Securities Act Registration No. 333-_______________
U.S. Securities and Exchange Commission Washington, D.C.
20549
Form N-14
Registration Statement Under the Securities Act of 1933
[ ] Pre-Effective Amendment No. __ [ ] Post Effective Amendment No. __
(Check appropriate box or boxes)
John Hancock Variable Series Trust I
(Exact Name of Registrant as Specified in Declaration of Trust)
197 Clarendon Street
Boston, Massachusetts 02117
(Address of Principal Executive Officer)
Registrant's Telephone Number: (713) 214-1456
Name and address of Agent for Services: Copy to:
ARNOLD BERGMAN, ESQUIRE THOMAS C. LAUERMAN, ESQUIRE
John Hancock Life Insurance Company Foley Lardner
197 Clarendon Street Washington, D.C. 20036
Boston, MA 02117
Approximate Date of Proposed public Offering: As soon as practicable after the
Registration Statement becomes effective under the Securities Act of 1933. It is
proposed that this filing will become effective on March 23, 2003 pursuant to
Rule 488 under the Act.
Pursuant to Rule 429 under the Act, the prospectus in this registration
statement also relates to Registrant's currently effective registration
statement on Form N-1A, File No. 33-2081. No filing fee is due in reliance on
Section 24(f) of the Act
IMPORTANT INFORMATION
March 24, 2003
Dear Variable Contract Owner:
I am writing to ask for your vote on important matters concerning your
investment in certain funds within your John Hancock variable life insurance
policy or variable annuity contract ("Variable Contract").
Your fund's trustees are proposing the reorganization of the funds of the John
Hancock Declaration Trust into certain funds in the John Hancock Variable Series
Trust I, ("VST") as described in the enclosed proxy materials and summarized in
the questions and answers on the following page. As you know, Declaration Trust
provides the investment options under your Variable Contract. In some instances
you will see that we have selected funds that offer greater flexibility and
expanded opportunities for diversification.
The fund reorganization proposals have been unanimously approved by each fund's
board of trustees, who believe the reorganizations will benefit you. The
enclosed proxy statement and prospectus 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 read
the enclosed materials and 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
1-800-576-2227 through Friday between 8:00 a.m. and 6:00 p.m. Eastern time. I
thank you for your prompt vote on this matter.
Sincerely,
Maureen R. Ford
Chairman and Chief Executive Officer
John Hancock Declaration Trust
John Hancock Annuity and Life Insurance products are issued by John Hancock Life
Insurance Company, or its subsidiary John Hancock Variable Life Insurance
Company*, and are distributed by John Hancock Funds,LLC., 101 Huntington Avenue,
Boston, MA 02199-7603, or Signator Investors Inc., 197 Clarendon Street, Boston,
MA 02116.
*Not licensed in New York.
Q: What are the changes being proposed?
A: Generally, these proposals focus on merging Declaration Trust funds into
certain funds of the John Hancock Variable Series Trust that are significantly
larger and may offer more protection against the possibility of higher future
expenses, as well as a greater opportunity for future growth. Specifically, the
trustees of your fund(s) are proposing the following reorganizations:
- --------------------------------------------------------------------------------
Acquired Fund Acquiring Fund
- --------------------------------------------------------------------------------
Proposal 1 V.A. Financial Industries Fund Financial Industries Fund
- --------------------------------------------------------------------------------
Proposal 2 V.A. Relative Value Fund Growth & Income Fund
- --------------------------------------------------------------------------------
Proposal 4 V.A. Strategic Income Fund Active Bond Fund
- --------------------------------------------------------------------------------
Proposal 5 V.A. Technology Fund Large Cap Growth Fund
- --------------------------------------------------------------------------------
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 Contract, nor on the value of those units. Nor will there be any tax
implications (no Form 1099R will be generated).
Q: Will I incur a fee for the portfolio transfer to accomplish a fund
reorganization?
A: No, you will incur no fees in connection with the reorganization. The
Acquiring Funds and their investment adviser have agreed to bear the costs of
each reorganization.
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 reorganization, you may contact a John Hancock Service
Representative at 1-800-576-2227, Monday through Friday between 8:00 a.m. - 6:00
p.m. Eastern time and request a transfer, without charge, to another variable
investment option or (if available in your state and Variable Contract) the
fixed account. 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 attached proxy statement/prospectus that
apply to your fund(s).
STEP 2: Finally, complete the enclosed voting instruction 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 of
trustees of your fund(s) voted unanimously to recommend these changes, and your
approval is needed to implement the changes.
2
JOHN HANCOCK V.A. FINANCIAL INDUSTRIES FUND
JOHN HANCOCK V.A. RELATIVE VALUE FUND
JOHN HANCOCK V.A. SOVEREIGN INVESTORS FUND
JOHN HANCOCK V.A. STRATEGIC INCOME FUND
JOHN HANCOCK V.A. TECHNOLOGY FUND
(each a "fund," and each a series of John Hancock Declaration Trust
(the "Trust"))
101 Huntington Avenue
Boston, MA 02199
Notice of Joint Special Meeting of Shareholders
Scheduled for April 16, 2003
This is the formal agenda for each fund's shareholder meeting. It tells you, as
the owner of a variable life insurance or variable annuity contract ("Variable
Contract"), and the insurance companies that are the record holders of each
fund's shares ("shareholders"), 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 the owners of their Variable Contracts.
To the shareholders and Variable Contract owners of each fund:
A joint shareholder meeting for your fund(s) will be held at 101 Huntington
Avenue, Boston, Massachusetts on Wednesday, April 16, 2003 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. Financial Industries Fund ("V.A. Financial Industries Fund") and
the Financial Industries Fund of the John Hancock Variable Series Trust I
("Financial Industries Fund"). Under this Agreement, V.A. Financial Industries
Fund would transfer all of its assets to Financial Industries Fund in exchange
for shares of Financial Industries Fund. These shares would be distributed
proportionately to the shareholders of V.A. Financial Industries Fund. Financial
Industries Fund would also assume V.A. Financial Industries Fund's liabilities.
The Trust'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. Relative Value Fund ("V.A. Relative Value Fund") and the Growth &
Income Fund of the John Hancock Variable Series Trust I ("Growth & Income
Fund"). Under this Agreement, V.A. Relative Value Fund would transfer all of its
assets to Growth & Income Fund in exchange for shares of Growth & Income Fund.
These shares would be distributed proportionately to the shareholders of V.A.
Relative Value Fund. Growth & Income Fund would also assume V.A. Relative Value
Fund's liabilities. The Trust's board of trustees recommends that shareholders
vote FOR this proposal.
3. A proposal to approve an Agreement and Plan of Reorganization between John
Hancock V.A. Sovereign Investors Fund ("V.A. Sovereign Investors Fund") and the
Growth & Income Fund of the John Hancock Variable Series Trust I ("Growth &
Income Fund"). Under this Agreement, V.A. Sovereign Investors Fund would
transfer all of its assets to Growth & Income Fund in exchange for shares of
Growth & Income Fund. These shares would be distributed proportionately to the
shareholders of V.A. Sovereign Investors Fund. Growth & Income Fund would also
assume V.A. Sovereign Investors Fund's liabilities. The Trust's board of
trustees recommends that shareholders vote FOR this proposal.
4. A proposal to approve an Agreement and Plan of Reorganization between John
Hancock V.A. Strategic Income Fund ("V.A. Strategic Income Fund") and the Active
Bond Fund of the John Hancock Variable Series Trust I ("Active Bond Fund").
Under this Agreement, V.A. Strategic Income Fund would transfer all of its
assets to Active Bond Fund in exchange for shares of Active Bond Fund. These
shares would be distributed proportionately to the shareholders of V.A.
Strategic Income Fund. Active Bond Fund would also assume V.A. Strategic Income
Fund's liabilities. The Trust's board of trustees recommends that shareholders
vote FOR this proposal.
3
5. A proposal to approve an Agreement and Plan of Reorganization between John
Hancock V.A. Technology Fund ("V.A. Technology Fund") and the Large Cap Growth
Fund of the John Hancock Variable Series Trust I ("Large Cap Growth Fund").
Under this Agreement, V.A. Technology Fund would transfer all of its assets to
Large Cap Growth Fund in exchange for shares of Large Cap Growth Fund. These
shares would be distributed proportionately to the shareholders of V.A.
Technology Fund. Large Cap Growth Fund would also assume V.A. Technology Fund's
liabilities. The Trust's board of trustees recommends that shareholders vote FOR
this proposal.
6. Any other business that may properly come before the meeting.
Shareholders of record as of the close of business on February 25, 2003 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 Variable Contract owners do
not return their voting instruction cards in sufficient numbers, it may result
in additional shareholder solicitations.
By order of the board of trustees,
Susan S. Newton
Secretary
March 24, 2003
4
PROXY STATEMENT of
V.A. Financial Industries Fund
V.A. Relative Value Fund
V.A. Sovereign Investors Fund
V.A. Strategic Income Fund
V.A. Technology Fund
(each an "Acquired Fund" or "your fund," and each a series of John Hancock
Declaration Trust)
PROSPECTUS for
Financial Industries Fund
Growth & Income Fund
Active Bond Fund
Large Cap Growth Fund
(each an "Acquiring Fund," and each a series of John Hancock Variable Series
Trust I)
This proxy statement and prospectus contains the information shareholders should
know before voting on the proposed reorganization of your fund(s) into the
corresponding Acquiring Fund(s). Please read it carefully and retain it for
future reference.
How Each Reorganization Will Work
o Each Acquired Fund will transfer all of its assets to the respective Acquiring
Fund. The Acquiring Fund will assume the Acquired Fund's liabilities.
o Each Acquiring Fund will issue shares to the respective Acquired Fund with an
aggregate value equal to the net asset value of the Acquired Fund. These
shares will be distributed to the Acquired Fund's shareholders in proportion
to their holdings on the reorganization date.
o Each Acquired Fund will be liquidated and fund shareholders will become
shareholders of the corresponding Acquiring Fund.
o The reorganization is not intended to result in income, gain or loss for
federal income tax purposes to the Acquired Fund or its shareholders.
Shares of the 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 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 proxy statement and prospectus. Any
representation to the contrary is a
criminal offense.
Why the Acquired Funds' Trustees are Recommending the Reorganizations
The Acquired Funds' trustees are recommending that Acquired Fund shareholders
vote FOR each of the reorganizations. The reasons for their recommendation vary
with the particular circumstances of each reorganization and are discussed in
detail below. Before you vote, you should carefully consider the basis for the
trustees' recommendation as well as the discussion of the comparison of each
Fund's investment objectives and policies, risks and expenses.
- ------------------------------------------------------------------------------------
Where to Get More Information
- ------------------------------------------------------------------------------------
Prospectuses of the Acquired Incorporated by reference into this
Funds dated May 1, 2002. proxy statement and prospectus and
Prospectuses of the Acquring Funds summarized in Appendices A and B at the
dated September 19, 2002 (Active end of this proxy statement and
Bond, Growth & Income, and Large prospectus.
Cap Growth Funds) and March 17, 2003
(Financial Industries Fund).
- ------------------------------------------------------------------------------------
The Acquiring Funds' annual
reports to shareholders dated
December 31, 2002. On file with the Securities and
- --------------------------------------- Exchange Commission ("SEC") and
The Acquired Funds' annual available at no charge by calling
reports to shareholders dated 1-800-576-2227. Incorporated by reference
December 31, 2002. into this proxy statement and
- --------------------------------------- prospectus.
A statement of additional
information dated March 24, 2003.
It contains additional information
about the Acquired Funds and the
Acquiring Funds.
- ------------------------------------------------------------------------------------
To ask questions about this proxy Call our toll-free telephone number:
statement and prospectus. 1-800-576-2227.
- ------------------------------------------------------------------------------------
The date of this proxy statement and prospectus is March 24, 2003.
5
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
- --------------------------------------------------------------------------------
INTRODUCTION
- --------------------------------------------------------------------------------
PROPOSAL 1 -- V.A. FINANCIAL INDUSTRIES FUND
- --------------------------------------------------------------------------------
Summary
- --------------------------------------------------------------------------------
Comparison of Investment Risks
- --------------------------------------------------------------------------------
Proposal to Approve the Agreement and Plan of Reorganization
- --------------------------------------------------------------------------------
PROPOSAL 2 -- V.A. RELATIVE VALUE FUND
- --------------------------------------------------------------------------------
Summary
- --------------------------------------------------------------------------------
Comparison of Investment Risks
- --------------------------------------------------------------------------------
Proposal to Approve the Agreement and Plan of Reorganization
- --------------------------------------------------------------------------------
PROPOSAL 3 -- V.A. SOVEREIGN INVESTORS FUND
- --------------------------------------------------------------------------------
Summary
- --------------------------------------------------------------------------------
Comparison of Investment Risks
- --------------------------------------------------------------------------------
Proposal to Approve the Agreement and Plan of Reorganization
- --------------------------------------------------------------------------------
PROPOSAL 4 -- V.A. STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
Summary
- --------------------------------------------------------------------------------
Comparison of Investment Risks
- --------------------------------------------------------------------------------
Proposal to Approve the Agreement and Plan of Reorganization
- --------------------------------------------------------------------------------
PROPOSAL 5 -- V.A. TECHNOLOGY FUND
- --------------------------------------------------------------------------------
Summary
- --------------------------------------------------------------------------------
Comparison of Investment Risks
- --------------------------------------------------------------------------------
Proposal to Approve the Agreement and Plan of Reorganization
- --------------------------------------------------------------------------------
FURTHER INFORMATION ON EACH REORGANIZATION
- --------------------------------------------------------------------------------
CAPITALIZATION
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE FUNDS' BUSINESSES
- --------------------------------------------------------------------------------
BOARDS' EVALUATION AND RECOMMENDATION
- --------------------------------------------------------------------------------
VOTING RIGHTS AND REQUIRED VOTE
- --------------------------------------------------------------------------------
INFORMATION CONCERNING THE MEETING
- --------------------------------------------------------------------------------
OWNERSHIP OF SHARES OF THE FUNDS
- --------------------------------------------------------------------------------
EXPERTS
- --------------------------------------------------------------------------------
AVAILABLE INFORMATION
- --------------------------------------------------------------------------------
EXHIBIT A -- Form of Agreement and Plan of Reorganization
- --------------------------------------------------------------------------------
APPENDICES
A. BASIC INFORMATION ABOUT THE FUNDS (attached at the end of this
document).
B. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: DECEMBER 31, 2002 (attached at
the end of this document).
6
INTRODUCTION
This proxy statement and prospectus is being used by the John Hancock
Declaration Trust's board of trustees to solicit your voting instructions for a
special meeting of each Acquired Fund's shareholders. This meeting will be held
at 101 Huntington Avenue, Boston, Massachusetts on Wednesday, April 16, 2003 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, as summarized in the table
below:
- --------------------------------------------------------------------------------
Acquired Fund Acquiring Fund Shareholders Entitled to Vote
- --------------------------------------------------------------------------------
Proposal 1 V.A. Financial Financial V.A. Financial
Industries Fund Industries Fund Industries Fund
Shareholders
- --------------------------------------------------------------------------------
Proposal 2 V.A. Relative Growth & V.A. Relative Value Fund
Value Fund Income Fund Shareholders
- --------------------------------------------------------------------------------
Proposal 3 V.A. Sovereign Growth & V.A. Sovereign Investors
Investors Fund Income Fund Fund Shareholders
- --------------------------------------------------------------------------------
Proposal 4 V.A. Strategic Active Bond V.A. Strategic Income
Income Fund Fund Fund Shareholders
- --------------------------------------------------------------------------------
Proposal 5 V.A. Technology Large Cap V.A. Technology Fund
Fund Growth Fund Shareholders
- --------------------------------------------------------------------------------
Who is Eligible to Vote?
Shareholders of record on February 25, 2003 (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 were the sole shareholders
of record of the Acquired Funds. The insurance companies hold these shares in
segregated investment accounts (the "Separate Accounts") that support the
variable life insurance and variable annuity contracts (the "Variable
Contracts") that you and other investors own. The insurance companies will vote
shares of the Acquired Funds held by them in accordance with voting instructions
received from you and other Variable Contract owners. The enclosed voting
instruction card will be used by the insurance companies to receive your voting
instructions. The notice of meeting, the proxy card (voting instruction card),
and this proxy statement and prospectus are being mailed to the insurance
companies and Variable Contract owners on or about March 24, 2003.
Investment Advisory Services
The investment adviser to each Acquired Fund is John Hancock Advisers, LLC
("JHA"), a wholly-owned subsidiary of John Hancock Financial Services, Inc. In
this capacity, JHA has primary responsibility for: making investment decisions
for the Acquired Funds' investment portfolios (with the exception of V.A.
Technology Fund, which is subadvised by American Fund Advisors, Inc.) and
placing orders with brokers and dealers to implement those decisions; advising
each Acquired Fund in connection with policy decisions; administering the
Acquired Funds' day-to-day operations; preparing the Acquired Funds' financial
statements; providing the Acquired Funds with personnel, office space, equipment
and supplies; maintaining fund records; and supervising the activities of the
Acquired Funds' service providers, including V.A. Technology Fund's subadviser.
The investment adviser to each Acquiring Fund is John Hancock Life Insurance
Company ("JHLICO"), also a wholly-owned subsidiary of John Hancock Financial
Services, Inc. In this capacity, JHLICO advises each fund in connection with
policy and strategy decisions; administers the funds' day-to-day operations;
serves as the Acquiring Funds' transfer agent and dividend disbursing agent;
prepares the Acquiring Funds' financial statements; provides the funds with
personnel, office space, equipment and supplies; maintains fund records; and
supervises the activities of the funds' sub-advisers and other service
providers. JHLICO will commence actively performing these functions for the
Financial Industries Fund only upon consummation of the reorganization, because
that Acquiring Fund will not commence operations until the closing of the
reorganization.
Each of the Acquiring Funds plans to employ what is commonly referred to as a
"manager of managers arrangement." An application has been filed with the SEC to
permit this arrangement to go into effect. Under a manager of managers
arrangement, an Acquiring Fund would be able to retain new sub-advisers (or
change the terms of its agreement with an existing sub-adviser) without need for
shareholder (or Variable Contract owner) approval. In the absence of such a
manager of managers order from the SEC, the Acquiring Funds would continue to be
subject to currently applicable requirements to obtain shareholder (and Variable
Contract owner) approval for most changes. The shareholders of (and, except for
the Financial Industries Fund, Variable Contract owners participating in) each
Acquiring Fund have voted to approve the manager of managers arrangement. There
is no assurance, however, about when or if the SEC will issue the requested
order.
Summary of Each Proposal
For each Proposal, this proxy statement and prospectus includes a summary of
more complete information appearing later or incorporated in the document.
Please read this entire document, including Exhibit A and Appendixes A and B,
carefully, because they contain details that are not in the summary. You can
obtain information about your rights and obligations as the owner of a Variable
Contract from your Prospectus for that Variable Contract.
7
PROPOSAL 1
Approval of Agreement and Plan of Reorganization Between
V.A. Financial Industries Fund and Financial Industries Fund
A proposal to approve an Agreement and Plan of Reorganization between V.A.
Financial Industries Fund and Financial Industries Fund. Under this Agreement,
V.A. Financial Industries Fund would transfer all of its assets to Financial
Industries Fund in exchange for shares of Financial Industries Fund. These
shares would be distributed proportionately to the shareholders of V.A.
Financial Industries Fund. Financial Industries Fund would also assume V.A.
Financial Industries Fund's liabilities. The Trust's board of trustees
recommends that shareholders vote FOR this proposal.
8
SUMMARY
Comparison of V.A. Financial Industries Fund to Financial Industries
Fund
- -----------------------------------------------------------------------------------------
V.A. Financial Industries Financial Industries Fund
Fund (Acquired Fund) (Acquiring Fund)
- -----------------------------------------------------------------------------------------
Business A diversified series of John A newly-organized
Hancock Declaration Trust. non-diversified series of John
The trust is an open-end Hancock Variable Series Trust
management investment company I, an open-end management
organized as a Massachusetts investment company organized as
business trust. a Massachusetts business trust.
- -----------------------------------------------------------------------------------------
Net assets $57.7 million. None. The fund is
as of newly-organized and does not expect
December to commence investment operations
31, 2002 until the reorganization occurs.
- -----------------------------------------------------------------------------------------
Investment Investment adviser: Investment adviser:
adviser John Hancock Advisers, LLC John Hancock Life Insurance
and Company
portfolio Portfolio managers:
managers James K. Schmidt, CFA Subadviser:
-Executive Vice President of John Hancock Advisers, LLC
adviser
-Joined fund team in 1997 Portfolio managers:
-Joined adviser in 1992 James K. Schmidt, CFA
-Began business career in 1979 -Executive Vice President of
subadviser
Thomas C. Goggins -Joined fund team in 2003
-Senior Vice President of -Joined subadviser in 1992
adviser -Began business career in
-Joined fund team in 1998 1979
-Joined adviser in 1995
-Began business career in 1981 Thomas C. Goggins
-Senior Vice President of
subadviser
-Joined fund team in 2003
-Joined subadviser in 1995
-Began business career in
1981
- -----------------------------------------------------------------------------------------
Investment The fund seeks capital The fund seeks long-term
objective appreciation. This objective capital appreciation. This
can be changed without objective can be changed
shareholder approval. without shareholder approval.
- -----------------------------------------------------------------------------------------
Primary The fund normally invests at The fund normally invests at
investments least 80% of its assets in least 80% of its assets in
stocks of U.S. and foreign equity securities of (a)
financial services companies companies in the financial
of any size. These companies services industries including
include banks, thrifts, banks, thrifts, credit and
finance companies, brokerage finance companies, insurance
and advisory firms, real companies, leasing companies,
estate-related firms, real estate-related firms,
insurance companies and financial holding companies and
financial holding companies. similar entities and (b) to a
more limited extent,
non-financial industry
companies expected to
benefit from products or
other market advantages in
the financial services
industries.
- -----------------------------------------------------------------------------------------
Investment In managing the portfolio, The managers select financial
strategy the managers focus primarily industry stocks using
on stock selection rather proprietary fundamental equity
than industry allocation. In research and quantitative
choosing individual stocks, screening. The managers use
the managers use fundamental fundamental equity research to
financial analysis to identify companies that:
identify securities that
appear comparatively o are positioned to benefit from
undervalued. Given the industry-wide trends such as
industry-wide trend towards consolidation and regulatory
consolidation, the managers changes; and
also invest in companies that o are comparatively undervalued
appear to be positioned for a relative to balance sheet and
merger. The managers gather earnings.
firsthand information about
companies from interviews and The fund's industry weightings
company visits. are primarily a result of stock
selection and therefore may
differ significantly from its
benchmark. The managers
normally invest in 40 to 100
companies, which may be of any
size.
- -----------------------------------------------------------------------------------------
Other The fund may invest in U.S. The fund may invest in bonds,
investments and foreign bonds, including without specific limit as to
up to 5% of net assets in amount, quality, or country.
junk bonds (those rated below
BBB/Baa and their unrated
equivalents).
- -----------------------------------------------------------------------------------------
Both funds may also invest in certain Exchange Traded Funds
(ETFs).
- -----------------------------------------------------------------------------------------
Short-term The fund may invest up to 15% The fund may invest in
securities of net assets in investment-grade short-term
investment-grade short-term securities without specific
securities. limit as to amount.
- -----------------------------------------------------------------------------------------
9
- -----------------------------------------------------------------------------------------
Foreign The fund may invest in The fund invests mostly in
securities foreign securities, including stocks of U.S. companies, but
foreign-denominated also invests, to a limited
securities and sponsored and extent, in foreign securities
unsponsored depositary denominated in U.S. and foreign
receipts. currencies.
- -----------------------------------------------------------------------------------------
Initial Both funds may invest in IPOs.
public
offerings
("IPOs")
- -----------------------------------------------------------------------------------------
Diversification The fund is diversified and, The fund is non-diversified,
with respect to 75% of total which means that it is not
assets, cannot invest more limited in the extent to which
than 5% of total assets in it can invest more than 5% of
securities of a single total assets in securities of a
issuer. single issuer.
- -----------------------------------------------------------------------------------------
Derivatives The fund may make limited use The fund may use derivatives
of certain derivatives (investments whose value is
(investments whose value is based on indices or other
based on indices, securities securities).
or currencies).
- -----------------------------------------------------------------------------------------
Temporary In abnormal market In abnormal market conditions,
defensive conditions, the fund may the fund may take temporary
positions temporarily invest up to 80% defensive measures - such as
of assets in investment-grade holding unusually large amounts
short-term securities. In of cash and cash equivalents -
these and other cases, the that are inconsistent with the
fund might not achieve its fund's primary investment
goal. strategy. In these and other
cases, the fund may not achieve
its investment goal.
- -----------------------------------------------------------------------------------------
Investment Objectives and Policies
The investment objectives and principal investment policies and risks of the
Acquired Fund and the Acquiring Fund are substantially similar, except that
Financial Industries Fund has greater flexibility than your fund to invest in
securities of companies in the non-financial industries that are expected to
benefit from the financial services industries.
Your fund is diversified, and with respect to 75% of its total assets may not
invest more than 5% of its total assets in securities of a single issuer. On the
other hand, Financial Industries Fund is a non-diversified fund and therefore
is not subject to that limit.
For a comparison of the principal risks of investing in the funds, please see
"Comparison of Investment Risks"
The Funds' Expenses
Both funds pay various expenses. The expense table appearing below shows the
expenses for the twelve-month period ended December 31, 2002. Because Financial
Industries Fund has not yet commenced operations, estimated annual expenses are
shown for that fund. Actual future expenses may be greater or less.
10
V.A.
Financial Financial
Industries Industries
Fund Fund
(Acquired (Acquiring
Shareholder transaction expenses Fund) Fund)
- ------------------------------------------------------------------------------
Maximum sales charge (load) imposed on none none
purchases
(as a % of purchase price)
Maximum sales charge imposed on none none
reinvested dividends
Maximum deferred sales charge (load) as
a % of purchase or sale price, none none
whichever is less
Redemption fee none none
Exchange fee none none
Annual fund operating expenses
(as a % of average net assets)
- ------------------------------------------------------------------------------
Management fee 0.80% 0.80%
Distribution and service (12b-1) fee none none
Other expenses 0.10% 0.08%
Total fund operating expenses 0.90% 0.88%
Expense reduction 0.00%(1) 0.00%(2)
Net fund operating expenses 0.90% 0.88%
(1) V.A. Financial Industries Fund's adviser has agreed to limit the fund's
expenses, excluding management fees, to 0.25% at least until April 30, 2003.
(2) Financial Industries Fund's adviser has agreed in its investment management
agreement to limit the fund's expenses, excluding management fees, to 0.10%.
There is no stated limit to the duration of this commitment.
Examples
The examples below show what you would pay if you had invested $10,000 directly
in each fund 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 expenses associated with the Variable 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.
