Growth Fund will not invest in any fixed income securities.
However, in abnormal conditions, these Funds may temporarily
invest in U.S. government securities and U.S. government
agency securities with maturities of up to three years, and
may also invest more than 10% of total assets in cash and/or
cash equivalents (including U.S. government securities
maturing in 90 days or less).
(h) International Fund normally invests at least 80% of total
assets in a diversified portfolio of foreign stocks from both
developed and emerging countries. The Fund may invest up to
30% of total assets in emerging markets as classified by
Morgan Stanley Capital International (MSCI). Foreign equities
include but are not limited to common stocks, convertible
preferred stocks, preferred stocks, warrants, ADRs, GDRs and
EDRs.
36
(i) Mid Cap Growth Fund and Small Cap Growth Fund may not invest
more than 10% of total assets in foreign securities.
Money Market Fund may not:
(a) Purchase securities on margin or make short sales of
securities except for obtaining such short-term credits as may
be necessary for the clearance of purchases and sales of
securities.
(b) Purchase a security if, as a result, (i) more than 10% of
the Fund's total assets would be invested in the securities of
other investment companies, (ii) the Fund would hold more than
3% of the total outstanding voting securities of any one
investment company, or (iii) more than 5% of the Fund's total
assets would be invested in the securities of any one
investment company. These limitations do not apply to (a) the
investment of cash collateral, received by the Fund in
connection with lending the Fund's portfolio securities, in
the securities of open-end investment companies or (b) the
purchase of shares of any investment company in connection
with a merger, consolidation, reorganization or purchase of
substantially all of the assets of another investment company.
Subject to the above percentage limitations the Fund may, in
connection with the John Hancock Group of Funds Deferred
Compensation Plan for Independent Trustees/Directors, purchase
securities of other investment companies within the John
Hancock Group of Funds.
(c) Invest in securities which are illiquid if, as a result, more
than 10% of its net assets would consist of such securities,
including repurchase agreements maturing in more than seven
days, securities that are not readily marketable, restricted
securities not eligible for resale pursuant to Rule 144A under
the 1933 Act, purchased OTC options, certain assets used to
cover written OTC options, and privately issued stripped
mortgage-backed securities.
(d) Invest for the purpose of exercising control over or
management of any company. If a percentage restriction on
investment or utilization of assets as set forth above is
adhered to at the time an investment is made, a later change
in percentage resulting from changes in the values of a Fund's
assets will not be considered a violation of the restriction.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amounts of net assets will not be considered a violation
of any of the foregoing restrictions.
The Funds will invest only in countries on the Adviser's Approved Country
Listing. The Approved Country Listing is a list maintained by the Adviser's
investment department that outlines all countries, including the United States,
that have been approved for investment by Funds managed by the Adviser.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of each Fund is managed by the Trustees of the Trust who elect
officers who are responsible for the day-to-day operations of the Funds and who
execute policies formulated by the Trustees. Several of the officers and
Trustees of the Trust are also officers and directors of the Adviser, one or
more of the Sub-advisers and/or the Fund's principal distributor, John Hancock
Funds, Inc. ("John Hancock Funds").
37
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Stephen L. Brown* Trustee and Chairman Chairman and Director, John Hancock
John Hancock Place Life Insurance Company (CEO until
P.O. Box 111 June 2000), John Hancock Financial
Boston, MA 02117 Services, Inc. (CEO until June
July 1937 2000); John Hancock Advisers, Inc.
(the Adviser), John Hancock Funds,
Inc. (John Hancock Funds), The
Berkeley Financial Group, Inc. (The
Berkeley Group); Director, John
Hancock Subsidiaries LLC; John
Hancock Signature Services, Inc.
(Signature Services) (until January
1997); John Hancock Insurance
Agency, Inc.; (Insurance Agency)
(until May 1999); Independence
Investment LLC, Independence Fixed
Income LLC; Insurance Marketplace
Standards Association, Committee
for Economic Development, Ionics,
Inc. (since June 2000), Aspen
Technology, Inc. (since June 2000),
Jobs for Massachusetts, Federal
Reserve Bank of Boston (until March
1999); Financial Institutions
Center (until May 1996), Freedom
Trail Foundation (until December
1996) Beth Israel Hospital and
Corporation (until November 1996);
Director and Member (Beth
Israel/Deaconess Care Group),
Member, Commercial Club of Boston,
President (until April 1996);
Trustee, Wang Center for the
Performing Arts, Alfred P. Sloan
Foundation, John Hancock Asset
Management (until March 1997);
Member, Boston Compact Committee,
Mass. Capital Resource Company;
Chairman, Boston Coordinating
Committee ("The Vault") (until
April 1997).
Maureen R. Ford * Trustee, Vice Chairman, President, Broker/Dealer
101 Huntington Avenue President and Chief Distributor, John Hancock Life
Boston, MA 02199 Executive Officer (1,2) Insurance Company; Vice Chairman,
March 1950 Director, President and Chief
Executive Officer, the Adviser, The
Berkeley Group, John Hancock Funds;
Chairman, Director and President,
Insurance Agency, Inc.; Chairman,
Director and Chief Executive
Officer, Sovereign Asset Management
Corporation (SAMCorp.); Senior Vice
President, MassMutual Insurance Co.
(until 1999); Senior Vice
President, Connecticut Mutual
Insurance Co. (until 1996).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
38
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dennis S. Aronowitz Trustee Professor of Law, Emeritus, Boston
101 Huntington Avenue University School of Law (as of
Boston, MA 02199 1996); Director, Brookline
June 1931 Bankcorp.
Richard P. Chapman, Jr. Trustee (1) Chairman, President, and Chief
101 Huntington Avenue Executive Officer, Brookline
Boston, MA 02199 Bankcorp. (lending); Director,
February 1935 Lumber Insurance Companies (fire
and casualty insurance); Trustee,
Northeastern University
(education); Director, Depositors
Insurance Fund, Inc. (insurance).
William J. Cosgrove Trustee Vice President, Senior Banker and
101 Huntington Avenue Senior Credit Officer, Citibank,
Boston, MA 02199 N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.;
Trustee, the Hudson City Savings
Bank (since 1995).
Richard A. Farrell Trustee President of Farrell, Healer & Co.,
101 Huntington Avenue (venture capital management firm)
Boston, MA 02199 (since 1980); Prior to 1980, headed
November 1932 the venture capital group at Bank
of Boston Corporation.
Gail D. Fosler Trustee Senior Vice President and Chief
101 Huntington Avenue Economist, The Conference Board
Boston, MA 02199 (non-profit economic and business
December 1947 research); Director, Unisys Corp.;
Director, H.B. Fuller Company; and
DBS Holdings (Singapore) (Banking
and Financial Services); Director,
National Bureau of Economic
Research (academic).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
39
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
William F. Glavin Trustee President Emeritus, Babson College
101 Huntington Avenue (as of 1997); Vice Chairman, Xerox
Boston, MA 02199101 Corporation (until June 1989);
March 1932 Director, Caldor Inc., Reebok, Inc.
(since 1994) and Inco Ltd.
Dr. John A. Moore Trustee President and Chief Executive
101 Huntington Avenue Officer, Institute for Evaluating
Boston, MA 02199 Health Risks, (nonprofit
February 1939 institution) (since September
1989).
Patti McGill Peterson Trustee Executive Director, Council for
101 Huntington Avenue International Exchange of Scholars
Boston, MA 02199 (since January 1998), Vice
May 1943 President, Institute of
International Education (since
January 1998); Senior Fellow,
Cornell Institute of Public
Affairs, Cornell University (until
December 1997); President Emerita
of Wells College and St. Lawrence
University; Director, Niagara
Mohawk Power Corporation (electric
utility).
John W. Pratt Trustee Professor of Business
101 Huntington Avenue Administration Emeritus, Harvard
Boston, MA 02199 University Graduate School of
September 1931 Business Administration (as of June
1998).
William L. Braman Executive Vice President Executive Vice President and Chief
101 Huntington Avenue and Chief Investment Investment Officer, each of the
Boston, MA 02199 Officer(2) John Hancock Funds; Executive Vice
December 1953 President and Chief Investment
Officer, Barring Asset Management,
London UK (until May 2000).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
40
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard A. Brown Senior Vice President and Senior Vice President , Chief
101 Huntington Avenue Chief Financial Officer (2) Financial Officer and Treasurer of
Boston, MA 02199 the Adviser, John Hancock Funds,
April 1949 and The Berkeley Group; Second Vice
President and Senior Associate
Controller, Corporate Tax
Department, John Hancock Financial
Services, Inc. (until January
2001).
Susan S. Newton Senior Vice President, Senior Vice President and Chief
101 Huntington Avenue Secretary and Chief Legal Legal Officer the Adviser; John
Boston, MA 02199 Officer Hancock Funds; Vice President
Signature Services (until May
2000), The Berkeley Group, NM March
1950 Capital and SAMCorp.
James J. Stokowski Vice President, Treasurer and Vice President, the Adviser.
101 Huntington Avenue Chief Accounting Officer
Boston, MA 02199
November 1946
Thomas H. Connors Vice President and Compliance Vice President and Compliance
101 Huntington Avenue Officer Officer, the Adviser; Vice
Boston, MA 02199 President, John Hancock Funds.
September 1959
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
41
The following table provides information regarding the compensation paid by the
Funds and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services. Messrs. Brown and Ms. Ford, each a
non-Independent Trustee, and each of the officers of the Funds are interested
persons of the Adviser, are compensated by the Adviser and/or its affiliates and
receive no compensation from the Funds for their services.
Aggregate Total Compensation
Compensation from From the Fund and John
Independent Trustees the Fund (1) Hancock Fund Complex to Trustees (2)
- -------------------- ------------ ------------------------------------
Dennis J. Aronowitz $ 2,165 $ 75,000
Richard P. Chapman* 2,264 78,000
William J. Cosgrove* 2,066 72,000
Leland O. Erdahl + 2,070 72,100
Richard A. Farrell 2,165 75,000
Gail D. Fosler 1,944 68,000
William F. Glavin* 1,815 64,000
Dr. John A. Moore* 2,070 72,100
Patti McGill Peterson 2,014 70,350
John Pratt 2,066 72,000
--------- ----------
Total $20,639 $718,550
(1) Compensation is for the current fiscal year ending December 31, 2000.
(2) Total compensation paid by the John Hancock Funds Complex to the Independent
Trustees is as of December 31, 2000. As of this date, there were sixty-nine
funds in the John Hancock Fund Complex with each of these Independent Trustees
serving on thirty-one funds.
+ As of February 28, 2001, Mr. Erdahl resigned as Trustees of the Complex.
*As of December 31, 2000, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Funds Complex for Mr.
Chapman was $85,948, Mr. Cosgrove was $218,258, Mr. Glavin was $317,363 and for
Dr. Moore was $263,160 under the John Hancock Group of Funds Deferred
Compensation Plan for Independent Trustees (the "Plan").
All of the officers listed are officers or employees of the Adviser, a
Sub-adviser or affiliated companies. Some of the Trustees and officers may also
be officers, Directors and/or Trustees of one or more of the other funds for
which the Adviser serves as investment adviser.
As of December 31, 2000, all shares were held by the Life Co. and the Variable
Life Co. except the Adviser owns the following: International Fund 30.00%,
Regional Bank 3.60%, Small Cap Growth Fund 7.28%, Mid Cap Growth 6.57%, Large
Cap Growth Fund 8.35%, Relative Value 1.36%, Bond Fund 4.09%, Strategic Income
Fund 10.85%, High Yield Bond Fund 18.51%, Technology Fund 2.61% and Money Market
Fund 0.01%.
At such date, no other person(s) owned of record or was known by the Trust to
beneficially own as much as 5% of the outstanding shares of the Trust or of any
of the Funds.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has more than $30 billion in assets under management
in its capacity as investment adviser to the Funds and the other funds and
publicly traded investment companies in the John Hancock group of funds as well
as institutional accounts. The Adviser is an affiliate of the Life Company, one
of the most recognized and respected financial institutions in the nation. With
42
total assets under management of more than $100 billion, the Life Company is one
of the ten largest life insurance companies in the United States, and carries a
high rating from Standard & Poor's and A.M. Best. Founded in 1862, the Life
Company has been serving clients for over 130 years.
Each Fund has entered into an investment management contract (the "Advisory
Agreement") with the Adviser, which was approved by the Funds' shareholders.
Pursuant to the Advisory Agreements, the Adviser will: (a) furnish continuously
an investment program for the Funds and determine, subject to the overall
supervision and review of the Trustees, which investments should be purchased,
held, sold or exchanged, and (b) provide supervision over all aspects of the
Funds' operations except those which are delegated to a custodian, transfer
agent or other agent.
The Funds bear all costs of their organization and operation, including but not
limited to expenses of preparing, printing and mailing all shareholders'
reports, notices, prospectuses, proxy statements and reports to regulatory
agencies; expenses relating to the issuance, registration and qualification of
shares; government fees; interest charges; expenses of furnishing to
shareholders their account statements; taxes; expenses of redeeming shares;
brokerage and other expenses connected with the execution of portfolio
securities transactions; expenses pursuant to the Funds' plan of distribution;
fees and expenses of custodians including those for keeping books and accounts
maintaining a committed line of credit and calculating the net asset value of
shares; fees and expenses of transfer agents and dividend disbursing agents;
legal, accounting, financial, management, tax and auditing fees and expenses of
the Funds (including an allocable portion of the cost of the Adviser's employees
rendering such services to the Funds); the compensation and expenses of Trustees
who are not otherwise affiliated with the Trust, the Adviser or any of their
affiliates; expenses of Trustees' and shareholders' meetings; trade association
membership; insurance premiums; and any extraordinary expenses.
As of December 14, 2000, with respect to International Fund, the Adviser has
entered into a sub-investment management contract (the "Sub-advisory agreement")
with Nicholas-Applegate under which, subject to the review of the Trustees and
the overall supervision of the Adviser, Nicholas-Applegate is responsible for
providing the Fund with investment advice. Nicholas-Applegate will also provide
the Fund on a continuous basis with economic, financial and political
information, research and assistance concerning international markets.
Nicholas-Applegate is a California limited partnership, with offices at 600 West
Broadway, 30th Floor, San Diego, California 92101. Nicholas-Applegate was
organized in August 1984 to manage discretionary accounts investing primarily in
publicly traded equity securities and securities convertible into or exercisable
for publicly traded equity securities, with the goal of capital appreciation. On
January 31, 2001, Nicholas-Applegate was acquired by Allianz of America, Inc.
("AZOA"). Allianz AG, the parent of AZOA, is a German Aktiengesellschaft, a
German publicly traded company, which, together with its subsidiaries, comprises
the world's largest insurance group (the "Allianz Group"). Allianz Group
currently has assets under management of approximately $690 billion, and in its
last fiscal year wrote approximately $50 billion in gross insurance premiums.
Allianz AG's address is: Koeniginstrasse 28, D-80802, Munich, Germany.
Until December 14, 2000, the Sub-adviser to International Fund was Indocam
International Investment Services ("IIIS"). IIIS is organized under the laws of
France and is a wholly owned subsidiary of Indocam, the asset management
affiliate of Credit Agricole, a French banking group. IIIS is located at 90
Boulevard Pasteur, Paris, France 75105. Indocam is an asset management firm
maintaining established relationships with institutional, corporate, and
individual investors, Credit Agricole is one of the largest banks in the world.
The Adviser's Sub-advisory contract with IIIS was terminated effective December
14, 2000. Until March 1, 2000, the International Fund had another Sub-adviser,
John Hancock Advisers, International Limited ("JHAI"), located at 6th Floor,
Duke's Court, 32-36 Duke Street, St. James's, London, England SW1Y6DF. JHAI was
a wholly-owned subsidiary of the Adviser formed in 1987 to provide international
investment research and advisory services to U.S. institutional clients. The
Adviser's Sub-advisory contract with JHAI was terminated effective March 1,
2000.
43
With respect to Core Equity Fund, the Adviser has entered into a Sub-advisory
agreement with Independence Investment LLC ("Independence"). Independence,
located at 53 State Street, Boston, Massachusetts 02109, and organized in 1982,
is a wholly owned indirect subsidiary of John Hancock Subsidiaries, Inc. With
respect to Sovereign Investors Fund, the Adviser's Sub-advisory Agreement with
SAMCorp was terminated effective January 1, 1999.
With respect to Technology Fund, the Adviser has entered into a Sub-advisory
agreement with American Fund Advisors, Inc. ("AFA"). AFA is located at 1415
Kellum Place, Suite 205 Garden City, New York 11530 and was incorporated under
the laws of New York in 1978. AFA, subject to the supervision of the Adviser,
manages the Technology Fund's investments. AFA also provides investment advisory
and management services to individual and institutional clients.
Under each respective Sub-advisory agreement, the corresponding Sub-adviser,
subject to the review of the Trustees and the overall supervision of the
Adviser, is responsible for managing the investment operations of the
corresponding Fund and the composition of the Fund's portfolio and furnishing
the Fund with advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities.
As provided by the Advisory Agreements, each Fund pays the Adviser a fee, which
is accrued daily and paid monthly in arrears and is equal on an annual basis to
a stated percentage of the respective Fund's average daily net asset value.
- ------------------------------------------------ ---------------------------
Technology Fund 0.80%
- ------------------------------------------------ ---------------------------
International Fund 0.90%
- ------------------------------------------------ ---------------------------
Regional Bank Fund 0.80%
- ------------------------------------------------ ---------------------------
Financial Industries Fund 0.80%
- ------------------------------------------------ ---------------------------
Small Cap Growth Fund 0.75%
- ------------------------------------------------ ---------------------------
Mid Cap Growth Fund 0.75%
- ------------------------------------------------ ---------------------------
Large Cap Growth Fund 0.75%
- ------------------------------------------------ ---------------------------
Relative Value Fund 0.60%
- ------------------------------------------------ ---------------------------
Core Equity Fund 0.70%
- ------------------------------------------------ ---------------------------
Sovereign Investors Fund 0.60%
- ------------------------------------------------ ---------------------------
500 Index Fund 0.10%*
- ------------------------------------------------ ---------------------------
Bond Fund 0.50%
- ------------------------------------------------ ---------------------------
Strategic Income Fund 0.60%
- ------------------------------------------------ ---------------------------
High Yield Bond Fund 0.60%
- ------------------------------------------------ ---------------------------
Money Market Fund 0.50%
- ------------------------------------------------ ---------------------------
*Reflects the Adviser's Agreement to limit the management fee. Without this
limitation the management fee would be 0.35%. The Adviser has agreed to continue
this limitation until April 30, 2002.
Under each Sub-advisory agreement, the Adviser (not the Fund) pays a portion of
its fee to the corresponding Sub-adviser. Until May 10, 2001, with respect to
the International Fund, the Adviser pays a Sub-advisory fee to
Nicholas-Applegate equal to 55% of the gross management fee received by the
Adviser with respect to the International Fund's average daily net assets.
Effective May 11, 2001, with respect to the International Fund, the Adviser will
44
pay quarterly a sub-advisory fee to Nicholas-Applegate equal on an annual basis
to (i) 0.50% of the first $500,000,000 of the average daily net asset value of
the Fund; and (ii) 0.45% of the average daily net asset value of the Fund in
excess of $500,000,000. Until December 14, 2000, with respect to the
International Fund, the Adviser paid a sub-advisory fee to IIIS equal to 55% of
the gross management fee received by the Adviser with respect to the
International Fund's average daily net assets. The Sub-advisory agreement with
IIIS was terminated effective December 14, 2000. Prior to March 1, 2000, the
Adviser paid JHAI a Sub-advisory fee equal to 70% of the advisory fee payable on
the International Fund's average daily net assets. JHAI agreed to waive all but
0.05% of this fee beginning January 1, 2000. The Adviser's Sub-advisory
agreement with JHAI was terminated effective March 1, 2000.
With respect to the Core Equity Fund, the Adviser pays a sub-advisory fee to
Independence equal to 55% of the advisory fee payable on the Fund's average
daily net assets. With respect to Technology Fund, the Adviser pays a
sub-advisory fee to AFA equal to 0.10% of the Technology Fund's average daily
net assets.
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The adviser has voluntarily agreed to limit each Fund's expenses, excluding the
management fee, to 0.25% of each Fund's average daily net assets. The Adviser
retains the right to reimpose a fee and recover any other payments to the extent
that, at the end of any fiscal year, the Fund's annual expenses fall below this
limit.
Securities held by a Fund may also be held by other funds or investment advisory
clients for which the Adviser or any of its affiliates provides investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more are selling the same security. If opportunities for purchase or sale of
securities by the Adviser or Sub-adviser for a Fund or for other funds or
clients for which the Adviser or Sub-adviser renders investment advice arise for
consideration at or about the same time, transactions in such securities will be
made, insofar as feasible, for the respective funds or clients in a manner
deemed equitable to all of them. To the extent that transactions on behalf of
more than one client of the Adviser or its affiliates may increase the demand
for securities being purchased or the supply of securities being sold, there may
be an adverse effect on price.
Pursuant to each Advisory Agreement, and, where applicable, Sub-advisory
agreement, neither the Adviser nor any Sub-adviser is liable for any error of
judgment or mistake of law or for any loss suffered by the Funds in connection
with the matters to which its respective contract relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser or any Sub-adviser in the performance of its duties or from its
reckless disregard of the obligations and duties under the applicable agreement.
Under the Advisory Agreements, each Fund may use the name "John Hancock" or any
name derived from or similar to it only for as long as the applicable advisory
agreement or any extension, renewal or amendment thereof remains in effect. If a
Fund's advisory agreement is no longer in effect, the Fund (to the extent that
it lawfully can) will cease to use such name or any other name indicating that
it is advised by or otherwise connected with the Adviser. In addition, the
Adviser or the Life Company may grant the non-exclusive right to use the name
John Hancock or any similar name to any other corporation or entity, including
but not limited to any investment company of which the Life Company or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
45
For the fiscal years ended December 31, 1998, 1999 and 2000, the Adviser's
management fee for each Fund is listed below.
Funds 1998 Management fee received by the Adviser
----- -------------------------------------------
International $49,454
Regional Bank 72,908
Financial Industries 324,581
Small Cap Growth 43,238
Mid Cap Growth 7,546
Large Cap Growth 48,603
Relative Value 45,181
Core Equity 112,746
Sovereign Investors 139,125
500 Index 20,232*
Bond 35,548
Strategic Income 62,923
High Yield Bond 32,414
Money Market 61,349
1999 Management fee 2000 Management fee
Funds received by the Adviser received by the Adviser
----- ----------------------- -----------------------
Technology $ ---- $33,261
International 66,480 81,503
Regional Bank 173,090 113,415
Financial Industries 398,471 434,813
Small Cap Growth 80,965 213,759
Mid Cap Growth 20,806 99,566
Large Cap Growth 121,727 148,433
Relative Value 147,515 257,116
Core Equity 254,281 306,248
Sovereign Investors 248,937 295,467
500 Index 32,613* 33,179
Bond 57,967 80,502
Strategic Income 117,404 165,020
High Yield Bond 54,095 51,368
Money Market 117,918 194,539
*Net of limitation by Adviser. For the fiscal years ended December 31, 1998,
1999 and 2000, the Adviser limited its management fee. Without this limitation,
the management fee received by the Adviser would have been $70,811, $114,145 and
$116,127, respectively.
Each Advisory Agreement, Sub-advisory agreement and Distribution Agreement will
continue in effect from year to year if approved by either the vote of the
Fund's shareholders or the Trustees, including a vote of a majority of the
Trustees who are not parties to the agreement or "interested persons" of any
such party, cast at a meeting called for such purposes. These agreements may be
terminated on 60 days written notice by any party or by a vote of a majority of
the outstanding voting securities of the affected Fund and will terminate
automatically if assigned. On December 12, 2000, the Trustees approved the
termination of IIIS as Sub-adviser to the International Fund and appointed
Nicholas-Applegate as Sub-adviser effective December 14, 2000. On April 25,
2001, the shareholders of the International Fund approved the appointment of
Nicholas-Applegate as Sub-adviser to the Fund.
46
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services.
- --------------------------------------------------------------------------------
Funds 1998 1999 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Technology $ --- $ ---- $ 810++++
- --------------------------------------------------------------------------------
International 870 1,312 1,697
- --------------------------------------------------------------------------------
Regional Bank 1,353+ 3,822 2,660
- --------------------------------------------------------------------------------
Financial Industries 6,370 8,707 10,269
- --------------------------------------------------------------------------------
Small Cap Growth 915 1,972 5,347
- --------------------------------------------------------------------------------
Mid Cap Growth 158+++ 511 2,504
- --------------------------------------------------------------------------------
Large Cap Growth 1,012 2,952 3,705
- --------------------------------------------------------------------------------
Relative Value 1,136++ 4,476 8,056
- --------------------------------------------------------------------------------
Core Equity 2,523 6,545 8,230
- --------------------------------------------------------------------------------
Sovereign Investors 3,643 7,445 9,273
- --------------------------------------------------------------------------------
500 Index 3,237 5,834 6,221
- --------------------------------------------------------------------------------
Bond 1,109 2,094 2,048
- --------------------------------------------------------------------------------
Strategic Income 1,645 3,504 5,193
- --------------------------------------------------------------------------------
High Yield Bond 839++ 1,598 1,605
- --------------------------------------------------------------------------------
Money Market 1,914 4,300 7,395
- --------------------------------------------------------------------------------
*From commencement of operations on April 30, 1997. +From commencement of
operations on May 1, 1998. ++From commencement of operations on January 6, 1998.
+++From commencement of operations on January 7, 1998. ++++From commencement of
operations on May 1, 2000.
Personnel of the Adviser, Sub-Advisers, and their affiliates may trade
securities for their personal accounts. The Funds also may hold, or may be
buying or selling, the same securities. To prevent the Funds from being
disadvantaged, the Adviser, the Sub-Adviser and their affiliates and the Funds
have adopted a code of ethics which restricts the trading activity of those
personnel.
DISTRIBUTION CONTRACTS
Distribution Agreement. John Hancock Funds, a wholly owned subsidiary of the
Adviser, serves as the principal underwriter for the Trust in connection with
the continuous offering of the shares of the Funds. John Hancock Funds has the
exclusive right, pursuant to the Distribution Agreement, to purchase shares from
the Funds at net asset value for resale to the separate accounts of insurance
companies at the public offering price.
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Funds' shares,
the following procedures are utilized wherever applicable.
Debt securities are valued on the basis of valuations furnished by a principal
market maker or a pricing service, both of which generally utilize electronic
data processing techniques to determine valuations for normal institutional size
trading units of debt securities without exclusive reliance upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
47
Short-term debt instruments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of any security may be determined in good faith in accordance with
procedures approved by the Trustees.
Money Market Fund utilizes the amortized cost valuation method of valuing
portfolio instruments in the absence of extraordinary or unusual circumstances.
Under the amortized cost method, assets are valued by constantly amortizing over
the remaining life of an instrument the difference between the principal amount
due at maturity and the cost of the instrument to the Fund. The Trustees will
from time to time review the extent of any deviation of the net asset value, as
determined on the basis of the amortized cost method, from net asset value as it
would be determined on the basis of available market quotations. If any
deviation occurs which may result in unfairness either to new investors or
existing shareholders, the Trustees will take such actions as they deem
appropriate to eliminate or reduce such unfairness to the extent reasonably
practicable. These actions may include selling portfolio instruments prior to
maturity to realize gains or losses or to shorten the Fund's average portfolio
maturity, withholding dividends, splitting, combining or otherwise
recapitalizing outstanding shares or utilizing available market quotations to
determine net asset value per share.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the Funds' custodian
based on London currency exchange quotations as of 5:00 p.m., London time (12:00
noon, New York time) on the date of any determination of a Fund's NAV. If
quotations are not readily available, or the value has been materially affected
by events occurring after the closing of a foreign market, assets are valued by
a method that the Trustees believe accurately reflects fair value.
The NAV for each Fund is determined each business day at the close of regular
trading on the New York Stock Exchange (typically 4:00 p.m. Eastern Time) by
dividing the Fund's net assets by the number of its shares outstanding. On any
day an international market is closed and the New York Stock Exchange is open,
any foreign securities will be valued at the prior day's close with the current
day's exchange rate. Trading of foreign securities may take place on Saturdays
and U.S. business holidays on which a Fund's NAV is not calculated.
Consequently, a Fund's portfolio securities may trade and the NAV of that Fund's
shares may be significantly affected on days when a shareholder has no access to
that Fund.
SPECIAL REDEMPTIONS
Although the Funds would not normally do so, each Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, a brokerage charge would be incurred. Any
such securities would be valued for the purpose of making such payment at the
same value as used in determining net asset value. Each Fund has elected to be
governed by Rule 18f-1 under the 1940 Act. Under that rule, each Fund must
redeem its shares solely for cash, except to the extent that redemption payments
during any 90-day period for any one account, would exceed the lesser of
$250,000 or 1% of the net asset value.
DESCRIPTION OF THE TRUST'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Funds. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Funds,
without par value. Under the Declaration of Trust, the Trustees have the
authority to create and classify shares of beneficial interest in separate
48
series and classes, without further action by shareholders. As of the date of
this Statement of Additional Information, the Trustees have only authorized
shares of the Funds. Additional series may be added in the future. The Trustees
have not authorized the issuance of additional classes of shares of the Funds.
Each share of a Fund represents an equal proportionate interest in the assets
belonging to that Fund. When issued, shares are fully paid and nonassessable
except as provided in the Prospectuses under the caption "Organization and
Management of the Funds." In the event of liquidation of a Fund, shareholders
are entitled to share pro rata in the net assets of the Fund available for
distribution to such shareholders. Shares of a Fund are freely transferable and
have no preemptive, subscription or conversion rights.
In accordance with the provisions of the Declaration of Trust, the Trustees have
initially determined that shares entitle their holders to one vote per share on
any matter on which such shares are entitled to vote. The Trustees may determine
in the future, without the vote or consent of shareholders, that each dollar of
net asset value (number of shares owned times net asset value per share) will be
entitled to one vote on any matter on which such shares are entitled to vote.
The rights, if any, of Variable Contract holders to vote the shares of a Fund
are governed by the relevant Variable Contract. For information on these voting
rights, see the Prospectuses describing the Variable Contract.
Unless otherwise required by the 1940 Act or the Declaration of Trust, each Fund
has no intention of holding annual meetings of shareholders. Fund shareholders
may remove a Trustee by the affirmative vote of at least two-thirds of the
Trust's outstanding shares and the Trustees shall promptly call a meeting for
such purpose when requested to do so in writing by the record holders of not
less than 10% of the outstanding shares of the Trust. Shareholders may, under
certain circumstances, communicate with other shareholders in connection with
requesting a special meeting of shareholders. However, at any time that less
than a majority of the Trustees holding office were elected by the shareholders,
the Trustees will call a special meeting of shareholders for the purpose of
electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, each Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Funds. The Declaration of Trust also provides for indemnification out of the
Funds' assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. The Declaration of Trust
also provides that no series of the Funds shall be liable for the liabilities of
any other series. Furthermore, no fund included in the Funds' Prospectuses shall
be liable for the liabilities of any other series. Liability is therefore
limited to circumstances in which the Funds would be unable to meet their
obligations, and the possibility of this occurrence is remote.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept starter, credit card or third party checks. All
checks returned by the post office as undeliverable will be reinvested at net
asset value in the fund or funds from which a redemption was made or dividend
paid. Information provided on the account application may be used by the Funds
to verify the accuracy of the information or for background or financial history
purposes. A joint account will be administered as a joint tenancy with right of
survivorship, unless the joint owners notify John Hancock Servicing Center of a
different intent. A shareholder's account is governed by the laws of The
Commonwealth of Massachusetts. For telephone transactions, the transfer agent
will take measures to verify the identity of the caller, such as asking for
name, account number, Social Security or other taxpayer ID number and other
relevant information. If appropriate measures are taken, the transfer agent is
not responsible for any losses that may occur to any account due to an
unauthorized telephone call. Also for your protection telephone transactions are
not permitted on accounts whose names or addresses have changed within the past
30 days. Proceeds from telephone transactions can only be mailed to the address
of record.
49
Selling activities for the Fund may not take place outside the U.S., except with
U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on
Non-U.S. investors' accounts with foreign mailing addresses are required to
certify that all sales activities have occurred, and in the future will occur,
only in the U.S. A foreign corporation may purchase shares of the Fund only if
it has a U.S. mailing address.
DIVIDENDS
Dividends from net investment income are declared and paid as follows:
FUND DECLARED PAID
- ---- -------- ----
Technology Fund Annually Annually
International Fund Annually Annually
Regional Bank Fund Quarterly Quarterly
Financial Industries Fund Annually Annually
Small Cap Growth Fund Annually Annually
Mid Cap Growth Fund Annually Annually
Large Growth Fund Annually Annually
Relative Value Fund Quarterly Quarterly
Core Equity Fund Quarterly Quarterly
Sovereign Investors Fund Quarterly Quarterly
500 Index Fund Quarterly Quarterly
Bond Fund Daily Monthly
Strategic Income Fund Daily Monthly
High Yield Bond Fund Daily Monthly
Money Market Fund Daily Monthly
Capital gains distributions are generally declared annually. Dividends are
automatically reinvested in additional shares of the Funds.
TAX STATUS
Each Fund is treated as a separate entity for accounting and tax purposes, has
elected or intends to elect to be treated, as a separate "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), and intends to continue to qualify for each taxable year. As such
and by complying with the applicable provisions of the Code regarding the
sources of its income, the timing of its distributions, and the diversification
of its assets, each Fund will not be subject to Federal income tax on taxable
income (including net realized capital gains) which is distributed to
shareholders in accordance with the timing requirements of the Code.
Qualification of a Fund for treatment as a regulated investment company under
the Code requires, among other things, that (a) at least 90% of a Fund's annual
gross income, without being offset for losses from the sale or other disposition
of stock or securities or other transactions, be derived from interest,
dividends, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities or foreign currencies, or other income
(including but not limited to gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies; (b) each Fund distributes to its shareholders for each taxable year
(in compliance with certain timing requirements) as dividends at least 90% of
50
the sum of its taxable and tax-exempt net investment income, the excess of net
short-term capital gain over net long-term capital loss earned in each year and
any other net income (except for the excess, if any, of net long-term capital
gain over net short-term capital loss, which need not be distributed in order
for the Fund to qualify as a regulated investment company but is taxed to the
Fund if it is not distributed); and (c) each Fund diversifies its assets so
that, at the close of each quarter of its taxable year, (i) at least 50% of the
fair market value of its total (gross) assets is comprised of cash, cash items,
U.S. Government securities, securities of other regulated investment companies
and other securities limited in respect of any one issuer to no more than 5% of
the fair market value of the Fund's total assets and 10% of the outstanding
voting securities of such issuer and (ii) no more than 25% of the fair market
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies) or of two or more issuers controlled by the Fund and engaged in the
same, similar, or related trades or businesses.
Each Fund also must, and intends to, comply with the diversification
requirements imposed by Section 817(h) of the Code and the regulations
thereunder on certain insurance company separate accounts. These requirements,
which are in addition to the diversification requirements imposed on a Fund by
the 1940 Act and Subchapter M of the Code, place certain limitations on assets
of each insurance company separate account used to fund variable contracts and,
because Section 817(h) and those regulations treat the assets of the Fund as
assets of the related separate account, the assets of a Fund that may be
invested in securities of any one, two, three and four issuers. Specifically,
the regulations provide that, except as permitted by the "safe harbor" described
below, as of the end of each calendar quarter or within 30 days thereafter no
more than 55% of the total assets of a Fund may be represented by any one
investment, no more than 70% by any two investments, no more than 80% by any
three investments and no more than 90% by any four investments. For this
purpose, all securities of the same issuer are considered a single investment,
and each U.S. Government agency and instrumentality is considered a separate
issuer. Section 817(h) provides, as a safe harbor, that a separate account will
be treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets is attributable to cash and cash items (including
receivables), U.S. Government securities and securities of other regulated
investment companies. Failure by a Fund to both qualify as a regulated
investment company and satisfy the Section 817(h) requirements would generally
result in treatment of the variable contract holders other than as described in
the applicable variable contract prospectuses, including possible current
inclusion in ordinary income of income accrued under the contracts for the
current and all prior taxable years. Under certain circumstances described in
the applicable Treasury regulations, inadvertent failure to satisfy the
applicable diversification requirements may be corrected, but such a correction
would require a payment to the Internal Revenue Service (the "I.R.S.") based on
the tax contract holders would have incurred if they were treated as receiving
the income on the contract for the period during which the diversification
requirements were not satisfied. Any such failure may also result in adverse tax
consequences for the insurance company issuing the contracts. Failure by a Fund
to qualify as a regulated investment company would also subject the Fund to
federal and state income taxation of all of its taxable income and gain, whether
or not distributed to shareholders.
If a Fund acquires stock in certain non-U.S. corporations that receive at least
75% of their annual gross income from passive sources (such as interest,
dividends, certain rents and royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive foreign
investment companies"), that Fund could be subject to Federal income tax and
additional interest charges on "excess distributions" received from such
companies or gain from the sale of stock in such companies, even if all income
or gain actually received by the Fund is timely distributed to its shareholders.
The Fund would not be able to pass through to its shareholders any credit or
deduction for such a tax. Certain elections may ameliorate these adverse tax
consequences, but any such election could require the applicable Fund to
recognize taxable income or gain without the concurrent receipt of cash. Any
Fund that is permitted to acquire stock in foreign corporations may limit and/or
manage its holdings in passive foreign investment companies to minimize its tax
liability or maximize its return from these investments.
51
Foreign exchange gains and losses realized by a Fund in connection with certain
transactions involving foreign currency-denominated debt securities, certain
foreign currency futures and options, foreign currency forward contracts,
foreign currencies, or payables or receivables denominated in a foreign currency
are subject to Section 988 of the Code, which generally causes such gains and
losses to be treated as ordinary income and losses and may affect the amount,
timing and character of distributions to shareholders. Any such transactions
that are not directly related to a Fund's investment in stock or securities,
possibly including speculative currency positions or currency derivatives not
used for hedging purposes, and could under future Treasury regulations produce
income not among the types of "qualifying income" from which the Fund must
derive at least 90% of its annual gross income. Income from investments in
commodities, such as gold and certain related derivative instruments, is also
not treated as qualifying income under this test. If the net foreign exchange
loss for a year treated as ordinary loss under Section 988 were to exceed a
Fund's investment company taxable income computed without regard to such loss
but after considering the post-October loss regulations (i.e., all of the Fund's
net income other than any excess of net long-term capital gain over net
short-term capital loss) the resulting overall ordinary loss for such year would
not be deductible by the Fund or its shareholders in future years.
A Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes in
some cases.