Financial Financial
Industries Industries
Fund Fund
(Acquired (Acquiring
Fund) Fund)
- ---------------------------------------------------------------------------
Year 1 $92 $89
Year 3 $287 $279
Year 5 $499 $485
Year 10 $1,110 $1,079
Other Consequences of the Reorganization. JHA will serve as sub-adviser to
Financial Industries Fund. In this capacity, JHA will have primary
responsibility for making investment decisions for Financial Industries Fund's
investment portfolio and placing orders with brokers and dealers to implement
those decisions. JHA will receive its compensation from JHLICO, and the fund
pays no sub-management fees over and above the management fee it pays to JHLICO.
JHA will receive sub-management fees from JHLICO at the following rates: 0.70%
of the first $50,000,000 of the fund's average daily net assets; 0.60% of the
next $50,000,000; 0.50% of the next $100,000,000; and 0.40% of any amount in
excess of $200,000,000.
11
COMPARISON OF INVESTMENT RISKS
In deciding whether to approve the reorganization, you should consider whether
the amount and character of investment risk involved in the authorized
investments of Financial Industries Fund is commensurate with the amount of risk
involved in the authorized investments of your fund.
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. Because each fund has the same portfolio management and the substantially
the same investment objective, strategies and policies, the funds are subject to
most of the same principal risks.
- --------------------------------------------------------------------------------
V.A. Financial Industries Financial Industries Fund
Fund (Acquired Fund) (Acquiring Fund)
- --------------------------------------------------------------------------------
Stock The value of securities in the fund may go down in response to
market overall stock market movements. Markets tend to move in cycles,
risk with periods of rising prices and periods of falling prices.
Stocks tend to go up and down in value more than bonds.
- --------------------------------------------------------------------------------
Sector Because the fund focuses on a single sector of the economy, its
concen- performance depends in large part on the performance of that
tration risk 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.
- --------------------------------------------------------------------------------
Investment Stocks of banks and financial services companies as a group category
could fall out of favor with the market, causing the fund to risk underperform
funds that focus on other types of stocks.
- --------------------------------------------------------------------------------
Manager The manager and its strategy may fail to produce the intended
risk results. The fund could underperform its peers or lose money if
the manager's investment strategy does not perform as expected.
- --------------------------------------------------------------------------------
Non- Not applicable. The fund's larger permitted
diver- positions in individual
sification companies could lead to
risk more volatile performance
relative to more
diversified funds. The less
diversified the fund's
holdings are, the more a
specific stock's poor
performance is likely to
hurt the fund's
performance.
- --------------------------------------------------------------------------------
Foreign Foreign investments involve additional risks, including
securities potentially unfavorable currency exchange rates, inadequate or
risk 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 Certain derivative instruments can produce disproportionate
risk 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 In general, the greater the volume of buying and selling by a
risk 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.
- --------------------------------------------------------------------------------
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION
Description of the Reorganization
Shareholders are being asked to approve an Agreement and Plan of Reorganization,
a form of which is attached as Exhibit A. The Agreement and Plan of
Reorganization provides for a reorganization on the following terms:
o The reorganization is scheduled to occur at 5:00 p.m., Eastern time, on April
30, 2003, but may occur on any later date before December 31, 2003. V.A.
Financial Industries Fund will transfer all of its assets to Financial
Industries Fund and Financial Industries Fund will assume all of V.A.
Financial Industries Fund's liabilities. This will result in the addition of
V.A. Financial Industries Fund's assets to Financial Industries Fund's
portfolio. The net asset value of both funds will be computed as of 4:00
p.m., Eastern time, on the reorganization date.
o Financial Industries Fund will issue to V.A. Financial Industries Fund shares
with an aggregate value equal to the aggregate net asset value of V.A.
Financial Industries Fund. As part of the liquidation of V.A. Financial
Industries Fund, these shares will be distributed immediately to shareholders
of record of V.A. Financial Industries Fund in proportion to their holdings
on the reorganization date. As a result, shareholders of V.A. Financial
Industries Fund will end up as shareholders of Financial Industries Fund.
o After the shares are issued, the existence of V.A. Financial Industries Fund
will be terminated.
12
Reasons for the Proposed Reorganization
The board of trustees recommends the proposed reorganization as being in the
best interest of shareholders of your fund. In approving the reorganization, the
board of trustees considered the following matters, among others.
First, the expenses of the Acquiring Fund are estimated to be modestly lower
than the historical expenses of your fund. While the amount is modest, the board
views any cost savings to the shareholders to be an important consideration. In
addition, the investment adviser to the Acquiring Fund has agreed to a more
favorable and permanent expense limitation. Consequently, the Acquiring Fund's
ordinary expenses cannot, without shareholder approval, be higher than your
fund's historical expenses. In contrast, your fund's expense ratio could
increase in the future to a level substantially higher than the Acquiring Fund's
expenses.
Second, the trustees anticipate that all of the other series of the Trust may
be terminated. Consequently, if your fund does not approve the reorganization,
it may be the sole series of the Trust and be responsible for expenses of the
Trust that are currently allocated over a number of different series.
Third, the Acquiring Fund has not yet commenced investment operations and its
investment objective and policies are substantially the same as those of
your fund. Since JHA will serve as subadviser to the Acquiring Fund, you will
have the continuing benefit of the same investment strategy and portfolio
management team.
The trustees also considered the fact that JHLICO may potentially achieve some
benefits, including reduced administrative costs, from consolidating the number
of investment options under the variable contracts that it offers. In any event,
the trustees concluded that, notwithstanding these benefits to JHLICO, the
reorganization is in the best interests of V.A. Financial Industries Fund and
its shareholders. The trustees noted that JHA would not be achieving any direct
benefit from the reorganization, but rather would receive a lower fee in its
capacity as subadviser to the Acquiring fund.
Comparative Fees and Expense Ratios
As shown in the expense tables above, Financial Industries Fund's total expense
ratio during the current fiscal year are expected to be 0.88%, which is lower
than your fund's total expense ratio during its most recent fiscal year.
Investment Performance
Information about V.A. Financial Industries Fund's performance is set forth in
Appendixes A and B at the end of this Proxy Statement and Prospectus. After the
reorganization, as accounting successor to your fund, Financial Industries Fund
will assume your fund's historical performance record.
Further Information on the Reorganization
For further information regarding the terms of the reorganization and the
special meeting of shareholders please see "Further Information on each
Reorganization."
13
PROPOSAL 2
Approval of Agreement and Plan of Reorganization Between
V.A. Relative Value Fund and Growth & Income Fund
A proposal to approve an Agreement and Plan of Reorganization between V.A.
Relative Value Fund and Growth & Income Fund. Under this Agreement, V.A.
Relative Value Fund would transfer all of its assets to Growth & Income Fund in
exchange for shares of Growth & Income Fund. These shares would be distributed
proportionately to the shareholders of V.A. Relative Value Fund. Growth & Income
Fund would also assume V.A. Relative Value Fund's liabilities. The Trust's board
of trustees recommends that shareholders vote FOR this proposal.
SUMMARY
Comparison of V.A. Relative Value Fund to Growth & Income Fund
- ------------------------------------------------------------------------------------
V.A. Relative Value Fund Growth & Income Fund
(Acquired Fund) (Acquiring Fund)
- ------------------------------------------------------------------------------------
Business A diversified series of A non-diversified series of John
John Hancock Declaration Hancock Variable Series Trust I.
Trust. The trust is an The trust is an open-end management
open-end management investment company organized as a
investment company Massachusetts business trust.
organized as a
Massachusetts business
trust.
- ------------------------------------------------------------------------------------
Net assets $30.5 million $1,762.2 million
as of
December
31, 2002
- ------------------------------------------------------------------------------------
Investment Investment Adviser: Investment Adviser:
adviser John Hancock Advisers, LLC John Hancock Life Insurance Company
and
portfolio Portfolio Managers: Subadviser:
managers
Paul J. Berlinguet Independence Investment LLC
-Vice President of adviser -Owned by John Hancock
-Joined fund team in 2002 -Managing since 1982
-Joined adviser in 2001 -Managing fund and its predecessor
-U.S. equity investment since 1986
manager, Baring
America Asset Portfolio Managers:
Management (1989-2001)
-Began business career in Investment team overseen by:
1986
Paul F. McManus
Roger C. Hamilton -Senior Vice President of subadviser
-Vice president of adviser -Joined subadviser in 1982
-Joined fund team in 1999
-Joined adviser in 1994 Thomas D. Spicer
-Began business career in -Senior Vice President of subadviser
1980 -Joined subadviser in 1991
Robert J. Uek, CFA Subadviser:
-Vice president of adviser
-Joined fund team in 2002 Putnam Investment Management LLC
-Joined adviser in 1997 -Managing since 1937
-Began business career in -Managing fund since November, 2000
1990
Portfolio Managers:
Thomas P. Norton, CFA Investment team overseen by:
-Vice President of adviser
-Joined fund team in 2002 Jeffrey R. Lindsey, CFA
-Joined adviser in 2002 -Managing Director of subadviser
-Investment manager, -Joined subadviser in 1994
Baring Asset Management
(1997-2002) David J. Santos
-Began business career in -Senior Vice President of subadviser
1986 -Joined subadviser in 1986
- -------------------------------------------------------------------------------------
14
- -------------------------------------------------------------------------------------
Anthony R. Sellitto III, CFA
-Senior Vice President of subadviser
-Joined subadviser in 2000
-Portfolio manager, Berger
Associates (1998-2000)
-Assistant portfolio manager,
Crestone Capital Management
(1995- 1998)
- -------------------------------------------------------------------------------------
Investment The fund seeks long-term The fund seeks income and long-term
objective capital appreciation. capital appreciation. This
This objective can be objective can be changed without
changed without shareholder approval.
shareholder approval.
- -------------------------------------------------------------------------------------
Primary The fund invests The fund invests primarily in a
investments primarily in a diversified mix of common stocks of
diversified portfolio of large and mid-sized U.S. companies.
stocks.
- -------------------------------------------------------------------------------------
Investment In managing the The fund employs two subadvisers,
strategy portfolio, the managers Independence and Putnam, each of
emphasize a which employs its own investment
value-oriented approach to approach and independently manages
individual stock its portion of the fund. The fund
selection. With the aid uses three distinct investment
of proprietary computer styles intended to complement each
models, the management other: growth, value and blend. The
team looks for companies allocation across styles as of
that are selling at a year-end 2002 was approximately: growth
discount to their portion 18%, value portion 19% and
long-term intrinsic and blend portion 63%.
"franchise" values. These
companies often have Independence manages the value and
identifiable catalysts blend style portions of the fund,
for growth, such as new and selects stocks using a
products, business combination of proprietary equity
reorganizations, or research and quantitative tools.
mergers. Stocks are purchased that are
undervalued relative to the stock's
The fund manages risk by history and have improving earnings
typically holding between growth prospects.
50 and 150 large
capitalization companies Independence normally invests in 75
that are diversified to 160 stocks, with at least 65%
across industry sectors. (usually higher) of its assets in
The management team also companies with market
uses fundamental capitalizations that are within the
financial analysis to range of the 1000 largest companies
identify individual in the Russell 3000 Index (companies
companies with with market capitalizations above
substantial cash flows, $1.1 billion as of December 31,
reliable revenue streams, 2002).
superior competitive
positions and strong Putnam manages the growth style
management. portion of the fund. Putman uses
proprietary fundamental research to
The fund may attempt to identify companies with
take advantage of characteristics such as a favorable
short-term market volatility by earnings surprise or momentum,
investing in corporate favorable financial strength and
restructurings or pending ratios, strong and innovative
acquisitions. management teams, opportunities for
above average earnings growth
within their industry, and
strong competitive positions
relative to peers and suppliers.
Putnam normally invests in 65 to
120 stocks, with at least 65%
(usually higher) of its assets
in companies with market
capitalizations that are within
the range of the 1000 largest
companies in the Russell 3000
Index (companies with market
capitalizations above $1.1
billion as of December 31,
2002).
- -------------------------------------------------------------------------------------
Foreign The fund may invest up to The fund may invest in foreign
securities 25% of its assets in securities which are traded or
foreign securities (35% denominated in U.S. dollars.
during adverse U.S.
market conditions).
- -------------------------------------------------------------------------------------
Debt Both funds may invest in bonds and money market securities.
securities
- -------------------------------------------------------------------------------------
Junk bonds The fund may invest up to The fund is subject to no specific
15% of net assets in junk limit on investing in lower-rated
bonds rated as low as (junk) bonds, although it does not
CC/Ca and their unrated normally invest a significant
equivalents. portion of its assets in junk bonds.
- -------------------------------------------------------------------------------------
Diver
- -sification The fund is diversified The fund is non-diversified, which
and, with respect to 75% means it is not limited in the
of total assets, may not extent to which it can invest more
invest more than 5% of than 5% of total assets in
total assets in securities securities of a single issuer.
of a single issuer.
- -------------------------------------------------------------------------------------
Initial Both funds may invest in IPOs.
public
offerings
("IPOs")
- -------------------------------------------------------------------------------------
Derivatives Both funds may make limited use of certain derivatives
(investments whose value is based on indices, securities or
currencies).
- -------------------------------------------------------------------------------------
Temporary In abnormal market In abnormal market conditions, the
defensive conditions, the fund may fund may take temporary defensive
positions temporarily invest measures -- such as holding
extensively in unusually large amounts of cash and
investment-grade short-term cash equivalents -- that are
securities. In these and inconsistent with the fund's
other cases, the fund primary investment strategy. In
might not achieve its these and other cases, the fund may
goal. not achieve its investment goal.
- -------------------------------------------------------------------------------------
15
Investment Objectives and Policies
The investment objectives, policies and risks of the two funds are similar but
not identical. Your fund's investment objective is to seek capital appreciation.
On the other hand, Growth & Income Fund's investment objective is to seek income
as well as long-term capital appreciation.
The managers of your fund utilize a relative value-oriented investment strategy
that focuses on companies that are selling at a discount to their long-term
values. In contrast, Growth & Income Fund is managed according to three
different investment styles: growth, blend and value.
Your fund typically invests in large capitalization companies, while Growth &
Income Fund normally invests primarily in stocks of large and medium
capitalization companies.
Your fund is diversified and, with respect to 75% of its total assets, cannot
invest more than 5% of its assets in securities of a single issuer, while Growth
& Income Fund is non-diversified and therefore is not subject to that limit.
Your Fund may invest up to 25% of its assets in foreign securities (35%
during adverse U.S. market conditions) denominated in U.S. or foreign
currencies. Growth & Income Fund invests only in foreign securities
that are U.S. dollar denominated.
For a comparison of the principal risks of investing in the funds, please see
"Comparison of Investment Risks".
The Funds' Expenses
Both funds pay various expenses. The expense table appearing below shows the
expenses for the twelve-month period ended December 31, 2002.
Future expenses may be greater or less.
As described in Proposal 3, the board of trustees has recommended that another
John Hancock fund, V.A. Sovereign Investors Fund, also reorganize into Growth &
Income Fund. The reorganization of V.A. Relative Value Fund with Growth & Income
Fund, however, does not depend upon whether the reorganization involving V.A.
Sovereign Investors Fund occurs. The expense table also shows the hypothetical
("pro forma") expenses of Growth & Income Fund assuming (1) that a
reorganization with V.A. Relative Value Fund, but not V.A. Sovereign Investors
Fund, occurred on December 31, 2001 or (2) that a reorganization with both V.A.
Relative Value Fund and V.A. Sovereign Investors Fund occurred on December 31,
2001. The expenses shown in the table for V.A. Relative Value Fund and Growth &
Income Fund are based on fees and expenses incurred during the twelve months
ended December 31, 2002. Growth & Income Fund's actual expenses after the
reorganization may be greater or less than those shown.
16
- ----------------------------------------------------------------------------------------
Growth & Growth &
Income Income Fund
Fund (PRO FORMA
(PRO FORMA for the year
for the ended
year 12/31/02)
ended (Assuming
12/31/02) reorganization
(Assuming with
V.A. Growth reorganization V.A.
Relative & with Relative
Value Income V.A. Value Fund
Fund Fund Relative and V.A.
Shareholder transaction Acquired (Acquiring Value Sovereign
expenses Fund) Fund) Fund only) Investors Fund)
- ----------------------------------------------------------------------------------------
Maximum sales charge (load) none none none none
imposed on purchases
(as a % of purchase price)
- ----------------------------------------------------------------------------------------
Maximum sales charge imposed none none none none
on reinvested
dividends
- ----------------------------------------------------------------------------------------
Maximum deferred sales charge none none none none
(load) as a % of
purchase or sale price,
whichever is less
- ----------------------------------------------------------------------------------------
Redemption fee none none none none
- ----------------------------------------------------------------------------------------
Exchange fee none none none none
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Annual fund operating expenses
(as a % of average net assets)
- ----------------------------------------------------------------------------------------
Management fee 0.60% 0.67% 0.67% 0.67%
- ----------------------------------------------------------------------------------------
Distribution and service none none none none
(12b-1) fee
- ----------------------------------------------------------------------------------------
Other expenses 0.13% 0.08% 0.08% 0.08%
- ----------------------------------------------------------------------------------------
Total fund operating expenses 0.73% 0.75% 0.75% 0.75%
- ----------------------------------------------------------------------------------------
Expense reduction 0.00%(1) 0.00%(2) 0.00%(2) 0.00%(2)
- ----------------------------------------------------------------------------------------
Net fund operating expenses 0.73% 0.75% 0.75% 0.75%
- ----------------------------------------------------------------------------------------
(1) V.A. Relative Value Fund's adviser has agreed to limit the fund's expenses,
excluding management fees, to 0.25% at least until April 30, 2003.
(2) Growth & Income Fund's adviser has agreed in its investment management
agreement to limit the fund's expenses, excluding management fees, to 0.10%.
There is no stated limit to the duration of this commitment.
Examples
The examples contained in the expense table show what you would pay if you had
invested $10,000 directly in each fund 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 the Variable 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.
- ----------------------------------------------------------------------------------------
Growth &
Growth & Income Fund
Income (PRO FORMA)
Fund (Assuming
(PRO reorganization
FORMA) with
(Assuming V.A.
V.A. Growth reorganization Relative
Relative & with Value Fund
Value Income V.A. and V.A.
Fund Fund Relative Sovereign
(Acquired (Acquiring Value Investors
Fund) Fund) Fund only) Fund)
- ----------------------------------------------------------------------------------------
Year 1 $ 75 $ 77 $ 77 $ 77
- ----------------------------------------------------------------------------------------
Year 3 $233 $241 $240 $240
- ----------------------------------------------------------------------------------------
Year 5 $406 $418 $418 $418
- ----------------------------------------------------------------------------------------
Year 10 $907 $933 $933 $932
- ----------------------------------------------------------------------------------------
17
Investment Management fees
- --------------------------------------------------------------------------------
Investment management fees as a percentage of average daily net assets.
- --------------------------------------------------------------------------------
V.A. Relative Value 0.60%
Fund (Acquired Fund)
- --------------------------------------------------------------------------------
Growth & Income Fund 0.71% on first $150 million
(Acquiring Fund) 0.69% on next $150 million
0.67% in excess of $300 million
- --------------------------------------------------------------------------------
Independence Investment, LLC ("Independence"), a wholly-owned subsidiary of John
Hancock Financial Services, Inc., and Putnam Investment Management, LLC
("Putnam") serve as co-sub-advisers to Growth & Income Fund. The sub-advisers
have primary responsibility for making investment decisions for Growth & Income
Fund's investment portfolios and placing orders with brokers and dealers to
implement those decisions. JHLICO, as the Acquiring fund's investment adviser,
advises the fund about how much of the fund's assets should, at a given time, be
under the day-to-day management of Independence or Putnam. Based on current
allocation procedures between the sub-advisers, any assets acquired by the
Growth & Income Fund in the reorganization will be allocated to Independence and
Putnam on a 50-50 basis.
The sub-advisers to the Acquiring Fund receive their compensation from JHLICO,
and the fund pays no sub-management fees over and above the management fees it
pays to JHLICO. Independence receives sub-management fees from JHLICO at the
rate of .1875% per annum of the fund's average daily net assets that are under
Independence's responsibility. Putnam receives sub-management fees from JHLICO
at the following annual rates: 0.50% of the first $150,000,000 of the Acquiring
Fund's average daily assets that are under Putnam's responsibility; 0.45% of the
next $150,000,000; and 0.35% of any additional amounts.
COMPARISON OF INVESTMENT RISKS
In deciding whether to approve the reorganization, you should consider whether
the amount and character of investment risk involved in the authorized
investments of Growth & Income Fund is commensurate with the amount of risk
involved in the authorized investments of your fund.
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. Relative Value Fund Growth & Income Fund
(Acquired Fund) (Acquiring Fund)
- -------------------------------------------------------------------------------------
Stock The value of securities in the fund may go down in response
market risk 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. If the fund concentrates in certain sectors, its
performance could be worse than that of the overall stock
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.
- -------------------------------------------------------------------------------------
Investment The large capitalization The large and medium
category and value stocks in which capitalization stocks in which
risk the fund primarily invests the fund primarily invests could
could fall out of favor fall out of favor with the
with the market, causing market, causing the fund to
the fund to underperform underperform funds that focus on
funds that focus on small small capitalization stocks.
or medium capitalization
stocks or on growth stocks.
- -------------------------------------------------------------------------------------
Non-diversifi- Not applicable. The fund's ability to take larger
cation risk positions in individual companies
could lead to more volatile
performance relative to more
diversified funds. The less
diversified the fund's
holdings are, the more a
specific stock's poor
performance is likely to
hurt the fund's performance.
- -------------------------------------------------------------------------------------
Initial Each fund may invest in IPOs. Many IPO stocks are issued
public by, and involve the risks associated with, small and medium
offering capitalization companies.
(IPO) risk
- -------------------------------------------------------------------------------------
Foreign Foreign investments involve additional risks, including
securities potentially inadequate or inaccurate financial information
risk and social or political instability.
- -------------------------------------------------------------------------------------
Foreign Unfavorable foreign currency Not applicable because the fund
currency exchange rates could reduce invests only in U.S. dollar-
risk the value of securities traded denominated foreign securities.
or denominated in foreign
currencies.
- -------------------------------------------------------------------------------------
Bond risk The credit rating of any The credit rating of any bond in
bond in the fund's the fund's portfolio could be
portfolio could be downgraded or the issuer of a bond
downgraded or the issuer could default on its obligations.
of a bond could default on Bond prices generally fall when
its obligations. Bond interest rates rise. This risk is
prices generally fall when greater for longer maturity bonds.
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 Certain derivative instruments can produce disproportionate risk
gains or losses and are riskier than direct investments. Also,
- -------------------------------------------------------------------------------------
18
- -------------------------------------------------------------------------------------
in a down market derivatives could become harder to value or sell at
a fair price.
- -------------------------------------------------------------------------------------
Turnover In general, the greater the volume of buying and selling by
risk 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.
- -------------------------------------------------------------------------------------
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION
Description of the 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 April
25, 2003, but may occur on any later date before December 31, 2003. V.A.
Relative Value Fund will transfer all of its assets to Growth & Income Fund
and Growth & Income Fund will assume all of V.A. Relative Value Fund's
liabilities. This will result in the addition of V.A. Relative Value Fund's
assets to Growth & Income Fund's portfolio. The net asset value of both funds
will be computed as of 4:00 p.m., Eastern time, on the reorganization date.
o Growth & Income Fund will issue to V.A. Relative Value Fund shares with an
aggregate value equal to the aggregate net asset value of V.A. Relative Value
Fund. As part of the liquidation of V.A. Relative Value Fund, these shares
will be distributed immediately to shareholders of record of V.A. Relative
Value Fund in proportion to their holdings on the reorganization date. As a
result, shareholders of V.A. Relative Value Fund will end up as shareholders
of Growth & Income Fund.
o After the shares are issued, the existence of V.A. Relative Value
Fund will be terminated.
Reasons for the Proposed Reorganization
The board of trustees recommends the proposed reorganization as being in the
best interests of shareholders of your fund. The board of trustees considered
the following matters, among others, in approving the proposal.
First, the Acquiring Fund is substantially larger than your fund and there can
be no assurance that your fund's assets will grow significantly in the future. A
large asset base has several advantages. With respect to investments, a larger
asset base permits greater diversification of investments and potentially lower
transaction costs. A large fund also offers the potential for lower per share
expenses other than the management fee. While the management fee of the
Acquiring Fund is somewhat higher and is determined as a percentage of net
assets, there are other expenses that are fixed costs or that are not based upon
asset size. These expenses, as a percentage of net assets, will generally be
lower for a larger fund compared to a smaller fund. JHLICO has also agreed to a
lower and more permanent limitation of the Acquiring Fund's other expenses than
JHA has agreed to with respect to your fund. Consequently, although your fund's
overall operating expenses are currently slightly lower, the Acquiring Fund may
offer greater protection against increased operating costs in the future.
Second, shareholders may be better served by the Acquiring Fund's ability to
invest in a broader range of securities. Growth & Income Fund is managed with
three distinct investment strategies: growth, blend and value. The trustees
considered that this added investment flexibility offered greater potential to
achieve capital appreciation. The trustees also noted that the Variable
Contracts that invest in the funds offered other value-oriented investment
options, so that participants in your fund could transfer into such investment
options without incurring transaction costs or taxes.
Third, the trustees anticipate that all of the other series of the Trust may
be terminated. Consequently, if your fund does not approve the reorganization,
it may be the sole series of the Trust and be responsible for expenses of the
Trust that are currently allocated over a number of different series.
The trustees also considered the fact the management fee paid to JHLICO by the
Acquiring Fund is somewhat higher than the management fee that your fund
currently pays to JHA. Also, the historical overall expenses of the Acquiring
Fund are slightly higher than your fund's historical total expenses. However,
JHLICO has agreed to a more favorable limitation with respect to the Acquiring
Fund's operating expenses (excluding management fees). Consequently, the
potential maximum expenses of the Acquiring Fund are lower. The trustees also
considered the fact that JHLICO may potentially achieve some benefits, including
reduced administrative costs, from
20
consolidating the number of investment options under the Variable Contracts that
it offers. In any event, the trustees concluded that, notwithstanding these
benefits to JHLICO, the reorganization is in the best interests of V.A. Relative
Value Fund and its shareholders. The trustees noted that JHA would not be
achieving any direct benefit from the reorganization, but rather would no longer
be managing your fund.
Comparative Fees and Expense Ratios
As shown in the expense tables above, after the reorganization, Growth & Income
Fund's total annual operating expenses (0.75%) are expected to be slightly
higher than those of V.A. Relative Value Fund (0.73%).
Comparative Performance
Information about the funds' performance is set forth in Appendixes A and B at
the end of this Proxy Statement and Prospectus.
Further Information on the Reorganization
For further information regarding the terms of the reorganization and the
special meeting of shareholders please see "Further Information on each
Reorganization."
21
PROPOSAL 3
Approval of Agreement and Plan of Reorganization Between
V.A. Sovereign Investors Fund and Growth & Income Fund
A proposal to approve an Agreement and Plan of Reorganization between V.A.