For Federal income tax purposes, each Fund is generally permitted to carry
forward a net realized capital loss in any year to offset its own net realized
capital gains, if any, during the eight years following the year of the loss. To
the extent subsequent net realized capital gains are offset by such losses, they
would not result in Federal income tax liability to the applicable Fund and
would not be distributed as such to shareholders. As of December 31, 2000, the
following Funds had capital loss carryforwards:
- --------------------------------------------------------------------------------
2006 2007 2008
- --------------------------------------------------------------------------------
Technology -- -- $ 14,000
- --------------------------------------------------------------------------------
International -- -- 265,560
- --------------------------------------------------------------------------------
Regional Bank -- -- 2,212,041
- --------------------------------------------------------------------------------
Financial Industries -- $2,140,648 1,313,228
- --------------------------------------------------------------------------------
Small Cap Growth -- -- 2,089,105
- --------------------------------------------------------------------------------
Mid Cap Growth -- -- 633,415
- --------------------------------------------------------------------------------
Large Cap Growth -- -- 1,306,804
- --------------------------------------------------------------------------------
Sovereign Investors $157,877 101,159 1,206,695
- --------------------------------------------------------------------------------
Bond -- 67,593 215,568
- --------------------------------------------------------------------------------
Strategic Income 4,130 136,493 455,777
- --------------------------------------------------------------------------------
Each Fund that invests in certain pay in-kind securities ("PIKs") (debt
securities whose interest payments may be made either in cash or in-kind), zero
coupon securities or certain increasing rate securities (and, in general, any
other securities with original issue discount or with market discount if the
Fund elects to include market discount in income currently) must accrue income
on such investments prior to the receipt of the corresponding cash payments.
However, each Fund must distribute, at least annually, all or substantially all
of its net income, including such accrued income, to shareholders to qualify as
a regulated investment company under the Code and avoid Federal income tax.
Therefore, a Fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash, or may have to leverage itself
by borrowing the cash, to satisfy distribution requirements.
52
Investments in debt obligations that are at risk of or are in default present
special tax issues for any Fund that may hold such obligations, such as Relative
Value Fund, Sovereign Investors Fund, Strategic Income Fund, Technology Fund,
Large Cap Growth Fund, Financial Industries and High Yield Bond Fund. Tax rules
are not entirely clear about issues such as when the Funds may cease to accrue
interest, original issue discount, or market discount, when and to what extent
deductions may be taken for bad debts or worthless securities, how payments
received on obligations in default should be allocated between principal and
income, and whether exchanges of debt obligations in a workout context are
taxable. These and other issues will be addressed by any Fund that may hold such
obligations in order to reduce the risk of distributing insufficient income to
preserve its status as a regulated investment company and seek to avoid becoming
subject to Federal income tax.
Limitations imposed by the Code on regulated investment companies like the Funds
may restrict a Fund's ability to enter into futures, options and currency
forward transactions.
Certain options, futures and forward foreign currency transactions undertaken by
a Fund may cause such Fund to recognize gains or losses from marking to market
even though its securities or other positions have not been sold or terminated
and affect the character as long-term or short-term (or, in the case of certain
currency forwards, options and futures, as ordinary income or loss) and timing
of some capital gains and losses realized by the Fund. Also, certain of a Fund's
losses on its transactions involving options, futures and forward foreign
currency contracts and/or offsetting or successor portfolio positions may be
deferred rather than being taken into account currently in calculating the
Fund's taxable income or gains. These transactions may therefore affect the
amount, timing and character of a Fund's distributions to shareholders. Certain
of the applicable tax rules may be modified if the Fund is eligible and chooses
to make one or more of certain tax elections that may be available. The Funds
will take into account the special tax rules (including consideration of
available elections) applicable to options, futures or forward contracts in
order to minimize any potential adverse tax consequences.
The tax rules applicable to dollar rolls, currency swaps and interest rate
swaps, caps, floors and collars may be unclear in some respects, and the Funds
may be required to limit participation in such transactions in order to qualify
as regulated investment companies. Additionally, the Fund may be required to
recognize gain, but not loss, if a swap or other transaction is treated as a
constructive sale of an appreciated financial position in the Fund's portfolio.
The Fund may have to sell portfolio securities under disadvantageous
circumstances to generate cash, or borrow cash, to satisfy these distribution
requirements.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to the Funds and certain aspects of their distributions. The
discussion does not address special tax rules applicable to insurance companies.
Shareholders should consult their own tax advisers as to the Federal, state or
local tax consequences of ownership or redemption of shares of, and receipt of
distributions from, a Fund in their particular circumstances.
The Funds are not subject to Massachusetts corporate excise or franchise taxes.
Provided that each Fund qualifies as a regulated investment company under the
Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
For the 30-day period ended December 31, 2000, the annualized yield was:
Bond Fund 5.84%
Strategic Income Fund 7.94%
High Yield Bond Fund 14.03%
53
Yield (except for Money Market Fund). The yield of each Fund (except for Money
Market Fund) is computed by dividing net investment income per share determined
for a 30-day period by the net asset value per share on the last day of the
period and annualizing the result.
While this is the standard accounting method for calculating yield, it does not
reflect the Fund's actual bookkeeping; as a result, the income reported or paid
by the Fund may be different. The Fund's yield is computed according to the
following standard formula:
6
Yield = 2 ( [ ( a - b ) + 1 ] - 1 )
-------
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding
during the period that would be entitled to receive
dividends.
d = the net asset value per share on the last day of the period.
Money Market Fund Yield. For the purposes of calculating yield for the Money
Market Fund, daily income per share consists of interest and discount earned on
the Fund's investments less provision for amortization of premiums and
applicable expenses, divided by the number of shares outstanding, but does not
include realized or unrealized appreciation or depreciation.
If the Fund reports its annualized yield, it will also furnish information as to
the average portfolio maturities of the Fund. It will also report any material
effect of realized gains or losses or unrealized appreciation on dividends which
have been excluded from the computation of yield.
Yield calculations are based on the value of a hypothetical preexisting account
with exactly one share at the beginning of the seven day period. Yield is
computed by determining the net change in the value of the account during the
base period and dividing the net change by the value of the account at the
beginning of the base period to obtain the base period return. Base period is
multiplied by 365/7 and the resulting figure is carried to the nearest 100th of
a percent. Net change in account value during the base period includes dividends
declared on the original share, dividends declared on any shares purchased with
dividends of that share and any account or sales charges that would affect an
account of average size, but excludes any capital changes.
Effective yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical preexisting account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then compounding the base period return by adding 1, raising
the sum to a power equal to 365 divided by 7, and subtracting 1 from the result,
according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7]-1
Total Return. Each Fund's total return is computed by finding the average annual
compounded rate of return over the indicated period that would equate the
initial amount invested to the ending redeemable value according to the
following formula
The average annual total return for each Fund for the 1 year period ended
December 31, 2000 and since, the commencement of operations through December 31,
2000 is as follows:
54
Commencement of
1 year period ended Operations to
Funds December 31, 2000 December 31, 2000*
- ----- ----------------- ------------------
Technology Fund --% -36.98%
International -25.17% 6.02%
Financial Industries 27.16% 18.90%
Regional Bank 17.91% 4.96%
Small Cap Growth -22.33% 11.02%
Mid Cap Growth -11.73% 15.12%
Large Cap Growth -31.30% 2.41%
Relative Value -4.80% 22.01%
Core Equity -7.11% 17.11%
Sovereign Investors -0.33% 12.73%
500 Index -9.28% 17.75%
Bond 11.85% 7.88%
High Yield Bond -6.08% -1.41%
Strategic Income 1.36% 32.63%
* Financial Industries Fund commenced operations on April 30, 1997. Relative
Value Fund and High Yield Bond Fund commenced operations on January 6, 1998. Mid
Cap Growth Fund commenced operations on January 7, 1998. Regional Bank Fund
commenced operations on May 1, 1998. Technology Fund commenced operations on May
2, 2000. Each of the other funds commenced operations on August 29, 1996.
n _____
T = \ /ERV/P - 1
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the indicated period.
This calculation assumes that all dividends and distributions are reinvested at
net asset value on the reinvestment dates during the period. The "distribution
rate" is determined by annualizing the result of dividing the declared dividends
of a Fund during the period stated by the net asset value at the end of the
period.
In addition to average annual total returns, a Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period.
From time to time, in reports and promotional literature, a Fund's yield and
total return will be compared to indices of mutual funds and bank deposit
vehicles such as Lipper Analytical Services, Inc.'s "Lipper--Fixed Income Fund
Performance Analysis," a monthly publication which tracks net assets, total
return, and yield on fixed income mutual funds in the United States. Ibottson
and Associates, CDA Weisenberger and F.C. Towers are also used for comparison
purposes, as well as the Russell and Wilshire Indices.
Performance rankings and ratings reported periodically in, and excerpts from,
national financial publications such as MONEY MAGAZINE, FORBES, BUSINESS WEEK,
THE WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S,
etc. will also be utilized. A Fund's promotional and sales literature may make
reference to the Fund's "beta." Beta reflects the market-related risk of the
Fund by showing how responsive the Fund is to the market.
55
The performance of a Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of a Fund for any
period in the future. The performance of a Fund is a function of many factors
including its earnings, expenses and number of outstanding shares. Fluctuating
market conditions; purchases, sales and maturities of portfolio securities;
sales and redemptions of shares of beneficial interest; and changes in operating
expenses are all examples of items that can increase or decrease a Fund's
performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser, any Sub-adviser and
the officers of the Trust pursuant to recommendations made by its investment
committee, which consists of officers and directors of the Adviser and
affiliates and officers and Trustees who are interested persons of the Funds.
Orders for purchases and sales of securities are placed in a manner which, in
the opinion of the Adviser or Sub-adviser, will offer the best price and market
for the execution of each such transaction. Purchases from underwriters of
portfolio securities may include a commission or commissions paid by the issuer
and transactions with dealers serving as market makers reflect a "spread." Debt
securities are generally traded on a net basis through dealers acting for their
own account as principals and not as brokers; no brokerage commissions are
payable on these transactions.
In the U.S. Government securities market, securities are generally traded on a
"net" basis with dealers acting as principal for their own account without a
stated commission, although the price of the security usually includes a profit
to the dealer. On occasion, certain money market instruments and agency
securities may be purchased directly from the issuer, in which case no
commissions or premiums are paid. In other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.
Each Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Conduct Rules of the NASDAQ and other policies that the Trustees may determine,
the Adviser or Sub-Adviser may consider sales of shares of the Funds as a factor
in the selection of broker-dealers to execute a Fund's portfolio transactions.
Purchases of securities for Bond Fund, Strategic Income Fund and High Yield Bond
Fund are normally principal transactions made directly from the issuer or from
an underwriter or market maker for which no brokerage commissions are usually
paid. Purchases from underwriters will include a commission or concession paid
by the issuer to the underwriter, and purchases and sales from dealers serving
as market makers will usually include a mark up or mark down. Purchases and
sales of exchange-traded options and futures will be effected through brokers
who charge a commission for their services.
To the extent consistent with the foregoing, each Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser or relevant
Sub-adviser of the Fund, and their value and expected contribution to the
performance of the Fund. It is not possible to place a dollar value on
information and services to be received from brokers and dealers, since it is
56
only supplementary to the research efforts of the Adviser or relevant
Sub-adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser or relevant Sub-adviser. The research
information and statistical assistance furnished by brokers and dealers may
benefit the Life Company or other advisory clients of the Adviser or relevant
Sub-adviser, and conversely, brokerage commissions and spreads paid by other
advisory clients of the Adviser or relevant Sub-adviser may result in research
information and statistical assistance beneficial to the Funds. The Funds will
not make commitments to allocate portfolio transactions on any prescribed basis.
While the Adviser's officers will be primarily responsible for the allocation of
each Fund's brokerage business, the policies and practices of the Adviser in
this regard must be consistent with the foregoing and will at all times be
subject to review by the Trustees.
- --------------------------------------------------------------------------------
1998 Broker 1999 Broker 2000 Broker
Funds Commissions Commissions Commissions
- --------------------------------------------------------------------------------
International $31,688 $44,805 $10,693
- --------------------------------------------------------------------------------
Regional Bank 15,933 13,672 65,029
- --------------------------------------------------------------------------------
Financial Industries 85,961 107,541 16,755
- --------------------------------------------------------------------------------
Small Cap Growth 10,790 15,451 55,411
- --------------------------------------------------------------------------------
Mid Cap Growth 4,603 7,790 23,319
- --------------------------------------------------------------------------------
Large Cap Growth 28,768 55,628 24,172
- --------------------------------------------------------------------------------
Relative Value 67,087 113,466 49,360
- --------------------------------------------------------------------------------
Core Equity 15,467 43,018 152,533
- --------------------------------------------------------------------------------
Sovereign Investors 34,227 38,021 49,746
- --------------------------------------------------------------------------------
500 Index 8,110 4,016 54,708
- --------------------------------------------------------------------------------
Bond 0 0 0
- --------------------------------------------------------------------------------
Strategic Income 455 12 120
- --------------------------------------------------------------------------------
High Yield Bond 2,778 1,613 3,598
- --------------------------------------------------------------------------------
Technology 0 0 10,693
- --------------------------------------------------------------------------------
As permitted by Section 28(e) of the Securities Exchange Act of 1934, a Fund may
pay to a broker which provides brokerage and research services to the Fund an
amount of disclosed commission in excess of the commission which another broker
would have charged for effecting that transaction. This practice is subject to a
good faith determination by the Trustees that the price is reasonable in light
of the services provided and to policies that the Trustees may adopt from time
to time. During the fiscal year ended December 31, 2000, Core Equity, 500 Index,
Financial Industries, Bond, High Yield Bond, International, Sovereign Investors,
Strategic Income did not directed commissions in the amounts of to compensate
brokers for research services such as industry, economics and company reviews
and evaluations of securities. During the fiscal year ended December 31, 2000,
Regional Bank, Small Cap Growth, Large Cap Growth, Relative Value, Mid Cap
Growth and Technology directed commissions in the amounts of $4,670, $4,369,
$29,295, 37,662, $11,649, and $1,391, respectively, to compensate brokers for
research services such as industry, economics and company reviews and
evaluations of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of Signator Investors, Inc., a broker-dealer (until January 1, 1999,
John Hancock Distributors, Inc.) ("Signator" or "Affiliated Broker"). Credit
Agricole, IIIS parent, has several affiliates engaged in the brokerage business
in Europe and Asia: Credit Agricole Indosuez Cheuvreux; CPR Action (ex-Schelcher
Prince Cheuvreux de Virieu International Ltd, London; Cheuvreux de Virieu,
Nordic AB, Stockholm, Cheuvreux de Virieu, Espana, Madrid, Credit Agricole
Indosuez Cheuvreux Deutschland GMBH, Frankfourt/ Main; Caboto Sim in Italy; Carr
Securities; Carr Futures SNC. (Paris) and Carr Futures PTE, Singapore (all
"Affiliated Brokers"). Pursuant to procedures determined by the Trustees and
consistent with the above policy of obtaining best net results, the Funds may
execute portfolio transactions with or through Affiliated Brokers. During the
fiscal years ending December 31, 1998, 1999 and 2000, the Funds did not execute
any portfolio transactions with Affiliated Brokers.
57
Affiliated Brokers may act as broker for a Fund on exchange transactions,
subject, however, to the general policy of the Funds set forth above and the
procedures adopted by the Trustees pursuant to the Investment Company Act.
Commissions paid to an Affiliated Broker must be at least as favorable as those
which the Trustees believe to be contemporaneously charged by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold. A transaction would not be placed with an Affiliated Broker
if a Fund would have to pay a commission rate less favorable than the Affiliated
Broker's contemporaneous charges for comparable transactions for its other most
favored, but unaffiliated, customers except for accounts for which the
Affiliated Broker acts as clearing broker for another brokerage firm, and any
customers of the Affiliated Broker not comparable to a Fund as determined by a
majority of the Trustees who are not interested persons (as defined in the
Investment Company Act) of the Fund, the Adviser or the Affiliated Broker.
Because the Adviser, which is affiliated with the Affiliated Broker, has, as an
investment adviser to the Funds, the obligation to provide investment management
services, which includes elements of research and related investment skills such
research and related skills will not be used by the Affiliated Broker as a basis
for negotiating commissions at a rate higher than that determined in accordance
with the above criteria.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Funds. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Funds. Because of
this, client accounts in a particular style may sometimes not sell or acquire
securities as quickly or at the same prices as they might if each were managed
and traded individually.
For purchases of equity securities, when a complete order is not filled, a
partial allocation will be made to each account pro rata based on the order
size. For high demand issues (for example, initial public offerings), shares
will be allocated pro rata by account size as well as on the basis of account
objective, account size ( a small account's allocation may be increased to
provide it with a meaningful position), and the account's other holdings. In
addition, an account's allocation may be increased if that account's portfolio
manager was responsible for generating the investment idea or the portfolio
manager intends to buy more shares in the secondary market. For fixed income
accounts, generally securities will be allocated when appropriate among accounts
based on account size, except if the accounts have different objectives or if an
account is too small to get a meaningful allocation. For new issues, when a
complete order is not filled, a partial allocation will be made to each account
pro rata based on the order size. However, if a partial allocation is too small
to be meaningful, it may be reallocated based on such factors as account
objectives, duration benchmarks and credit and sector exposure. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser or Sub-Adviser may aggregate
securities to be sold or purchased for the Fund with those to be sold or
purchased for other clients managed by it in order to obtain best execution.
SHAREHOLDER SERVICING AGENT
John Hancock Annuity Servicing Office, 529 Main Street, (X-4) Charlestown, MA
02129, a division of the Life Company, is the shareholder servicing agent for
the Funds. Currently, the Funds pay no fee.
58
CUSTODY OF PORTFOLIO
Portfolio securities of the International Fund, Money Market Fund and 500 Index
Fund are held pursuant to a custodian agreement between the Trust and State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02205.
Portfolio securities of the other Funds are held pursuant to a custodian
agreement between the Trust and Investors Bank & Trust Company, 200 Clarendon
Street, Boston, MA 02117. Under the custodian agreements, the custodians perform
custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street Boston, Massachusetts 02116, is the
independent auditor of the Trust. The financial statements of the Funds have
been audited by Ernst & Young LLP for the periods indicated in their report
thereon appearing elsewhere herein, and have been included in reliance on their
report given on their authority as experts in accounting and auditing.
59
APPENDIX
Description of Bond Ratings
The ratings of Moody's Investors Service, Inc. and Standard & Poor's Ratings
Group represent their opinions as to the quality of various debt instruments
they undertake to rate. It should be emphasized that ratings are not absolute
standards of quality. Consequently, debt instruments with the same maturity,
coupon and rating may have different yields while debt instruments of the same
maturity and coupon with different ratings may have the same yield.
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment at some time in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack the characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represented obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues as
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
A-1
STANDARD & POOR'S RATINGS GROUP
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B: Debt rated BB, and B is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CCC: Debt rated 'CCC' has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The 'CCC' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'B' or 'B-' rating.
CC: The rating 'CC' is typically applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC' rating.
C: The rating 'C' is typically applied to debt subordinated to senior debt which
is assigned an active or implied 'CCC-' debt rating. The 'C' debt rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
FITCH INVESTORS SERVICE ("Fitch")
AAA, AA, A, BBB - Bonds rated AAA are considered to be investment grade and of
the highest quality. The obligor has an extraordinary ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events. Bonds rated AA are considered to be investment grade and high quality.
The obligor's ability to pay interest and repay principal, while very strong, is
somewhat less than for AAA rated securities or more subject to possible change
over the term of the issue. Bonds rated A are considered to be investment grade
and of good quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. Bonds
rated BBB are considered to be investment grade and of satisfactory quality. The
obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to weaken this ability than bonds with higher ratings.
A-2
CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS
Moody's - Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Prime-1, indicates highest quality repayment capacity of
rated issue and Prime-2 indicates higher quality.
S&P - Commercial Paper ratings are a current assessment of the likelihood of
timely payment of debts having an original maturity of no more than 365 days.
Issuers rated A have the greatest capacity for a timely payment and the
designation 1,2 and 3 indicates the relative degree of safety. Issues rated
"A-1=" are those with an "overwhelming degree of credit protection."
Fitch - Commercial Paper ratings reflect current appraisal of the degree of
assurance of timely payment. F-1 issues are regarded as having the strongest
degree of assurance for timely payment. (=) is used to designate the relative
position of an issuer within the rating category. F-2 issues reflect an
assurance of timely payment only slightly less in degree than the strongest
issues. The symbol (LOC) may follow either category and indicates that a letter
of credit issued by a commercial bank is attached to the commercial paper note.
Other Considerations - The ratings of S&P, Moody's, and Fitch represent their
respective opinions of the quality of the municipal securities they undertake to
rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. Consequently, municipal securities with the same
maturity, coupon and ratings may have different yields and municipal securities
of the same maturity and coupon with different ratings may have the same yield.
A-3
FINANCIAL STATEMENTS
The financial statements listed below are included and incorporated by reference
into Part B of the Registration Statement from the 2000 Annual Report to
Shareholder's for the year ended December 31, 2000 (filed electronically on
March 1, 2001, accession number 0000928816-01-000098, file no. 811-07437 and
33-64465).
John Hancock Declaration Trust
Statement of Assets and Liabilities as of December 31, 2000.
Statement of Operations for the year ended of December 31, 2000.
Statement of Changes in Net Assets for each of the two years in the period
ended December 31, 2000.
Financial Highlights for each of the two years in the period ended
December 31, 2000.
Schedule of Investments as of December 31, 2000.
Notes to Financial Statements.
Report of Independent Auditors.
F-1
Exhibit C
JOHN HANCOCK V.A. STRATEGIC INCOME FUND
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
JUNE 30, 2001
Pro forma information is intended to provide the shareholders of the John
Hancock V.A. Strategic Income Fund and the John Hancock V.A. High Yield Bond
Fund with information about the impact of the proposed merger by indicating how
the merger might have affected information had the merger been consummated as of
June 30, 2000.
The pro forma combined statement of assets and liabilities and results of
operations as of June 30, 2001 have been prepared to reflect the merger of John
Hancock V.A. Strategic Income Fund and John Hancock V.A. High Yield Bond Fund
after giving effect to pro forma adjustments described in the notes below.
(a) Acquisition by John Hancock V.A. Strategic Income Fund of all assets of
John Hancock V.A. High Yield Bond Fund and issuance of John Hancock V.A.
Strategic Income fund shares in exchange for all the outstanding shares of
John Hancock V.A. High Yield Bond Fund.
(b) The actual expenses incurred by the John Hancock V.A. Strategic Income
Fund and John Hancock V.A. High Yield Bond Fund were reduced to reflect
the estimated savings arising from the merger.
(c) Represents the Adviser's voluntary agreement to limit the funds' expenses
to an annual rate of 0.25% of the funds' average daily net assets.
John Hancock V.A. Strategic Income Fund Exhibit C
Pro-forma combined statement of assets and liabilities
June 30, 2001
(000's omitted)
John Hancock John Hancock
V.A. Strategic V.A. High Yield
Income Bond Pro-Forma
Fund Fund Adjustments Combined
-------------- --------------- ----------- ---------
Assets
Investments at value $ 45,878 $ 5,947 $ -- $ 51,825
Joint repurchase agreements 12,252 85 -- 12,337
-------- ------- -------- --------
Total investments 58,130 6,032 -- 64,162
Cash 1 1 -- 2
Receivable for investments sold 578 31 -- 609
Receivable for shares sold 372 -- -- 372
Dividends and interest receivable 1,255 222 -- 1,477
Receivable for forward foreign currency exchange contracts sold 23 16 -- 39
Other assets 2 -- -- 2
-------- ------- -------- --------
Total assets 60,361 6,302 -- 66,663
-------- ------- -------- --------
Liabilities
Payable for investments purchased 7,458 -- -- 7,458
Payable for shares repurchased 9 4 -- 13
Dividends payable 24 -- -- 24
Payable for forward foreign currency exchange contracts purchased 7 1 -- 8
Payable to John Hancock Advisers, Inc. and affiliates 25 3 -- 28
Accounts payable and accrued expenses 2 10 -- 12
-------- ------- -------- --------
Total Liabilities 7,525 18 -- 7,543
-------- ------- -------- --------
Net Assets:
Capital paid-in 57,331 9,548 -- 66,879
Accumulated net realized loss on investments and foreign
currency transactions (1,624) (650) -- (2,274)
Net unrealized depreciation of investments,
and translation of assets and liabilities in foreign curriencies (2,223) (2,562) -- (4,785)
Distributions in excess of net investment income (648) (52) -- (700)
-------- ------- -------- --------
Net Assets 52,836 6,284 -- 59,120
-------- ------- -------- --------
Net assets:
V.A. Strategic Income 52,836 -- 6,284(a) 59,120
V.A. High Yield Bond -- 6,284 (6,284)(a) --
-------- ------- -------- --------
52,836 6,284 -- 59,120
======== ======= ======== ========
Shares outstanding:
V.A. Strategic Income 6,055 -- 717(a) 6,772
V.A. High Yield Bond -- 975 (975)(a) --
-------- ------- -------- --------
6,055 975 (258) 6,772
======== ======= ======== ========
Net asset value per share:
V.A. Strategic Income $ 8.73 -- -- $ 8.73
V.A. High Yield Bond -- $ 6.45 $ (6.45)(a) --
======== ======= ======== ========
See Notes to Pro-forma Combined Financial Statements
John Hancock V.A. Strategic Income Fund Exhibit C
Pro-forma combined statement of operations
For the year ended June 30, 2001
(000's omitted)
John Hancock V.A. John Hancock V.A.
Strategic Income High Yield Bond
Fund Fund
12 months ended 12 months ended Pro-Forma
June 30, 2001 June 30, 2001 Adjustments Combined
----------------- ----------------- ----------- ---------
Investement income:
Dividends $ 17 $ 92 $ -- $ 109
Interest 3,088 838 -- 3,926
------- ------- ---- -------
Total investment income 3,105 930 -- 4,035
------- ------- ---- -------
Expenses:
Investment management fee 208 44 -- 252
Custodian fee 18 15 (13)(b) 20
Auditing fee 5 12 (7)(b) 10
Printing 3 -- -- 3
Legal fees -- 11 (9)(b) 2
Accounting and legal services fee 7 2 -- 9
Trustees' fee 1 1 -- 2
Miscellaneous 1 1 (1)(b) 1
Organization expense 2 -- -- 2
------- ------- ---- -------
Total expenses 245 86 (30) 301
Less expense reductions -- (23) 23(c) --
------- ------- ---- -------
Net expenses 245 63 (7) 301
------- ------- ---- -------
Net investment income 2,860 867 7 3,734
------- ------- ---- -------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized and unrealized gain (loss) on:
Investments (1,324) (659) -- (1,983)
Foreign currency transactions 164 45 -- 209
Change in unrealized appreciation (depreciation) on:
Investments (961) (565) -- (1,526)
Translation of assets and liabilities in foreign currencies (22) 19 -- (3)
------- ------- ---- -------
Net realized and unrealized gain (loss) (2,143) (1,160) -- (3,303)
------- ------- ---- -------
Increase (decrease) in net assets resulting from operations $ 717 $ (293) $ 7 $ 431
======= ======= ==== =======
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
BONDS
Advertising (0.17%)
Go Outdoor Systems Holding S.A.,
Sr Sub Note (France) 07-15-09 (E) 10.500% $ 100 $ 99
--------
Aerospace (0.01%)
Compass Aerospace Corp.,
Gtd Sr Sub Note Ser D 04-15-05 (B)
Agricultural Operations (0.01%)
Iowa Select Farms L.P./ISF Finance, Inc.,
Jr Sec Note 12-01-06 (R)
Automobile / Trucks (0.12%)
AM General Corp.,
Sr Note Ser B 05-01-02
J.B. Poindexter & Co., Inc.,
Sr Note 05-15-04
Banks - United States (0.60%)
Colonial Bank,
Sub Note 06-01-11 9.375 200 207
Triton PCS, Inc.,
Sr Sub Note 02-01-11 (R) 9.375 100 96
--------
303
--------
Building (0.12%)
Amatek Industries Property Ltd.,
Sr Sub Note (Australia) 02-15-08 (Y)
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
BONDS
Advertising (0.17%)
Go Outdoor Systems Holding S.A.,
Sr Sub Note (France) 07-15-09 (E) 100 $ 99
--------
Aerospace (0.01%)
Compass Aerospace Corp.,
Gtd Sr Sub Note Ser D 04-15-05 (B) 10.125% $ 25 $ 4 25 4
-------- --------
Agricultural Operations (0.01%)
Iowa Select Farms L.P./ISF Finance, Inc.,
Jr Sec Note 12-01-06 (R) 10.750 6 3 6 3
-------- --------
Automobile / Trucks (0.12%)
AM General Corp.,
Sr Note Ser B 05-01-02 12.875 50 49 50 49
J.B. Poindexter & Co., Inc.,
Sr Note 05-15-04 12.500 25 21 25 21
-------- --------
70 70
-------- --------
Banks - United States (0.60%)
Colonial Bank,
Sub Note 06-01-11 9.375 50 52 250 259
Triton PCS, Inc.,
Sr Sub Note 02-01-11 (R) 100 96
-------- --------
52 355
-------- --------
Building (0.12%)
Amatek Industries Property Ltd.,
Sr Sub Note (Australia) 02-15-08 (Y) 12.000 25 20 25 20
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
WCI Communities, Inc.,
Sr Sub Note 02-15-11 (R)
Business Services - Misc. (0.02%)
AP Holdings, Inc.,
Sr Disc Note, Step Coupon (11.25%, 03-15-03)
03-15-08 (A)
Chemicals (0.99%)
Huntsman ICI Chemicals LLC,
Sr Sub Note 07-01-09 10.125% $ 150 $ 147
Trikem S.A.,
Bond (Brazil) 07-24-07 (R) (Y) 10.625 200 130
American Pacific Corp.,
Sr Note 03-01-05
Applied Extrusion Technologies, Inc.,
Sr Note 07-01-11 (R)
Sr Note Ser B 04-01-02
Huntsman ICI Holdings LLC,
Sr Disc Note 12-31-09
--------
277
--------
Consumer Products Misc. (0.04%)
Diamond Brands Operating Corp.,
Sr Sub Note 04-15-08 (B)
Indesco International, Inc.,
Sr Sub Note 04-15-08 (B)
Containers (0.42%)
Gaylord Container Corp.,
Sr Note Ser B 06-15-07
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
WCI Communities, Inc.,
Sr Sub Note 02-15-11 (R) 10.625% $ 50 $ 52 $ 50 $ 52
-------- --------
72 72
-------- --------
Business Services - Misc. (0.02%)
AP Holdings, Inc.,
Sr Disc Note, Step Coupon (11.25%, 03-15-03) 03-15-08 (A) Zero 200 14 200 14
-------- --------
Chemicals (0.99%)
Huntsman ICI Chemicals LLC,
Sr Sub Note 07-01-09 10.125 100 98 250 245
Trikem S.A.,
Bond (Brazil) 07-24-07 (R) (Y) 10.625 125 81 325 211
American Pacific Corp.,
Sr Note 03-01-05 9.250 30 30 30 30
Applied Extrusion Technologies, Inc.,
Sr Note 07-01-11 (R) 10.750 50 51 50 51
Sr Note Ser B 04-01-02 11.500 25 25 25 25
Huntsman ICI Holdings LLC,
Sr Disc Note 12-31-09 Zero 75 23 75 23
-------- --------
308 585
-------- --------
Consumer Products Misc. (0.04%)
Diamond Brands Operating Corp.,
Sr Sub Note 04-15-08 (B) 10.125 100 14 100 14
Indesco International, Inc.,
Sr Sub Note 04-15-08 (B) 9.750 100 9 100 9
-------- --------
23 23
-------- --------
Containers (0.42%)
Gaylord Container Corp.,
Sr Note Ser B 06-15-07 9.375 15 10 15 10
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
Sr Sub Note Ser B 02-15-08
Kappa Beheer B.V.,
Sr Sub Bond (Netherlands) 07-15-09 (Y)
Sr Sub Bond, Step Coupon (12.50%, 07-15-04)
(Netherlands) 07-15-09 (A) (E)
Riverwood International Corp.,
Gtd Sr Sub Note 04-01-08
Cosmetics & Personal Care (0.01%)
Global Health Sciences, Inc.,
Gtd Sr Note 05-01-08 (B)
Diversified Operations (0.09%)
Diamond Holdings Plc,
Bond (United Kingdom) 02-01-08 #
Electronics (0.15%)
Communications Instruments, Inc.,
Sr Sub Note Ser B 09-15-04 10.000% $ 100 $ 86
--------
Energy (0.44%)
AEI Resources, Inc./AEI Resources Holdings, Inc.,
Note 12-15-05 (B) (R) 10.500 100 70
P&L Coal Holdings Corp.,
Sr Sub Note Ser B 05-15-08
Port Arthur Finance Corp.,
Gtd Sr Sec Note 01-15-09
--------
70
--------
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
Sr Sub Note Ser B 02-15-08 9.875% $ 100 $ 29 $ 100 $ 29
Kappa Beheer B.V.,
Sr Sub Bond (Netherlands) 07-15-09 (Y) 10.625 75 79 75 79
Sr Sub Bond, Step Coupon (12.50%, 07-15-04)
(Netherlands) 07-15-09 (A) (E) Zero 100 65 100 65
Riverwood International Corp.,
Gtd Sr Sub Note 04-01-08 10.875 70 67 70 67
-------- --------
250 250
-------- --------
Cosmetics & Personal Care (0.01%)
Global Health Sciences, Inc.,
Gtd Sr Note 05-01-08 (B) 11.000 75 8 75 8
-------- --------
Diversified Operations (0.09%)
Diamond Holdings Plc,
Bond (United Kingdom) 02-01-08 # 10.000 50 53 50 53
-------- --------
Electronics (0.15%)
Communications Instruments, Inc.,
Sr Sub Note Ser B 09-15-04 100 86
--------
Energy (0.44%)
AEI Resources, Inc./AEI Resources Holdings, Inc.,
Note 12-15-05 (B) (R) 10.500 75 52 175 122
P&L Coal Holdings Corp.,
Sr Sub Note Ser B 05-15-08 9.625 81 85 81 85
Port Arthur Finance Corp.,
Gtd Sr Sec Note 01-15-09 12.500 50 51 50 51
-------- --------
188 258
-------- --------
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
Finance (0.32%) PTC International Finance II S.A.,
Sr Sub Note (Luxembourg) 12-01-09 (E) (R) 11.250% $ 100 $ 88
Finova Capital Corp.,
Floating Rate Sr Note 06-18-03
Takefuji Corp.,
Sr Note (Japan) 04-15-11 (R) (Y)
--------
88
--------
Food (0.74%)
Agrilink Foods, Inc.,
Sr Sub Note 11-01-08 11.875 200 182
Mastellone Hermanos S.A.,
Sr Note (Argentina) 04-01-08 (Y)
RAB Holdings, Inc.,
Sr Note 05-01-08 (R)
--------
182
--------
Government - Foreign (22.13%)
Arabia, Republic of,
Bond (Egypt) 07-11-11 8.750 300 302
Brazil, Federative Republic of,
Bond (Brazil) 01-11-06 (Y) 10.250 300 288
Unsub Note (Brazil) 07-26-07 (Y) 11.250 100 96
Unsub Note 10-15-09 (Y) 14.500 700 728
Deb (Brazil) 04-15-14 (Y) 8.000 677 501
Bond (Brazil) 03-06-30 (Y) 12.250 750 632
Bulgaria, Federative Republic of,
Deb (Bulgaria) 07-28-12 3.000 880 715
Canada, Government of,
Bond (Canada) 12-01-02 # 6.000 275 184
Bond (Canada) 12-01-05 # 8.750 300 221
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
Finance (0.32%) PTC International Finance II S.A.,
Sr Sub Note (Luxembourg) 12-01-09 (E) (R) $ 100 $ 88
Finova Capital Corp.,
Floating Rate Sr Note 06-18-03 4.128% $ 50 $ 47 50 47
Takefuji Corp.,
Sr Note (Japan) 04-15-11 (R) (Y) 9.200 50 52 50 52
-------- --------
99 187
-------- --------
Food (0.74%)
Agrilink Foods, Inc.,
Sr Sub Note 11-01-08 11.875 125 114 325 296
Mastellone Hermanos S.A.,
Sr Note (Argentina) 04-01-08 (Y) 11.750 125 69 125 69
RAB Holdings, Inc.,
Sr Note 05-01-08 (R) 13.000 120 72 120 72
-------- --------
255 437
-------- --------
Government - Foreign (22.13%)
Arabia, Republic of,
Bond (Egypt) 07-11-11 300 302
Brazil, Federative Republic of,
Bond (Brazil) 01-11-06 (Y) 300 288
Unsub Note (Brazil) 07-26-07 (Y) 100 96
Unsub Note 10-15-09 (Y) 700 728
Deb (Brazil) 04-15-14 (Y) 677 501
Bond (Brazil) 03-06-30 (Y) 750 632
Bulgaria, Federative Republic of,
Deb (Bulgaria) 07-28-12 880 715
Canada, Government of,
Bond (Canada) 12-01-02 # 275 184
Bond (Canada) 12-01-05 # 300 221
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
Bond (Canada) 12-01-06 # 7.000% $ 2,000 $ 1,396
Bond (Canada) 06-01-08 # 6.000 250 167
Bond (Canada) 06-01-09 # 5.500 750 483
Bond (Canada) 06-01-10 # 5.500 575 369
Bond (Canada) 06-01-29 # 5.750 75 48
Colombia, Republic of,
Note (Colombia) 06-13-06 (Y) 10.500 300 309
Note (Colombia) 04-09-11 (Y) 9.750 500 510
Mexican, United States
Bond (Mexico) 03-12-08 (Y) 7.375 500 429
Sr Note (Mexico) 03-12-08 (Y) 8.625 250 260
Note (Mexico) 01-14-11 (Y) 8.375 475 477
New Zealand, Government of,
Bond (New Zealand) 04-15-03 # 5.500 500 200
Bond (New Zealand) 11-15-11 # 6.000 500 191
Panama, Republic of,
Bond (Panama) 02-08-11 (Y) 9.625 1,000 1,010
Peru, Republic of,
Bond (Peru) 03-07-17 (Y) 4.000 800 500
Russia, Federation of,
Unsub Note (Russia) 07-24-18 (Y) 11.000 1,125 973
Unsub Note (Russia) 06-26-07 (Y) 10.000 1,135 1,010
Note, Step Coupon (5.00%, 03-31-07) (Russia) 03-31-30 (Y) 5.000 650 307