Sovereign Investors Fund and Growth & Income Fund. Under this Agreement, V.A.
Sovereign Investors Fund would transfer all of its assets to Growth & Income
Fund in exchange for shares of Growth & Income Fund. These shares would be
distributed proportionately to the shareholders of V.A. Sovereign Investors
Fund. Growth & Income Fund would also assume V.A. Sovereign Investors Fund's
liabilities. The Trust's board of trustees recommends that shareholders vote FOR
this proposal.
SUMMARY
Comparison of V.A. Sovereign Investors Fund to Growth & Income Fund
- ----------------------------------------------------------------------------------------
V.A. Sovereign Investors Fund Growth & Income Fund
(Acquired Fund) (Acquiring Fund)
- ----------------------------------------------------------------------------------------
Business A diversified series of John A non-diversified series of John
Hancock Declaration Trust. Hancock Variable Series Trust I.
The trust is an open-end The trust is an open-end
management investment company management investment company
organized as a Massachusetts organized as a Massachusetts
business trust. business trust.
- ----------------------------------------------------------------------------------------
Net $39.7 million $1,762.2 million
assets as
of
December
31, 2002
- ----------------------------------------------------------------------------------------
Investment Investment Adviser: Investment Adviser:
adviser John Hancock Advisers, LLC John Hancock Life Insurance
and Company
portfolio Portfolio Managers:
managers Subadviser:
John F. Snyder III
-Executive vice president of Independence Investment LLC
adviser -Owned by John Hancock
-Joined fund team in 1996 -Managing since 1982
-Joined adviser in 1991 -Managing fund and its
-Began business career in 1971 predecessor since 1986
Barry H. Evans, CFA Portfolio Managers:
-Senior vice president of
adviser Investment team overseen by:
-Joined fund team in 1996
-Joined adviser in 1986 Paul F. McManus
-Began business career in 1986 -Senior Vice President of
subadviser
Peter M. Schofield, CFA -Joined subadviser in 1982
-Vice president of adviser
-Joined fund team in 1996 Thomas D. Spicer
-Joined adviser in 1996 -Senior Vice President of
-Began business career in 1984 subadviser
-Joined subadviser in 1991
Subadviser:
Putnam Investment Management LLC
-Managing since 1937
-Managing fund since November,
2000
Portfolio Managers:
Investment team overseen
by:
Jeffrey R. Lindsey, CFA
-Managing Director of subadviser
-Joined subadviser in 1994
David J. Santos
-Senior Vice President of
subadviser
- ----------------------------------------------------------------------------------------
22
- ----------------------------------------------------------------------------------------
-Joined subadviser in 1986
Anthony R. Sellitto III, CFA
-Senior Vice President of
subadviser
-Joined subadviser in 2000
-Portfolio manager, Berger
Associates (1998-2000)
-Assistant portfolio manager,
Crestone Capital Management
(1995- 1998)
- ----------------------------------------------------------------------------------------
Investment The fund seeks long-term The seeks income and long-term
objective growth of capital and income capital appreciation. This
without assuming undue market objective can be changed without
risks. This objective can be shareholder approval.
changed without shareholder
approval.
- ----------------------------------------------------------------------------------------
Primary The fund invests at least 80% The fund invests primarily in a
investments of its stock investments in a diversified mix of common stocks
diversified portfolio of of large and mid-sized U.S.
companies with market companies.
capitalizations within the
range of the Standard &
Poor's 500 Index. On January
31, 2003, that range was $257.61
million to $231.61 billion.
- ----------------------------------------------------------------------------------------
Investment At least 65% of the fund's The fund employs two
strategy stock investments are subadvisers, Independence and
"dividend performers" - Putnam, each of which employs
companies whose dividend its own investment approach and
payments have increased independently manages its
steadily for ten years. In portion of the fund. The fund
managing the portfolio, the uses three distinct investment
managers use fundamental styles intended to complement
financial analysis to each other: growth, value and
identify individual companies blend. The allocation across
with high-quality income styles as of year-end 2002 was
statements, substantial cash approximately: growth portion
reserves, and identifiable 18%, value portion 19% and
catalysts for growth, which blend portion 63%.
may be new products or
benefits from industry-wide Independence manages the value
growth. The managers and blend style portions of the
generally visit companies to fund, and selects stocks using a
evaluate the strength and combination of proprietary
consistency of their equity research and quantitative
management strategy. tools. Stocks are purchased
Finally, the managers look that are undervalued relative to
for stocks that are the stock's history and have
reasonably priced relative to improving earnings growth
their earnings and industry. prospectus.
Historically, these companies
have tended to have large or Independence normally invests in
medium market capitalizations. 75 to 160 stocks, with at least
65% (usually higher) of its
assets in companies with
market capitalizations that
are within the range of the
1000 larges companies in
the Russell 3000 Index
(companies with market
capitalizations above $1.1
billion as of December 31,
2002).
Putnam manages the growth
style portion of the fund.
Putman uses proprietary
fundamental research to
identify companies with
characteristics such as a
favorable earnings surprise
or momentum, favorable
financial strength and
ratios, strong and
innovative management
teams, opportunities for
above average earnings
growth within their
industry, and strong
competitive positions
relative to peers and
suppliers.
Putnam normally invests in 65
to 120 stocks, with at least
65% (usually higher) of its
assets in companies with
market capitalizations that
are within the range of the
1000 largest companies in
the Russell 3000 Index
(companies with market
capitalizations above $1.1
billion as of December 31,
2002).
- ----------------------------------------------------------------------------------------------
Debt Both funds may invest in bonds of any maturity.
securities
- ----------------------------------------------------------------------------------------------
Junk bonds The fund may invest up to 5% The fund is subject to no
of assets in junk bonds rated specific limit on investing in
as low as C and their unrated lower-rated (junk) bonds,
equivalents. although it does not usually
invest significantly in junk bonds.
- ----------------------------------------------------------------------------------------------
Foreign The fund typically invests in The fund may invest in foreign
securities U.S. companies but may invest in securities that are U.S.
foreign securities traded or dollar-traded or denominated.
denominated in U.S. dollars.
- ----------------------------------------------------------------------------------------------
22
- ----------------------------------------------------------------------------------------------
Diversifi- The fund is diversified and, The fund is non-diversified and
cation with respect to 75% of total can invest more than 5% of total
assets, cannot invest more assets in securities of a single
than 5% of total assets in issuer.
securities of a single issuer.
In addition, the fund may not
invest more than 5% of assets
in any one security.
- ----------------------------------------------------------------------------------------------
Initial Both funds may invest in IPOs.
public
offerings
("IPOs")
- ----------------------------------------------------------------------------------------------
Derivatives The fund may make limited use The fund may make limited use of
of certain derivatives certain derivatives (investments
(investments whose value is whose value is based on indexes
based on indexes). or other securities).
- ----------------------------------------------------------------------------------------------
Temporary In abnormal market In abnormal market conditions,
defensive conditions, the fund may the fund may take temporary
positions temporarily invest defensive measures -- such as
extensively in holding unusually large amounts
investment-grade short-term of cash and cash equivalents --
securities. In these and that are inconsistent with the
other cases, the fund might fund's primary investment
not achieve its goal. strategy. In these and other
cases, the fund may not achieve
its investment goal.
- ----------------------------------------------------------------------------------------------
Investment Objectives, Policies and Risks
The investment objectives, policies and risks of the two funds are similar but
not identical. In that regard, you should note that your fund's investment
objective is to seek long-term growth of capital and income without assuming
undue market risk. On the other hand, Growth & Income Fund's investment
objective is to seek income and long-term capital appreciation.
At least 65% of your fund's stock investments are "dividend performers" -
companies whose dividend payments have increased steadily for at least 10 years.
Growth & Income Fund is not required to invest in dividend performers.
Your fund invests in bonds of any maturity, and can invest up to 5% of assets in
junk bonds. Growth & Income Fund does not typically invest in debt securities to
a significant extent.
Your fund is diversified and cannot invest more than 5% of its assets in any one
security, while Growth & Income Fund is non-diversified and therefore is not
subject to that limit.
For a comparison of the principal risks of investing in the funds, please see
"Comparison of Investment Risks".
The Funds' Expenses
Both funds pay various expenses. The expense table appearing below shows the
expenses for the twelve-month period ended December 31, 2002.
Future expenses may be greater or less.
As described in Proposal 2, the board of trustees of another John Hancock fund,
V.A. Relative Value Fund, has recommended that V.A. Relative Value Fund also
reorganize into Growth & Income Fund. The reorganization of V.A. Sovereign
Investors Fund with Growth & Income Fund, however, does not depend upon whether
the reorganization involving V.A. Relative Value Fund occurs. The expense table
also shows the hypothetical ("pro forma") expenses of Growth & Income Fund
assuming (1) that a reorganization with V.A. Sovereign Investors Fund, but not
V.A. Relative Value Fund, occurred on December 31, 2001 or (2) that a
reorganization with both V.A. Sovereign Investors Fund and V.A. Relative Value
Fund occurred on December 31, 2001. The expenses shown in the table for V.A.
Sovereign Investors Fund and Growth & Income Fund are based on fees and expenses
incurred during the twelve months ended December 31, 2002. Growth & Income
Fund's actual expenses after the reorganization may be greater or less than
those shown.
23
- ----------------------------------------------------------------------------------------
Growth &
Growth & Income Fund
Income (PRO FORMA
Fund for the year
(PRO FORMA ended
for the 12/31/02)
year (Assuming
ended reorganization
12/31/02) with
(Assuming V.A.
V.A. Growth reorganization Sovereign
Sovereign & with Investors
Investors Income V.A. Fund and
Fund Fund Sovereign V.A.
Shareholder transaction (Acquired (Acquiring Investors Relative
expenses Fund) Fund) Fund only) Value Fund)
- ----------------------------------------------------------------------------------------
Maximum sales charge (load) none none none none
imposed on purchases
(as a % of purchase price)
- ----------------------------------------------------------------------------------------
Maximum sales charge imposed none none none none
on reinvested
dividends
- ----------------------------------------------------------------------------------------
Maximum deferred sales charge none none none none
(load) as a % of
purchase or sale price,
whichever is less
- ----------------------------------------------------------------------------------------
Redemption fee none none none none
- ----------------------------------------------------------------------------------------
Exchange fee none none none none
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Annual fund operating expenses
(as a % of average net
assets)
- ----------------------------------------------------------------------------------------
Management fee 0.60% 0.67% 0.67% 0.67%
- ----------------------------------------------------------------------------------------
Distribution and service none none none none
(12b-1) fee
- ----------------------------------------------------------------------------------------
Other expenses 0.11% 0.08% 0.08% 0.08%
- ----------------------------------------------------------------------------------------
Total fund operating expenses 0.71% 0.75% 0.75% 0.75%
- ----------------------------------------------------------------------------------------
Expense reduction 0.00%(1) 0.00%(2) 0.00%(2) 0.00%(2)
- ----------------------------------------------------------------------------------------
Net fund operating expenses 0.71% 0.75% 0.75% 0.75%
- ----------------------------------------------------------------------------------------
(1) V.A. Sovereign Investors Fund's adviser has agreed to limit the fund's
expenses, excluding management fees, to 0.25% at least until April 30, 2003.
(2) Growth & Income Fund's adviser has agreed in its investment management
agreement to limit the fund's expenses, excluding management fees, to 0.10%.
There is no stated limit to the duration of this commitment.
Examples
The examples below show what you would pay if you had invested $10,000 directly
in each fund 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 the Variable
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.
- --------------------------------------------------------------------------------
Growth &
Growth & Income Fund
Income (PRO FORMA)
Fund (Assuming
(PRO reorganization
FORMA) with
(Assuming V.A.
V.A. Growth reorganization Sovereign
Sovereign & with Investors Fund
Investors Income V.A. and V.A.
Fund Fund Sovereign Relative
(Acquired (Acquiring Investors Value
Fund) Fund) Fund only) Fund)
- --------------------------------------------------------------------------------
Year 1 $ 73 $ 77 $ 77 $ 77
- --------------------------------------------------------------------------------
Year 3 $227 $241 $240 $240
- --------------------------------------------------------------------------------
Year 5 $395 $418 $418 $418
- --------------------------------------------------------------------------------
Year 10 $883 $933 $932 $932
- --------------------------------------------------------------------------------
Investment Management fees
- ------------------------------------------------------
Investment management fees as a percentage
of average daily net assets.
- --------------------------------------------------------
V.A. Sovereign 0.60%
Investors Fund
- --------------------------------------------------------
24
- --------------------------------------------------------
(Acquired Fund)
- --------------------------------------------------------
Growth & Income 0.71% on first $150
Fund million
(Acquiring Fund) 0.69% on next $150 million
0.67% in excess of $300
million
- --------------------------------------------------------
Independence Investment, LLC ("Independence"), a wholly-owned subsidiary of John
Hancock Financial Services, Inc., and Putnam Investment Management, LLC
("Putnam") serve as co-sub-advisers to Growth & Income Fund. The sub-advisers
have primary responsibility for making investment decisions for Growth & Income
Fund's investment portfolios and placing orders with brokers and dealers to
implement those decisions. JHLICO, as the Acquiring fund's investment adviser,
advises the fund about how much of the fund's assets should, at a given time, be
under the day-to-day management of Independence or Putnam. Based on current
allocation procedures between the sub-advisers, any assets acquired by the
Growth & Income Fund in the reorganization will be allocated to Independence and
Putnam on a 50-50 basis.
The sub-advisers to the Acquiring Fund receive their compensation from JHLICO,
and the fund pays no sub-management fees over and above the management fees it
pays to JHLICO. With respect to the Acquiring Fund, Independence receives
sub-management fees from JHLICO at the rate of .1875% per annum of the fund's
average daily net assets that are under Independence's responsibility. Putnam
receives sub-management fees from JHLICO at the following annual rates: 0.50% of
the first $150,000,000 of the Acquiring Fund's average daily assets that are
under Putnam's responsibility; 0.45% of the next $150,000,000; and 0.35% of any
additional amounts.
COMPARISON OF INVESTMENT RISKS
In deciding whether to approve the reorganization, you should consider whether
the amount and character of investment risk involved in the authorized
investments of Growth & Income Fund is commensurate with the amount of risk
involved in the authorized investments of your fund.
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. Sovereign Investors Growth & Income Fund
Fund (Acquired Fund) (Acquiring Fund)
- --------------------------------------------------------------------------------------------
Stock The value of securities in the fund may go down in response
market risk 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. If the fund concentrates in certain sectors, its
performance could be worse than that of the overall stock
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.
- --------------------------------------------------------------------------------------------
Investment The large and medium capitalization stocks in which the fund
category primarily invests could fall out of favor with the market,
risk causing the fund to underperform funds that focus on small
capitalization stocks.
- --------------------------------------------------------------------------------------------
Non-diver- Not applicable. The fund's larger positions in
sification risk individual companies could lead
to more volatile performance
relative to more diversified
funds. The less diversified
the fund's holdings are, the
more a specific stock's poor
performance is likely to
hurt the fund's performance.
- --------------------------------------------------------------------------------------------
Small and The fund's investments in small or medium capitalization
medium companies may be subject to larger and more erratic price
capitalization movements than investments in large capitalization
company risk companies.
- --------------------------------------------------------------------------------------------
Initial Many IPO stocks are issued by, and involve the risks
public associated with, small and medium capitalization companies.
offering
(IPO) risk
- --------------------------------------------------------------------------------------------
Foreign Foreign investments involve additional risks, including
securities potentially inadequate or inaccurate financial information
risk and social or political instability.
- --------------------------------------------------------------------------------------------
Bond risk The credit rating of any The credit rating of any bond in
bond in the fund's the fund's portfolio could be
portfolio could be downgraded or the issuer of a bond
downgraded or the issuer could default on its obligations.
of a bond could default on Bond prices generally fall when
its obligations. Bond interest rates rise. This risk is
prices generally fall when greater for longer maturity bonds.
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 Certain derivative instruments can produce disproportionate
risk 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 In general, the greater the volume of buying and selling by
risk 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.
- --------------------------------------------------------------------------------------------
25
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 and Plan of
Reorganization provides for a reorganization on the following terms:
o The reorganization is scheduled to occur at 5:00 p.m., Eastern time, on April
25, 2003, but may occur on any later date before December 31, 2003. V.A.
Sovereign Investors Fund will transfer all of its assets to Growth & Income
Fund and Growth & Income Fund will assume all of V.A. Sovereign Investors
Fund's liabilities. This will result in the addition of V.A. Sovereign
Investors Fund's assets to Growth & Income Fund's portfolio. The net asset
value of both funds will be computed as of 4:00 p.m., Eastern time, on the
reorganization date.
o Growth & Income Fund will issue to V.A. Sovereign Investors Fund shares with
an aggregate value equal to the aggregate net asset value of V.A. Sovereign
Investors Fund. As part of the liquidation of V.A. Sovereign Investors Fund,
these shares will be distributed immediately to shareholders of record of
V.A. Sovereign Investors Fund in proportion to their holdings on the
reorganization date. As a result, shareholders of V.A. Sovereign Investors
Fund will end up as shareholders of Growth & Income Fund.
o After the shares are issued, the existence of V.A. Sovereign Investors Fund
will be terminated.
Reasons for the Proposed Reorganization
The board of trustees recommends the proposed reorganization as being in the
best interests of shareholders of your fund. The board of trustees considered
the following matters, among others, in approving the proposal.
First, the Acquiring Fund is substantially larger than your fund and there can
be no assurance that your fund's assets will grow significantly in the future.
In fact, your fund is no longer being offered to new variable insurance contract
holders and consequently has limited prospects for asset growth. A large asset
base has several advantages. With respect to investments, a larger asset base
permits greater diversification of investments and potentially lower transaction
costs. A large fund also offers the potential for lower per share expenses other
than the management fee. While the management fee of the Acquiring Fund is
somewhat higher and is determined as a percentage of net assets, there are other
expenses that are fixed costs or that are not based upon asset size. These
expenses, as a percentage of net assets, will generally be lower for a larger
fund compared to a smaller fund.
Second, the investment objectives and policies of both funds are similar.
However, the trustees believe that the combination of managers using a variety
of investment strategies offer a greater potential to achieve those objectives
than your fund's dividend performer strategy.
Third, the trustees anticipate that all of the other series of the Trust may
be terminated. Consequently, if your fund does not approve the reorganization,
it may be the sole series of the Trust and be responsible for expenses of the
Trust that are currently allocated over a number of different series.
The Trustees also considered the fact that the management fee paid to JHLICO by
the Acquiring Fund is somewhat higher than the management fee that your fund
currently pays JHA. Also, the historical overall expenses of the Acquiring Fund
are slightly higher than your fund's historical total expenses. However, JHLICO
has also agreed to a lower and more permanent limitation of the Acquiring Fund's
other expenses than JHA has agreed to with respect to your fund. Consequently,
the Acquiring Fund offers greater protection against the potential for increased
operating costs.
In addition, the trustees considered the fact that JHLICO may potentially
achieve some benefits, including reduced administrative costs, from
consolidating the number of investment options under the Variable Contracts that
it offers. In any event, the trustees concluded that, notwithstanding these
benefits to JHLICO, the reorganization is in the best interests of V.A.
Sovereign Investors Fund and its shareholders. The trustees noted that JHA would
not be achieving any direct benefit from the reorganization, but rather would no
longer be managing your fund.
26
Comparative Fees and Expense Ratios
As shown in the expense tables above, after the reorganization, Growth & Income
Fund's total annual operating expenses (0.75%) are expected to be slightly
higher than those of V.A. Sovereign Investors Fund (0.71%).
Comparative Performance
Information about the funds' performance is set forth in Appendixes A and B at
the end of this Proxy Statement and Prospectus.
Further Information on the Reorganization
For further information regarding the terms of the reorganization and the
special meeting of shareholders please see "Further Information on each
Reorganization."
27
PROPOSAL 4
Approval of Agreement and Plan of Reorganization Between
V.A. Strategic Income Fund and Active Bond Fund
A proposal to approve an Agreement and Plan of Reorganization between V.A.
Strategic Income Fund and Active Bond Fund. Under this Agreement, V.A. Strategic
Income Fund would transfer all of its assets to Active Bond Fund in exchange for
shares of Active Bond Fund. These shares would be distributed proportionately to
the shareholders of V.A. Strategic Income Fund. Active Bond Fund would also
assume V.A. Strategic Income Fund's liabilities. The Trust's board of trustees
recommends that shareholders vote FOR this proposal.
SUMMARY
Comparison of V.A. Strategic Income Fund to Active Bond Fund
- --------------------------------------------------------------------------------------
V.A. Strategic Income Fund Active Bond Fund
(Acquired Fund) (Acquiring Fund)
- --------------------------------------------------------------------------------------
Business The fund is a diversified The fund is a diversified series
series of John Hancock of John Hancock Variable Series
Declaration Trust. The Trust I. The trust is an open-end
trust is an open-end management investment company
management investment organized as a Massachusetts
company organized as a business trust.
Massachusetts business
trust.
- --------------------------------------------------------------------------------------
Net assets $72.7 million $987.5 million
as of
December
31, 2002
- --------------------------------------------------------------------------------------
Investment Investment Adviser: Investment Adviser:
adviser and John Hancock Advisers, LLC John Hancock Life Insurance
portfolio Company
managers Portfolio managers:
Frederick L. Cavanaugh, Jr. Subadviser:
-Senior Vice President of John Hancock Advisers, LLC
adviser
-Joined fund team in 1996 Portfolio managers:
-Joined adviser in 1986
-Began business career in Howard C. Greene, CFA
1975 -Senior Vice President of
subadviser
Daniel S. Janis III -Joined fund team in 2002
-Vice President of adviser -Joined subadviser in 2002
-Joined fund team in 1999 -Vice President at Sun Life
-Joined adviser in 1999 Financial Services Company
-Senior risk manager at of Canada (1987-2002)
BankBoston (1997-1998) -Began business career in 1979
-Began business career in
1984 Barry H. Evans, CFA
-Senior Vice President of
subadviser -Joined fund team
in 2002 -Joined subadviser
in 1986 -Began business
career in 1986
Benjamin A. Matthews -Vice
President of subadviser
-Joined fund team in 1995
-Joined subadviser in 1995
-Began business career in
1970
- --------------------------------------------------------------------------------------
Investment The fund seeks a high level The fund seeks income and
objective of current income. This capital appreciation. This
objective can be changed objective can be changed without
without shareholder shareholder approval.
approval.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Primary The fund invests primarily The fund normally invests at
investments in: least 80% of its assets in a
diversified mix of debt
o Foreign government and securities including but not
corporate debt securities limited to:
from developed and emerging
markets; o U.S. Treasury and agency
securities;
o U.S. government and
agency securities; and o foreign government and agency
securities (if
o U.S. junk bonds rated as dollar-denominated);
low as CC/Ca and their
unrated equivalents. o corporate bonds, both U.S. and
foreign (if dollar-
- --------------------------------------------------------------------------------------
28
- --------------------------------------------------------------------------------------
The fund normally invests denominated); and
in all three categories.
However, the managers may o asset-backed and
invest up to 100% of assets mortgage-backed securities,
in any one category. The including commercial mortgage
fund may also invest in backed securities.
preferred stock and other
types of debt securities.
- --------------------------------------------------------------------------------------
Investment In managing the portfolio, The managers seek to identify
Strategy the managers allocate specific bond sectors, industries
assets among the three and specific bonds that are
major sectors based on attractively priced. The
analysis of economic managers try to anticipate shifts
factors such as projected in the business cycle, using
international interest rate economic and industry analysis to
movements, industry cycles, determine which sectors and
and political trends. industries might benefit over the
Within each sector, the next 12 months. They use
managers look for proprietary research to identify
securities that are securities that are undervalued.
appropriate for the overall
portfolio in terms of The managers evaluate bonds of
yield, credit quality, all quality levels and maturities
structure, and industry from many different issuers. The
distribution. In selecting fund normally has an average
securities, relative yields credit rating of "A" or higher.
and risk/reward ratios are
the primary considerations.
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 (AAA to
BBB).
- --------------------------------------------------------------------------------------
Junk bonds The fund may invest without The fund may invest up to 25% of
limit in junk bonds rated assets in junk bonds.
as low as CC/Ca and their
unrated equivalents.
- --------------------------------------------------------------------------------------
Foreign The fund may invest in The fund may invest in foreign
securities foreign debt securities securities that are U.S.
without any percentage dollar-denominated.
limit. The fund limits its
investments in government
securities of any one
country to 25% of total
assets.
- --------------------------------------------------------------------------------------
Mortgage- Both funds may invest in mortgage-backed and asset-backed
backed and securities.
asset-backed
securities
- --------------------------------------------------------------------------------------
Average There is no limit on the There is no limit on the fund's
maturity fund's average maturity. average maturity. However, the
fund maintains an average
maturity that is typically
between three and ten years.
- --------------------------------------------------------------------------------------
Illiquid The fund may invest up to 15% of its net assets in restricted
securities or illiquid securities.
- --------------------------------------------------------------------------------------
Equity The fund may invest up to Not applicable because this fund
securities 10% of net assets in U.S. does not expect to invest a
or foreign common stocks. significant amount of assets in
equity securities.
- --------------------------------------------------------------------------------------
Diver- Both funds are diversified and, with respect to 75% of total
sification assets, cannot invest more than 5% of total assets in securities
of a single issuer.
- --------------------------------------------------------------------------------------
Derivatives The fund may invest in The fund's manager actively uses
certain derivatives derivatives, such as futures, to
(investments whose value is adjust the fund's average
based on indices, maturity and seeks to keep the
securities or currencies). fund's interest rate sensitivity
in line with the overall market.
- --------------------------------------------------------------------------------------
Temporary In abnormal market In abnormal market conditions,
defensive conditions, the fund may the fund may take temporary
positions temporarily invest defensive measures -- such as
extensively in holding unusually large amounts
investment-grade short-term of cash and cash equivalents --
securities. In these and that are inconsistent with the
other cases, the fund might fund's primary investment
not achieve its goal. strategy. In these and
other cases, the fund may not
achieve its investment goal.
- --------------------------------------------------------------------------------------
Investment Objectives and Policies
The investment objectives, policies and risks of the two funds are similar but
not identical. In that regard, you should note that your fund's investment
objective is to seek a high level of current income. On the other hand, Active
Bond Fund's investment objective is to seek both income and capital
appreciation.
Your fund can invest without limit in junk bonds, while Active Bond Fund may
invest no more than 25% of its assets in junk bonds.
29
Your fund can invest extensively in foreign currency denominated government and
corporate debt securities from developing and emerging markets, while Active
Bond Fund may only invest in U.S.-dollar denominated foreign securities.
Your fund may invest up to 10% of its net assets in common stocks of U.S. and
foreign companies, while Active Bond Fund does not typically invest in common
stocks.
For a comparison of the principal risks of investing in the funds, please see
"Comparison of Investment Risks".