Venezuela, Republic of,
Floating Rate Bond Ser DL (Venezuela) 12-18-07 (Y) 7.375 310 258
Bond (Venezuela) 09-15-27 (Y) 9.250 675 466
--------
13,030
--------
Government - U.S. (35.06%)
United States Treasury,
Bond 08-15-01 13.375 6,700 6,776
Bond 08-15-05 6.500 400 423
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
Bond (Canada) 12-01-06 # $ 2,000 $ 1,396
Bond (Canada) 06-01-08 # 250 167
Bond (Canada) 06-01-09 # 750 483
Bond (Canada) 06-01-10 # 575 369
Bond (Canada) 06-01-29 # 75 48
Colombia, Republic of,
Note (Colombia) 06-13-06 (Y) 300 309
Note (Colombia) 04-09-11 (Y) 500 510
Mexican, United States
Bond (Mexico) 03-12-08 (Y) 500 429
Sr Note (Mexico) 03-12-08 (Y) 250 260
Note (Mexico) 01-14-11 (Y) 475 477
New Zealand, Government of,
Bond (New Zealand) 04-15-03 # 500 200
Bond (New Zealand) 11-15-11 # 500 191
Panama, Republic of,
Bond (Panama) 02-08-11 (Y) 9.625% $ 50 $ 51 1,050 1,061
Peru, Republic of,
Bond (Peru) 03-07-17 (Y) 800 500
Russia, Federation of,
Unsub Note (Russia) 07-24-18 (Y) 1,125 973
Unsub Note (Russia) 06-26-07 (Y) 1,135 1,010
Note, Step Coupon (5.00%, 03-31-07) (Russia) 03-31-30 (Y) 650 307
Venezuela, Republic of,
Floating Rate Bond Ser DL (Venezuela) 12-18-07 (Y) 310 258
Bond (Venezuela) 09-15-27 (Y) 675 466
-------- --------
51 13,081
-------- --------
Government - U.S. (35.06%)
United States Treasury,
Bond 08-15-01 6,700 6,776
Bond 08-15-05 400 423
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
Bond 08-15-05 10.750% $ 400 $ 485
Bond 02-15-16 9.250 615 820
Bond 08-15-19 8.125 1,090 1,357
Bond 08-15-23 6.250 600 624
Bond 11-15-28 5.250 2,000 1,827
Note 08-31-02 6.250 3,870 3,967
Note 08-15-04 7.250 590 633
Note 05-15-05 6.500 1,300 1,375
Note 08-15-07 6.125 940 986
Note 02-15-11 5.000 1,500 1,455
--------
20,728
--------
Insurance (0.09%)
Willis Corroon Corp.,
Gtd Sr Sub Note 02-01-09
Leisure (2.28%)
Ameristar Casinos, Inc.,
Sr Sub Note 02-15-09 (R) 10.750 200 209
HMH Properties, Inc.,
Sr Note Ser B 08-01-08 7.875 100 94
Jupiters Ltd.,
Sr Note (Australia) 03-01-06 (Y) 8.500 150 148
Penn National Gaming, Inc.,
Sr Sub Note 03-01-08 (R) 11.125 200 207
Station Casinos, Inc.,
Sr Note 02-15-08 (R) 8.375 200 201
Sun International Hotels Ltd.,
Sr Sub Note (Bahamas) 12-15-07 (Y) 8.625 100 101
Waterford Gaming LLC,
Sr Note 03-15-10 (R) 9.500 199 195
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
Bond 08-15-05 $ 400 $ 485
Bond 02-15-16 615 820
Bond 08-15-19 1,090 1,357
Bond 08-15-23 600 624
Bond 11-15-28 2,000 1,827
Note 08-31-02 3,870 3,967
Note 08-15-04 590 633
Note 05-15-05 1,300 1,375
Note 08-15-07 940 986
Note 02-15-11 1,500 1,455
--------
20,728
--------
Insurance (0.09%)
Willis Corroon Corp.,
Gtd Sr Sub Note 02-01-09 9.000% $ 50 $ 51 50 51
-------- --------
Leisure (2.28%)
Ameristar Casinos, Inc.,
Sr Sub Note 02-15-09 (R) 10.750 50 52 250 261
HMH Properties, Inc.,
Sr Note Ser B 08-01-08 100 94
Jupiters Ltd.,
Sr Note (Australia) 03-01-06 (Y) 150 148
Penn National Gaming, Inc.,
Sr Sub Note 03-01-08 (R) 11.125 25 26 225 233
Station Casinos, Inc.,
Sr Note 02-15-08 (R) 200 201
Sun International Hotels Ltd.,
Sr Sub Note (Bahamas) 12-15-07 (Y) 100 101
Waterford Gaming LLC,
Sr Note 03-15-10 (R) 199 195
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
Claridge Hotel & Casino Corp.,
1st Mtg Note 02-01-02 (B)
Fitzgeralds Gaming Corp.,
Gtd Sr Sec Note Ser B 12-15-04 (B)
SC International Services, Inc.,
Sr Sub Note Ser B 09-01-07
Trump Atlantic City Associates,
1st Mtg Note 05-01-06
$ 1,155
--------
Machinery (0.17%)
Columbus McKinnon Corp.,
Sr Sub Note 04-01-08 8.500% $ 100 87
Glasstech, Inc.,
Sr Note Ser B 07-01-04
--------
87
--------
Manufacturing (0.03%)
ICON Health & Fitness, Inc.,
Gtd Note 09-27-05
Media (5.42%)
Adelphia Communications Corp.,
Sr Note 06-15-11 10.250 350 340
AMFM Operating, Inc.,
Sr Sub Deb 10-31-06 12.625 64 71
Callahan NRH
Sr Note (Germany) 07-15-11 (E) # 14.125 500 354
Charter Holdings LLC/Charter Comm. Capital Corp.,
Sr Note 01-15-11 11.125 300 315
Sr Note 05-15-11 (R) 10.000 200 200
Diamond Holdings Plc,
Bond (United Kingdom) 02-01-08 # 10.000 50 53
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
Claridge Hotel & Casino Corp.,
1st Mtg Note 02-01-02 (B) 11.750% $ 50 $ 2 $ 50 $ 2
Fitzgeralds Gaming Corp.,
Gtd Sr Sec Note Ser B 12-15-04 (B) 12.250 50 30 50 30
SC International Services, Inc.,
Sr Sub Note Ser B 09-01-07 9.250 30 32 30 32
Trump Atlantic City Associates,
1st Mtg Note 05-01-06 11.250 75 50 75 50
-------- --------
192 1,347
-------- --------
Machinery (0.17%)
Columbus McKinnon Corp.,
Sr Sub Note 04-01-08 100 87
Glasstech, Inc.,
Sr Note Ser B 07-01-04 12.750 25 15 25 15
-------- --------
15 102
-------- --------
Manufacturing (0.03%)
ICON Health & Fitness, Inc.,
Gtd Note 09-27-05 12.000 22 20 22 20
-------- --------
Media (5.42%)
Adelphia Communications Corp.,
Sr Note 06-15-11 350 340
AMFM Operating, Inc.,
Sr Sub Deb 10-31-06 64 71
Callahan NRH
Sr Note (Germany) 07-15-11 (E) # 14.125 50 35 550 389
Charter Holdings LLC/Charter Comm. Capital Corp.,
Sr Note 01-15-11 300 315
Sr Note 05-15-11 (R) 200 200
Diamond Holdings Plc,
Bond (United Kingdom) 02-01-08 # 50 53
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
DIVA Systems Corp.,
Sr Disc Note Ser B, Step Coupon
(12.625%, 03-01-03) 03-01-08 (A) Zero % $ 250 $ 35
Fox Family Worldwide, Inc.,
Sr Disc Note, Step Coupon (10.25%, 11-15-02) 11-01-07 Zero 400 356
Garden State Newspapers, Inc.,
Sr Sub Note 07-01-11 8.625 200 186
Sr Sub Note Ser B 10-01-09 8.750 200 188
Innova S. de R.L.,
Sr Note (Mexico) 04-01-07 (Y) 12.875 200 178
Pegasus Communications Corp.,
Sr Note Ser B 08-01-07 12.500 400 396
STC Broadcasting, Inc.,
Sr Sub Note 03-15-07 11.000 100 100
Antenna TV S.A.,
Sr Note (Germany) 07-01-08 (E)
Callahan Nordhein-Westfalen GmbH,
Fox Family Worldwide, Inc.,
Sr Disc Note, Step Coupon (10.25%, 11-01-02) 11-01-07 (A)
ONO Finance Plc,
Sr Sub Note (United Kingdom) 07-15-10 (E)
Pegasus Communications Corp.,
Sr Note Ser B 08-01-07
Pegasus Satellite Communications, Inc.,
Sr Disc Note, Step Coupon (13.50%, 03-01-04) 03-01-07 (A)
Regional Independent Media Group Plc,
Sr Disc Note, Step Coupon (12.875%, 07-01-03)
(United Kingdom) 07-01-08 (A) #
Sr Note (United Kingdom) 07-01-08 (Y)
Sirius Satellite Radio, Inc.,
Sr Disc Note, Step Coupon (15.00%, 12-01-02) 12-01-07 (A)
United International Holdings, Inc.,
Sr Disc Note, Step Coupon (10.75%, 02-15-03) 02-15-08 (A)
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
DIVA Systems Corp.,
Sr Disc Note Ser B, Step Coupon
(12.625%, 03-01-03) 03-01-08 (A) Zero % $ 50 $ 7 $ 300 $ 42
Fox Family Worldwide, Inc.,
Sr Disc Note, Step Coupon (10.25%, 11-15-02) 11-01-07 400 356
Garden State Newspapers, Inc.,
Sr Sub Note 07-01-11 200 186
Sr Sub Note Ser B 10-01-09 200 188
Innova S. de R.L.,
Sr Note (Mexico) 04-01-07 (Y) 200 178
Pegasus Communications Corp.,
Sr Note Ser B 08-01-07 400 396
STC Broadcasting, Inc.,
Sr Sub Note 03-15-07 100 100
Antenna TV S.A.,
Sr Note (Germany) 07-01-08 (E) 9.750 50 42 50 42
Callahan Nordhein-Westfalen GmbH,
Fox Family Worldwide, Inc.,
Sr Disc Note, Step Coupon (10.25%, 11-01-02) 11-01-07 (A) Zero 80 71 80 71
ONO Finance Plc,
Sr Sub Note (United Kingdom) 07-15-10 (E) 14.000 50 33 50 33
Pegasus Communications Corp.,
Sr Note Ser B 08-01-07 12.500 35 35 35 35
Pegasus Satellite Communications, Inc.,
Sr Disc Note, Step Coupon (13.50%, 03-01-04) 03-01-07 (A) Zero 60 37 60 37
Regional Independent Media Group Plc,
Sr Disc Note, Step Coupon (12.875%, 07-01-03)
(United Kingdom) 07-01-08 (A) # Zero 20 23 20 23
Sr Note (United Kingdom) 07-01-08 (Y) 10.500 5 5 5 5
Sirius Satellite Radio, Inc.,
Sr Disc Note, Step Coupon (15.00%, 12-01-02) 12-01-07 (A) Zero 110 36 110 36
United International Holdings, Inc.,
Sr Disc Note, Step Coupon (10.75%, 02-15-03) 02-15-08 (A) Zero 75 23 75 23
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
XM Satellite Radio, Inc.,
Sr Sec Note 03-15-10
--------
$ 2,772
--------
Medical (0.45%)
Select Medical Corp.,
Sr Sub Note 06-15-09 9.500% $ 150 148
Magellan Health Services, Inc.,
Sr Sub Note 02-15-08
--------
148
--------
Metal (0.37%)
Doe Run Resources Corp.,
Gtd Sr Note Ser B 03-15-03
Gtd Sr Note Ser B 03-15-05
Freeport-McMoRan Copper & Gold, Inc.,
Sr Note 11-15-06
Golden Northwest Aluminum, Inc.,
1st Mtg Note 12-15-06
Great Lakes Acquisition Corp.,
Sr Disc Deb, Step Coupon (13.125%, 05-15-03) 05-15-09 (A)
TVX Gold, Inc.,
Conv Sub Note (Canada) 03-28-02 (Y)
Miscellaneous (0.07%)
Sotheby's Holdings, Inc.,
Note 02-01-09
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
XM Satellite Radio, Inc.,
Sr Sec Note 03-15-10 14.000% $ 150 $ 88 $ 150 $ 88
-------- --------
435 3,207
-------- --------
Medical (0.45%)
Select Medical Corp.,
Sr Sub Note 06-15-09 9.500 25 25 175 172
Magellan Health Services, Inc.,
Sr Sub Note 02-15-08 9.000 100 94 100 94
-------- --------
119 267
-------- --------
Metal (0.37%)
Doe Run Resources Corp.,
Gtd Sr Note Ser B 03-15-03 11.181 25 9 25 9
Gtd Sr Note Ser B 03-15-05 11.250 10 3 10 3
Freeport-McMoRan Copper & Gold, Inc.,
Sr Note 11-15-06 7.500 75 50 75 50
Golden Northwest Aluminum, Inc.,
1st Mtg Note 12-15-06 12.000 25 13 25 13
Great Lakes Acquisition Corp.,
Sr Disc Deb, Step Coupon (13.125%, 05-15-03) 05-15-09 (A) Zero 200 80 200 80
TVX Gold, Inc.,
Conv Sub Note (Canada) 03-28-02 (Y) 5.000 100 63 100 63
-------- --------
218 218
-------- --------
Miscellaneous (0.07%)
Sotheby's Holdings, Inc.,
Note 02-01-09 6.875 50 41 50 41
-------- --------
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
Oil & Gas (3.42%)
Chesapeake Energy Corp.,
Sr Note 04-01-11 (R) 8.125% $ 300 $ 280
Comstock Resources, Inc.,
Sr Note 05-01-07 11.250 100 106
Ocean Rig Norway A.S.,
Sr Sec Note (Norway) 06-01-08 (Y) 10.250 200 176
Parker Drilling Co.,
Sr Note 11-15-06 9.750 300 305
PEMEX Project Funding Master Trust,
Gtd Note 02-15-08 (R) 8.500 200 206
Pennzoil-Quaker State Co.,
Note 12-01-02 9.400 250 252
Frontier Oil Corp.,
Sr Sub Note 11-15-09
Giant Industries, Inc.,
Gtd Sr Sub Note 09-01-07
Sr Sub Note 11-15-03
Great Lakes Carbon Corp.,
Gtd Sr Sub Note Ser B 05-15-08
Key Energy Services, Inc.,
Conv Sub Note 09-15-04 (R)
Conv Sub Note 09-15-04
Sr Sub Note Ser B 01-15-09
Mariner Energy, Inc.,
Sr Sub Note Ser B 08-01-06
Universal Compression, Inc.,
Sr Disc Note, Step Coupon (9.875%, 02-15-03) 02-15-08 (A)
--------
1,325
--------
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
Oil & Gas (3.42%)
Chesapeake Energy Corp.,
Sr Note 04-01-11 (R) $ 300 $ 280
Comstock Resources, Inc.,
Sr Note 05-01-07 11.250% $ 75 $ 80 175 186
Ocean Rig Norway A.S.,
Sr Sec Note (Norway) 06-01-08 (Y) 10.250 55 48 255 224
Parker Drilling Co.,
Sr Note 11-15-06 300 305
PEMEX Project Funding Master Trust,
Gtd Note 02-15-08 (R) 200 206
Pennzoil-Quaker State Co.,
Note 12-01-02 250 252
Frontier Oil Corp.,
Sr Sub Note 11-15-09 11.750 50 53 50 53
Giant Industries, Inc.,
Gtd Sr Sub Note 09-01-07 9.000 50 48 50 48
Sr Sub Note 11-15-03 9.750 25 25 25 25
Great Lakes Carbon Corp.,
Gtd Sr Sub Note Ser B 05-15-08 10.250 50 30 50 30
Key Energy Services, Inc.,
Conv Sub Note 09-15-04 (R) 5.000 80 74 80 74
Conv Sub Note 09-15-04 5.000 143 132 143 132
Sr Sub Note Ser B 01-15-09 14.000 93 107 93 107
Mariner Energy, Inc.,
Sr Sub Note Ser B 08-01-06 10.500 10 10 10 10
Universal Compression, Inc.,
Sr Disc Note, Step Coupon (9.875%, 02-15-03) 02-15-08 (A) Zero 100 90 100 90
-------- --------
697 2,022
-------- --------
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
Paper & Paper Products (1.95%)
Corporacion Durango S.A. de C.V.,
Sr Note (Mexico) 08-01-06 (Y) 13.125% $ 300 $ 300
Grupo Industrial Durango S.A.,
Note (Mexico) 08-01-03 (Y) 12.625 200 210
Kappa Beheer BV,
Sr Sub Note (Netherlands) 07-15-09 (E) (R) 10.625 150 135
Stone Container Corp.,
Sr Note 02-01-11 (R) 9.750 200 204
APP China Group Ltd.,
Unit (Sr Disc Note & Warrant)
(Indonesia) 03-15-10 (B) (R) (Y)
APP Finance (VII) Mauritius Ltd.,
Gtd Note (Indonesia) 04-30-03 (B) (R) (Y)
Sappi BVI Finance Ltd.,
Gtd Conv Bond (South Africa) 08-01-02 (R) (Y)
--------
849
--------
Real Estate Operations (0.00%)
Signature Resorts, Inc.,
Conv Sub Note 01-15-07 (B)
Retail (0.10%)
Imperial Home Decor Group, Inc,
Gtd Sr Sub Note 03-15-08 (B)
SpinCycle, Inc.,
Sr Disc Note, Step Coupon (12.75%, 05-01-01) 05-01-05 (A)
St. John Knits International, Inc.,
Sr Sub Note 07-01-09
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
Paper & Paper Products (1.95%)
Corporacion Durango S.A. de C.V.,
Sr Note (Mexico) 08-01-06 (Y) 13.125% $ 125 $ 125 $ 425 $ 425
Grupo Industrial Durango S.A.,
Note (Mexico) 08-01-03 (Y) 12.625 125 131 325 341
Kappa Beheer BV,
Sr Sub Note (Netherlands) 07-15-09 (E) (R) 150 135
Stone Container Corp.,
Sr Note 02-01-11 (R) 200 204
APP China Group Ltd.,
Unit (Sr Disc Note & Warrant)
(Indonesia) 03-15-10 (B) (R) (Y) 14.000 250 38 250 38
APP Finance (VII) Mauritius Ltd.,
Gtd Note (Indonesia) 04-30-03 (B) (R) (Y) 3.500 10 0 10 0
Sappi BVI Finance Ltd.,
Gtd Conv Bond (South Africa) 08-01-02 (R) (Y) 7.500 10 10 10 10
-------- --------
304 1,153
-------- --------
Real Estate Operations (0.00%)
Signature Resorts, Inc.,
Conv Sub Note 01-15-07 (B) 5.750 35 1 35 1
-------- --------
Retail (0.10%)
Imperial Home Decor Group, Inc,
Gtd Sr Sub Note 03-15-08 (B) 11.000 125 1 125 1
SpinCycle, Inc.,
Sr Disc Note, Step Coupon (12.75%, 05-01-01) 05-01-05 (A) Zero 25 7 25 7
St. John Knits International, Inc.,
Sr Sub Note 07-01-09 12.500 50 50 50 50
-------- --------
58 58
-------- --------
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
Steel (0.16%)
Gulf States Steel, Inc. of Alabama,
1st Mtg Bond 04-15-03 (B)
LTV Corp. (The),
Gtd Sr Sub Note 11-15-09 (B)
Metallurg Holdings, Inc.,
Sr Disc Note, Step Coupon (12.75%, 07-15-03) 07-15-08 (A)
Metallurg, Inc.,
Gtd Sr Note Ser B 12-01-07
NSM Steel, Inc./NSM Steel Ltd.,
Gtd Sr Sub Mtg Note Ser B 02-01-08 (B) (R)
Oregon Steel CF&I,
Note 03-31-03 (r)
Telecommunications (3.51%)
American Cellular Corp.,
Sr Sub Note 10-15-09 9.500% $ 200 $ 188
Comunicacion Celular S.A.,
Sr Def Bond (Colombia) 03-01-05 (R) (Y) Zero 100 91
Esprit Telecom Group Plc,
Sr Note (United Kingdom) 12-15-07 (Y) 11.500 100 3
Sr Note (Deutsche Mark) 06-15-08# 11.000 140 1
Grupo Iusacell S.A. de C.V.,
Sr Note (Mexico) 12-01-06 (Y) 14.250 200 212
GT Group Telecom, Inc.,
Sr Disc Note, Step Coupon (13.25%, 02-01-05)
(Canada) 02-01-10 (A) Zero 200 56
Intercel, Inc.,
Unit (Sr Note & Warrant), Step Coupon
(12.00%, 02-01-01) 02-01-06 (A) Zero 200 206
Ionica PLC,
Sr Disc Note, Step Coupon (15.00%, 05-01-02)
(United Kingdom) 05-01-07 (A) (Y) Zero 200 2
McCaw International Ltd.,
Sr Disc Note, Step Coupon (13.00%, 04-15-02) 04-15-07 (A) Zero 500 165
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
Steel (0.16%)
Gulf States Steel, Inc. of Alabama,
1st Mtg Bond 04-15-03 (B) 13.500% $ 100 $ 0 $ 100 $ 0