The Funds' Expenses
Both funds pay various expenses. The expense table appearing below shows the
expenses for the twelve-month period ended December 31, 2002, adjusted to
reflect any changes. Future expenses may be greater or less.
The expense table also shows the pro forma expenses of Active Bond Fund assuming
that a reorganization with V.A. Strategic Income Fund occurred on December 31,
2001. The expenses shown in the table are based on fees and expenses incurred
during the twelve months ended December 31, 2002. Active Bond Fund's actual
expenses after the reorganization may be greater or less than those shown.
30
Active Bond
Fund
(PRO FORMA
for the year
ended
V.A. 12/31/02)
Strategic Active (Assuming
Income Bond reorganization
Shareholder transaction expenses Fund Fund with V.A.
(Acquired (Acquiring Strategic
Fund) Fund) Income Fund)
- -------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on none none none
purchases
(as a % of purchase price)
Maximum sales charge imposed on none none none
reinvested dividends
Maximum deferred sales charge (load) as
a % of purchase or sale price, none none none
whichever is less
Redemption fee none none none
Exchange fee none none none
Annual fund operating expenses
(as a % of average net assets)
- -------------------------------------------------------------------------------------------
Management fee 0.60% 0.61% 0.61%
Distribution and service (12b-1) fee none none none
Other expenses 0.20% 0.08% 0.09%
Total fund operating expenses 0.80% 0.69% 0.70%
Expense reduction 0.00%(1) 0.00%(2) 0.00%(2)
Net fund operating expenses 0.80% 0.69% 0.70%
(1) V.A. Strategic Income Fund's adviser has agreed to limit the fund's
expenses, excluding management fees, to 0.25% at least until 4/30/03.
(2) Active Bond Fund's adviser has agreed in its investment management agreement
to limit the fund's expenses, excluding management fees, to 0.10%. There is
no stated limit to the duration of this commitment.
Examples
The examples show what you would pay if you had invested $10,000 directly in
each fund 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 the Variable
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.
Active Bond
Fund
(PRO FORMA
for the year
ended
V.A. 12/31/02)
Strategic Active (Assuming
Income Bond reorganization
Fund Fund with V.A.
(Acquired (Acquiring Strategic
Shareholder transaction expenses Fund) Fund) Income Fund)
- -------------------------------------------------------------------------------------------
Year 1 $ 82 $ 71 $ 71
Year 3 $256 $222 $222
Year 5 $446 $386 $387
Year 10 $994 $863 $864
31
Investment Management fees
- ----------------------------------------------------------------
Investment management fees as a percentage of
average daily net assets.
- ----------------------------------------------------------------
V.A. Strategic Income Fund 0.60%
- ----------------------------------------------------------------
Active Bond Fund 0.70% on first $100 million
0.65% on next $150 million
0.61% on next $250 million
0.575% on next $500 million
0.55% in excess of $1 billion
- ----------------------------------------------------------------
JHA serves as sub-adviser to Active Bond Fund. In this capacity, JHA has primary
responsibility for making investment decisions for Active Bond Fund's investment
portfolio and placing orders with brokers and dealers to implement those
decisions. JHA receives its compensation from JHLICO, and the fund pays no
sub-management fees over and above the management fee it pays to JHLICO. JHA
receives sub-management fees from JHLICO at the following rate: 0.25% per annum
of the first $100,000,000 of the fund's average daily net assets; 0.20% of the
next $150 million; 0.16% of the next $250,000,000; 0.125% of the next
$500,000,000; and 0.10% of any additional amounts.
COMPARISON OF INVESTMENT RISKS
In deciding whether to approve the reorganization, you should consider whether
the amount and character of investment risk involved in the authorized
investments of Active Bond Fund is commensurate with the amount of risk involved
in the authorized investments of your fund.
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. Strategic Income Fund Active Bond Fund
(Acquired Fund) (Acquiring Fund)
- -------------------------------------------------------------------------------------
Interest When interest rates rise, bond prices usually fall.
rate risk Generally, an increase in the fund's average maturity will
make it more sensitive to interest rate risk.
- -------------------------------------------------------------------------------------
Prepayment If interest rate movements cause the fund's mortgage-related
(call) and and callable securities to be paid off earlier or later than
extension expected, the fund's share price or yield could be hurt.
risks
- -------------------------------------------------------------------------------------
Credit risk 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. The prices of lower-rated bonds
may also be more volatile and more sensitive to adverse
economic developments.
- -------------------------------------------------------------------------------------
Sector The fund's risk profile If the fund concentrates in
concentration depends on its sector certain sectors of the bond
risk allocation. In general, market, its performance could
investors should expect be worse than that of the
fluctuations in share price, overall bond market.
yield and total return that
are above average for bond
funds.
- -------------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------------
Government A fall in worldwide demand for U.S. government securities
securities could lower the prices of these securities.
risk
- -------------------------------------------------------------------------------------
Foreign Foreign investments involve additional risks, including
securities potentially inaccurate financial information and social or
risk political instability. The prices of foreign bonds may also
be more volatile and more sensitive to adverse economic
developments occurring outside the U.S.
- -------------------------------------------------------------------------------------
Foreign Unfavorable foreign currency Not applicable because the
currency exchange rates could reduce fund invests only in U.S.
risk the value of bonds dollar-denominated bonds.
denominated in foreign
currencies.
- -------------------------------------------------------------------------------------
Stock Stock investments may go down Not applicable, because this
market risk in value due to stock market fund does not expect to
movements or negative company invest a significant amount
or industry events. of assets in equity
securities..
- -------------------------------------------------------------------------------------
Derivatives Certain derivative instruments can produce disproportionate
risk 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 In a down or unstable market, the fund's investments could
and become harder to value accurately or to sell at a fair
valuation price.
risks
- -------------------------------------------------------------------------------------
Turnover In general, the greater the volume of buying and selling by
risk 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.
- -------------------------------------------------------------------------------------
32
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 and Plan of
Reorganization provides for a reorganization on the following terms:
o The reorganization is scheduled to occur at 5:00 p.m., Eastern time, on April
25, 2003, but may occur on any later date before December 31, 2003. V.A.
Strategic Income Fund will transfer all of its assets to Active Bond Fund and
Active Bond Fund will assume all of V.A. Strategic Income Fund's liabilities.
This will result in the addition of V.A. Strategic Income Fund's assets to
Active Bond Fund's portfolio. The net asset value of both funds will be
computed as of 4:00 p.m., Eastern time, on the reorganization date.
o Active Bond Fund will issue to V.A. Strategic Income Fund shares with an
aggregate value equal to the aggregate net asset value of V.A. Strategic
Income Fund. As part of the liquidation of V.A. Strategic Income Fund, these
shares will be distributed immediately to shareholders of record of V.A.
Strategic Income Fund in proportion to their holdings on the reorganization
date. As a result, shareholders of V.A. Strategic Income Fund will end up as
shareholders of Active Bond Fund.
o After the shares are issued, the existence of V.A. Strategic Income
Fund will be terminated.
Reasons for the Proposed Reorganization.
The board of trustees recommends the proposed reorganization as being in the
best interests of shareholders of your fund. The board of trustees considered
the following matters, among others, in approving the proposal.
First, although the Acquiring Fund's management fee is marginally higher than
the management fee paid by the Acquired Fund, the Acquiring Fund's other
expenses and total expenses are substantially lower than those for your fund.
Consequently, the reorganization offers a significant potential for reduced
which will positively affect your return. In addition, JHLICO has also
agreed to a lower and more permanent limitation of the Acquiring Fund's other
expenses than JHA has agreed to with respect to your fund. Consequently, the
Acquiring Fund offers greater protection against the potential for increased
operating costs.
Second, the Acquiring Fund is substantially larger than your fund and there can
be no assurance that your fund's assets will grow significantly in the future. A
large asset base has several advantages. With respect to investments, a larger
asset base permits greater diversification of investments and potentially lower
transaction costs. A large fund also offers the potential for lower per share
expenses other than the management fee. While the management fee of the
Acquiring Fund is slightly higher and is determined as a percentage of net
assets, there are other expenses that are fixed costs or that are not based upon
asset size. These expenses, as a percentage of net assets, will generally be
lower for a larger fund compared to a smaller fund.
Third, Active Bond Fund has performed better than your fund over the three-year
and five-year periods. While past performance cannot predict future results, the
trustees believe that Active Bond Fund is better positioned than your fund to
generate strong returns.
Fourth, the trustees anticipate that all of the other series of the Trust may
be terminated. Consequently, if your fund does not approve the reorganization,
it may be the sole series of the Trust and be responsible for expenses of the
Trust that are currently allocated over a number of different series.
The trustees also considered the fact that that JHLICO may potentially achieve
some benefits, including reduced administrative from consolidating the
number of investment options under the Variable Contracts that it offers. In any
event, the trustees concluded that, notwithstanding these benefits to JHLICO,
the reorganization is in the best interests of V.A. Strategic Income Fund and
its shareholders. The trustees noted that JHA would not be achieving any direct
benefit from the reorganization.
Comparative Fees and Expense Ratios
As shown in the expense tables above, after the reorganization, Active Bond
Fund's total annual operating expenses (0.70%) are expected to be significantly
less than those of V.A. Strategic Income Fund (0.80%).
Comparative Performance
Information about the funds' performance is set forth in Appendixes A and B at
the end of this Proxy Statement and Prospectus.
33
Further Information on the Reorganization
For further information regarding the terms of the reorganization and the
special meeting of shareholders please see "Further Information on each
Reorganization."
34
PROPOSAL 5
Approval of Agreement and Plan of Reorganization Between
V.A. Technology Fund and Large Cap Growth Fund
A proposal to approve an Agreement and Plan of Reorganization between V.A.
Technology Fund and Large Cap Growth Fund. Under this Agreement, V.A. Technology
Fund would transfer all of its assets to Large Cap Growth Fund in exchange for
shares of Large Cap Growth Fund. These shares would be distributed
proportionately to the shareholders of V.A. Technology Fund. Large Cap Growth
Fund would also assume V.A. Technology Fund's liabilities. The Trust's board of
trustees recommends that shareholders vote FOR this proposal.
SUMMARY
Comparison of V.A. Technology Fund to Large Cap Growth Fund
- ----------------------------------------------------------------------------------------------
V.A. Technology Fund Large Cap Growth Fund
(Acquired Fund) (Acquiring Fund)
- ----------------------------------------------------------------------------------------------
Business A diversified series of John A non-diversified series of
Hancock Declaration Trust. John Hancock Variable Series
The trust is an open-end Trust I. The trust is an
management investment company open-end management investment
organized as a Massachusetts company organized as a
business trust. Massachusetts business trust.
- ----------------------------------------------------------------------------------------------
Net assets $12.1 million $496.6 million
as of
December
31, 2002
- ----------------------------------------------------------------------------------------------
Investment Investment adviser: Investment adviser:
adviser John Hancock Advisers, LLC John Hancock Life Insurance
and Company
portfolio Subadviser:
managers Subadviser:
American Fund Advisors, Inc.
-Responsible for day-to-day Independence Investment LLC
investments -Owned by John Hancock
-Founded in 1978 -Managing since 1982
-Supervised by the adviser -Managed fund and its
predecessor since 1986
Portfolio Managers:
Fund Managers:
Barry J. Gordon -Management by investment team
-President of subadviser overseen by:
-Joined fund team in 2000
-Began business career in 1971 Mark C. Lapman
-President and CEO of subadviser
Marc H. Klee, CFA -Joined subadviser in 1982
-Executive vice president of
subadviser John C. Forelli
-Joined fund team in 2000 -Senior vice president of
-Began business career in 1977 subadviser
-Joined subadviser in 1990
Alan J. Loewenstein, CFA
-Senior vice president of subadviser
-Joined fund team in 2000
-Began business career in 1979
- ----------------------------------------------------------------------------------------------
Investment The fund seeks long-term The fund seeks capital
objective growth of capital. This appreciation. This objective
objective can be changed can be changed without
without shareholder approval. shareholder approval.
- ----------------------------------------------------------------------------------------------
Primary The fund invests at least 80% The fund invests primarily in a
investments of assets in U.S. and foreign diversified mix of common
companies that rely stocks of large established
extensively on technology in U.S. companies that are
their product development or believed to offer above-average
operations. These companies potential for growth in
are in fields such as: revenues and earnings.
computer software, hardware
and Internet services;
telecommunications;
electronics; and data
management and storage.
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Investment In managing the portfolio, The fund normally invests in 75
Strategy the managers focus primarily to 160 stocks, and at least 80%
on stock selection rather of its assets in large cap
than industry allocation. companies. "Large cap
The managers invest in companies" are those with market
companies of any size whose capitalizations that are
stocks
- ----------------------------------------------------------------------------------------------
35
- ----------------------------------------------------------------------------------------
appear to be trading within the capitalization range of
below their true value, as the Russell 1000 Growth Index.
determined by fundamental Moreover, the fund normally
financial analysis of their invests at least 65% (usually
business models and balance higher) of its assets in
sheets as well as interviews companies with market
with senior management. The capitalizations that are within
fund focuses on companies the capitalization range of the
that are undergoing a 300 largest companies in the
business change that appears Russell 3000 Index, which
to signify accelerated growth included companies with market
or higher earnings. capitalizations above $5.7
billion as of December 31,
2002.
The manager selects stocks
using a combination of
proprietary equity
research and quantitative
tools. Stocks are
purchased that are
undervalued relative to
the stock's history and
have improving earnings
growth prospects. The
manager seeks to maintain
risk and sector
characteristics that are
similar to the Russell
1000 Growth Index.
- ----------------------------------------------------------------------------------------
Foreign The fund may invest in The fund may invest in foreign
securities securities of foreign issuers. securities that are U.S.
dollar-denominated.
- ----------------------------------------------------------------------------------------
Diver- The fund is diversified and, The fund is non-diversified and
sification with respect to 75% of total can invest more than 5% of assets,
cannot invest more total assets in securities on a than 5% of
total assets in single issuer.
securities of a single issuer.
- ----------------------------------------------------------------------------------------
Restricted Both funds may invest in securities that are not publicly
securities offered or traded, called restricted securities.
- ----------------------------------------------------------------------------------------
Initial Both funds may invest in IPOs.
public
offerings
("IPOs")
- ----------------------------------------------------------------------------------------
Derivatives The fund may make limited use The fund may make limited use
of certain derivatives of certain derivatives
(investments whose value is (investments whose value is
based on indices, securities or based on indices or other
currencies). securities).
- ----------------------------------------------------------------------------------------
Temporary In abnormal market conditions, In abnormal market
defensive the fund may temporarily conditions, the fund may take
positions invest more than 20% of assets temporary defensive measures
in investment grade short-term -- such as holding unusually
securities. In these and large amounts of cash and
other cased, the fund might cash equivalents -- that are
not achieve its goal. inconsistent with the fund's
primary investment strategy.
In these and other cases, the
fund may not achieve its
investment goal.
- ----------------------------------------------------------------------------------------
Investment Objectives and Policies
The investment objectives of the two funds are substantially similar, as your
fund's investment objective is to seek long-term growth of capital and Large Cap
Growth Fund's investment objective is to seek capital appreciation. However,
your fund invests primarily in companies within the technology sector, while
Large Cap Growth Fund typically invests in companies within many different
sectors.
Your fund may invest in companies of any size, while Large Cap Growth Fund
invests at least 80% of its assets in large capitalization companies. For a
comparison of the principal risks of investing in the funds, please see
"Comparison of Investment Risks".
Your fund is diversified, and with respect to 75% of its total assets may not
invest more than 5% of its total assets in securities of a single issuer. On
the other hand, Large Cap Growth Fund is a non-diversified fund and therefore
is not subject to that limit.
The Funds' Expenses
Both funds pay various expenses. The expense table appearing below shows the
expenses for the twelve-month period ended December 31, 2002, adjusted to
reflect any changes1. Future expenses may be greater or less.
The expense table also shows the pro forma expenses of Large Cap Growth Fund
assuming that a reorganization with V.A. Technology Fund occurred on December
31, 2001. The expenses shown in the table are based on fees and expenses
incurred during the twelve months ended December 31, 2002, adjusted to reflect
any changes1. Large Cap Growth Fund's actual expenses after the reorganization
may be greater or less than those shown.
1 The management fees paid by Large Cap Growth Fund changed effective October
5, 2002. The expense tables below have been adjusted to assume that the new
management fee schedule was in place for the entire twelve month period ended
December 31, 2002.
36
Large Cap
Growth Fund
(PRO FORMA
for the year
ended
Large 12/31/02)
V.A. Cap (Assuming
Technology Growth reorganization
Shareholder transaction expenses Fund Fund with V.A.
(Acquired (Acquiring Technology
Fund) Fund) Fund)
- -------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on none none none
purchases
(as a % of purchase price)
Maximum sales charge imposed on none none none
reinvested dividends
Maximum deferred sales charge (load) as
a % of purchase or sale price, none none none
whichever is less
Redemption fee none none none
Exchange fee none none none
Annual fund operating expenses
(as a % of average net assets)
- ----------------------------------------------------------------------------------------------
Management fee 0.80% 0.79% 0.79%
Distribution and service (12b-1) fee none none none
Other expenses 0.24% 0.08% 0.08%
Total fund operating expenses 1.04% 0.87% 0.87%
Expense reduction 0.00%(1) 0.00%(2) 0.00%(2)
Net fund operating expenses 1.04% 0.87% 0.87%
(1) V.A. Technology Fund's adviser has agreed to limit the fund's expenses,
excluding management fees, to 0.25% at least until April 30, 2003.
(2) Large Cap Growth Fund's adviser has agreed in its investment management
agreement to limit the fund's expenses, excluding management fees, to 0.10%.
There is no stated limit to the duration of this commitment.
Examples
The examples below show what you would pay if you had invested $10,000 directly
in each fund 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 the Variable
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.
Expenses Large Cap
Growth Fund
(PRO FORMA
for the year
ended
Large 12/31/02)
V.A. Cap (Assuming
Technology Growth reorganization
Fund Fund with V.A.
(Acquired (Acquiring Technology
Fund) Fund) Fund)
- -------------------------------------------------------------------------------------------
Year 1 $ 106 $ 89 $ 89
Year 3 $ 331 $ 277 $ 277
Year 5 $ 574 $ 482 $ 482
Year 10 $1,270 $1,071 $1,071
Investement Management fees
- -----------------------------------------------------------------------
Investment management fees as a percentage of average daily net assets.
- -----------------------------------------------------------------------
V.A. Technology Fund 0.80%
(Acquired Fund)
- -----------------------------------------------------------------------
Large Cap Growth Fund 0.80% on first $500
(Acquiring Fund) million
0.75% of next $500
million
0.70% in excess of
$1 billion
- -----------------------------------------------------------------------
37
American Fund Advisors, Inc. ("AFA") serves as sub-adviser to V.A. Technology
Fund. AFA has primary responsibility for making investment decisions for V.A.
Technology Fund's investment portfolio and placing orders with brokers and
dealers to implement those decisions. AFA receives its compensation from JHA,
and the fund pays no sub-management fees over and above the management fees it
pays to JHA. AFA receives sub-management fees from JHA at the rate of 0.10% per
annum of the Fund's average daily net assets.
Independence Investment, LLC ("Independence"), a wholly-owned subsidiary of John
Hancock Financial Services, Inc., serves as sub-adviser to Large Cap Growth
Fund. Independence has primary responsibility for making investment decisions
for Large Cap Growth Fund's investment portfolio and placing orders with brokers
and dealers to implement those decisions. Independence receives its compensation
from JHLICO, and the Fund pays no sub-management fees over and above the
management fees it pays to JHLICO. With respect to the Acquiring Fund,
Independence receives sub-management fees from JHLICO at the following annual
rate: 0.30% of the first $500,000,000 of average daily net assets; 0.2625% of
next $500,000,000; and 0.225% above $1,000,000,000.
COMPARISON OF INVESTMENT RISKS
In deciding whether to approve the reorganization, you should consider whether
the amount and character of investment risk involved in the authorized
investments of Large Cap Growth Fund is commensurate with the amount of risk
involved in the authorized investments of your fund.
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. Technology Fund Large Cap Growth Fund
(Acquired Fund) (Acquiring Fund)
- --------------------------------------------------------------------------------------
Stock The value of securities in the fund may go down in response
market risk 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. If the fund concentrates in certain sectors, its
performance could be worse than that of the overall stock
market.
- --------------------------------------------------------------------------------------
Manager The manager and its strategy may fail to produce the intended
risk results. The fund could underperform its peers or lose money
if the manager's investment strategy does not perform as
expected.
- --------------------------------------------------------------------------------------
Investment The stocks of technology The large capitalization growth
category companies as a group could stocks in which the fund
risk fall out of favor with the primarily invests could fall
market. This could cause the out of favor with the market.
fund to underperform funds This could cause the fund to
that focus on other types of underperform funds that focus
stocks. on medium or small
capitalization stocks or on
value stocks.
- --------------------------------------------------------------------------------------
Sector Because the fund focuses on a Not applicable, because the
concentration single sector of the economy, fund does not concentrate its
risk its performance depends in investments in a single sector.
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, technology
companies face special risks, and
could be hurt by factors such as
market saturation, price competition,
obsolescence and competing technologies.
Many technology companies are smaller
companies that may have limited product
lines and financial and managerial
resources, making them vulnerable to
isolated business setbacks.
- --------------------------------------------------------------------------------------
Small and The fund's investments in The fund invests primarily in
medium small or medium large capitalization
capitalization capitalization companies may companies. However, to the
company be subject to larger and more extent the fund invests in
risk erratic price movements than small or medium capitalization
investments in large companies, its investments in
capitalization companies. these companies may be subject
to larger and more erratic
price movements than
investments in large
capitalization companies.
- --------------------------------------------------------------------------------------
Initial A significant part of the fund's Many IPO stocks are
public return may at times be attributable issued by, and involve
offering to investments in IPOs. the risks associated with,
(IPO) risk Many IPO stocks are small and medium
issued by, and involve capitalization companies.
the risks associated with,
small and medium
capitalization companies.
- --------------------------------------------------------------------------------------
Foreign The fund's foreign investments involve additional risks,
securities including potentially inadequate or inaccurate
risk financial information and social or political instability.
- --------------------------------------------------------------------------------------
Foreign Unfavorable currency exchange rates Not applicable because the fund
currency could reduce the value of securities invests only in foreign securities
risk traded or denominated in foreign that are traded or denominated in
currencies. U.S. dollars.
- --------------------------------------------------------------------------------------
Derivatives Certain derivative instruments can produce disproportionate
risk 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 In a down or unstable market, Not a principal risk of the
and the fund's investments could fund, as it invests primarily
valuation become harder to value in large capitalization
risks accurately or to sell at a companies.
fair price.
- --------------------------------------------------------------------------------------
38
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 and Plan of
Reorganization provides for a reorganization on the following terms:
o The reorganization is scheduled to occur at 5:00 p.m., Eastern time, on April
25, 2003, but may occur on any later date before December 31, 2003. V.A.
Technology Fund will transfer all of its assets to Large Cap Growth Fund and
Large Cap Growth Fund will assume all of V.A. Technology Fund's liabilities.
This will result in the addition of V.A. Technology Fund's assets to Large Cap
Growth Fund's portfolio. The net asset value of both funds will be computed as
of 4:00 p.m., Eastern time, on the reorganization date.
o Large Cap Growth Fund will issue to V.A. Technology Fund shares with an
aggregate value equal to the aggregate net asset value of V.A. Technology
Fund. As part of the liquidation of V.A. Technology Fund, these shares will be
distributed immediately to shareholders of record of V.A. Technology Fund in
proportion to their holdings on the reorganization date. As a result,
shareholders of V.A. Technology Fund will end up as shareholders of Large Cap
Growth Fund.
o After the shares are issued, the existence of V.A. Technology Fund
will be terminated.
Reasons for the Proposed Reorganization
The board of trustees recommends the proposed reorganization as being in the
best interests of shareholders of your fund. The board of trustees considered
the following matters, among others, in approving the proposal.
First, the Acquiring Fund's management fee is marginally lower than the
management fee paid by the Acquired Fund. In addition, the Acquiring Fund's
other expenses and total expenses are substantially lower than those of your
fund. Consequently, the reorganization offers a significant potential for
reduced which will positively affect your return. Further, JHLICO has
also agreed to a lower and more permanent limitation of the Acquiring Fund's
other expenses than JHA has agreed to with respect to your fund. Consequently,
the Acquiring Fund offers greater protection against the potential for increased
operating costs.
Second, shareholders may be better served by the Acquiring Fund's ability to
invest in a broader range of securities. V.A. Technology Fund only invests in
the securities of issuers in one market segment, while Large Cap Growth Fund may
invest in a broad range of market sectors. The Trustees considered that this
added investment flexibility offered greater potential to achieve capital
appreciation. The trustees did consider, however, that the Acquiring Fund, since
it has a substantially different investment approach, may not fit the investment
approach of all of the Acquired Fund shareholders. The trustees considered this
as a negative factor in determining whether the reorganization in the best
interest of your fund. However, the trustees concluded that the other favorable
factors outweighed this negative consideration. The trustees noted that the
Variable Contracts that invest in the funds offered other investment options so
that participants in your fund could transfer into such investment options
without incurring transaction costs or tax liabilities.
Third, the Acquiring Fund is substantially larger than your fund and there can
be no assurance that your fund's assets will grow significantly in the future. A
large asset base has several advantages. With respect to investments, a larger
asset base permits greater diversification of investments and potentially lower
transaction costs. A large fund also offers the potential for lower per share
expenses.
Fourth, Large Cap Growth Fund has performed better than your fund over the
one-year period and since your fund's inception on May 1, 2000. During the
one-year, three-year, five-year and 10-year periods, the Acquiring Fund has also
outperformed its benchmark, the Russell 1000 Growth Index. While past
performance cannot predict future results, the trustees believe that Large Cap
Growth Fund is better positioned than your fund to generate strong returns.
Fifth, the trustees anticipate that all of the other series of the Trust may be
terminated. Consequently, if your fund does not approve the reorganization, it
may be the sole series of the Trust and be responsible for expenses of the Trust
that are currently allocated over a number of different series.
The trustees also considered the fact that JHLICO may potentially achieve some
benefits, including reduced administrative from consolidating the number
of investment options under the variable contracts that it offers. In any event,
the trustees concluded that, notwithstanding these benefits to JHLICO, the
reorganization is in the best interests of V.A. Technology Fund and its
shareholders. The trustees noted that JHA would not be achieving any direct
benefit from the reorganization, but rather would no longer be managing your
fund.
39
Comparative Fees and Expense Ratios
As shown in the expense tables above, after the reorganization, Large Cap Growth
Fund's total annual operating expenses (0.87%) are expected to be significantly
lower than those of V.A. Technology Fund (1.04%).
Comparative Performance
Information about the funds' performance is set forth in Appendixes A and B at
the end of this Proxy Statement and Prospectus.
Further Information on the Reorganization
Further information regarding the terms of the reorganization and the special
meeting of shareholders is set forth beginning on the following page.