LTV Corp. (The),
Gtd Sr Sub Note 11-15-09 (B) 11.750 50 4 50 4
Metallurg Holdings, Inc.,
Sr Disc Note, Step Coupon (12.75%, 07-15-03) 07-15-08 (A) Zero 50 23 50 23
Metallurg, Inc.,
Gtd Sr Note Ser B 12-01-07 11.000 30 27 30 27
NSM Steel, Inc./NSM Steel Ltd.,
Gtd Sr Sub Mtg Note Ser B 02-01-08 (B) (R) 12.250 75 1 75 1
Oregon Steel CF&I,
Note 03-31-03 (r) 9.500 46 42 46 42
-------- --------
97 97
-------- --------
Telecommunications (3.51%)
American Cellular Corp.,
Sr Sub Note 10-15-09 200 188
Comunicacion Celular S.A.,
Sr Def Bond (Colombia) 03-01-05 (R) (Y) 100 91
Esprit Telecom Group Plc,
Sr Note (United Kingdom) 12-15-07 (Y) 100 3
Sr Note (Deutsche Mark) 06-15-08# 140 1
Grupo Iusacell S.A. de C.V.,
Sr Note (Mexico) 12-01-06 (Y) 14.250 100 106 300 318
GT Group Telecom, Inc.,
Sr Disc Note, Step Coupon (13.25%, 02-01-05)
(Canada) 02-01-10 (A) 200 56
Intercel, Inc.,
Unit (Sr Note & Warrant), Step Coupon
(12.00%, 02-01-01) 02-01-06 (A) 200 206
Ionica PLC,
Sr Disc Note, Step Coupon (15.00%, 05-01-02)
(United Kingdom) 05-01-07 (A) (Y) 200 2
McCaw International Ltd.,
Sr Disc Note, Step Coupon (13.00%, 04-15-02) 04-15-07 (A) 500 165
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
MetroNet Communications Corp.,
Sr Discount Note, Step Coupon (10.75%, 11-01-02)
(Canada) 11-01-07 (A) (Y) Zero % $ 200 $ 189
Sr Note (Canada) 08-15-07 (Y) 12.000 50 55
Nextel International, Inc.,
Sr Note 08-01-10 (R) 12.750 100 50
NorthEast Optic Network, Inc.,
Sr Note 08-15-08 12.750 100 28
ONO Finance Plc,
Sr Sub Note (United Kingdom) 05-01-09 (E) 13.000 100 64
Sr Note (United Kingdom) 07-15-10 (E) 14.000 200 132
Pronet Inc.,
Sr Sub Note 06-15-05 11.875 280 28
TeleCorp PCS, Inc.,
Sr Sub Disc Note, Step Coupon
(11.625%, 04-15-04) 04-15-09 (A) Zero 175 107
Telewest Communications Plc,
Sr Disc Note, Step Coupon (9.875%, 04-15-04)
(British Pound Sterling) 04-15-09 (A) (Y) Zero 100 68
Sr Note 02-01-10 (R) # 9.875 100 114
VoiceStream Wireless Corp.,
Sr Note 09-15-09 11.500 100 115
CTI Holdings S.A.,
Sr Note, Step Coupon (11.25%, 04-15-03)
(Argentina) 04-15-08 (A) (Y)
Esprit Telecom Group Plc,
Sr Note (Germany) 06-15-08 (B) #
GT Group Telecom, Inc.,
Unit (Sr Disc Note & Warrant), Step Coupon
(13.125%, 02-01-05) 02-01-10 (A)
PTC International Finance II S.A.,
Gtd Sr Sub Note (Luxembourg) 12-01-09 (E)
Telewest Communications Plc,
Sr Disc Note, Step Coupon (9.875%, 04-15-04)
(United Kingdom) 04-15-09 (A) #
--------
1,874
--------
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
MetroNet Communications Corp.,
Sr Discount Note, Step Coupon (10.75%, 11-01-02)
(Canada) 11-01-07 (A) (Y) $ 200 $ 189
Sr Note (Canada) 08-15-07 (Y) 50 55
Nextel International, Inc.,
Sr Note 08-01-10 (R) 100 50
NorthEast Optic Network, Inc.,
Sr Note 08-15-08 100 28
ONO Finance Plc,
Sr Sub Note (United Kingdom) 05-01-09 (E) 100 64
Sr Note (United Kingdom) 07-15-10 (E) 200 132
Pronet Inc.,
Sr Sub Note 06-15-05 280 28
TeleCorp PCS, Inc.,
Sr Sub Disc Note, Step Coupon
(11.625%, 04-15-04) 04-15-09 (A) 175 107
Telewest Communications Plc,
Sr Disc Note, Step Coupon (9.875%, 04-15-04)
(British Pound Sterling) 04-15-09 (A) (Y) 100 68
Sr Note 02-01-10 (R) # 100 114
VoiceStream Wireless Corp.,
Sr Note 09-15-09 100 115
CTI Holdings S.A.,
Sr Note, Step Coupon (11.25%, 04-15-03)
(Argentina) 04-15-08 (A) (Y) Zero % $ 75 $ 29 75 29
Esprit Telecom Group Plc,
Sr Note (Germany) 06-15-08 (B) # 11.000 40 0 40 0
GT Group Telecom, Inc.,
Unit (Sr Disc Note & Warrant), Step Coupon
(13.125%, 02-01-05) 02-01-10 (A) 1.000 100 28 100 28
PTC International Finance II S.A.,
Gtd Sr Sub Note (Luxembourg) 12-01-09 (E) 11.250 25 22 25 22
Telewest Communications Plc,
Sr Disc Note, Step Coupon (9.875%, 04-15-04)
(United Kingdom) 04-15-09 (A) # Zero 25 17 25 17
-------- --------
202 2,076
-------- --------
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
Telecommunications - Services (2.66%)
COLT Telecom Group Plc, (United Kingdom)
Sr Note (Deutsche Mark) 07-31-08# 7.625% $ 300 $ 105
Crown Castle International Corp.,
Sr Disc Note, Step Coupon (10.625%, 11-15-02) 11-15-07 (A) Zero 150 115
Energis Plc,
Sr Note (United Kingdom) 06-15-09 (R) # 9.500 130 165
Jazztel Plc,
Sr Note (United Kingdom) 12-15-09 (E) 13.250 200 63
Nextel Partners, Inc.,
Sr Disc Note, Step Coupon (14.00%, 02-01-04) 02-01-09 (A) Zero 390 218
NTL Communications Corp.,
Sr Note Ser B 10-01-08 11.500 100 67
Sr Note Ser B, Step Coupon
(12.375%, 10-01-03) 10-01-08 (A) Zero 150 63
Orion Network Systems,
Sr Note 01-15-07 11.250 100 40
Time Warner Telecom LLC,
Sr Note 07-15-08 9.750 200 177
Time Warner Telecom, Inc.,
Sr Note 02-01-11 10.125 200 179
Tritel PCS, Inc.,
Sr Sub Disc Note 05-15-09 12.750 100 63
United Pan-Europe Communicatons N.V.,
Sr Disc Note, Step Coupon (13.375%, 11-01-04)
(Netherlands) 11-01-09 (A) (E) Zero 40 10
Sr Note (Netherlands) 11-01-07 (E) 10.875 40 19
Sr Note (Netherlands) 11-01-09 (E) 11.250 65 31
Versatel Telecom International NV,
Sr Note (Netherlands) 05-15-08 (Y) 13.250 100 38
Sr Note Ser EU (Netherlands) 07-15-09 (E) 11.875 100 33
--------
1,386
--------
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
Telecommunications - Services (2.66%)
COLT Telecom Group Plc, (United Kingdom)
Sr Note (Deutsche Mark) 07-31-08# $ 300 $ 105
Crown Castle International Corp.,
Sr Disc Note, Step Coupon (10.625%, 11-15-02) 11-15-07 (A) 150 115
Energis Plc,
Sr Note (United Kingdom) 06-15-09 (R) # 130 165
Jazztel Plc,
Sr Note (United Kingdom) 12-15-09 (E) 13.250% $ 50 $ 16 250 78
Nextel Partners, Inc.,
Sr Disc Note, Step Coupon (14.00%, 02-01-04) 02-01-09 (A) Zero 15 8 405 227
NTL Communications Corp.,
Sr Note Ser B 10-01-08 11.500 50 34 150 101
Sr Note Ser B, Step Coupon
(12.375%, 10-01-03) 10-01-08 (A) Zero 100 42 250 105
Orion Network Systems,
Sr Note 01-15-07 100 40
Time Warner Telecom LLC,
Sr Note 07-15-08 200 177
Time Warner Telecom, Inc.,
Sr Note 02-01-11 200 179
Tritel PCS, Inc.,
Sr Sub Disc Note 05-15-09 100 63
United Pan-Europe Communicatons N.V.,
Sr Disc Note, Step Coupon (13.375%, 11-01-04)
(Netherlands) 11-01-09 (A) (E) 40 10
Sr Note (Netherlands) 11-01-07 (E) 10.875 50 24 90 43
Sr Note (Netherlands) 11-01-09 (E) 11.250 25 12 90 43
Versatel Telecom International NV,
Sr Note (Netherlands) 05-15-08 (Y) 13.250 125 47 225 85
Sr Note Ser EU (Netherlands) 07-15-09 (E) 100 33
-------- --------
183 1,569
-------- --------
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
Textile (0.16%)
Coyne International Enterprises Corp.,
Sr Sub Note 06-01-08
Steel Heddle Group, Inc.,
Sr Disc Deb, Step Coupon (13.75%, 06-01-03) 06-01-09 (A)
Steel Heddle Manufacturing Co.,
Gtd Sr Sub Note Ser B 06-01-08 (B)
Tropical Sportswear International Corp.,
Sr Sub Note Ser A 06-15-08
Transportation (1.38%)
CHC Helicopter Corp.,
Sr Sub Note (Canada) 07-15-07 (E) 11.750% $ 200 $ 190
Fine Air Services, Corp.,
Sr Note 06-01-08 (B) (R) 9.875 105 6
North American Van Lines, Inc.,
Sr Sub Note 12-01-09 (R) 13.375 150 138
Amtran, Inc.,
Sr Note 08-01-04
Cenargo International Plc,
1st Mtg Note (United Kingdom) 06-15-08 (Y)
Northwest Airlines Corp.,
Gtd Note 03-15-07
Pacer International, Inc.,
Sr Sub Note 06-01-07
Pacific & Atlantic Holdings, Inc.,
Sr Sec Note 12-31-07 (R)
US Airways, Inc.,
Pass Thru Ctf Ser 1993-A3 03-01-13
--------
334
--------
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
Textile (0.16%)
Coyne International Enterprises Corp.,
Sr Sub Note 06-01-08 11.250% $ 75 $ 32 $ 75 $ 32
Steel Heddle Group, Inc.,
Sr Disc Deb, Step Coupon (13.75%, 06-01-03) 06-01-09 (A) Zero 200 10 200 10
Steel Heddle Manufacturing Co.,
Gtd Sr Sub Note Ser B 06-01-08 (B) 10.625 50 7 50 7
Tropical Sportswear International Corp.,
Sr Sub Note Ser A 06-15-08 11.000 50 46 50 46
-------- --------
95 95
-------- --------
Transportation (1.38%)
CHC Helicopter Corp.,
Sr Sub Note (Canada) 07-15-07 (E) 11.750 100 95 300 285
Fine Air Services, Corp.,
Sr Note 06-01-08 (B) (R) 9.875 105 6 210 13
North American Van Lines, Inc.,
Sr Sub Note 12-01-09 (R) 13.375 100 92 250 230
Amtran, Inc.,
Sr Note 08-01-04 10.500 50 44 50 44
Cenargo International Plc,
1st Mtg Note (United Kingdom) 06-15-08 (Y) 9.750 20 15 20 15
Northwest Airlines Corp.,
Gtd Note 03-15-07 8.700 100 97 100 97
Pacer International, Inc.,
Sr Sub Note 06-01-07 11.750 50 49 50 49
Pacific & Atlantic Holdings, Inc.,
Sr Sec Note 12-31-07 (R) 10.500 21 11 21 11
US Airways, Inc.,
Pass Thru Ctf Ser 1993-A3 03-01-13 10.375 75 73 75 73
-------- --------
482 816
-------- --------
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
Utilities (1.59%)
CMS Energy Corp.,
Sr Note 10-15-07 9.875% $ 200 $ 211
Midland Funding Corp. II,
Deb Ser A 07-23-05 11.750 200 221
Deb Ser B 07-23-06 13.250 150 174
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico) 11-15-09 (R) (Y) 9.625 90 94
Niagara Mohawk Power Corp.,
Sec Fac Bond 01-01-18 8.770 141 146
--------
846
--------
Waste Disposal Service & Equip (0.21%)
Allied Waste North America, Inc.,
Sr Sub Note Ser B 08-01-09
Waste Systems International, Inc.,
Gtd Sr Note 01-15-06 (B)
TOTAL LONG-TERM DEBT (85.46%)
(Cost $55,341,393) 45,639
--------
NUMBER OF
SHARES
OR WARRANTS
-----------
COMMON STOCK
AT&T Canada, Inc., Common Stock (Canada) (Y) ** 2,000 60
GT Group Telecom, Inc. (Class B), Common Stock
(Canada) (Y) ** 982 4
Common Stock (Netherlands) (Y) 397 7
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
Utilities (1.59%)
CMS Energy Corp.,
Sr Note 10-15-07 9.875% $ 25 $ 26 $ 225 $ 237
Midland Funding Corp. II,
Deb Ser A 07-23-05 200 221
Deb Ser B 07-23-06 150 174
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico) 11-15-09 (R) (Y) 9.625 68 70 158 164
Niagara Mohawk Power Corp.,
Sec Fac Bond 01-01-18 141 146
-------- --------
96 942
-------- --------
Waste Disposal Service & Equip (0.21%)
Allied Waste North America, Inc.,
Sr Sub Note Ser B 08-01-09 10.000 125 128 125 128
Waste Systems International, Inc.,
Gtd Sr Note 01-15-06 (B) 11.500 15 3 15 3
-------- --------
131 131
-------- --------
TOTAL LONG-TERM DEBT (85.46%)
(Cost $55,341,393) 4,887 50,526
-------- --------
NUMBER OF NUMBER OF
SHARES SHARES
OR WARRANTS OR WARRANTS
----------- -----------
COMMON STOCK
AT&T Canada, Inc., Common Stock (Canada) (Y) ** 2,000 60
GT Group Telecom, Inc. (Class B), Common Stock
(Canada) (Y) ** 982 4
Common Stock (Netherlands) (Y) 397 7
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
NUMBER OF
SHARES
OR WARRANTS
-----------
Kraft Foods, Inc. (Class A) ** 1,540 $ 48
Nortek, Inc., Common Stock ** 704 22
Versatel Telecom International N.V., ADR Common Stock
(Netherlands) ** 1,333 4
American Pacific Corp.**
AMR Corp.**
Chesapeake Energy Corp.**
Gaylord Container Corp. (Class A)**
Grey Wolf, Inc.**
International Wireless Communications Holdings, Inc.
KLM Royal Dutch Airlines N.V. (Netherlands) (Y)
Northwest Airlines Corp.**
Pathmark Stores, Inc.**
Star Gas Partners, L.P.
Waste Systems International, Inc. (B)**
--------
TOTAL COMMON STOCK (1.14%)
(Cost $896,922) 145
--------
PREFERRED STOCKS AND WARRANTS
Allegiance Telecom, Inc. Warrant ** 250 15
Comunicacion Celular S.A., Warrant (Colombia) (Y) ** 100 0
DIVA Systems Corp. Warrant (R) ** 750 1
Loral Space & Communications Ltd. Warrant ** 100 0
ONO Finance Plc, Warrant (United Kingdom) (E) (R) ** 50 1
ONO Finance Plc, Warrant (United Kingdom) (R) (Y) ** 50 2
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
NUMBER OF NUMBER OF
SHARES SHARES
OR WARRANTS OR WARRANTS
----------- -----------
Kraft Foods, Inc. (Class A) ** 255 $ 8 1,795 $ 56
Nortek, Inc., Common Stock ** 563 18 1,267 40
Versatel Telecom International N.V., ADR Common Stock
(Netherlands) ** 1,333 4
American Pacific Corp.** 5,000 32 5,000 32
AMR Corp.** 2,000 72 2,000 72
Chesapeake Energy Corp.** 1,872 12 1,872 12
Gaylord Container Corp. (Class A)** 6,500 7 6,500 7
Grey Wolf, Inc.** 28,850 116 28,850 116
International Wireless Communications Holdings, Inc. 2,417 1 2,417 1
KLM Royal Dutch Airlines N.V. (Netherlands) (Y) 78 1 78 1
Northwest Airlines Corp.** 6,500 164 6,500 164
Pathmark Stores, Inc.** 1,046 26 1,046 26
Star Gas Partners, L.P. 3,300 69 3,300 69
Waste Systems International, Inc. (B)** 8,715 8,715
-------- --------
TOTAL COMMON STOCK (1.14%)
(Cost $896,922) 526 671
-------- --------
PREFERRED STOCKS AND WARRANTS
Allegiance Telecom, Inc. Warrant ** 250 15
Comunicacion Celular S.A., Warrant (Colombia) (Y) ** 100 0
DIVA Systems Corp. Warrant (R) ** 150 0 900 1
Loral Space & Communications Ltd. Warrant ** 100 0
ONO Finance Plc, Warrant (United Kingdom) (E) (R) ** 50 1
ONO Finance Plc, Warrant (United Kingdom) (R) (Y) ** 50 2 100 4
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
NUMBER OF
SHARES
OR WARRANTS
-----------
XO Communications Inc., 14% Preferred Stock 2,505 $ 75
Asia Pulp & Paper Co. Ltd., Warrant (R)**
Gothic Energy Corp., Warrant**
HF Holdings, Inc., Warrant**
Hills Stores Co., Warrant**
Nakornthai Strip Mill Plc, Warrant (Thailand) (R) (Y)**
Nextel Communications, Inc., 11.125%, Payment-In-Kind,
Ser E, Preferred Stock
Pacific & Atlantic Holdings, Inc., 7.50%, Preferred Stock
Pathmark Stores, Inc., Warrant**
Smurfit-Stone Container Corp., 7.00%, Ser A,
Preferred Stock
SpinCycle, Inc., Warrant (R)**
TimberWest Forest Corp., Unit (Common & Preferred Shares)
(Canada) #
Waste Systems International, Inc., 8.00%, Ser E,
Preferred Stock (B)**
Waste Systems International, Inc., Warrant (B) (R)**
XM Satellite Radio Holdings, Inc., Warrant (R)**
--------
TOTAL PREFERRED STOCKS AND WARRANTS (1.06%)
(Cost $895,388) 94
--------
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
NUMBER OF NUMBER OF
SHARES SHARES
OR WARRANTS OR WARRANTS
----------- -----------
XO Communications Inc., 14% Preferred Stock 2,505 $ 75
Asia Pulp & Paper Co. Ltd., Warrant (R)** 250 $ 0 0 0
Gothic Energy Corp., Warrant** 79 0 79 0
HF Holdings, Inc., Warrant** 212 0 212 0
Hills Stores Co., Warrant** 35,000 0 35,000 0
Nakornthai Strip Mill Plc, Warrant (Thailand) (R) (Y)** 63,309 0 63,309 0
Nextel Communications, Inc., 11.125%, Payment-In-Kind,
Ser E, Preferred Stock 208 131 208 131
Pacific & Atlantic Holdings, Inc., 7.50%, Preferred Stock 1,172 6 1,172 6
Pathmark Stores, Inc., Warrant** 740 6 740 6
Smurfit-Stone Container Corp., 7.00%, Ser A,
Preferred Stock 4,100 80 4,100 80
SpinCycle, Inc., Warrant (R)** 25 0 25 0
TimberWest Forest Corp., Unit (Common & Preferred Shares)
(Canada) # 38,000 306 38,000 306
Waste Systems International, Inc., 8.00%, Ser E,
Preferred Stock (B)** 160 0 160 0
Waste Systems International, Inc., Warrant (B) (R)** 225 0 225 0
XM Satellite Radio Holdings, Inc., Warrant (R)** 150 3 150 3
-------- --------
TOTAL PREFERRED STOCKS AND WARRANTS (1.06%)
(Cost $895,388) 534 628
-------- --------
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Strategic Income Fund and the V.A. High Yield Bond Fund, combined on
June 30, 2001.