40
FURTHER INFORMATION ON EACH REORGANIZATION
Tax Status of each Reorganization
Each reorganization will not take place unless each of the Acquired Fund and the
Acquiring Fund in the respective reorganization receive a satisfactory opinion
from Hale and Dorr LLP, counsel to the Acquired Funds, substantially to the
effect that the reorganization described above will be a "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code of 1986 (the "Code").
As a result, for federal income tax purposes as to each reorganization:
o No gain or loss will be recognized by the Acquired Fund upon (1) the transfer
of all of its assets to the respective Acquiring Fund as described above or
(2) the distribution by the Acquired Fund of Acquiring Fund shares to Acquired
Fund shareholders;
o No gain or loss will be recognized by the Acquiring Fund upon the receipt of
the respective Acquired Fund's assets solely in exchange for the issuance of
Acquiring Fund shares and the assumption of all of the Acquired Fund's
liabilities by such Acquiring Fund;
o The basis of the assets of the Acquired Fund acquired by the respective
Acquiring Fund will be the same as the basis of those assets in the hands of
the Acquired Fund immediately before the transfer;
o The tax holding period of the assets of the Acquired Fund in the hands of the
respective Acquiring Fund will include the Acquired Fund's tax holding period
for those assets;
o The shareholders of the Acquired Fund will not recognize gain or loss upon the
exchange of all their shares of the Acquired Fund solely for shares of the
respective Acquiring Fund as part of the reorganization;
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 the 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.
You should consult your tax adviser for the particular tax consequences to you
of the transaction, including the applicability of any state, local or foreign
tax laws.
In rendering such opinions, counsel shall rely upon, among other things,
reasonable assumptions as well as representations of each Acquired fund and the
Acquiring Fund.
No tax ruling has been or will be received from the Internal Revenue Service
("IRS") in connection with the reorganization. An opinion of counsel is not
binding on the IRS or a court, and no assurance can be given that the IRS would
not assert, or a court would not sustain, a contrary position.
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 and Acquiring Fund are subject to
approval of the applicable Agreement by the necessary vote of the outstanding
shares of the Acquired Fund, in accordance with the provisions of 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).
41
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 Reorganizations. The Acquired Funds will not bear any direct
expenses of the reorganizations if they occur. Each Acquiring Fund (other than
Financial Industries Fund, as described below) will pay its own costs in
connection with entering into and carrying out the provisions of the Agreement,
whether or not a reorganization occurs. Each of John Hancock Variable Series
Trust I's funds, including each Acquiring Fund, will also bear a portion of the
Acquired Funds' expenses in connection with entering into and carrying out the
provisions of the Agreement for any reorganization that is consummated. Because
Financial Industries Fund is not yet operational, JHLICO will pay the expenses
in connection with the reorganization of V.A. Financial Industries Fund and
Financial Industries Fund.
CAPITALIZATION
With respect to each Proposal, the following tables set forth the capitalization
of each fund as of December 31, 2002, and the pro forma combined capitalization
of both funds as if each reorganization had occurred on that date. If a
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 December 31, 2002
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 tables 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(s) had taken place on December 31, 2002:
- --------------------------------------------------------------------------------
V.A. Financial Financial
Proposal 1 Industries Industries Pro Forma
- --------------------------------------------------------------------------------
Net Assets $57.74M N/A $57.74M
- --------------------------------------------------------------------------------
Net Asset
Value Per Share $11.60 N/A $11.60
- --------------------------------------------------------------------------------
Shares Outstanding 4.94M N/A $4.9M
- --------------------------------------------------------------------------------
The table reflects pro forma exchange ratios of approximately one Financial
Industries Fund share being issued for each share of V.A. Financial Industries
Fund.
- --------------------------------------------------------------------------------
Proposal 2 V.A.
Relative Growth & Pro Pro
Value Income Forma(1) Forma(2)
- --------------------------------------------------------------------------------
Net Assets $30.53M $1,762.2M $1,792.7M $1,832.4M
- --------------------------------------------------------------------------------
Net Asset
Value Per Share $5.59 $9.22 $9.22 $9.22
- --------------------------------------------------------------------------------
Shares Outstanding 5.45M 191.2M 194.5M 198.8M
- --------------------------------------------------------------------------------
(1) Assuming the reorganization of V.A. Sovereign Investors Fund into Growth &
Income Fund does not occur. If the reorganization of your fund only had taken
place on December 31, 2002, approximately .61 Growth & Income Fund shares would
have been issued for each share of V.A. Relative Value Fund.
(2) Assuming the reorganization of V.A. Sovereign Investors Fund into Growth &
Income Fund occurs. If both reorganizations had taken place on December 31,
2002, approximately .61 Growth & Income Fund shares would have been issued for
each share of V.A. Relative Value Fund.
- --------------------------------------------------------------------------------
Proposal 3 V.A.
Sovereign Growth & Pro Pro
Investors Income Forma(1) Forma(2)
- --------------------------------------------------------------------------------
Net Assets $39.72M $1,762.2M $1,801.9M $1,832.4M
- --------------------------------------------------------------------------------
Net Asset
Value Per Share $11.53 $9.22 $9.22 $9.22
- --------------------------------------------------------------------------------
Shares
Outstanding 3.51M 191.2M 195.4M 198.8M
- --------------------------------------------------------------------------------
------------
(1) Assuming the reorganization of V.A. Relative Value Fund into Growth & Income
Fund does not occur. If the reorganization of your fund only had taken place on
December 31, 2002, approximately 1.23 Growth & Income Fund shares would have
been issued for each share of V.A.
Sovereign Investors Fund.
42
(2) Assuming the reorganization of V.A. Relative Value Fund into Growth & Income
Fund occurs. If both reorganizations had taken place on December 31, 2002,
approximately 1.23 Growth & Income Fund shares would have been issued for each
share of V.A. Sovereign Investors Fund.
- --------------------------------------------------------------------------------
Proposal 4 V.A. Strategic
Income Active Bond Pro Forma
- --------------------------------------------------------------------------------
Net Assets $72.77M $987.5M $1,060.3M
- --------------------------------------------------------------------------------
Net Asset $8.67 $9.70 $9.70
Value Per Share
- --------------------------------------------------------------------------------
Shares 8.40M 101.8M 109.3M
Outstanding
- --------------------------------------------------------------------------------
The table reflects pro forma exchange ratios of approximately 0.89 Active Bond
Fund shares being issued for each share of V.A. Strategic Income Fund.
- --------------------------------------------------------------------------------
Proposal 5 V.A. Large Cap
Technology Growth Pro Forma
- --------------------------------------------------------------------------------
Net Assets $12.18 $496.6M $508.8M
- --------------------------------------------------------------------------------
Net Asset $2.18 $11.18 $11.18
Value Per Share
- --------------------------------------------------------------------------------
Shares 5.59 44.4M 45.4M
Outstanding
- --------------------------------------------------------------------------------
The table reflects pro forma exchange ratios of approximately 0.19 Large Cap
Growth Fund shares being issued for each share of V.A. Technology 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 Goal and Strategy/Main Risks
objective and
policies
- --------------------------------------------------------------
Portfolio Portfolio
Management Management/Subadviser
- --------------------------------------------------------------
Expenses Financial Highlights
- --------------------------------------------------------------
Custodian Business Structure
- --------------------------------------------------------------
Dividends, Dividends and Taxes
distributions 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 that fund or its 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 its independent trustees, approved the reorganization. They also
determined that the reorganization was in the best interests of the each
Acquiring Fund and that the interests of the Acquiring Funds' shareholders would
not be diluted as a result of the reorganization.
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 each 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.
43
Shares of each Acquired Fund represented in person or by proxy, including shares
that abstain or do not vote with respect to a 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 a 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
Variable Contract owners use the voting instruction card as a ballot to give
their insurance company voting instructions for those shares attributable to the
Variable Contracts as of the record date. When the Variable Contract owner
completes the voting instruction card and sends it to the insurance company, the
insurance company votes these shares in accordance with the Variable Contract
owner's instructions. If the owner completes and signs the voting instruction
card, the shares attributable to the Variable Contract will be voted as
instructed. If the owner merely signs and returns the card, the insurance
company will vote those shares in favor of the proposal. If the owner does not
return the card, the insurance company will vote those shares in the same
proportion as shares for which instructions were received from other Variable
Contract owners in the same separate account.
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 Variable Contract owners.
These shares include shares purchased with contributions made as "seed" capital
to the fund by the adviser.
Solicitation of Voting Instructions
This solicitation is being made in compliance with the requirements of the
Agreement for each reorganization. Therefore, the expenses of each Acquired Fund
and Acquiring Fund in preparing, filing, printing, and mailing these
proxy/voting instruction materials (and any subsequent materials that may be
used) to Variable Contract owners are part of that Fund's reorganization
expenses that are estimated and allocated in the manner set forth above under
"Further Information on Each Reorganization - Expenses of the Reorganizations."
As explained there, this means that Funds of John Hancock Variable Series Trust
will bear such expenses, except to the extent that JHLICO reimburses certain of
those funds pursuant to its customary arrangements with those funds.
In addition to the mailing of these proxy materials, voting instructions 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, LLC and its transfer agent, John
Hancock Annuity Servicing Office. Such solicitations would be at the expense of
JHLICO or one of its affiliated companies.
Revoking Proxies
Each Variable Contract owner signing and returning a voting instruction card 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, 529 Main Street, Charlestown, Massachusetts 02129, or
o By returning a duly executed voting instruction card with a later date before
the time of the meeting, or
o If a Variable Contract owner has executed a voting instruction card but is
present at the meeting, he or she may give voting instructions in person, by
notifying the secretary of the relevant Acquired Fund(s) (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 voting instruction card.
Outstanding Shares and Quorum
As of February 25, 2003 (the "record date"), the number of shares of beneficial
interest of each Acquired Fund outstanding were as follows:
- ---------------------------------------------------
FUND SHARES OUTSTANDING
- ---------------------------------------------------
V.A. Financial Industries Fund
- ---------------------------------------------------
V.A. Relative Value Fund
- ---------------------------------------------------
44
- ---------------------------------------------------
V.A. Sovereign Investors Fund
- ---------------------------------------------------
V.A. Strategic Income Fund
- ---------------------------------------------------
V.A. Technology Fund
- ---------------------------------------------------
Only shareholders of record on February 25, 2003 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 proposals. If other business is
properly brought before the meeting, shares represented will be voted according
to the best judgment of the insurance company that is the record owner.
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 record shareholders may vote their shares to
adjourn the meeting to a later date. If a quorum is present but there are not
sufficient votes in favor of a proposal, the record shareholders may propose one
or more adjournments of the meeting to permit further solicitation of voting
instructions concerning a proposal. Any adjournment will require the affirmative
vote of a majority of an Acquired Fund's shares represented at the session of
the meeting to be adjourned.
OWNERSHIP OF SHARES OF THE FUNDS
As of February 25, 2003 (the record date), the following companies owned of
record or on behalf of their 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; and John
Hancock Variable Life Insurance Company ("JHVLICO"), 197 Clarendon Street,
Boston, Massachusetts, 02117.
- --------------------------------------------------------------------------------
Name Percentage of Fund
- --------------------------------------------------------------------------------
Proposal 1
- --------------------------------------------------------------------------------
V.A. Financial Industries Fund
- --------------------------------------------------------------------------------
JHLICO %
- --------------------------------------------------------------------------------
JHVLICO %
- --------------------------------------------------------------------------------
Financial Industries Fund
- --------------------------------------------------------------------------------
JHLICO %
- --------------------------------------------------------------------------------
JHVLICO %
- --------------------------------------------------------------------------------
Proposal 2
- --------------------------------------------------------------------------------
V.A. Relative Value Fund
- --------------------------------------------------------------------------------
JHLICO %
- --------------------------------------------------------------------------------
JHVLICO %
- --------------------------------------------------------------------------------
Growth & Income Fund
- --------------------------------------------------------------------------------
JHLICO %
- --------------------------------------------------------------------------------
JHVLICO %
- --------------------------------------------------------------------------------
Proposal 3
- --------------------------------------------------------------------------------
V.A. Sovereign Investors Fund
- --------------------------------------------------------------------------------
JHLICO %
- --------------------------------------------------------------------------------
JHVLICO %
- --------------------------------------------------------------------------------
0JHLICO %
- --------------------------------------------------------------------------------
JHVLICO %
- --------------------------------------------------------------------------------
Proposal 4
- --------------------------------------------------------------------------------
V.A. Strategic Income Fund
- --------------------------------------------------------------------------------
JHLICO %
- --------------------------------------------------------------------------------
JHVLICO %
- --------------------------------------------------------------------------------
Active Bond Fund
- --------------------------------------------------------------------------------
45
- --------------------------------------------------------------------------------
JHLICO %
- --------------------------------------------------------------------------------
JHVLICO %
- --------------------------------------------------------------------------------
Proposal 5
- --------------------------------------------------------------------------------
V.A. Technology Fund
- --------------------------------------------------------------------------------
JHLICO %
- --------------------------------------------------------------------------------
JHVLICO %
- --------------------------------------------------------------------------------
Large Cap Growth Fund
- --------------------------------------------------------------------------------
JHLICO* %
- --------------------------------------------------------------------------------
JHVLICO %
- --------------------------------------------------------------------------------
*Includes shares purchased with seed capital by JHLICO.
However, these companies will vote all their fund shares only in accordance with
voting instructions received from Variable Contract owners. For this reason, the
companies do not exercise control over the funds by virtue of their record
ownership of funds shares. As of the Record Date, no Variable Contract owner
beneficially owned 5% or more of the outstanding shares of any Acquired Fund or
any Acquiring Fund. In addition, as of the Record Date, fewer than 1% of the
outstanding shares of each fund were attributable to Variable Contracts owned by
trustees or officers of that fund..
46
EXPERTS
The financial statements and financial highlights of each fund at December 31,
2002 are incorporated by reference into this combined proxy statement and
prospectus. Ernst & Young LLP, independent auditors, have audited the financial
statements and financial highlights of each Fund at December 31, 2002, and for
each of the periods indicated therein, as set forth in their reports. We've
included these financial statements and financial highlights in the Statement of
Additional Information, which is also a part of the registration statement that
contains this combined proxy statement and prospectus. Those financial
statements and financial highlights are included in the registration statement
in reliance on Ernst & Young LLP's reports, given on their authority as experts
in accounting and auditing.
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 Midwest Regional Office (500 West
Madison Street, Suite 1400, Chicago, Illinois). 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.
47
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this 26th
day of February, 2003, by and between John Hancock Variable Series Trust I, a
Massachusetts business trust (the "Trust II"), with its principal place of
business at John Hancock Place, P.O. Box 111, Boston, Massachusetts 02117, on
behalf of its series _______________________ (the "Acquiring Fund") and John
Hancock Declaration Trust, a Massachusetts business trust (the "Trust") with its
principal place of business at 101 Huntington Avenue, Boston, Massachusetts
02199, on behalf of its series _________________________ (the "Acquired Fund").
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: (1) the transfer of
all of the assets of the Acquired Fund to the Acquiring Fund in exchange solely
for (A) the issuance of shares of beneficial interest of the Acquiring Fund (the
"Acquiring Fund Shares") to the Acquired Fund and (B) the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund, followed by (2)
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 7.2 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 of shares of beneficial interest
of the Acquired Fund, as of the close of business on April 25, 2003
[April 30, 2003 for V.A. Financial Industries Fund] (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 the Acquiring Fund shall be provided by
State Street Bank and Trust Company (the "Acquiring Fund's Custodian"),
as custodian and pricing agent for the Acquiring Fund and, and with
respect to the Acquired Fund by the Bank of New York (the "Acquired
Fund's Custodian).
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.
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 The Acquired Fund shareholders holding certificates representing their
ownership of shares of beneficial interest of the Acquired Fund shall
surrender such certificates or deliver an affidavit with respect to lost
certificates in such form and accompanied by such surety bonds as the
Acquired Fund may require (collectively, an "Affidavit"), to John Hancock
Signature Services, Inc. prior to the Closing Date. Any Acquired Fund
share certificate which remains outstanding on the Closing Date shall be
deemed to be canceled, shall no longer evidence ownership of shares of
beneficial interest of the Acquired Fund and shall evidence ownership of
Acquiring Fund Shares. Unless and until any such certificate shall be so
surrendered or an Affidavit relating thereto shall be delivered,
dividends and other distributions payable by the Acquiring Fund
subsequent to the Liquidation Date with respect to Acquiring Fund Shares
shall be paid to the holder of such certificate(s), but such shareholders
may not redeem or transfer Acquiring Fund Shares received in the
Reorganization. The Acquiring Fund will not issue share certificates in
the Reorganization.
1.6 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.
1.7 The existence of the Acquired Fund shall be terminated as promptly as
practicable following the Liquidation Date.
1.8 Any reporting responsibility of the Trust, 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 Trust.
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
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 each Custodian in accordance
with its regular practice as pricing agent for its respective Fund.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be April 25, 2003 [April 30, 2003 for V.A.
Financial Industries Fund] or such other date on or before December 31,
2003 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 Acquired Fund's 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 Acquiring Fund's 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 Acquired Fund's Custodian in book-entry form on
behalf of the Acquired Fund shall be delivered to the Acquiring Fund by
the Acquiring Fund's Custodian by recording the transfer of beneficial
ownership thereof on its records. The cash delivered shall be in the form
of currency or by the Acquiring Fund's Custodian crediting the Acquiring
Fund's account maintained with the Acquiring Fund's 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 December 31, 2003, this Agreement may be
terminated by the Acquiring Fund or by the Acquired Fund upon the giving
of written notice to the other party.
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 the Acquired Fund represents, warrants and covenants
to the Acquiring Fund 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 the
Acquired 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. The Acquired Fund is a diversified
series of the Trust;
(c) The Trust and the Acquired 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 the Acquired Fund is a party or by which it is
bound;
(d) Except as otherwise disclosed in writing and accepted by the Acquiring
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 the Acquired Fund or any of
the Acquired 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 the Acquired 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 the Acquired Fund's business
or its ability to consummate the transactions herein contemplated;
(e) The Acquired Fund has no 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 Acquired 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, 2002 and the
related statement of operations (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, 2002 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 the respective dates thereof not disclosed therein;
(g) Since December 31, 2002, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of
business, or any incurring by the Acquired Fund of indebtedness maturing
more than one year from the date such indebtedness was incurred, except
as otherwise disclosed to and accepted by the Acquiring Fund;
(h) 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 required by law to have been filed or
furnished by such dates 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;
(i) Each of the Acquired Fund and its predecessors has qualified as a
regulated investment company for each taxable year of its operation and
the Acquired Fund will qualify as such as of the Closing Date with
respect to its taxable year ending on the Closing Date;
(j) The authorized capital of the Acquired Fund consists of an unlimited
number of shares of beneficial interest, no par value. All issued and
outstanding shares of beneficial interest of the Acquired Fund are, and
at the Closing Date will be, duly and validly issued and outstanding,
fully paid and nonassessable by the Trust. 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. The Acquired Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of
its shares of beneficial interest, nor is there outstanding any security
convertible into any of its shares of beneficial interest;
(k) 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");
(l) 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
the Acquired Fund, and this Agreement constitutes a valid and binding
obligation of the Trust and the Acquired Fund enforceable in accordance
with its terms, subject to the approval of the Acquired Fund's
shareholders;
(m) The information to be furnished by the Acquired Fund to the Acquiring
Fund for use in applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete and
shall comply in all material respects with federal securities and other
laws and regulations thereunder applicable thereto;
(n) The proxy statement of the Acquired Fund (the "Proxy Statement") to be
included in the Registration Statement referred to in Paragraph 5.7
hereof (other than written information furnished by the Acquiring Fund
for inclusion therein, as covered by the Acquiring Fund's warranty in
Paragraph 4.2(m) 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, shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquired
Fund of the transactions contemplated by this Agreement;
(p) 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;
(q) The prospectus of the Acquired Fund, dated May 1, 2002 (the "Acquired
Fund Prospectus"), previously furnished to the Acquiring Fund, does not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were
made, not misleading; and
(r) The Acquired Fund Tax Representation Certificate to be delivered by the
Acquired Fund to the Acquiring Fund at Closing pursuant to Section 7.5
(the "Acquired Fund Tax Representation Certificate") will not on the
Closing Date contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein not
misleading.
4.2 The Trust II on behalf of the Acquiring Fund represents, warrants and
covenants to the Acquired Fund as follows:
(a) The Trust II 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 to carry out
the Agreement. Neither the Trust II nor the Acquiring 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 II 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 II is a registered investment company classified as a
management company and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect. The
Acquiring Fund is a diversified series of the Trust II;
(c) The prospectus (the "Acquiring Fund Prospectus") and statement of
additional information of the Acquiring Fund, dated September 19, 2002
[for VST Financial Industries Fund, dated March 17, 2003] 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") (other than written
information furnished by the Acquired Fund for inclusion therein, as
covered by the Acquired Fund's warranty in Paragraph 4.1(m) hereof)
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 Acquiring Fund Prospectus does not include
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and the Registration Statement will not include any untrue
statement of material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(d) At the Closing Date, the Trust II on behalf of the Acquiring Fund will
have good and marketable title to the assets of the Acquiring Fund;
(e) The Trust II and the Acquiring Fund are not, and the execution, delivery
and performance of their obligations under this Agreement will not
result, in a violation of any provisions of the Trust II's Declaration,
or By-Laws or of any agreement, indenture, instrument, contract, lease
or other undertaking to which the Trust II or the Acquiring Fund is a
party or by which the Trust II or the Acquiring Fund is bound;
(f) Except as otherwise disclosed in writing and accepted by the Acquired
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 II or the Acquiring Fund or any
of the Acquiring Fund's properties or assets. The Trust II knows of no
facts which might form the basis for the institution of such
proceedings, and neither the Trust II nor the Acquiring 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 the
Acquiring Fund's business or its ability to consummate the transactions
herein contemplated;
(g) The audited statement of assets and liabilities, including the schedule
of investments, of the Acquiring Fund as of December 31, 2002 and the
related statement of operations (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, 2002 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 the
respective dates thereof not disclosed therein;
(h) Since December 31, 2002 there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of
business, or any incurrence by the Trust II on behalf of the Acquiring
Fund of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as disclosed to and accepted by the
Acquired Fund;
(i) Each of the Acquiring Fund and its predecessors has qualified as a
regulated investment company for each taxable year of its operation and
the Acquiring Fund will qualify as such as of the Closing Date;
(j) The authorized capital of the Trust II consists of an unlimited number
of shares of beneficial interest, no par value per share. All issued and
outstanding shares of beneficial interest of the Acquiring Fund are, and
at the Closing Date will be, duly and validly issued and outstanding,
fully paid and nonassessable by the Trust II. The Acquiring Fund does
not have outstanding any options, warrants or other rights to subscribe
for or purchase any of its shares of beneficial interest, nor is there
outstanding any security convertible into any of its shares of
beneficial interest;
(k) The execution, delivery and performance of this Agreement has been duly
authorized by all necessary action on the part of the Trust II on behalf
of the Acquiring Fund, and this Agreement constitutes a valid and
binding obligation of the Acquiring Fund enforceable in accordance with
its terms;
(l) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund pursuant to the terms of this Agreement, when so issued and
delivered, will be duly and validly issued shares of beneficial interest
of the Acquiring Fund and will be fully paid and nonassessable by the
Trust II;
(m) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete and
shall comply in all material respects with federal securities and other
laws and regulations applicable thereto;
(n) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated by the Agreement, except for the
registration of the Acquiring Fund Shares under the 1933 Act and the
1940 Act; and
(o) The Acquiring Fund Tax Representation Certificate to be delivered by the
Acquiring Fund to the Acquired Fund at Closing pursuant to Section 6.3
(the "Acquiring Fund Tax Representation Certificate") will not on the
Closing Date contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein not
misleading.
5. COVENANTS OF THE TRUST II ON BEHALF OF THE ACQUIRING FUND AND THE TRUST ON
BEHALF OF THE ACQUIRED FUND
5.1 Except as expressly contemplated herein to the contrary, the Trust on
behalf of the Acquired Fund and the Trust II on behalf of Acquiring Fund,
will operate their respective businesses in the ordinary course between
the date hereof and the Closing Date, it being understood that such
ordinary course of business will include customary dividends and
distributions and any other distributions necessary or desirable to avoid
federal income or excise taxes.
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 thereof other than in accordance with the terms
of this Agreement.
5.4 The Trust on behalf of the Acquired Fund will provide such information
within its possession or reasonably obtainable as the Trust II on behalf
of the Acquiring Fund requests concerning the beneficial ownership of the
Acquired Fund's shares of beneficial interest.
5.5 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.
5.6 The Trust on behalf of the Acquired Fund shall furnish to the Trust II on
behalf of 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 II, 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 of the Acquired Fund.
5.7 The Trust II 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 as contemplated herein.
5.8 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.
5.9 Neither the Acquired Fund nor the Acquiring Fund shall take any action
that is inconsistent with the representations set forth in, with respect
to the Acquired Fund, the Acquired Fund Tax Representation Certificate,
and with respect to the Acquiring Fund, the Acquiring Fund Tax
Representation Certificate, to the extent such action would prevent the
reorganization from qualifying as a "reorganization" under Section 368(a)
of the Code.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST ON BEHALF OF THE ACQUIRED
FUND
The obligations of the Trust on behalf of the Acquired Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the Trust II on behalf of the Acquiring Fund of all the
obligations to be performed by it hereunder on or before the Closing Date, and,
in addition thereto, the following further conditions:
6.1 All representations and warranties of the Trust II on behalf of the
Acquiring Fund contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the
Closing Date with the same force and effect as if made on and as of the
Closing Date; and
6.2 The Trust II on behalf of the Acquiring Fund shall have delivered to the
Acquired Fund a certificate executed in its name by the Trust II's
President or Vice President and its Treasurer or Assistant Treasurer, in
form and substance satisfactory to the Acquired Fund and dated as of the
Closing Date, to the effect that the representations and warranties of
the Trust II on behalf of the Acquiring Fund made in this Agreement are
true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to
such other matters as the Trust on behalf of the Acquired Fund shall
reasonably request.