-----------------------------------------
John Hancock V.A. Strategic Income Fund
-----------------------------------------
PAR VALUE MARKET VALUE
INTEREST (000's (000's
RATE OMITTED) OMITTED)
-----------------------------------------
ISSUER, DESCRIPTION
SHORT-TERM INVESTMENTS
Joint Repurchase Agreementss
Investment in a joint repurchase agreement transaction
with UBS Warburg, Inc. - Dated 06-29-01, due 07-02-01
(Secured by U.S. Treasury Bonds, 10.625% due 08-15-15
and 6.250% due 08-15-23, U.S. Treasury Note 5.625%
due 11-30-02) - Note A 3.970% $ 12,252 $ 12,252
Investment in a joint repurchase agreement
transaction with UBS Warburg, Inc. - Dated 06-29-01,
due 07-02-01 (Secured by U.S. Treasury Bonds,
10.625% due 08-15-15 and 6.250% due 08-15-23,
U.S. Treasury Note 5.625% due 11-30-02) - Note B
--------
SHORT-TERM INVESTMENTS (20.87%) 12,252
--------
TOTAL INVESTMENTS (108.53%) 58,130
--------
OTHER ASSETS AND LIABILITIES, NET (8.53%) (5,294)
--------
TOTAL NET ASSETS (100.00%) $ 52,836
========
-----------------------------------------------------------------------
John Hancock V.A. High Yield Bond Fund Combined
-----------------------------------------------------------------------
PAR VALUE MARKET VALUE PAR VALUE MARKET VALUE
INTEREST (000's (000's (000's (000's
RATE OMITTED) OMITTED) OMITTED) OMITTED)
-----------------------------------------------------------------------
ISSUER, DESCRIPTION
SHORT-TERM INVESTMENTS
Joint Repurchase Agreementss
Investment in a joint repurchase agreement transaction
with UBS Warburg, Inc. - Dated 06-29-01, due 07-02-01
(Secured by U.S. Treasury Bonds, 10.625% due 08-15-15
and 6.250% due 08-15-23, U.S. Treasury Note 5.625%
due 11-30-02) - Note A $ 12,252 $ 12,252
Investment in a joint repurchase agreement
transaction with UBS Warburg, Inc. - Dated 06-29-01,
due 07-02-01 (Secured by U.S. Treasury Bonds,
10.625% due 08-15-15 and 6.250% due 08-15-23,
U.S. Treasury Note 5.625% due 11-30-02) - Note B 3.970% $ 85 85 85 85
-------- --------
SHORT-TERM INVESTMENTS (20.87%) 85 12,337
-------- --------
TOTAL INVESTMENTS (108.53%) 6,032 64,162
-------- --------
OTHER ASSETS AND LIABILITIES, NET (8.53%) 252 (5,042)
-------- --------
TOTAL NET ASSETS (100.00%) $ 6,284 $ 59,120
======== ========
Notes to Schedule of Investments
* Credit Ratings are unaudited and rated by Moodys's Investor Service or John
Hancock Advisers, Inc. where Standard & Poor's ratings are not available.
** Non-income producing security.
# Par value of foreign bonds is expressed in local currency, as shown
parathentically in security description.
(A) Cash interest will be paid on this obligation at the stated rate beginning
on the stated date.
(B) Non-income producing issuer filed for protection under Federal Bankruptcy
Code or is in default of interest payment.
(E) Parenthetical disclosure of a country in the Security description represents
country of issuer; however, security is Euro Denominated.
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. Rule 144A
securities amounted to $3,649,429 or 6.17% of the fund's net assets as of
June 30, 2001.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer, however, security is U. S. dollar
denominated.
(r) Direct placement securities are restricted as to resale. They have been
valued in accordance with procedures approved by the Trustees after
consideration of restrictions as to resale, financial condition and
prospects of the issuer, general market conditions and pertinent information
in accordance with the Fund's By-Laws and the Investment Company Act of
1940, as amended. The Fund has limited rights to registration under the
Securities Act of 1933 with respect to these restricted securities.
MARKET
VALUE AS A MARKET
ACQUISITION % VALUE AT
ACQUISITION COST OF FUND'S 30-Jun-2001
ISSUER, DESCRIPTION DATE (000 OMITTED) NET ASSETS (000 OMITTED)
- ------------------- ---- ------------- ---------- -------------
Oregon Steel CF & I 05-14-98 44 #REF! 42
The percentage shown for each investment category is the total value of that
category as a percentage of the combined net assets of the funds.
Exhibit C
JOHN HANCOCK V.A. FINANCIAL INDUSTRIES FUND
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
JUNE 30, 2001
Pro forma information is intended to provide the shareholders of the John
Hancock V.A. Financial Industries Fund and the John Hancock V.A. Regional Bank
Fund with information about the impact of the proposed merger by indicating how
the merger might have affected information had the merger been consummated as of
June 30, 2000.
The pro forma combined statements of assets and liabilities and results of
operations as of June 30, 2001 have been prepared to reflect the merger of John
Hancock V.A. Financial Industries Fund and John Hancock V.A. Regional Bank Fund
after giving effect to pro forma adjustments described in the notes below.
(a) Acquisition by John Hancock V.A. Financial Industries Fund of all assets
of John Hancock V.A. Regional Bank Fund and issuance of John Hancock V.A.
Financial Industries Fund shares in exchange for all of the outstanding
shares of John Hancock V.A. Regional Bank Fund.
(b) The actual expenses incurred by the John Hancock V.A. Strategic Income
Fund and John Hancock V.A. High Yield Bond Fund were reduced to reflect
the estimated savings arising from the merger
John Hancock VA Financial Industries Fund Exhibit C
Pro-forma combined statement of assets and liabilities
June 30, 2001
(000's omitted)
John Hancock John Hancock
VA Financial VA Regional Pro Forma
Industries Fund Bank Fund Adjustments Combined
--------------- --------- ----------- ---------
Assets
Investments at value $ 76,589 $ 11,104 $ 87,693
Joint repurchase agreements 5,059 743 5,802
-------- -------- -------- --------
Total investments 81,648 11,847 -- 93,495
Cash 1 1 2
Receivable for investments sold 44 34 78
Receivable for shares sold 266 -- 266
Dividends and interest receivable 93 27 120
Other Assets 6 -- 6
-------- -------- -------- --------
Total assets 82,058 11,909 -- 93,967
-------- -------- -------- --------
Liabilities
Payable to John Hancock Advisers, Inc. and affiliates 54 8 62
Accounts payable and accrued expenses 14 13 27
-------- -------- -------- --------
Total Liabilities 68 21 -- 89
-------- -------- -------- --------
Net Assets:
Capital paid-in 73,523 11,971 85,494
Accumulated net realized gain (loss) on investments, options and foreign
currency transactions 340 (2,369) (2,029)
Net unrealized appreciation of investments
and translation of assets and liabilities in foreign curriencies 7,892 2,286 10,178
Undistributed net investment income 235 -- 235
-------- -------- -------- --------
Net Assets 81,990 11,888 -- 93,878
-------- -------- -------- --------
Net assets:
V.A. Financial Industries Fund 81,990 -- 11,888(a) 93,878
V.A. Regional Bank Fund -- 11,888 (11,888)(a) --
-------- -------- -------- --------
81,990 11,888 -- 93,878
-------- -------- -------- --------
Shares outstanding:
V.A. Financial Industries Fund 4,941 -- 718(a) 5,659
V.A. Regional Bank Fund -- 1,121 (1,121)(a) --
-------- -------- -------- --------
4,941 1,121 (403) 5,659
-------- -------- -------- --------
Net asset value per share:
V.A. Financial Industries Fund $ 16.59 -- -- $ 16.59
V.A. Regional Bank Fund -- $ 10.61 $ (10.61)(a) --
======== ======== ======== ========
John Hancock VA Financial Industries Fund Exhibit C
Pro-forma combined statement of operations
For the year ended June 30, 2001
(000's omitted)
John Hancock VA John Hancock VA
Financial Industries Regional Bank
Fund Fund
12 months ended 12 months ended Pro-Forma
June 30, 2001 June 30, 2001 Adjustments Combined
-------------------- --------------- ----------- ---------
Investement income:
Dividends $ 790 $ 294 $ -- $ 1,084
Interest 41 40 -- 81
Securities lending income 62 3 -- 65
------- ------- ------- -------
Total Investment Income 893 337 -- 1,230
------- ------- ------- -------
Expenses:
Investment management fee 530 103 -- 633
Custodian fee 28 9 (5)(b) 32
Auditing fee 24 14 (10)(b) 28
Printing 4 1 -- 5
Legal fees 1 -- -- 1
Accounting and legal services fee 13 3 -- 16
Trustees' fee 4 1 -- 5
Miscellaneous 3 -- -- 3
Interest Expense 1 1 -- 2
------- ------- ------- -------
Total expenses 608 132 (15) 725
Net expenses 608 132 (15) 725
------- ------- ------- -------
Net investment income 285 205 15 505
------- ------- ------- -------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized and unrealized gain(loss) on:
Investments 4,811 (354) -- 4,457
Foreign currency transactions (12) -- -- (12)
Change in unrealized appreciation (depreciation) on:
Investments (1,459) 4,510 -- 3,051
------- ------- ------- -------
Net realized and unrealized gain (loss) 3,340 4,156 -- 7,496
------- ------- ------- -------
Increase (decrease) in net assets from operations $ 3,625 $ 4,361 $ 15 $ 8,001
======= ======= ======= =======
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Financial Industries Fund and the V.A. Regional Bank Fund combined on
June 30, 2001.
---------------------------------------------------------------------------------------------
V.A. Financial Industries Fund V.A. Regional Bank Fund Combined
---------------------------------------------------------------------------------------------
NUMBER OF MARKET VALUE NUMBER OF MARKET VALUE NUMBER OF MARKET VALUE
INTEREST SHARES OR (000'S INTEREST SHARES OR (000'S SHARES OR (000'S
RATE WARRANTS OMITTED) RATE WARRANTS OMITTED) WARRANTS OMITTED)
---------------------------------------------------------------------------------------------
ISSUER, DESCRIPTION
COMMON STOCK
Banks - Foreign (2.90%)
Banco Popular Espanol SA (Spain) 36,500 $ 1,276 36,500 $ 1,276
Lloyds TSB Group Plc (United Kingdom) 145,000 1,451 145,000 1,451
------- -------
2,727 2,727
------- -------
Banks - Midwest (6.57%)
Fifth Third Bancorp 57,250 3,438 7,092 $ 426 64,342 3,864
Northern Trust Corp. 36,900 2,306 36,900 2,306
------- ------- -------
5,744 426 6,170
------- ------- -------
Banks - Money Center (5.71%)
Citigroup, Inc. 62,000 3,276 7,000 370 69,000 3,646
J.P. Morgan Chase & Co. 34,000 1,516 4,500 201 38,500 1,717
------- ------- -------
4,792 571 5,363
------- ------- -------
Banks - Northeast (2.38%)
State Street Corp. 43,100 2,133 2,000 99 45,100 2,232
------- ------- -------
Banks - Southeast (2.69%)
BB&T Corp. 65,900 2,419 3,000 110 68,900 2,529
------- ------- -------
Banks - Superregional (13.12%)
Bank of New York Co., Inc. (The) 44,500 2,136 44,500 2,136
FleetBoston Financial Corp. 66,536 2,625 66,536 2,625
PNC Financial Services Group 15,000 987 4,000 263 19,000 1,250
U.S. Bancorp 106,260 2,422 5,000 114 111,260 2,536
Wells Fargo & Co. 64,500 2,995 6,000 279 70,500 3,274
Bank One Corp. (OH) 3,000 107 3,000 107
Mellon Financial Corp. (PA) 8,500 391 8,500 391
------- ------- -------
11,165 1,154 12,319
------- ------- -------
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Financial Industries Fund and the V.A. Regional Bank Fund combined on
June 30, 2001.
---------------------------------------------------------------------------------------------
V.A. Financial Industries Fund V.A. Regional Bank Fund Combined
---------------------------------------------------------------------------------------------
NUMBER OF MARKET VALUE NUMBER OF MARKET VALUE NUMBER OF MARKET VALUE
INTEREST SHARES OR (000'S INTEREST SHARES OR (000'S SHARES OR (000'S
RATE WARRANTS OMITTED) RATE WARRANTS OMITTED) WARRANTS OMITTED)
---------------------------------------------------------------------------------------------
ISSUER, DESCRIPTION
Banks - United States (8.37%)
BancFirst Corp. (OK) 2,500 $ 101 2,500 $ 101
BancWest Corp. (HI) 3,000 103 3,000 103
Cascade Bancorp (OR) 21,612 302 21,612 302
Charter One Financial, Inc. (OH) 6,017 192 6,017 192
Chittenden Corp. (VT) 5,000 168 5,000 168
City National Corp. (CA) 5,000 221 5,000 221
Comerica, Inc. (MI) 3,500 202 3,500 202
Commerce Bancshares, Inc. (MO) 10,047 371 10,047 371
Community First Bankshares, Inc. (ND) 7,500 172 7,500 172
Cullen/Frost Bankers., Inc. (TX) 6,500 220 6,500 220
Financial Institutions, Inc. (NY) 9,000 202 9,000 202
First Financial Holdings, Inc. (SC) 5,300 122 5,300 122
First Midwest Bancorp., Inc. (IL) 5,000 154 5,000 154
FirstMerit Corp. (OH) 5,000 132 5,000 132
Independent Bank Corp. (MI) 8,000 196 8,000 196
M & T Bank Corp. (NY) 4,000 302 4,000 302
Mercantile Bankshares Corp. (MD) 9,500 372 9,500 372
Mid-State Bancshares (CA) 25,000 456 25,000 456
National Commerce Financial Corp. (TN) 9,000 219 9,000 219
Northern Trust Corp. (IL) 1,500 94 1,500 94
Northrim Bank (AK) 16,695 232 16,695 232
Pacific Capital Bancorp. (CA) 13,500 411 13,500 411
Prosperity Bancshares, Inc. (TX) 14,000 335 14,000 335
SJNB Financial Corp. (CA) 8,000 346 8,000 346
SouthTrust Corp. (AL) 3,000 78 3,000 78
Southwest Bancorp. of Texas, Inc.* (TX) 5,000 151 5,000 151
Sterling Bancshares, Inc. (TX) 10,000 192 10,000 192
Summit Bancshares, Inc. (TX) 12,000 226 12,000 226
Texas Regional Bancshares, Inc.
(Class A) (TX) 1,750 71 1,750 71
Umpqua Holdings Corp. (OR) 33,000 423 33,000 423
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Financial Industries Fund and the V.A. Regional Bank Fund combined on
June 30, 2001.
---------------------------------------------------------------------------------------------
V.A. Financial Industries Fund V.A. Regional Bank Fund Combined
---------------------------------------------------------------------------------------------
NUMBER OF MARKET VALUE NUMBER OF MARKET VALUE NUMBER OF MARKET VALUE
INTEREST SHARES OR (000'S INTEREST SHARES OR (000'S SHARES OR (000'S
RATE WARRANTS OMITTED) RATE WARRANTS OMITTED) WARRANTS OMITTED)
---------------------------------------------------------------------------------------------
ISSUER, DESCRIPTION
Valley National Bancorp. (NJ) 16,485 $ 467 16,485 $ 467
Warren Bancorp., Inc. (MA) 20,000 180 20,000 180
Whitney Holding Corp. (LA) 5,000 235 5,000 235
Yardville National Bancorp. (NJ) 15,000 210 15,000 210
------- -------
7,858 7,858
------- -------
Banks - West (2.39%)
Zions Bancorp 34,000 $ 2,006 4,000 236 38,000 2,242
------- ------- -------
Broker Services (9.79%)
Goldman Sachs Group, Inc. 26,500 2,274 26,500 2,274
Instinet Group Inc.* 3,450 64 3,450 64
Lehman Brothers Holdings, Inc. 32,500 2,527 32,500 2,527
Merrill Lynch & Co., Inc. 40,500 2,399 40,500 2,399
Schwab (Charles) Corp. (The) 126,076 1,929 126,076 1,929
------- -------
9,193 9,193
------- -------
Computer - Services (2.59%)
Fiserv, Inc.* 38,000 2,431 38,000 2,431
------- -------
Computers (0.13%)
SEI Investments Co. (PA) 2,500 119 2,500 119
------- -------
Diversified Operations (4.38%)
General Electric Co. 62,000 3,023 62,000 3,023
Tyco International Ltd. 20,000 1,090 20,000 1,090
------- -------
4,113 4,113
------- -------
Finance - Consumer Loans (7.91%)
American Express Co. 63,900 2,479 3,000 116 66,900 2,595
-------
Household International, Inc. 42,000 2,802 42,000 2,802
MBNA Corp. 61,650 2,031 61,650 2,031
------- ------- -------
7,312 116 7,428
------- ------- -------
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Financial Industries Fund and the V.A. Regional Bank Fund combined on
June 30, 2001.
---------------------------------------------------------------------------------------------
V.A. Financial Industries Fund V.A. Regional Bank Fund Combined
---------------------------------------------------------------------------------------------
NUMBER OF MARKET VALUE NUMBER OF MARKET VALUE NUMBER OF MARKET VALUE
INTEREST SHARES OR (000'S INTEREST SHARES OR (000'S SHARES OR (000'S
RATE WARRANTS OMITTED) RATE WARRANTS OMITTED) WARRANTS OMITTED)
---------------------------------------------------------------------------------------------
ISSUER, DESCRIPTION
Finance - Investment
Management (2.39%)
Amvescap Plc (United Kingdom) 129,000 $ 2,241 129,000 $ 2,241
------- -------
Insurance - Brokers (3.07%)
Marsh & McLennan Cos., Inc. 28,300 2,858 28,300 2,858
Willis Group Holdings Ltd.* 1,240 22 1,240 22
------- -------
2,880 2,880
------- -------
Insurance - Life (3.96%)
AFLAC, Inc. 98,400 3,099 98,400 3,099
American General Corp. 12,400 576 1,000 $ 46 13,400 622
------- ------- -------
3,675 46 3,721
------- ------- -------
Insurance - Multi Line (3.58%)
AXA (France) 48,000 1,367 48,000 1,367
Loews Corp. 31,000 1,997 31,000 1,997
------- -------
3,364 3,364
------- -------
Insurance - Property &
Casualty (7.99%)
Allstate Corp. (The) 46,000 2,023 46,000 2,023
Ambac Financial Group, Inc. 37,750 2,197 37,750 2,197
American International Group, Inc. 38,125 3,279 38,125 3,279
------- -------
7,499 7,499
------- -------
Insurance - Additional - (0.21%)
Hartford Financial Services Group,
Inc. (The) (CT) 2,000 137 2,000 137
MetLife, Inc. (NY) 2,000 62 2,000 62
------- -------
199 199
------- -------
Mortgage & Real Estate Services (3.27%)
Fannie Mae 34,000 2,895 2,000 170 36,000 3,065
------- ------- -------
------- ------- -------
TOTAL COMMON STOCK (93.41%) 76,589 11,104 87,693
------- ------- -------
Schedule of Investments Exhibit C
June 30, 2001
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all the securities owned by
the V.A. Financial Industries Fund and the V.A. Regional Bank Fund combined on
June 30, 2001.