6.3 The Acquiring Fund shall have delivered to the Acquired Fund an Acquiring
Fund Tax Representation Certificate substantially in the form attached to
this Agreement as Annex A concerning certain tax-related matters with
respect to the Acquiring Fund.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST II ON BEHALF OF THE
ACQUIRING FUND
The obligations of the Trust II on behalf of the Acquiring Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the Acquired Fund of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of the Trust II on behalf of the
Acquired Fund contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the
Closing Date with the same force and effect as if made on and as of the
Closing Date;
7.2 The Trust on behalf of the Acquired Fund shall have delivered to the
Trust II on behalf of 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 Trust;
7.3 The Trust on behalf of the Acquired Fund shall have delivered to the
Trust II on behalf of the Acquiring Fund on the Closing Date a
certificate executed in the name of the Acquired Fund by a President or
Vice President and a Treasurer or Assistant Treasurer of the Trust, in
form and substance satisfactory to the Trust II on behalf of the
Acquiring Fund and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquired Fund in this Agreement are
true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to
such other matters as the Trust II on behalf of the Acquiring Fund shall
reasonably request;
7.4 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; and
7.5 The Acquired Fund shall have delivered to the Acquiring Fund an Acquired
Fund Tax Representation Certificate substantially in the form attached to
this Agreement as Annex B concerning certain tax-related matters with
respect to the Acquired Fund.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST II ON BEHALF OF
THE ACQUIRING FUND AND THE TRUST ON BEHALF OF THE ACQUIRED FUND
The obligations hereunder of the Trust II on behalf of the Acquiring Fund and
the Trust on behalf of the Acquired Fund are each subject to the further
conditions that on or before the Closing Date:
8.1 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 such approval by the Acquired Fund's
shareholders shall have been delivered by the Acquired Fund to the Trust
II on behalf of the Acquiring Fund;
8.2 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain
or prohibit, or obtain changes or other relief in connection with, this
Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and permits
of federal, state and local regulatory authorities (including those of
the Commission and their "no-action" positions) deemed necessary by the
Trust or the Trust II to permit consummation, in all material respects,
of the transactions contemplated hereby shall have been obtained, except
where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties
of the Acquiring Fund or the Acquired Fund, provided that either party
hereto may waive any such conditions for itself;
8.4 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;
8.5 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
8.6 The parties shall have received an opinion of Hale and Dorr LLP,
satisfactory to the Trust on behalf of the Acquired Fund and the Trust II
on behalf of the Acquiring Fund, substantially to the effect that for
federal income tax purposes 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. Notwithstanding
anything herein to the contrary, neither the Trust nor the Trust II may
waive the conditions set forth in this Paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1 The Trust II on behalf of the Acquiring Fund, and the Trust on behalf of
the Acquired Fund each represent and warrant to the other that there are
no brokers or finders entitled to receive any payments in connection with
the transactions provided for herein.
9.2 The Acquiring Fund and the Acquired Fund shall each be liable solely for
its own expenses incurred in connection with entering into and carrying
out the provisions of this Agreement whether or not the transactions
contemplated hereby are consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Trust II on behalf of the Acquiring Fund, and the Trust on behalf of
the Acquired Fund agree that neither party has made any representation,
warranty or covenant not set forth herein or referred to in Paragraph 4
hereof and that this Agreement constitutes the entire agreement between
the parties.
10.2 The representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated
hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the Trust II,
on behalf of the Acquiring Fund, and the Trust on behalf of the Acquired
Fund. In addition, either party may at its option terminate this
Agreement at or prior to the Closing Date:
(a) because of a material breach by the other of any representation,
warranty, covenant or agreement contained herein to be performed at or
prior to the Closing Date;
(b) because of a condition herein expressed to be precedent to the
obligations of the terminating party which has not been met and which
reasonably appears will not or cannot be met;
(c) by resolution of the Trust II's Board of Trustees if circumstances
should develop that, in the good faith opinion of such Board, make
proceeding with the Agreement not in the best interests of the Acquiring
Fund's shareholders; or
(d) by resolution of the Trust's Board of Trustees if circumstances should
develop that, in the good faith opinion of such Board, make proceeding
with the Agreement not in the best interests of the Acquired Fund's
shareholders.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of the Trust II, the Acquiring Fund, the Trust, or
the Acquired Fund, or the Trustees or officers of the Trust II or the
Trust, but each party shall bear the expenses incurred by it incidental
to the preparation and carrying out of this Agreement.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as may be
mutually agreed upon by the authorized officers of the Trust and the Trust II.
However, following the meeting of shareholders of the Acquired Fund held
pursuant to Paragraph 5.2 of this Agreement, no such amendment may have the
effect of changing the provisions regarding the method for determining the
number of Acquiring Fund Shares to be received by the Acquired Fund shareholders
under this Agreement to the detriment of such shareholders without their further
approval; provided that nothing contained in this Article 12 shall be construed
to prohibit the parties from amending this Agreement to change the Closing Date.
13. NOTICES
Any notice, report, statement or demand required or permitted by any provisions
of this Agreement shall be in writing and shall be given by prepaid telegraph,
telecopy or certified mail addressed to the Acquiring Fund at John Hancock
Place, P.O. Box 111, Boston, Massachusetts 02117, Attention: Arnold Bergman,
Esq. or to the Acquired Fund at 101 Huntington Avenue, Boston, Massachusetts
02199, Attention: Avery P. Maher, Esq., and, in either case, with copies to Hale
and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, Attention: David C.
Phelan, Esq.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 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.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance
with the laws of The Commonwealth of Massachusetts.
14.4 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.
14.5 All persons dealing with the Trust or the Trust II must look solely to
the property of the Trust or the Trust II, respectively, for the
enforcement of any claims against the Trust or the Trust II as the
Trustees, officers, agents and shareholders of the Trust or the Trust II
assume no personal liability for obligations entered into on behalf of
the Trust or the Trust II, respectively. None of the other series of the
Trust or the Trust II shall be responsible for any obligations assumed by
or on behalf of the Acquired Fund or the Acquiring Fund, respectively,
under this Agreement.
[Remainder of Page Intentionally Blank]
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.
-----------------------------
OF JOHN HANCOCK VARIABLE SERIES TRUST I
By:
-----------------------------------------
Name:
Title
JOHN HANCOCK DECLARATION TRUST on behalf of
--------------------------------
By:
------------------------------------------
Name: Maureen R. Ford
Title: President and Chief Executive Officer
Appendix A
Basic information about the funds
Appendix A includes basic information about the Acquired Funds and the Acquired
Funds.
Financial Highlights Tables
- ---------------------------
The financial highlights tables on the following pages detail the historical
performance of each fund, including total return information for the past 5
years (or such shorter period as the fund has been in operation). The "total
returns" in each table represent the rate that an investor would have earned (or
lost) on an investment in the fund (assuming reinvestment of all dividends and
distributions). Certain information in the table reflects financial results for
a single fund share. The "total investment return" shown for each fund does not
reflect the expenses and charges of the applicable separate accounts and
Variable Contracts. Those expenses and charges vary considerably from contract
to contract and are described in the applicable Variable Contract prospectus.
The financial highlights have been audited by Ernst & Young LLP, whose report
(along with each fund's financial statements) are included in each fund's annual
report, which is available upon request.
PROPOSAL 1
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 80% of its 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 circumstances, 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 1992
Began business career in 1979
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 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 the applicable variable product prospectus), and
would be lower if they did. Past performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1998 1999 2000 2001 2002
8.55% 1.23% 27.16% -17.51% -19.46%
Best quarter: Q3 '00, 19.95% Worst quarter: Q3 '98, -16.76%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12-31-02
- --------------------------------------------------------------------------------
Fund Index 1 Index 2
1 year -19.46% -22.10% -14.64%
5 year -1.48% -0.59% 2.53%
Life of fund -- began 4-30-97 4.07% 3.12% 7.38%
Index 1: Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
Index 2: Standard & Poor's Financial Index, an unmanaged index of financial
sector stocks in the Standard & Poor's 500 Index.
A-2
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 under-perform 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, 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.
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] The financial highlights table is intended to help you understand the
fund's financial performance over the time periods shown. The 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. Total
return information does not include variable contract charges. Inclusion of
these charges would reduce the total return figures for all periods shown.
Figures audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, are included in the fund's annual report, which is
available upon request.
- -----------------------------------------------------------------------------------------------------------------------------
Period ended: 12-31-98 12-31-99 12-31-00 12-31-01 12-31-02
- -----------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $13.44 $14.45 $14.46 $18.34 $14.56
Net investment income(1) 0.18 0.11 0.06 (0.11) 0.12
Net realized and unrealized gain (loss) on investments 0.97 0.06 3.87 (3.11) (2.95)
Total from investment operations 1.15 0.17 3.93 (3.22) (2.83)
Less distributions:
From net investment income (0.14) (0.10) (0.05) (0.09) (0.13)
From net realized gain --(2) (0.05) -- (0.47) --
Tax return of capital -- -- (0.01) -- --
Total distributions (0.14) (0.16) (0.05) (0.56) (0.13)
Net asset value, end of period $14.45 $14.46 $18.34 $14.56 $11.60
Total investment return(3) (%) 8.55 1.23 27.16 (17.51) (19.46)
Ratios and supplemental data
Net assets, end of period (in millions) $55 $49 $71 $89 $57
Ratio of expenses to average net assets (%) 0.92 0.90 0.90 0.89 0.90
Ratio of adjusted expenses to average net assets (%) -- -- -- -- --
Ratio of net investment income (loss) to average net assets (%) 1.25 0.77 0.36 0.71 0.87
Portfolio turnover rate (%) 38 72 41 97(5) 2
(1) Based on the average of the shares outstanding at the end of each month.
(2) Less than $0.01 per share.
(3) Assumes dividend reinvestment.
(4) Excludes merger activity.
A-3
Financial Industries Fund
GOAL AND STRATEGY
This is a non-diversified financial industries stock fund that seeks long-term
capital appreciation.
The Fund normally invests at least 80% of its assets in equity securities of
(a) companies in the financial services industry including banks, thrifts,
credit and finance companies, brokerage and advisory firms, asset management
companies, insurance companies, leasing companies, real estate-related firms,
financial holding companies and similar entities and (b) to a more limited
extent, non-financial industry companies expected to benefit from products or
other market advantages in the financial services industries. The Fund invests
mostly in stocks of U.S. companies but also invests, to a limited extent, in
foreign stocks.
The manager selects financial industry stocks using proprietary fundamental
equity research and quantitative screening. The manager uses fundamental equity
research to identify companies that:
.. are positioned to benefit from industry-wide trends such as consolidation and
regulatory changes; and
.. are comparatively undervalued relative to balance sheet and earnings.
The manager also uses quantitative tools focusing on valuation,
earnings/momentum and fundamentals/capital use to evaluate stocks and to manage
overall risk.
The Fund's industry weightings are primarily a result of stock selection and
therefore may differ significantly from its benchmark. The manager normally
invests in 40 to 100 stocks of companies of any size. The Fund normally has 10%
or less (usually lower) of its assets in cash and cash equivalents. The Fund
may invest in initial public offerings (IPOs).
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: foreign securities denominated in U.S dollars or any
other currency, certain Exchange Traded Funds (ETFs) and certain derivatives
(investments whose value is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
John Hancock Advisors, LLC
101 Huntington Avenue
Boston, Massachusetts 02199
Owned by John Hancock
Managing since 1968
Managing Fund since May, 2003
Managed approximately $26 billion in
assets at the end of 2002
FUND MANAGERS
Management by investment team overseen by:
James K. Schmidt, CFA
- ---------------------
Executive Vice President of
Joined subadviser in 1992
Thomas C. Goggins
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1995
PAST PERFORMANCE
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 and potential rewards. Year-by-year and average annual figures for the
period prior to April 30, 2003 reflect the actual performance of the V.A.
Financial Industries Fund, the fund's predecessor, which was a series of the
John Hancock Declaration Trust. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect deduction of fees and charges payable under the variable contracts.
Such fees and charges would cause the investment returns under the contracts to
be less than that shown below.
Year-by-Year Total Returns -- Calendar Year
[CHART]
1998 1999 2000 2001 2002
- ----- ----- ----- -------- --------
8.55% 1.23% 27.16% (17.51%) (19.46%)
Best quarter: up 19.95%, third quarter 2000 Worst quarter: down 16.76%, third
quarter 1998
Average annual total returns -- for periods ending 12/31/2002*
Fund Index 1 Index 2
1 year -19.46% -22.10% -14.64%
5 year -1.48% -0.59% 2.53%
Life of Fund 4.07% 3.12% 7.38%
Index 1: Standard & Poor's 500 Index, an unmanaged index of 500 stocks
Index 2: Standard & Poor's Financial Index, an unmanaged index of financial
sector stocks in the Standard & Poor's 500 Index
*Predecessor fund began operations on April 30, 1997
A-4
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond 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.
Non-Diversified Fund Risk: The Fund's larger position in individual issuers
could produce more volatile performance relative to more diversified funds. The
less diversified a fund's holdings are, the more likely it is that a specific
security's poor performance will hurt the fund significantly.
Manager Risk: The managers and their respective strategies may fail to produce
the intended results. The Fund could underperform its peers or lose money if
the managers' investment strategies do not perform as expected.
Sector Fund Risk: The Fund's investments are concentrated in a single sector
of the stock market and the Fund's performance could be significantly affected
by developments in that particular sector. Because of this concentration, the
Fund's performance could be worse than the overall market by a wide margin or
for extended periods. Also, the Fund's performance could be more volatile
relative to funds that invest broadly across different sectors of the stock
market.
Financial Industries and Related Securities Risk: Financial industries and
related equity securities may be affected by changes in the regulatory and
competitive environment, by inter-industry consolidation, and by changes in
interest rates and economic conditions. Profitability can be largely dependent
on the availability and cost of capital and can fluctuate significantly when
interest rates change. For example, when interest rates fall or economic
conditions deteriorate, the stocks of banks and financials industries companies
could suffer losses. Rising interest rates can reduce profits by narrowing the
difference between these companies' borrowing and lending rates. Losses
resulting from financial difficulties of borrowers, and downgrades of their
creditworthiness, can also negatively affect lending institutions.
Small/Mid Cap Stock Risk: The Fund's investment in smaller or mid-sized
companies may be subject to more erratic price movements than investments in
large established companies.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
In future years, the Fund's turnover rate may be higher than 100%.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic,
political and social instability. Factors such as lack of liquidity, foreign
ownership limits and restrictions on removing currency also pose special risks.
However, to the extent the Fund invests in emerging market countries, it will
have a significantly higher degree of foreign risk than if it invested
exclusively in developed or newly industrialized countries.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity markets.
- --------------------------------------------------------------------------------
Financial Highlights
This table details the historical performance of the Fund's predecessor, the
V.A. Financial Industries Fund, including total return information showing how
much an investment in the predecessor fund has increased or decreased each
year. The "total investment return" shown for the predecessor fund does not
reflect the expenses and charges of the applicable separate accounts and
variable contracts. Those expenses and charges vary considerably from contract
to contract and are described in the applicable variable contract prospectus.
On April 30, 2003, the Fund will acquire all of the assets of the V.A.
Financial Industries Fund pursuant to an agreement and plan of reorganization
in exchange for shares of the Fund. The information shown below has been
audited by Ernst & Young LLP, independent auditors. Their report and the
predecessor fund's annual statements are included in the predecessor fund's
Annual Report, which is available upon request.
Period ended: 12-31-98 12-31-99 12-31-00 12-31-01 12-31-02
Per share operating performance
Net asset vale beginning of period $13.44 $14.45 $14.46 $18.34 $14.56
Net Investment income/(1)/ 0.18 0.11 0.06 (0.11) 0.12
Net realized and unrealized gain (loss) on investment 0.97 0.06 3.87 (3.11) (2.95)
Total from investment operations 1.15 0.17 3.93 (3.22) (2.83)
Less distributions
From net investment income (0.14) (0.10) (0.05) (0.09) (0.13)
From net realized gain -- /(2)/ (0.05) -- (0.47) --
Tax return of capital -- (0.01) -- -- --
Total distributions (0.14) (0.16) (0.05) (0.56) (0.13)
Net asset value end of period $14.45 $14.46 $18.34 $14.56 $11.60
Total investment return/(3)/(%) 8.55 1.23 27.16 (17.51) (19.46)
Ratios and supplement data
Net assets end of period (in millions) $55 $49 $71 $89 $57
Ratio of expenses to average net assets(%) 0.92 0.90 0.90 0.89 0.90
Ratio of adjusted expenses to average net assets(%) -- -- -- -- --
Ratio of net investment income (loss) to average net assets(%) 1.25 0.77 0.36 0.71 0.87
Portfolio turnover rate(%) 38 72 41 97/(4) 2
(1) Based on the average
of the shares
outstanding at the
end of each month.
(2) Less than $0.01 per
share.
(3) Assumes dividend
reinvestment.
(4) Excludes merger
activity.
A-5
PROPOSAL 2
V.A. Relative Value Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund invests primarily in a diversified portfolio of 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.
The fund may also invest in bonds and money market securities. In selecting
bonds of any maturity, the managers look 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
Paul J. Berlinguet
- -------------------------------------------
Vice president of adviser
Joined fund team in 2002
Joined adviser in 2001
U.S. equity investment manager at Baring
America Asset Management (1989-2001)
Began business career in 1986
Roger C. Hamilton
- -------------------------------------------
Vice president of adviser
Joined fund team in 1999
Joined adviser in 1994
Began business career in 1980
Robert J. Uek, CFA
- -------------------------------------------
Vice president of adviser
Joined fund team in 2002
Joined adviser in 1997
Corporate finance manager at
Ernst & Young (1994-1997)
Began business career in 1990
Thomas P. Norton, CFA
- -------------------------------------------
Vice president of adviser
Joined adviser in 2002
Investment Manager, Baring Asset
Management (1997-2002)
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 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 the applicable variable product prospectus), and
would be lower if they did. Past performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1998 1999 2000 2001 2002
21.39% 56.65% -4.80% -2.81% -41.93%
Best quarter: Q4 '99, 43.25% Worst quarter: Q3 '01, -29.30%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12-31-02
- --------------------------------------------------------------------------------
Fund Index
1 year -41.93% -22.10%
Life of fund-- began 1-6-98 0.43% -0.51%
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 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 small- or medium-capitalization stocks. Similarly, value stocks could
under-perform 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, 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.
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] The financial highlights table is intended to help you understand the
fund's financial performance over the time periods shown. The 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. Total
return information does not include variable contract charges. Inclusion of
these charges would reduce the total return figures for all periods shown.
Figures audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, are included in the fund's annual report, which is
available upon request.
- -------------------------------------------------------------------------------------------------------------------------------
Period ended: 12-31-98(1) 12-31-99 12-31-00 12-31-01 12-31-02
- -------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $12.03 $18.03 $10.64 $9.72
Net investment income(2) 0.11 0.10 0.02 0.02 0.04
Net realized and unrealized gain (loss) on investments 2.02 6.65 (0.80) (0.32) (4.11)
Total from investment operations 2.13 6.75 (0.78) (0.30) (4.07)
Less distributions:
From net investment income (0.10) (0.10) (0.02) (0.02) (0.04)
From net realized gain -- (0.65) (6.59) (0.60) (0.02)
Total distributions (0.10) (0.75) (6.61) (0.62) (0.06)
Net asset value, end of period $12.03 $18.03 $10.64 $9.72 $5.59
Total investment return(3) (%) 21.39(4,5) 56.65 (4.80) (2.81) (41.93)
Ratios and supplemental data
Net assets, end of period (in millions) $17 $39 $39 $64 $31
Ratio of expenses to average net assets (%) 0.85(6) 0.77 0.79 0.74 0.73
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 0.23 0.53
Portfolio turnover rate (%) 242 166 164 59 136
(1) Began operations on 1-6-98.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) Not annualized.
(5) 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.
================================================================================
The following return is not audited and is not part of the audited financial
highlights presented above:
Without the expense reductions, return for the period ended December 31, 1998
would have been 21.21%.
A-7
Growth & Income Fund
GOAL AND STRATEGY
This is a non-diversified large and mid-cap stock fund that seeks income and
long-term capital appreciation.
The Fund invests primarily in a diversified mix of common stocks of large and
mid-sized U.S. companies.
The Fund employs a multi-style and multi-manager approach with two
sub-advisers, each of which employs its own investment approach and
independently manages its portion or portions of the Fund. The Fund uses three
distinct investment styles intended to complement each other: growth, value and
blend. The allocation across styles as of year-end 2001 is approximately:
growth portion 20%, value portion 20% and blend portion 60%. All investments in
the Fund will be allocated equally between the two subadvisers, while
redemptions will be allocated on an asset-weighted basis. Moreover, the
allocation between the value and blend portions will be managed so that the
value portion will be approximately equal to the growth portion over time. All
of these allocation methodologies may change in the future.
Independence Investment LLC ("Independence") manages two portions of the
Fund--the value style portion and the blend style portion. Independence selects
stocks using a combination of proprietary equity research and quantitative
tools. Stocks are purchased that are undervalued relative to the stock's
history and have improving earnings growth prospects.
Independence seeks to maintain risk and sector characteristics similar to the
market benchmark for its portion of the Fund. Independence normally invests its
portion of the Fund in 75 to 160 stocks, with at least 65% (usually higher) of
its assets in companies with market capitalizations that are within the range
of capitalization of the 1000 largest companies in the Russell 3000(R) Index.
At year-end 2002, those companies had market capitalizations greater that $___
billion.
Putnam Investment Management, LLC ("Putnam") manages the growth style portion
of the Fund. Putnam selects stocks using a combination of:
.. a systematic screening approach to rank stocks based on: fundamental catalyst
(such as earnings surprise and momentum); valuation (such as price-to-sales
ratio); and financial strength (such as superior cash flow); and
.. proprietary fundamental equity research to identify companies with strong and
innovative management teams, opportunities for above average growth within
their industry and strong competitive positioning relative to peers and
suppliers.
Putnam seeks broad diversification by security and sector and uses risk
management tools and qualitative judgment to determine sector and
stock-specific weightings. Putnam normally invests in 65 to 120 stocks, with at
least 65% (usually higher) of its assets in companies with market
capitalizations that are within the range of capitalization of the 1000 largest
companies in the Russell 3000(R) Index. At year-end 2002, those companies had
market capitalizations greater that $1.1 billion.
The Fund is "non-diversified", which means that it can take larger positions in
individual issuers.
Each portion of the Fund normally has 10% or less (usually lower) of its assets
in cash and cash equivalents. Each portion of the Fund may invest in initial
public offerings (IPOs). Each portion of the Fund may purchase other types of
securities that are not primary investment vehicles, for example: U.S. dollar
denominated foreign securities, certain Exchange Traded Funds (ETFs), and
certain derivatives (investments whose value is based on indices or other
securities).
In abnormal market conditions, each portion of the Fund may take temporary
defensive measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
(less than)/TC
SUBADVISER
Independence Investment LLC
53 State Street
Boston, Massachusetts 02109
Owned by John Hancock
Managing since 1982
Managing Fund and its predecessor since March, 1986
Managed approximately $18.9 billion in assets at end of 2002
FUND MANAGERS
Management by investment team overseen by:
Paul F. McManus
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1982
Thomas D. Spicer
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1991
SUBADVISER
Putnam Investment Management, LLC
One Post Office Square
Boston, Massachusetts 02109
Managing since 1937
Managing Fund since November, 2000
Managed approximately $250.9 Billion in assets at the end of 2002
FUND MANAGERS
Team Managed By:
4 Portfolio Managers
Average 8 years with Putnam
Average 17 years industry experience
A-8
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond 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. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Non-Diversified Fund Risk: The Fund's larger position in individual issuers
could produce more volatile performance relative to more diversified funds. The
less diversified a fund's holdings are, the more likely it is that a specific
security's poor performance will hurt the fund significantly.
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.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "large/mid cap" approach carries the risk that in certain markets
large/mid cap stocks will underperform small cap stocks.
Small/Mid Cap Stock Risk: The Fund's investment in smaller or mid-sized
companies may be subject to more erratic price movements than investment in
large established companies.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
Normally, the Fund's turnover rate will be greater than 100%.
Initial Public Offering Risk: The fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-9
Growth & Income Fund -- continued
PAST PERFORMANCE
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 also help provide an indication of the
fund's risks and potential rewards. All figures assume dividend reinvestment.
Past performance does not indicate future results. The performance figures
below do not reflect the deduction of fees and charges payable under the
variable contracts. Such fees and charges would cause the investment returns
under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
- ------ ------- ------ ------ ------ ------ ------ -------- ------- ------
13.33% (0.56)% 34.21% 20.10% 29.79% 30.25% 16.23% (13.10)% (15.44)% (22.18%)
Best quarter: up 24.07%, fourth quarter 1998 Worst quarter: down 17.16%, third
quarter 2002
Average annual total return -- for periods
ending 12/31/2002*
Fund Index 1 Index 2 Index 3**
1 year -22.18% -22.10% -21.65% -22.29%
5 years -2.85% -0.59% -0.58% -0.63%
10 years 7.39% 9.34% 9.18% 9.31%
Index 1: S&P 500 Index
Index 2: Russell 1000 Index (effective May, 2002)
Index 3: S&P 500 Index (from inception through April, 2002) and Russell 1000
Index (after April, 2002)
* Began operations on March 29, 1986.
** John Hancock believes Index 3 is a more suitable index against which to
measure the fund's performance because it more closely matches the fund's
changes in investment strategy since inception.
A-10
FINANCIAL HIGHLIGHTS
(Selected data for each share interest outstanding throughout the period
indicated)
The following financial highlights have been audited by Ernst & Young LLP.
Period ended December 31: 1998 1999 2000 2001 2002
Net asset value, beginning of period $ 16.61 $ 19.49 $ 20.01 $ 14.18 $ 11.93
Income from investment operations:
Net investment income (loss) 0.23 0.20 0.17 0.06 0.08
Net realized and unrealized gain (loss) on investments* 4.75 2.88 (2.77) (2.25) (2.71)
Total from investment operations 4.98 3.08 (2.60) (2.19) (2.63)
Less distributions:
Distributions from net investment income and capital paid in (0.23) (0.20) (0.17) (0.06) (0.08)
Distributions from net realized gain on investments sold (1.87) (2.36) (2.69) --
Distributions in excess of income & gains -- -- (0.14) --
Total distributions (2.10) (2.56) (3.23) (0.06) (0.08)
Net asset value, end of period $ 19.49 $ 20.01 $ 14.18 $ 11.93 $ 9.22
Total investment return 30.25% 16.23% (13.10)% (15.44)% (22.18)%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) $3,670,785 $4,218,841 $3,324,988 $2,476,319 $1,762,203
Ratio of expenses to average net assets (%) 0.27% 0.28% 0.40% 0.72% 0.75%
Ratio of net investment income (loss) to average net assets (%) 1.24% 0.98% 0.84% 0.49% 0.73%
Turnover rate (%) 48.45% 70.16% 112.94% 104.47%(1) 73.60%
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of
purchases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
(1) Excludes merger activity.
A-11
PROPOSAL 3
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
December 31, 2002, that range was $279 million to $280 billion.
At least 65% of the fund's stock investments are "dividend performers" --
companies whose dividend payments have increased steadily for ten years. In
managing the portfolio, 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 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
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 the applicable variable product prospectus), and
would be lower if they did. Past performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002
28.43% 16.87% 3.84% -0.33% -5.56% -21.29%
Best quarter: Q4 '98, 15.75% Worst quarter: Q1 '01, -9.03%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12-31-02
- --------------------------------------------------------------------------------
Fund Index
1 year -21.29% -22.10%
5 year -2.10% 0.59%
Life of fund -- began 8-29-96 3.59% 6.26%
Index: Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
A-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- 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, these 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] The financial highlights table is intended to help you understand the
fund's financial performance over the time periods shown. The 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. Total
return information does not include variable contract charges. Inclusion of
these charges would reduce the total return figures for all periods shown.
Figures audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, are included in the fund's annual report, which is
available upon request.
- --------------------------------------------------------------------------------------------------------------------------
Period ended: 12-31-98 12-31-99 12-31-00 12-31-01 12-31-02
- --------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $13.59 $15.61 $15.96 $15.69 $14.57
Net investment income(1) 0.27 0.24 0.21 0.24 0.15
Net realized and unrealized gain (loss) on investments 2.00 0.35 (0.27) (1.12) (3.24)
Total from investment operations 2.27 0.59 (0.06) (0.88) (3.09)
Less distributions:
From net investment income (0.25) (0.24) (0.21) (0.24) (0.15)
From net realized gain -- -- -- -- --
Tax return of capital -- --(2) -- -- --
Total distributions (0.25) (0.24) (0.21) (0.24) (0.15)
Net asset value, end of period $15.61 $15.96 $15.69 $14.57 $11.33
Total investment return(3) (%) 16.88 3.84 (0.33) (5.56) (21.29)
Ratios and supplemental data
Net assets, end of period (in millions) $34 $50 $55 $64 $40
Ratio of expenses to average net assets (%) 0.74 0.70 0.72 0.70 0.71
Ratio of adjusted expenses to average net assets (%) -- -- -- -- --
Ratio of net investment income (loss) to average net assets (%) 1.88 1.57 1.37 1.63 1.14
Portfolio turnover rate (%) 19 26 46 77 41
(1) Based on the average of the shares outstanding at the end of each month.
(2) Less than $0.01 per share.
(3) Assumes dividend reinvestment.
A-13
Growth & Income Fund
GOAL AND STRATEGY
This is a non-diversified large and mid-cap stock fund that seeks income and
long-term capital appreciation.
The Fund invests primarily in a diversified mix of common stocks of large and
mid-sized U.S. companies.
The Fund employs a multi-style and multi-manager approach with two
sub-advisers, each of which employs its own investment approach and
independently manages its portion or portions of the Fund. The Fund uses three
distinct investment styles intended to complement each other: growth, value and
blend. The allocation across styles as of year-end 2001 is approximately:
growth portion 20%, value portion 20% and blend portion 60%. All investments in
the Fund will be allocated equally between the two subadvisers, while
redemptions will be allocated on an asset-weighted basis. Moreover, the
allocation between the value and blend portions will be managed so that the
value portion will be approximately equal to the growth portion over time. All
of these allocation methodologies may change in the future.
Independence Investment LLC ("Independence") manages two portions of the
Fund--the value style portion and the blend style portion. Independence selects
stocks using a combination of proprietary equity research and quantitative
tools. Stocks are purchased that are undervalued relative to the stock's
history and have improving earnings growth prospects.
Independence seeks to maintain risk and sector characteristics similar to the
market benchmark for its portion of the Fund. Independence normally invests its
portion of the Fund in 75 to 160 stocks, with at least 65% (usually higher) of
its assets in companies with market capitalizations that are within the range
of capitalization of the 1000 largest companies in the Russell 3000(R) Index.
At year-end 2002, those companies had market capitalizations greater that $1.1
billion.
Putnam Investment Management, LLC ("Putnam") manages the growth style portion
of the Fund. Putnam selects stocks using a combination of:
.. a systematic screening approach to rank stocks based on: fundamental catalyst
(such as earnings surprise and momentum); valuation (such as price-to-sales
ratio); and financial strength (such as superior cash flow); and
.. proprietary fundamental equity research to identify companies with strong and
innovative management teams, opportunities for above average growth within
their industry and strong competitive positioning relative to peers and
suppliers.
Putnam seeks broad diversification by security and sector and uses risk
management tools and qualitative judgment to determine sector and
stock-specific weightings. Putnam normally invests in 65 to 120 stocks, with at
least 65% (usually higher) of its assets in companies with market
capitalizations that are within the range of capitalization of the 1000 largest
companies in the Russell 3000(R) Index. At year-end 2002, those companies had
market capitalizations greater that $1.1 billion.
The Fund is "non-diversified", which means that it can take larger positions in
individual issuers.
Each portion of the Fund normally has 10% or less (usually lower) of its assets
in cash and cash equivalents. Each portion of the Fund may invest in initial
public offerings (IPOs). Each portion of the Fund may purchase other types of
securities that are not primary investment vehicles, for example: U.S. dollar
denominated foreign securities, certain Exchange Traded Funds (ETFs), and
certain derivatives (investments whose value is based on indices or other
securities).
In abnormal market conditions, each portion of the Fund may take temporary
defensive measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
(less than)/TC
SUBADVISER
Independence Investment LLC
53 State Street
Boston, Massachusetts 02109
Owned by John Hancock
Managing since 1982
Managing Fund and its predecessor since March, 1986
Managed approximately $18.9 billion in assets at end of 2002
FUND MANAGERS
Management by investment team overseen by:
Paul F. McManus
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1982
Thomas D. Spicer
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1991
SUBADVISER
Putnam Investment Management, LLC
One Post Office Square
Boston, Massachusetts 02109
Managing since 1937
Managing Fund since November, 2000
Managed approximately $250.9 Billion in assets at the end of 2002
FUND MANAGERS
Team Managed By:
4 Portfolio Managers
Average 8 years with Putnam
Average 17 years industry experience
A-14
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond 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. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Non-Diversified Fund Risk: The Fund's larger position in individual issuers
could produce more volatile performance relative to more diversified funds. The
less diversified a fund's holdings are, the more likely it is that a specific
security's poor performance will hurt the fund significantly.
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.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "large/mid cap" approach carries the risk that in certain markets
large/mid cap stocks will underperform small cap stocks.
Small/Mid Cap Stock Risk: The Fund's investment in smaller or mid-sized
companies may be subject to more erratic price movements than investment in
large established companies.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
Normally, the Fund's turnover rate will be greater than 100%.
Initial Public Offering Risk: The fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-15
Growth & Income Fund -- continued
PAST PERFORMANCE
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 also help provide an indication of the
fund's risks and potential rewards. All figures assume dividend reinvestment.
Past performance does not indicate future results. The performance figures
below do not reflect the deduction of fees and charges payable under the
variable contracts. Such fees and charges would cause the investment returns
under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
- ------ ------- ------ ------ ------ ------ ------ -------- ------- ------
13.33% (0.56)% 34.21% 20.10% 29.79% 30.25% 16.23% (13.10)% (15.44)% -22.18%
Best quarter: up 24.07%, fourth quarter 1998 Worst quarter: down 16.99%, third
quarter 2001
Average annual total return -- for periods
ending 12/31/2002*
Fund Index 1 Index 2 Index 3**
1 year -22.18% -22.10% -21.65% -22.29%
5 years -2.85% -0.59% -0.58% -0.63%
10 years 7.39% 9.34% 9.18% 9.31%
Index 1: S&P 500 Index
Index 2: Russell 1000 Index (effective May, 2002)
Index 3: S&P 500 Index (from inception through April, 2002) and Russell 1000
Index (after April, 2002)
* Began operations on March 29, 1986.
** John Hancock believes Index 3 is a more suitable index against which to
measure the fund's performance because it more closely matches the fund's
changes in investment strategy since inception.
A-16
FINANCIAL HIGHLIGHTS
(Selected data for each share interest outstanding throughout the period
indicated)
The following financial highlights have been audited by Ernst & Young LLP.
Period ended December 31: 1998 1999 2000 2001 2002
Net asset value, beginning of period $ 16.61 $ 19.49 $ 20.01 $ 14.18 $ 11.93
Income from investment operations:
Net investment income (loss) 0.23 0.20 0.17 0.06 0.08
Net realized and unrealized gain (loss) on investments* 4.75 2.88 (2.77) (2.25) (2.71)
Total from investment operations 4.98 3.08 (2.60) (2.19) (2.63)
Less distributions:
Distributions from net investment income and capital paid in (0.23) (0.20) (0.17) (0.06) (0.08)
Distributions from net realized gain on investments sold (1.87) (2.36) (2.69) -- --
Distributions in excess of income & gains -- -- (0.14) -- --
Total distributions (2.10) (2.56) (3.23) (0.06) (0.08)
Net asset value, end of period $ 19.49 $ 20.01 $ 14.18 $ 11.93 $ 9.22
Total investment return 30.25% 16.23% (13.10)% (15.44)% (22.18)%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) $3,670,785 $4,218,841 $3,324,988 $2,476,319 $1,762,203
Ratio of expenses to average net assets (%) 0.27% 0.28% 0.40% 0.72% 0.75%
Ratio of net investment income (loss) to average net assets (%) 1.24% 0.98% 0.84% 0.49% 0.73%
Turnover rate (%) 48.45% 70.16% 112.94% 104.47%(1) 73.60%
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of
purchases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
(1) Excludes merger activity.
A-17
PROPOSAL 4
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 types 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 (AAA to BBB). There is no limit on the fund's average
maturity.
In managing the portfolio, the managers allocate assets among the three major
sectors 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 sector.
Within each sector, 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
Daniel S. Janis III
- -------------------------------------------
Vice president of adviser
Joined fund team in 1999
Joined adviser in 1999
Senior risk manager at
BankBoston (1997-1998)
Began business career in 1984
Indexes:
In the future, the adviser will compare the fund's performance to the Merrill
Lynch High Yield Master II Index, Merrill Lynch Government Master Index and
Salomon Smith Barney World Government Bond Index, since they more closely
represent the fund's investment strategy.
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 the applicable variable product prospectus), and
would be lower if they did. Past performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002
11.77% 4.92% 4.82% 1.40% 4.58% 7.87%
Best quarter: Q2 '97, 6.28% Worst quarter: Q3 '98, -2.79%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12-31-02
- --------------------------------------------------------------------------------
Fund Index 1 Index 2 Index 3 Index 4
1 year 7.87% 11.04% -1.89% 11.30% 19.50%
5 year 4.69% 7.62% 0.52% 7.73% 5.82%
Life of fund -- began 8-29-96 6.56% 8.34% 3.36% 8.37%* 5.04%
Index 1: Lehman Brothers Government/Credit Bond Index, an unmanaged index of
U.S. government, U.S. corporate and Yankee bonds.
Index 2: Merrill Lynch High Yield Master II Index, an unmanaged index consisting
of U.S. dollar-denominated public corporate issues with par amounts greater than
$100 million that are rated below investment grade.
Index 3: Merrill Lynch Government Master Index, an unmanaged index of fixed rate
U.S. Treasury and agency securities.
Index 4: Salomon Smith Barney World Government Bond Index, an unmanaged index
consisting of approximately 650 securities issued by 18 governments in various
countries.
* As of August 31, 1996
A-18
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, the fund could under-perform 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 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] The financial highlights table is intended to help you understand the
fund's financial performance over the time periods shown. The 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. Total
return information does not include variable contract charges. Inclusion of
these charges would reduce the total return figures for all periods shown.
Figures audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, are included in the fund's annual report, which is
available upon request.
- -----------------------------------------------------------------------------------------------------------------------------------
Period ended: 12-31-98 12-31-99 12-31-00 12-31-01(1) 12-31-02
- -----------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.47 $10.10 $9.77 $8.97 $8.64
Net investment income(2) 0.85 0.80 0.83 0.65 0.53
Net realized and unrealized gain (loss) on investments (0.35) (0.33) (0.71) (0.26) 0.11
Total from investment operations 0.50 0.47 0.12 0.39 0.64
Less distributions:
From net investment income (0.85) (0.80) (0.83) (0.72) (0.61)
From net realized gain (0.02) -- (0.09) -- --
Total distributions (0.87) (0.80) (0.92) (0.72) (0.61)
Net asset value, end of period $10.10 $9.77 $8.97 $8.64 $8.67
Total investment return(3) (%) 4.92(4) 4.82(4) 1.40 4.58 7.87
Ratios and supplemental data
Net assets, end of period (in millions) $15 $22 $34 $69 $73
Ratio of expenses to average net assets (%) 0.85 0.85 0.76 0.71 0.80
Ratio of adjusted expenses to average net assets(5) (%) 0.93 0.87 -- -- --
Ratio of net investment income (loss) to average net assets (%) 8.19 8.06 8.91 7.16 6.28
Portfolio turnover rate (%) 92 53(6) 53 101(6) 73
(1) As required, effective 1-1-01, the fund has adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies, as revised,
and began amortizing premiums on debt securities. The effect of this change
for the year ended 12-31-01 was to decrease net investment income per share
by $0.07, decrease net realized and unrealized losses per share by $0.07,
and, had the fund not amortized premiums on debt securities, the annualized
ratio of net investment income to average net assets would have been 8.00%.
The effect of this change for the year ended December 31, 2002 was to
decrease net investment income per share by $0.07, increase net realized
and unrealized gains/losses per share by $0.07 and had the fund not
amortized premiums on debt securities, the annualized ratio of net
investment income to average net assets would have been 7.08. %Per share
ratios and supplemental data for periods prior to 1-1-01 have not been
restated to reflect this change in presentation.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) Total returns would have been lower had certain expenses not been reduced
during the periods shown.
(5) Does not take into consideration expense reductions during the periods
shown.
(6) Excludes merger activity.
================================================================================
The following returns are not audited and are not part of the audited financial
highlights presented above:
Without the expense reductions, returns for the period or years ended December
31, 1998 and 1999 would have been 4.84% and 4.80%, respectively.
A-19
Active Bond Fund
GOAL AND STRATEGY
This is an intermediate term bond fund of medium credit quality that seeks
income and capital appreciation.
The Fund normally invests at least 80% of its assets in a diversified mix of
debt securities including but not limited to:
.. U.S. Treasury and agency securities;
..asset-backed and mortgage-backed securities, including commercial
mortgage-backed securities;
.. corporate bonds, both U.S. and foreign (if dollar-denominated); and
.. foreign government and agency securities (if dollar-denominated).
The manager normally invests:
.. mostly in investment grade debt securities; and
.. no more than 25% of the Fund's assets in high yield bonds.
The manager seeks to identify specific bond sectors, industries and specific
bonds that are attractively priced. The manager tries to anticipate shifts in
the business cycle, using economic and industry analysis to determine which
sectors and industries might benefit over the next 12 months. The manager uses
proprietary research to identify securities that are undervalued.
The manager evaluates bonds of all quality levels and maturities from many
different issuers. The Fund normally has an average credit rating of "A" or
higher.
The Fund normally has 10% or less of its assets in cash and cash equivalents.
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: emerging market debt securities, and certain derivatives
(investments whose value is based on indices or other securities). The manager
actively uses derivatives, such as futures, to adjust the Fund's average
maturity and seeks to keep the Fund's interest rate sensitivity in line with
the overall market.
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199
Owned by John Hancock
Managing since 1968
Managing Fund since May, 1995
Managed approximately $26 billion in assets at the end of 2002
FUND MANAGERS
Howard C. Greene, CFA
- -----------------
Senior Vice President of subadviser
Joined subadviser in 2002
Vice President at Sun Life
Financial Services Company
of Canada (1987-2002)
Barry H. Evans, CFA
- ---------------
Senior Vice President of subadviser
Joined subadviser in 1986
Benjamin A. Matthews, CFA
- ---------------------
Vice President of subadviser
Joined subadviser in 1995
PAST PERFORMANCE
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 and potential rewards. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect the deduction of fees and charges payable under the variable
contracts. Such fees and charges would cause the investment returns under the
contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
- ------ ------- ----- ----- ------- ------ ------ ------- ------ ------
10.80% (2.57)% 19.55% 4.10% 10.11% 8.23% (0.94)% 10.45% 7.48% 7.25%
Best quarter: up 7.14%, second quarter 1989 Worst quarter: down 2.51%, first
quarter 1994
Average annual total returns -- for periods ending 12/31/2002*
Fund Index
1 year 7.25% 10.27%
5 years 6.42% 7.54%
10 years 7.28% 7.51%
Index: Lehman Brothers Aggregate Bond Index
* Began operations on March 29, 1986.
A-20
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond 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. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
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.
Interest Rate Risk: When interest rates rise, the Fund's bond yields will
generally rise and the Fund's bond prices will generally fall. When interest
rates fall, the reverse will generally occur. The longer the average remaining
maturity of bonds held by the Fund, the more sensitive the Fund is to interest
rate risk. This Fund has more interest rate risk than a short-term bond fund,
but less interest rate risk than a long-term bond fund.
Credit Risk: An issuer of a bond held by the Fund may default on its
obligation to pay interest and repay principal. Also, the credit rating of a
bond held by the fund may be downgraded. In either case, the value of the bond
held by the Fund would fall. All bonds have some credit risk, but in general
lower-rated bonds have higher credit risk.
High Yield Bond Risk: Junk bonds, defined as bond securities rated below
BBB-/Baa3, may be subject to more volatile or erratic price movements due to
investor sentiment. In a down market, these high yield securities become harder
to value or to sell at a fair price.
Prepayment/Call Risk: The Fund's share price or yield could be hurt if
interest rate movements cause the Fund's mortgage-related and callable
securities to be paid off substantially earlier than expected.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the Fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
Normally, the Fund's turnover rate will be greater than 100%.
Secondary
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic,
political and social instability. Factors such as lack of liquidity, foreign
ownership limits and restrictions on removing currency also pose special risks.
All foreign securities have some degree of foreign risk. However, to the extent
the Fund invests in emerging market countries, it will have a significantly
higher degree of foreign risk than if it invested exclusively in developed or
newly-industrialized countries.
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
Period ended December 31: 1998 1999 2000 2001 2002
Net asset value, beginning of period $ 9.95 $ 9.92 $ 9.12 $ 9.44 $ 9.55
Income from investment operations:
Net investment income (loss) 0.69 0.67 0.64 0.58 0.50
Net realized and unrealized gain (loss) on investments* 0.11 (0.76) 0.28 0.11 0.18
Total from investment operations 0.80 (0.09) 0.92 0.69 0.68
Less distributions:
Distributions from net investment income and capital paid in (0.69) (0.71) (0.60) (0.58) (0.53)
Distributions from net realized gain on investments sold (0.14) -- -- -- --
Distributions in excess of income & gains -- -- -- -- --
Total distributions (0.83) (0.71) (0.60) (0.58) (0.53)
Net asset value, end of period $ 9.92 $ 9.12 $ 9.44 $ 9.55 $ 9.70
Total investment return 8.23% (0.94)% 10.45% 7.48% 7.25%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) $907,121 $850,286 $842,299 $947,514 $987,454
Ratio of expenses to average net assets (%)** 0.29% 0.28% 0.41% 0.67% 0.69%
Ratio of net investment income (loss) to average net assets (%) 6.84% 6.97% 6.98% 5.97% 5.24%
Turnover rate (%) 228.74% 182.90% 224.24% 206.80%(1) 290.73%
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of
purchases and withdrawals of shares in relation to the fluctuation in
market values of the fund.
** Expense ratio is net of expense reimbursements. Had such reimbursement not
been made the expense ratio would have been .44% for the year ended
December 31, 2001.
(1) Excludes merger activity.
A-21
PROPOSAL 5
V.A. Technology 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 its assets in U.S. and foreign companies
that rely extensively on technology in their product development or operations.
These companies are in fields such as: computer software, hardware and Internet
services; telecommunications; electronics; and data management and storage.
In managing the portfolio, the managers focus primarily on stock selection
rather than industry allocation. The managers invest in companies of any size
whose stocks appear to be trading below their true value, as determined by
fundamental financial analysis of their business models and balance sheets as
well as interviews with senior management. The fund focuses on companies that
are undergoing a business change that appears to signal accelerated growth or
higher earnings.
The fund may invest up to 10% of net assets in debt securities of any maturity,
including bonds rated as low as CC/Ca and their unrated equivalents. (Bonds
rated below BBB/Baa are considered junk bonds.)
It may also invest in certain higher-risk securities, including securities that
are not publicly offered or traded, called restricted securities.
The fund may use certain derivatives (investments whose value is based on
indexes, securities or currencies).
In abnormal circumstances, 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.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
================================================================================
SUB ADVISER
American Fund Advisors, Inc.
- -------------------------------------------
Responsible for day-to-day
investments
Founded in 1978
Supervised by the adviser
PORTFOLIO MANAGERS
Barry J. Gordon
- -------------------------------------------
President of subadviser
Joined fund team in 2000
Began business career in 1971
Marc H. Klee, CFA
- -------------------------------------------
Executive vice president of subadviser
Joined fund team in 2000
Began business career in 1977
Alan J. Loewenstein, CFA
- -------------------------------------------
Senior vice president of subadviser
Joined fund team in 2000
Began business career in 1979
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 the applicable variable product prospectus), and
would be lower if they did. Past performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
2001 2002
-44.06% -46.83%
Best quarter: Q4 '01, 38.05% Worst quarter: Q3 '01, -43.64%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12-31-02
- --------------------------------------------------------------------------------
Fund Index 1 Index 2
1 year -46.83% -22.10% -40.99%
Life of fund - began 5-1-2000 -43.45% -16.30% -40.68%
Index 1: Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
Index 2: Russell 3000 Technology Index, an unmanaged index of technology sector
stocks in the Russell 3000 Index, which represents the 3,000 largest U.S.
companies based on total market capitalization.
A-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. As a
result, the value of your investment may fluctuate more widely than it would in
a fund that is diversified across sectors.
Technology companies face special risks, and could be hurt by factors such as
market saturation, price competition, obsolescence and competing technologies.
Many technology companies are smaller companies that may have limited product
lines and financial and managerial resources, making them vulnerable to isolated
business setbacks.
Stocks of technology 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' 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 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.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
================================================================================
FINANCIAL HIGHLIGHTS
[Clip Art] The financial highlights table is intended to help you understand the
fund's financial performance over the time periods shown. The 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. Total
return information does not include variable contract charges. Inclusion of
these charges would reduce the total return figures for all periods shown.
Figures audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, are included in the fund's annual report, which is
available upon request.
- -----------------------------------------------------------------------------------------------------
Period ended: 12-31-00(1) 12-31-01 12-31-02
- -----------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $7.33 $4.10
Net investment income (loss)(2) 0.03 (0.02) (0.02)
Net realized and unrealized loss on investments (2.69) (3.21) (1.90)
Total from investment operations (2.66) (3.23) (1.92)
Less distributions:
From net investment income (0.01) --(3) --
Net asset value, end of period $7.33 $4.10 $2.18
Total return(4) (%) (26.56)(5)(6) (44.06)(6) (46.83)
Ratios and supplemental data
Net assets, end of period (in millions) $14 $22 $12
Ratio of expenses to average net assets (%) 1.05(7) 1.05 1.04
Ratio of adjusted expenses to average net assets(8) (%) 1.99(7) 1.08 --
Ratio of net investment income (loss) to average net assets (%) 0.62(7) (0.45) (0.70)
Portfolio turnover rate (%) 75 29 47
(1) Began operations on 5-1-00.
(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) 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 following return is not audited and is not part of the audited financial
highlights presented above:
Without the expense reductions, returns for the period or year ended December
31, 2000 and 2001 would have been (27.19%) and (44.09%), respectively.
A-23
Large Cap Growth Fund
GOAL AND STRATEGY
This is a non-diversified large cap stock fund with a growth emphasis that
seeks capital appreciation.
The Fund invests primarily in a diversified mix of common stocks of large
established U.S. companies that are believed to offer above-average potential
for growth in revenues and earnings.
The manager selects stocks using a combination of proprietary equity research
and quantitative tools. Stocks are purchased that are undervalued relative to
the stock's history and have improving earnings growth prospects. The manager
seeks to maintain risk and sector characteristics similar to the Russell
1000(R) Growth Index.
The Fund is "non-diversified" which means it can take larger positions in
individual issuers. The Fund normally invests in 75 to 160 stocks, and at least
80% of its assets in large cap companies. For the purpose of this Fund, "large
cap companies" are those with market capitalizations that are within the range
of capitalization of companies represented in the Russell 1000(R) Growth Index.
Moreover, the Fund normally invests at least 65% (usually higher) of its assets
in companies with market capitalizations that are within the range of
capitalization of the 300 largest companies in the Russell 3000(R) Index. At
year-end 2002, those companies had market capitalizations greater than $5.7
billion. The Fund normally has 10% or less (usually lower) of its assets in
cash and cash equivalents. The Fund may invest in initial public offerings
(IPOs).
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: U.S. dollar denominated foreign securities, certain
Exchange Traded Funds (ETFs), and certain derivatives (investments whose value
is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Independence Investment LLC
53 State Street
Boston, Massachusetts 02109
Owned by John Hancock
Managing since 1982
Managing Fund and its predecessor since March, 1986
Managed approximately $__ billion in assets at the end of 2002
FUND MANAGERS
Management by investment team overseen by:
Mark C. Lapman
- ---------------------
President and CEO of subadviser
Joined subadviser in 1982
John C. Forelli
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1990
PAST PERFORMANCE
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 and potential rewards. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect the deduction of fees and charges payable under the variable
contracts. Such fees and charges would cause the investment returns under the
contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
- ----- ------ ------- ------ ------ ------ ------ ------ -------- -------- ---------
9.90% 13.80% (0.98)% 31.64% 18.27% 30.89% 39.51% 24.07% (17.89)% (17.54)% -27.82%
Best quarter: up 27.79%, fourth quarter 1998 Worst quarter: down 31.25%,
first quarter 2002
Average annual total returns -- for periods ending 12/31/2002*
Fund Index
1 year -27.82% -27.89%
5 years -3.29% -3.84%
10 years 6.87% 6.71%
Index: Russell 1000(R) Growth Index
* Began operations on March 29, 1986.
A-24
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond 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. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Non-Diversified Fund Risk: The Fund's larger position in individual issuers
could produce more volatile performance relative to more diversified funds. The
less diversified a fund's holdings are, the more likely it is that a specific
security's poor performance will hurt the fund significantly.
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.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "growth" approach carries the risk that in certain markets "growth"
stocks will underperform "value" stocks. Also, the Fund's "large cap" approach
carries the risk that in certain markets large cap stocks will underperform
small cap and mid cap stocks.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
Period ended December 31: 1998 1999 2000 2001 2002
Net asset value, beginning of period $ 20.82 $ 26.19 $ 27.33 $ 18.89 $ 15.54
Income from investment operations:
Net investment income (loss) 0.14 0.09 0.03 0.04 0.04
Net realized and unrealized gain (loss) on investments* 8.05 6.03 (4.89) (3.36) (4.36)
Total from investment operations 8.19 6.12 (4.86) (3.32) (4.32)
Less distributions:
Distributions from net investment income and capital paid in (0.14) (0.09) (0.04) (0.03) (0.04)
Distributions from net realized gain on investments sold (2.68) (4.89) (2.69) -- --
Distributions in excess of income & gains -- -- (0.07) -- --
Total distributions (2.82) (4.98) (3.58) (0.03) (0.04)
Net asset value, end of period $ 26.19 $ 27.33 $ 18.89 $ 15.54 $ 11.18
Total investment return 39.51% 24.07% (17.89)% (17.54)% (27.82)%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) $1,126,764 $1,382,473 $1,146,787 $770,915 $496,628
Ratio of expenses to average net assets (%) 0.41% 0.39% 0.46% 0.41% 0.55%
Ratio of net investment income (loss) to average net assets (%) 0.59% 0.33% 0.10% 0.23% 0.33%
Turnover rate (%) 56.41% 37.42% 89.30% 63.96% 95.04%
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of
purchases and withdrawals of shares in relation to the fluctuation in
market values of the fund.