---------------------------------------------------------------------------------------------
V.A. Financial Industries Fund V.A. Regional Bank Fund Combined
---------------------------------------------------------------------------------------------
NUMBER OF MARKET VALUE NUMBER OF MARKET VALUE NUMBER OF MARKET VALUE
INTEREST SHARES OR (000'S INTEREST SHARES OR (000'S SHARES OR (000'S
RATE WARRANTS OMITTED) RATE WARRANTS OMITTED) WARRANTS OMITTED)
---------------------------------------------------------------------------------------------
ISSUER, DESCRIPTION
PAR VALUE PAR VALUE PAR VALUE
(000'S (000'S (000'S
OMITTED) OMITTED) OMITTED)
--------- --------- ---------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (6.18%)
Investment in a joint repurchase
agreement transaction with UBS
Warburg, Inc.- Dated 06-29-01 due
07-02-01 (Secured by U.S. Treasury
Bonds, 10.625% due 08-15-15 and
6.250% due 08-15-23, U.S. Treasury
Note 5.625% due 11-30-02) $ 5,059 $ 5,059 3.97% $ 743 $ 743 $ 5,802 $ 5,802
------- ------- -------
TOTAL SHORT TERM INVESTMENTS (6.18%) 5,059 743 5,802
------- ------- -------
TOTAL INVESTMENTS (99.59%) 81,648 11,847 93,495
------- ------- -------
OTHER ASSETS AND LIABILITIES,
NET (0.41%) 342 41 383
------- ------- -------
TOTAL NET ASSETS (100.00%) $81,990 $11,888 $93,878
======= ======= =======
NOTES TO THE SCHEDULE OF INVESTMENTS
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the combined net assets of the Funds.
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
No change from the information set forth in Item 27 of the Registration
Statement of John Hancock Declaration Trust (the "Registrant") on Form N-1A
under the Securities Act of 1933 and the Investment company Act of 1940 (File
Nos. 33-64465 and 811-07437), which information is incorporated herein by
reference.
ITEM 16. EXHIBITS:
1. Registrant's Amended and Restated Filed as Exhibit 99.(a) to Registrant's
Declaration of Trust initial Registration Statement on Form
N-1A and incorporated herein by reference
to post-effective amendment no. (file
nos. 811-07437 and 33-64465 on November
20, 1995; accession
no.0000950146-95-000740)
("PEA ")
1.1 Amendment to Declaration of Trust Filed as Exhibit 99.(a) 1 to Registrant's
Registration Statement on Form N-1A and
incorporated herein by reference to
post-effective amendment no. 6 (file nos.
811-074375 and 33-64465 on October 1,
1997; accession no. 0001010521-97-000403)
("PEA 6")
1.2 Amendment to Declaration of Trust Filed as Exhibit 99.(a) 2 to Registrant's
Registration Statement on Form N-1A and
incorporated herein by reference to
post-effective amendment no. 9 (file nos.
811-074375 and 33-64465 on February 23,
1999; accession no. 0001010521-99-000137)
("PEA 9")
1.3 Amendment to Declaration of Trust Filed as Exhibit 99.(a) 3 to Registrant's
Registration Statement on Form N-1A and
incorporated herein by reference to
post-effective amendment no. 4 (file nos.
811-074375 and 33-64465 on April 29,
1997; accession no. 0001010521-97-000278)
("PEA 4")
1.4 Amendment to Declaration of Trust Filed as Exhibit 99.(a) 4 to Registrant's
Registration Statement on Form N-1A and
incorporated herein by reference to
post-effective amendment no. 6 (file nos.
811-074375 and 33-64465 on October 1,
1997; accession no. 0001010521-97-000403)
("PEA 6")
1.5 Amendment to Declaration of Trust Filed as Exhibit 99.(a) 5 to PEA 9 and
incorporated herein by reference.
1.6 Amendment to Declaration of Trust Filed as Exhibit 99.(a) 6 to PEA 9 and
incorporated herein by reference.
1.7 Amendment to Declaration of Trust Filed as Exhibit 99.(a) 7 to Registrant's
Registration Statement on Form N-1A and
incorporated herein by reference to
post-effective amendment no. 10 (file
nos. 811-074375 and 33-64465 on April 29,
1999; accession no. 0001010521-99-000201)
("PEA 10")
1.8 Amendment to Declaration of Trust Filed as Exhibit 99.(a) 8 to PEA 10 and
incorporated herein by reference.
1.9 Amendment to Declaration of Trust Filed as Exhibit 99.(a) 9 to Registrant's
Registration Statement on Form N-1A and
incorporated herein by reference to
post-effective amendment no. 11 (file
nos. 811-074375 and 33-64465 on February
16, 2000; accession no.
0001010521-00-000186) ("PEA 11")
1.10 Amendment to Declaration of Trust Filed as Exhibit 99.(a) 10 to
Registrant's Registration Statement on
Form N-1A and incorporated herein by
reference to post-effective amendment no.
12 (file nos. 811-074375 and 33-64465 on
April 27, 2000; accession no.
0001010521-00-000253) ("PEA 12")
1.11 Amendment to Declaration of Trust Filed as Exhibit 99.(a) 11 to PEA 12 and
incorporated herein by reference.
2 Amended and Restated By-Laws of Filed as Exhibit 99.(b) to Registrant's
Registrant. Registration Statement on Form N-1A and
incorporated herein by reference to
post-effective amendment no. 2 (file nos.
811-07437 and 33-64465 on February 14,
1997; accession no.0000950146-97-000212)
("PEA 2")
3 Not applicable
4 Form of Agreement and Plan of Filed herewith as Exhibit B to the Proxy
reorganization Statement and Prospectus included as Part
A of this Registration Statement.
5 Not applicable
6 Investment Management Contract Filed as Exhibit 99.(d) to Registrant's
between the Registrant and John Registration Statement on Form N-1A and
Hancock Advisers, Inc. incorporated herein by reference to
post-effective amendment no. 1 (file nos.
811-07437 and 33-64465 on August 7, 1996;
accession no.0000950146-96-000139)
("PEA 1")
6.1 Investment Management Contract Filed as Exhibit 99.(d) 1 to PEA 9 and
between the Registrant and John incorporated herein by reference.
Hancock Advisers, Inc.
6.2 Investment Management Contract Filed as Exhibit 99.(d) 2 to PEA 9 and
between the Registrant and John incorporated herein by reference.
Hancock Advisers, Inc.
6.3 Investment Management Contract Filed as Exhibit 99.(d) 3 to PEA 9 and
between the Registrant and John incorporated herein by reference.
Hancock Advisers, Inc.
6.4 Sub-Investment Management Contract Filed as Exhibit 99.(d) 4 to PEA 1 and
between the Registrant and John incorporated herein by reference.
Hancock Advisers, Inc.
6.5 Sub-Investment Management Contract Filed as Exhibit 99.(d) 5 to PEA 1 and
between the Registrant and John incorporated herein by reference.
Hancock Advisers, Inc.
6.6 Sub-Investment Management Contract Filed as Exhibit 99.(d) 6 to PEA 11 and
between the Registrant and John incorporated herein by reference.
Hancock Advisers, Inc.
6.7 Investment Management Contract Filed as Exhibit 99.(d) 7 to PEA 12 and
between the Registrant and John incorporated herein by reference.
Hancock Advisers, Inc.
6.8 Investment Management Contract Filed as Exhibit 99.(d) 8 to PEA 12 and
between the Registrant and John incorporated herein by reference.
Hancock Advisers, Inc.
6.9 Investment Management Contract Filed as Exhibit 99.(d) 9 to PEA 12 and
between the Registrant and John incorporated herein by reference.
Hancock Advisers, Inc.
6.10 Sub-Investment Management Contract Filed as Exhibit 99.(d) 10 to PEA 12 and
between the Registrant and John incorporated herein by reference.
Hancock Advisers, Inc.
6.11 Sub-Investment Management Contract Filed as Exhibit 99.(d) 11 to
between the Registrant and John Registrant's Registration Statement on
Hancock Advisers, Inc. Form N-1A and incorporated herein by
reference to post-effective amendment no.
13 (file nos. 811-07437 and 33-64465 on
February 21, 2001; accession
no.0001010521-01-000158)
("PEA 13")
6.12 Sub-Investment Management Contract Filed as Exhibit 99.(d) 12 to PEA 13 and
between the Registrant and John incorporated herein by reference.
Hancock Advisers, Inc.
6.13 Sub-Investment Management Contract Filed herewith as Exhibit (B?) to the
---
among the Registrant on behalf of Proxy Statement and Prospectus included
John Hancock V.A. International Fund, as Part A of this Registration Statement.
John Hancock Advisers and
Nicolas-Applegate Capital Management.
7 Distribution Agreement between the Filed as Exhibit 99.(e) to PEA 2 and
Registrant and John Hancock Funds, incorporated herein by reference.
Inc. (formerly named John Hancock
Broker Distribution Services, Inc.
7.1 Amendment to Distribution Agreement Filed as Exhibit 99.(e) 1 to PEA 9 and
between the Registrant and John incorporated herein by reference.
Hancock Funds, Inc.
7.2 Amendment to Distribution Agreement Filed as Exhibit 99.(e) 2 to PEA 9 and
between the Registrant and John incorporated herein by reference.
Hancock Funds, Inc.
7.3 Amendment to Distribution Agreement Filed as Exhibit 99.(e) 3 to PEA 9 and
between the Registrant and John incorporated herein by reference.
Hancock Funds, Inc.
7.4 Amendment to Distribution Agreement Filed as Exhibit 99.(e) 4 to PEA 12 and
between the Registrant and John incorporated herein by reference.
Hancock Funds, Inc.
8 Not applicable.
9 Master Custodian Agreement between Filed as Exhibit 99.(g) to PEA 10 and
John Hancock Mutual Funds (including incorporated herein by reference.
Registrant) and Investors Bank &
Trust Company.
9.1 Amendment to Master Custodian Filed as Exhibit 99.(g) 1 to PEA 10 and
Agreement between John Hancock Mutual incorporated herein by reference.
Funds (including Registrant) and
Investors Bank & Trust Company.
9.2 Amendment to Master Custodian Filed as Exhibit 99.(g) 2 to PEA 12 and
Agreement between John Hancock Mutual incorporated herein by reference.
Funds (including Registrant) and
Investors Bank & Trust Company.
9.3 Amendment Dated June 7, 2001 to the Filed herewith as Exhibit (B?) to the
---
Amended and Restated Master Custodian Proxy Statement and Prospectus included
Agreement between John Hancock Mutual as Part A of this Registration Statement.
Funds and Investors Bank & Trust Co.
10 Master Transfer Agent Service Filed as Exhibit 99(h) to PEA 9 and
Agreement between John Hancock Mutual incorporated herein by reference.
Funds (including Registrant) and John
Hancock Funds, Inc.
10.1 Accounting Services Agreement Filed as Exhibit 99(h) 1 to PEA 1 and
incorporated herein by reference.
10.2 Amendment to Master Transfer Agent Filed as Exhibit 99.(h) 2 to PEA 12 and
Service Agreement between John incorporated herein by reference.
Hancock Mutual Funds (including
Registrant) and John Hancock Funds,
Inc.
11 Not Applicable.
12 Not applicable
13 Code of Ethics John Hancock Advisers Filed as Exhibit 99.(p) to PEA 12 and
and each John Hancock Fund, incorporated herein by reference.
Independence Investments LLC and
American Fund Advisers.
13.1 Code of Ethics and Conduct Filed as Exhibit 99(h) to PEA 13 and
-Nicholas-Applegate incorporated herein by reference.
14 Opinion as to legality of shares and Filed herewith as Exhibit 14
consent.
15 Form of opinion as to tax matters and Filed herewith as Exhibit 15
consent.
16 Not applicable
17 Consents of Ernst & Young LLP Filed herewith as Exhibit 17
regarding the audited financial
statements of Registrant.
18 Not applicable
19 Powers of Attorney Filed as addendum to signature pages and
incorporated herein by reference.
20 Prospectus of John Hancock Filed herewith as Exhibit 20
Declaration Funds dated May 1, 2001
21 Statement of Additional Information Filed herewith as Exhibit A and B to Part
of John Hancock Declaration Funds B of this Registration Statement.
dated May 1, 2001
ITEM 17
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a propectus which is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) under the Securities Act of 1933,
as amended (the "1933 Act"), the reoffering prospectus will contain the
information called for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and The
Commonwealth of Massachusetts, on the 14th day of September, 2001.
JOHN HANCOCK DECLARATION TRUST
By: *
-----------------------------
Maureen R. Ford
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the
Registration has been signed below by the following persons in the capacities
and on the dates indicated.
Signature Title Date
--------- ----- ----
* Chairman, President and Chief Executive Officer
- ----------------------- (Principal Executive Officer)
Maureen R. Ford
* Senior Vice President and Chief
- ----------------------- Financial Officer
Richard A. Brown
/s/William H. King Senior Vice President, Treasurer September 14, 2001
- ----------------------- (Chief Accounting Officer)
William H. King
* Trustee
- -----------------------
Dennis S. Aronowitz
* Trustee
- -----------------------
John M. DeCiccio
* Trustee
- -----------------------
Richard P. Chapman, Jr.
* Trustee
- -----------------------
William J. Cosgrove
* Trustee
- -----------------------
Richard A. Farrell
* Trustee
- -----------------------
Gail D. Fosler
* Trustee
- -----------------------
William F. Glavin
Signature Title Date
--------- ----- ----
* Trustee
- -----------------------
Dr. John A. Moore
* Trustee
- -----------------------
Patti McGill Peterson
* Trustee
- -----------------------
John W. Pratt
*By: /s/Susan S. Newton September 14, 2001
-------------------
Susan S. Newton
Attorney-in-Fact under
Powers of Attorney dated
December 7, 1999, February 27, 2001,
Powers of Attorney dated June 23, 2001
and September 12, 2001 filed herewith.
Panel A
- -------
John Hancock Capital Series John Hancock Strategic Series
John Hancock Declaration Trust John Hancock Tax-Exempt Series Fund
John Hancock Income Securities Trust John Hancock World Fund
John Hancock Investors Trust John Hancock Investment Trust II
John Hancock Equity Trust John Hancock Investment Trust III
John Hancock Sovereign Bond Fund
Panel B
- -------
John Hancock Bank and Thrift Opportunity Fund John Hancock Patriot Global Dividend Fund
John Hancock Bond Trust John Hancock Patriot Preferred Dividend Fund
John Hancock California Tax-Free Income Fund John Hancock Patriot Premium Dividend Fund I
John Hancock Current Interest John Hancock Patriot Premium Dividend Fund II
John Hancock Institutional Series Trust John Hancock Patriot Select Dividend Trust
John Hancock Investment Trust John Hancock Series Trust
John Hancock Cash Reserve, Inc. John Hancock Tax-Free Bond Trust
POWER OF ATTORNEY
-----------------
The undersigned Officer of each of the above listed Trusts, each a
Massachusetts business trust, or Maryland Corporation, does hereby severally
constitute and appoint SUSAN S. NEWTON, WILLIAM H. KING, AND AVERY P. MAHER, and
each acting singly, to be my true, sufficient and lawful attorneys, with full
power to each of them, and each acting singly, to sign for me, in my name and in
the capacity indicated below, any Registration Statement on Form N-1A and any
Registration Statement on Form N-14 to be filed by the Trust under the
Investment Company Act of 1940, as amended (the "1940 Act"), and under the
Securities Act of 1933, as amended (the "1933 Act"), and any and all amendments
to said Registration Statements, with respect to the offering of shares and any
and all other documents and papers relating thereto, and generally to do all
such things in my name and on my behalf in the capacity indicated to enable the
Trust to comply with the 1940 Act and the 1933 Act, and all requirements of the
Securities and Exchange Commission thereunder, hereby ratifying and confirming
my signature as it may be signed by said attorneys or each of them to any such
Registration Statements and any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as
of the 23rd day of June, 2001.
/s/Richard A. Brown
-------------------
Richard A. Brown
Chief Financial Officer
Commonwealth of Massachusetts )ss
- ----------------------------------------------------------
COUNTY OF Suffolk )
------------------------------------------------
Then personally appeared the above-named Richard A. Brown, who
acknowledged the foregoing instrument to be his free act and deed, before me,
this 23rd day of June, 2001.
/s/Erika L. Nager
-----------------
Notary Public
My Commission Expires: June 14, 2007
-------------
s:\general\prwattn\01June23.doc
John Hancock Capital Series John Hancock Strategic Series
John Hancock Declaration Trust John Hancock Tax-Exempt Series Fund
John Hancock Income Securities Trust John Hancock World Fund
John Hancock Investors Trust John Hancock Investment Trust II
John Hancock Equity Trust John Hancock Investment Trust III
John Hancock Sovereign Bond Fund
POWER OF ATTORNEY
The undersigned Trustee/Officer of each of the above listed Trusts,
each a Massachusetts business trust or Maryland corporation, does hereby
severally constitute and appoint Susan S. Newton, WILLIAM h. KING, and AVERY P.
MAHER, and each acting singly, to be my true, sufficient and lawful attorneys,
with full power to each of them, and each acting singly, to sign for me, in my
name and in the capacity indicated below, any Registration Statement on Form
N-1A and any Registration Statement on Form N-14 to be filed by the Trust under
the Investment Company Act of 1940, as amended (the "1940 Act"), and under the
Securities Act of 1933, as amended (the "1933 Act"), and any and all amendments
to said Registration Statements, with respect to the offering of shares and any
and all other documents and papers relating thereto, and generally to do all
such things in my name and on my behalf in the capacity indicated to enable the
Trust to comply with the 1940 Act and the 1933 Act, and all requirements of the
Securities and Exchange Commission thereunder, hereby ratifying and confirming
my signature as it may be signed by said attorneys or each of them to any such
Registration Statements and any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as
of the 12th day of September, 2001.
/s/ Maureen R. Ford /s/Gail D. Fosler
- ------------------- -----------------
Maureen R. Ford, as Chairman and Chief Gail D. Fosler
Exective Officer
/s/John M. DeCiccio /s/William F. Glavin
- ------------------- --------------------
John M. DeCiccio, as Trustee William F. Glavin
/s/Dennis S. Aronowitz /s/John A. Moore
- ---------------------- ----------------
Dennis S. Aronowitz John A. Moore
/s/Richard P. Champman, Jr. /s/Patti McGill Peterson
- --------------------------- ------------------------
Richard P. Chapman, Jr. Patti McGill Peterson
/s/William J. Cosgrove /s/John W. Pratt
- ---------------------- ----------------
William J. Cosgrove John W. Pratt
/s/Richard A. Farell
- --------------------
Richard A. Farrell
COMMONWEALTH OF MASSACHIUSETTS)
- ------------------------------
)ss
COUNTY OF SUFFOLK )
- -----------------
Then personally appeared the above-named Richard A. Brown, who
acknowledged the foregoing instrument to be his free act and deed, before me,
this 23rd day of June, 2001.
/s/Erika Nager
--------------
Notary Public
My Commission Expires: June 14, 2007
-------------
s:\general\prwattn\01Sept12.doc
EXHIBIT INDEX
The following exhibits are filed as part of this Registration Statement:
Exhibit No. Description
6. Agreement and Plan of Reorganization between the Registrant and John
Hancock John Hancock V.A. High Yield Bond Fund and John Hancock V.A.
Regional Bank Fund. (filed as EXHIBIT A to Part A of this Registration
Statement).
6.13 Sub-Investment Management Contract among the Registrant on behalf
of John Hancock V.A. International Fund, John Hancock Advisers and
Nicolas-Applegate Capital Management.
9.3 Amendment Dated June 7, 2001 to the Amended and Restated Master
Custodian Agreement between John Hancock Mutual Funds and Investors
Bank & Trust Co.
14 Opinion as to legality of shares and consent.
15 Form of opinion as to tax matters and consent.
17 Consent of Ernst & Young LLP regarding the audited financial statements
and highlights of the Registrant.