A-25
Appendix B
Management's discussion of fund performance:
December 31, 2002
B-1
PROPOSAL 1
BY JAMES K. SCHMIDT, CFA, AND THOMAS C. GOGGINS, PORTFOLIO MANAGERS
John Hancock V.A. Financial Industries Fund
MANAGERS' REPORT
The stock market declined broadly during 2002. A combination of negative factors
worked on investors, from accounting and other corporate scandals to growing
fears of terrorism and war. Perhaps most important, the economy's rebound from
recession stalled and corporate profits remained weak. As a result, the broad
market, as measured by the Standard & Poor's 500 Index, returned -22.09% for the
year ended December 31, 2002.
Financial stocks continued to outperform the broad market, due largely to the
strong performance of small and midsize bank stocks. They were bolstered by
falling interest rates, solid earnings growth and little exposure to the problem
areas that hurt the larger banks -- syndicated loans, capital markets activity
and involvement with struggling Latin American countries. On the other hand,
financial companies with exposure to the difficult stock market were hammered,
from insurance companies to brokerage firms and money-center and trust banks. In
the summer, several headline earnings misses, along with congressional testimony
by Citigroup and J.P. Morgan Chase regarding their Enron connections, also
soured investors on the sector despite good earnings news overall.
FUND PERFORMANCE REVIEW
For the year ended December 31, 2002, John Hancock V.A. Financial Industries
Fund posted a total return of -19.46% at net asset value, compared with the
- -10.87% return for the average open-end financial services fund and the -30.90%
return of the average variable annuity specialty/miscellaneous fund, according
to Lipper, Inc.
Although the Fund outperformed the broad market, it lagged the Lipper group of
financial services funds because it had more of an emphasis on large-cap and
growth-oriented financial companies during a time when small and value-oriented
stocks did better. Several of these large companies were penalized by a
heightened skepticism, in the face of several accounting scandals, surrounding
any large company with complex financial statements. These included insurance
giant American International Group (AIG), government-sponsored mortgage lenders
Fannie Mae and Freddie Mac and money-center bank Citigroup. It and J.P. Morgan
Chase were also hurt by regulatory scrutiny.
LARGE BANK STAKE HELPS
Our 49% stake in banks served us well during the year, as investors sought
safety in companies with solid balance sheets and steady growth. Traditional
retail banks, which tend to struggle in a weak economy, were shining lights.
Asset quality was relatively good and there was a surprising growth in core
deposits, as retail customers became increasingly wary of the market and more
comfortable choosing the low-returning, but safe, bank savings products. As a
result these banks posted double-digit earnings growth and outperformed larger
banks by avoiding the non-banking pitfalls, many of them market related. They
were also our biggest contributors to performance, including Wells Fargo, Bank
of America, BB&T and Wachovia.
[PHOTO]
[PHOTO]
Jim Schmidt
Tom Goggins
Top five stock holdings
- ----------------------------------------------------
7.4%
Fifth Third Bancorp
- ----------------------------------------------------
7.3%
Wells Fargo
- ----------------------------------------------------
7.0%
Bank of America
- ----------------------------------------------------
5.7%
Fannie Mae
- ----------------------------------------------------
5.3%
Citigroup
- ----------------------------------------------------
As a percentage of net assets on 12-31-02
- ----------------------------------------------------
B-2
INSURANCE FOCUS ON P&C'S
Throughout the year we kept the Fund's insurance exposure focused on property
and casualty companies, and insurance brokers such as Marsh & McLennan and
Willis Group Holdings, to take advantage of the strong pricing cycle currently
playing out. However, we became increasingly selective, avoiding companies with
"legacy issues" such as asbestos claims, and focusing on companies with pristine
balance sheets and solid credit ratings.
CONSUMER LENDERS, BROKERS
The Fund's biggest detractor, which we sold, was subprime lender Household
International, which came under scrutiny from regulators concerned about
practices that might take advantage of less creditworthy consumers. On the other
hand, consumer finance companies such as American Express that deal mainly with
higher credit quality borrowers benefited from consumers' continued spending in
a low interest-rate and relatively low unemployment environment.
Brokers and investment bankers were a disappointment for the most part, since
the stagnant economy and fallout from Enron and WorldCom prevented the upsurge
in the issuance of secondary equities that we had expected so corporations could
reliquify their balance sheets. The Fund's holdings in Goldman Sachs and Merrill
Lynch held us back.
A LOOK AHEAD
We continue to be optimistic about the prospects for financial stocks, although
we think that we may be at an inflection point with respect to which sectors
will be the best performers. The wind has been at the backs of many of the
smaller banks as deposits have flowed in and interest margins have widened. The
upcoming year could prove more rewarding for companies that can benefit from an
improving economy. This includes not only stock market-related companies such as
securities brokers and asset managers, but also commercial banks that have
experienced credit problems or derive substantial revenue from capital market
activities.
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
Sector investing is subject to greater risks than the market as a whole.
A LOOK AT PERFORMANCE
For the period ended 12-31-02
Cumulative total returns
One year -19.46%
Five years -7.16%
Since inception (4-30-97) 25.38%
Average annual total returns
One year -19.46%
Five years -1.48%
Since inception (4-30-97) 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.
GROWTH OF $10,000
John Hancock V.A. Financial Industries Fund
4-30-97 -- 12-31-02
John Hancock V.A. Financial Industries Fund - $12,538
Standard & Poor's 500 Index - $11,904
Standard & Poor's Financial Index - $14,985
The chart to the left 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 two indexes:
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
Standard & Poor's Financial Index, a capitalization-weighted index designed to
measure the financial sector of the S&P 500
It is not possible to invest in an index.
B-3
Financial Industries Fund
Because Financial Industries Fund has not yet commenced operations, no
management disscussion of fund performance is available for the year ended
December 31, 2002.
B-4
PROPOSAL 2
BY PAUL J. BERLINGUET, ROBERT J. UEK, CFA, THOMAS P. NORTON, CFA AND ROGER C.
HAMILTON, PORTFOLIO MANAGERS
John Hancock V.A. Relative Value Fund
MANAGERS' REPORT
Concerns about the strength of the economic recovery, weak corporate spending,
faltering consumer confidence, accounting fraud and the possibility of war with
Iraq caused stock market prices to tumble again in 2002. The market was
especially volatile during the second half of the year as investors searched for
stocks with cheap valuations. Some of the most beaten-down names, especially in
the technology sector, rallied in the fall, but later retreated as investors
took profits. Despite encouraging reports of marginal improvements in demand and
capital spending near year-end, the Standard & Poor's 500 Stock Index returned a
disappointing -22.09% for 2002. Large-cap stocks were among the hardest hit due
to the complex, diversified and global nature of their businesses.
PERFORMANCE AND STRATEGY REVIEW
John Hancock V.A. Relative Value Fund went through a major restructuring late
last spring. We eliminated less established companies and focused exclusively on
businesses with proven management teams and strong balance sheets whose shares
were selling at attractive prices. We also increased the Fund's diversification
and introduced a more rigorous sell discipline in an effort to better control
risk and volatility. Performance improved in the second half of the year, but
not enough to offset the losses incurred early on in the technology, finance,
pharmaceuticals, media and industrials sectors. For the year ended December 31,
2002, the Fund returned -41.93% at net asset value, lagging the average variable
annuity multi-cap core fund, which returned -22.48% for the same period,
according to Lipper, Inc.
TECH AND TELECOM SHIFT
Early in 2002, the Fund had sizable concentrations in the economically sensitive
tech and telecom sectors, which sank as the recovery got off to a slow start. We
cut the Fund's losses by substantially paring our stakes in these sectors late
last spring. Our sales included Parametric Technology, a software developer;
Agere Systems, a telecommunications equipment company; and Nextel
Communications, a wireless provider. All were among the Fund's weakest
performers. We began focusing on companies like Microsoft, which has a steady
earnings stream, strong balance sheet and promising new .NET strategy that helps
integrate applications on the Internet. It was one of our largest investments
and strongest performers. Late in the year, we also began adding other
well-known technology names, including Intel and Nokia, as well as established
telecom service providers like Verizon Communications.
ADDED DIVERSIFICATION
We sold most of the Fund's stake in large pharmaceutical companies during the
first half of the year, as concerns about patent expirations, the lack of
promising new drugs and manufacturing problems hammered stock prices.
Disappointments included Bristol Myers-Squibb, Schering Plough and Merck. During
the second half of the year, we added health insurers, such as Cigna and
UnitedHealth Group, as well as medical equipment companies, such as Medtronic
and Johnson & Johnson. Both Medtronic and Johnson & Johnson contributed
positively to performance. Despite disappointing performance, we also kept a
sizable stake in Pfizer, a
[PHOTO]
[PHOTO]
[PHOTO]
[PHOTO]
Paul Berlinguet
Robert Uek
Thomas Norton
Roger Hamilton
Top five holdings
- ----------------------------------------------------
4.7%
Microsoft
- ----------------------------------------------------
3.7%
General Electric
- ----------------------------------------------------
3.4%
American International Group
- ----------------------------------------------------
3.1%
ExxonMobil
- ----------------------------------------------------
3.1%
Kraft Foods
- ----------------------------------------------------
As a percentage of net assets on 12-31-02
- ----------------------------------------------------
B-5
well-run drug company with a strong pipeline of new drugs that should benefit
from merging with Pharmacia.
In the finance area, we exited from economically sensitive brokerage stocks,
including J.P. Morgan Chase, Morgan Stanley Dean Witter and Charles Schwab. We
also trimmed our large stake in Citigroup, a leading global financial services
company whose near-term prospects weakened. Our focus shifted to diversified
banks like Bank of America, Wells Fargo and Fifth Third Bancorp which tend to
benefit in tough times as consumers flock to the safety of deposit accounts. We
added as well to proven companies such as American International Group, a
leading global insurer that came under pressure as investors shunned companies
with complex business structures.
CHANGES TO CONSUMER FOCUS
Consumer staples stocks provided a safe haven for many investors. As prices
rose, we sold CVS, a drug-store retail chain, and Gillette, a consumer care
products company. We used the proceeds to buy Kraft Foods, a well-run company
with steady market share gains that was recently spun-off from Philip Morris,
and Coca-Cola, a brand name company in the midst of a promising restructuring.
We significantly reduced our commitment to the consumer discretionary sector,
selling Pegasus Communications, a highly leveraged satellite television company;
Liberty Media, a complex media holding company; and McDonald's, a maturing
company grappling with slower growth. We held on, however, to a large stake in
Viacom, a well-run business with a great collection of media assets that has
held up well.
IMPROVED OUTLOOK
We are cautiously optimistic that the U.S. economy will continue to show steady
improvement, barring a prolonged war with Iraq or another terrorist attack. Most
U.S. companies are well positioned for a recovery with little inventory backlog
and improved productivity. Our strategy will be to run a diversified portfolio,
buying good companies when their stock prices go on sale and then selling them
when they approach full valuation. About 80% of the companies in the S&P 500
have strong balance sheets, and most valuations appear reasonable. We believe
large-cap stocks are particularly attractively priced and offer strong long-term
prospects as many of the regulatory, disclosure, and corporate governance issues
that have plagued them this past year disappear.
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
A LOOK AT PERFORMANCE
For the period ended 12-31-02
Cumulative total returns
One year -41.93%
Since inception (1-6-98) 2.17%
Average annual total returns
One year -41.93%
Since inception (1-6-98) 0.43%
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.
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. See the prospectus
for details.
GROWTH OF $10,000
John Hancock V.A. Relative Value Fund
1-6-98 -- 12-31-02
John Hancock V.A. Relative Value Fund - $10,217
Standard & Poor's 500 Index - $9,713
The chart to the left 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.
B-6
Inception: March 29, 1986
GROWTH & INCOME FUND
INDEPENDENCE INVESTMENT LLC
P. McManus/T. Spicer
PUTNAM INVESTMENTS
Management Team
Growth & Income Fund
.. The Fund employs a multi-style and multi-manager approach with two
sub-advisers independently managing portions of the Fund. The Fund uses
three distinct investment styles intended to complement each other: growth,
value and blend. As of year-end, Independence managed approximately 82%
(blend sleeve at 63% and value sleeve at 19%) and Putnam managed
approximately 18% (growth sleeve).
.. The multi-manager approach seeks to produce more consistent investment
returns over market cycles and to reduce the risk of any one manager or
strategy being out of favor in certain market environments.
.. Independence selects stocks using a combination of fundamental equity
research and quantitative portfolio construction tools. Stocks are purchased
that combine cheapness and improving fundamentals with favorable valuations
and earnings growth prospects.
.. Putnam selects stocks using a combination of a systematic screening approach
and proprietary, fundamental equity research to identify stocks with
opportunities for above average growth.
.. This Fund intends to adopt the "manager of managers" arrangement described
on page 1.
Fund Commentary
.. In 2002, the Fund returned -22.18%, slightly outperforming its customized
benchmark.
Independence Investment LLC
.. Blend Sleeve: This portion of the Fund outperformed its benchmark primarily
due to favorable stock selection, with sector allocation exposures also
positive.
.. Despite having a neutral weight to the technology sector relative to the
benchmark, the Fund's exposure to technology was the largest detractor from
absolute performance. Top detractors to absolute performance included Intel,
Tyco and General Electric, while top contributors were from a variety of
sectors and included Halliburton, Pharmacia and Trigon Healthcare.
.. Value Sleeve: This portion of the Fund underperformed its benchmark
primarily due to unfavorable stock selection, while sector allocation
exposures were positive.
.. Despite having an underweight to the utility sector relative to the
benchmark, the Fund's exposure to utilities was the largest detractor from
absolute performance. The top detractors from absolute performance were El
Paso within energy, TXU and BellSouth within utilities and Citigroup and JP
Morgan Chase within financials. Top contributors to absolute returns were
from a variety of sectors and included Trigon Healthcare, Bank of America
and Entergy.
.. Prospectively, the strategy for these sleeves will remain consistent. The
manager seeks to maintain risk and sector characteristics similar to each
benchmark. The manager continues to pursue investment opportunities in
stocks possessing fundamental catalysts, which differentiate them from their
peers, and exhibit favorable valuation.
Putnam Investments
.. Growth Sleeve: This portion of the Fund underperformed its benchmark
primarily due to unfavorable stock selection.
.. Despite having an underweight to the technology sector relative to the
benchmark, the Fund's exposure to technology was the largest detractor from
absolute performance. The health care sector was also an absolute
performance detractor.
.. The Fund's performance benefited from the capital goods sector, particularly
from Lockheed Martin within the aerospace/defense subsector. Within
health-care, top contributors included Trigon Healthcare and Pharmacia.
Stocks that detracted included technology stocks such as Microsoft and
Intel, while pharmaceutical companies such as Pfizer and Wyeth also
significantly detracted.
B-7
Inception: March 29, 1986
GROWTH & INCOME FUND
INDEPENDENCE INVESTMENT LLC
P. McManus/T. Spicer
PUTNAM INVESTMENTS
Management Team
[CHART]
Historical Fund Return
$10,000
Investment made 12/31/92
(10-Year Period)
Growth & Income Fund Growth & Income Benchmark (1)
-------------------- ----------------------------
12/31/1992 $10,000.00 $10,000.00
01/29/1993 10,103.23 10,073.00
02/26/1993 10,244.37 10,208.99
03/31/1993 10,561.71 10,428.48
04/30/1993 10,279.98 10,172.98
05/28/1993 10,546.60 10,447.65
06/30/1993 10,650.71 10,482.13
07/30/1993 10,592.45 10,432.86
08/31/1993 11,019.61 10,830.35
09/30/1993 11,038.78 10,750.21
10/29/1993 11,227.18 10,968.44
11/30/1993 11,127.04 10,865.34
12/31/1993 11,333.01 10,998.98
01/31/1994 11,669.58 11,367.45
02/28/1994 11,329.97 11,060.52
03/31/1994 10,890.93 10,579.39
04/29/1994 11,080.19 10,716.92
05/31/1994 11,122.59 10,891.61
06/30/1994 10,921.14 10,622.59
07/29/1994 11,215.83 10,974.19
08/31/1994 11,633.23 11,420.84
09/30/1994 11,289.85 11,145.60
10/31/1994 11,469.91 11,400.84
11/30/1994 11,089.24 10,982.43
12/30/1994 11,270.02 11,142.77
01/31/1995 11,502.15 11,432.48
02/28/1995 11,956.09 11,876.06
03/31/1995 12,220.64 12,227.59
04/28/1995 12,577.07 12,583.42
05/31/1995 12,995.56 13,080.46
06/30/1995 13,291.66 13,387.85
07/31/1995 13,715.77 13,833.67
08/31/1995 13,805.22 13,871.02
09/29/1995 14,403.52 14,452.21
10/31/1995 14,309.32 14,401.63
11/30/1995 14,912.68 15,035.30
12/29/1995 15,125.94 15,313.46
01/31/1996 15,528.67 15,840.24
02/29/1996 15,729.38 15,992.30
03/29/1996 15,930.50 16,145.83
04/30/1996 16,109.96 16,383.17
05/31/1996 16,482.92 16,805.86
06/28/1996 16,573.05 16,874.76
07/31/1996 15,790.12 16,123.84
08/30/1996 16,166.38 16,465.66
09/30/1996 16,916.98 17,391.03
10/31/1996 17,330.70 17,867.55
11/29/1996 18,483.80 19,223.69
12/31/1996 18,165.84 18,846.91
01/31/1997 19,100.94 20,017.30
02/28/1997 19,205.64 20,179.44
03/31/1997 18,457.39 19,339.98
04/30/1997 19,352.14 20,494.57
05/30/1997 20,401.70 21,752.94
06/30/1997 21,206.26 22,723.12
07/31/1997 23,101.23 24,527.34
08/29/1997 21,931.01 23,163.62
09/30/1997 23,206.52 24,432.98
10/31/1997 22,333.69 23,616.92
11/28/1997 23,173.89 24,710.39
12/31/1997 23,577.31 25,135.41
01/31/1998 23,831.99 25,414.41
02/27/1998 25,777.32 27,246.79
03/31/1998 27,218.76 28,641.82
04/30/1998 27,294.06 28,931.11
05/29/1998 26,995.92 28,433.49
06/30/1998 28,141.71 29,587.89
07/31/1998 27,813.38 29,274.26
08/31/1998 23,543.44 25,041.20
09/30/1998 24,751.40 26,646.34
10/30/1998 26,957.67 28,812.69
11/30/1998 28,571.50 30,558.74
12/31/1998 30,708.63 32,318.92
01/29/1999 31,739.00 33,669.85
02/26/1999 30,753.36 32,622.72
03/31/1999 31,663.68 33,927.63
04/30/1999 32,998.00 35,240.63
05/28/1999 32,035.80 34,408.95
06/30/1999 34,244.79 36,318.65
07/30/1999 33,072.55 35,185.50
08/31/1999 32,681.32 35,009.58
09/30/1999 31,779.70 34,050.31
10/29/1999 33,638.61 36,205.70
11/30/1999 34,028.44 36,940.67
12/31/1999 35,691.40 39,116.48
01/31/2000 33,516.26 37,152.83
02/29/2000 32,674.50 36,450.64
03/31/2000 36,331.87 40,015.52
04/28/2000 35,442.83 38,811.05
05/31/2000 34,975.94 38,015.42
06/30/2000 35,535.53 38,950.60
07/31/2000 35,103.47 38,342.97
08/31/2000 37,275.50 40,724.07
09/29/2000 35,022.31 38,573.84
10/31/2000 35,107.83 38,411.83
11/30/2000 31,072.81 35,384.98
12/29/2000 25,452.42 35,558.37
01/31/2001 31,923.63 36,820.69
02/28/2001 28,574.24 33,462.64
03/30/2001 26,229.83 31,344.46
04/30/2001 28,750.54 33,779.92
05/31/2001 28,803.90 34,006.25
06/30/2001 28,138.61 33,179.89
07/31/2001 27,461.95 32,854.73
08/31/2001 25,562.27 30,798.02
09/28/2001 23,357.57 28,309.54
10/31/2001 24,102.35 28,850.26
11/30/2001 25,970.22 31,063.07
12/31/2001 26,185.04 31,336.43
01/31/2002 25,821.85 30,878.91
02/28/2002 25,220.44 30,282.95
03/31/2002 26,346.02 31,421.59
04/30/2002 25,087.94 29,517.44
05/31/2002 24,880.61 29,257.69
06/30/2002 23,203.95 27,098.47
07/31/2002 21,348.68 25,093.18
08/31/2002 21,491.12 25,223.67
09/30/2002 19,226.19 22,514.65
10/31/2002 20,632.25 24,385.61
11/30/2002 21,590.69 25,812.17
12/31/2002 20,376.50 24,351.20
Value on 12/31/02:
- -----------------
$20,377 Growth & Income Fund
$24,351 Growth & Income Benchmark
MORNINGSTAR CATEGORY RISK+:
.. Average (VL/VUL)
.. Average (VA)
MORNINGSTAR CATEGORY RATING+:
.. 2 (VL/VUL)
.. 3 (VA)
TOP TEN HOLDINGS (as of December 31, 2002)
% of
Assets
Microsoft Corp. 3.5%
ExxonMobil Corp. 2.9%
Pfizer, Inc. 2.8%
Citigroup, Inc. 2.6%
Johnson & Johnson 2.2%
General Electric Co. 2.1%
Bank of America Corp. 1.9%
Wal-Mart Stores, Inc. 1.8%
Intel Corp. 1.8%
Dell Computer Corp. 1.7%
AVERAGE ANNUAL TOTAL RETURNS*
Growth & Income Growth & Income
Fund Benchmark(1)
--------------- ---------------
1 Year -22.18% -22.29%
3 Years -17.00 -14.61
5 Years -2.85 -0.63
10 Years 7.39 9.31
SECTOR/INDUSTRY ALLOCATION (as of December 31, 2002)
% of % of
Assets Assets
Financial Services 23.82% Integrated Oils 5.26%
Health Care 15.80% Producer Durables 4.03%
Technology 14.48% Other 3.50%
Consumer Discretionary & Materials & Processing 3.28%
Services 12.35% Autos & Transportation 2.41%
Consumer Staples 7.17% Other Energy 1.97%
Utilities 5.93%
(1)The Growth & Income Benchmark represents the S&P 500 Index from April 1986
to April 2002 and then the Russell 1000 from May 2002 to present.
* Total returns are for the period ended December 31, 2002. Returns represent
past performance, assume reinvestment of all distributions and are not
indicative of future performance. Investment returns and principal value of
fund shares will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost. The performance of the Fund on this page
is reported net of Trust level charges (i.e. investment management fees and
operating expenses). It does not reflect expense and charges of the
applicable separate accounts and variable products, all of which vary to a
considerable extent and are described in your product prospectus. There are
additional risks associated with a nondiversified fund, as outlined in the
current prospectus.
+ Source: MorningStar, Inc. Data as of 12/31/02. VL represents Variable Life
subaccounts, VUL represents Variable Universal Life subaccounts and VA
represents Variable Annuity subaccounts Hancock VL/VUL subaccounts were
rated against 781 VL/VUL subaccounts and 1,479 VA subaccounts in the
Morningstar Large Blend category. VL/VUL subaccounts received an overall
Morningstar Rating of out 4,575 subaccounts. VA subaccounts received an
overall Morningstar Rating of 3 out of 8,512 subaccounts.
B-8
PROPOSAL 3
BY JOHN F. SNYDER, III, PETER M. SCHOFIELD, CFA, AND BARRY H. EVANS, CFA,
PORTFOLIO MANAGERS
John Hancock V.A. Sovereign Investors Fund
MANAGERS' REPORT
An anemic economic recovery, lackluster earnings and high-profile corporate
scandals drove stock prices down throughout the year. There were few safe havens
as the downturn hit virtually every sector of the market. With the Dow Jones
Industrial Average down 15.04% and the Standard & Poor's 500 Index down 22.09%,
stocks posted their third consecutive year of negative returns -- an occurrence
that hasn't happened in 60 years.
PERFORMANCE REVIEW
In this difficult market environment, John Hancock V.A. Sovereign Investors Fund
returned -21.29% at net asset value. By comparison, the average variable annuity
equity-income fund returned -16.75%, according to Lipper, Inc.
LARGE CAPS SUFFER; CONSUMER STAPLES STRONG
The Fund's relative underperformance can be explained by its heavier emphasis on
large-capitalization stocks. Many of our large-cap names were spared during the
market's decline in 2001. As the end of a market downturn gets closer, however,
there's often indiscriminate selling. That's what happened this year as many
large-cap names fell in the last stages of the market's capitulation. What's
more, in the wake of corporate scandals, many large-cap companies with complex
balance sheets suffered as investors began to question their accounting
practices.
Citigroup and IBM were among the large-cap holdings that disappointed us. A
combination of legal problems, difficulties overseas and the weak U.S. stock
market took its toll on Citigroup. We believe, however, that the company's
fundamentals are very strong, especially compared to its competitors. IBM has
suffered from a lack of capital spending. In our opinion, management has done a
great job refocusing the business through strategic divestitures and
acquisitions. As a result, they've been able to gain market share in an
extremely challenging business environment.
On the flip side, our consumer staple stocks continued to perform strongly
throughout the year. In particular, Procter & Gamble and Avon have been among
the few companies that have met or exceeded their earnings projections. At P&G,
new management has successfully streamlined the company's product line and in
turn, gained market share. The story was similar for Avon as new management grew
sales -- especially in international markets -- with several successful new
products.
NEW OPPORTUNITIES
In this challenging market environment, we've maintained our focus on our
long-term investment strategy. The vast majority of the Fund's holdings remain
in "dividend performers" -- those companies that have raised their dividends for
at least 10 consecutive years. Our dividend performers' investment philosophy
keeps us squarely focused on high-quality companies with reasonable valuations,
steady earnings growth, strong cash flow and market leadership.
[PHOTO]
[PHOTO]
[PHOTO]
John Snyder
Barry Evans
Peter Schofield
Top five holdings
- ----------------------------------------------------
5.1%
Bank of America
- ----------------------------------------------------
4.3%
Johnson & Johnson
- ----------------------------------------------------
3.9%
International Business Machines
- ----------------------------------------------------
3.4%
ExxonMobil
- ----------------------------------------------------
3.0%
Citigroup
- ----------------------------------------------------
As a percentage of net assets on 12-31-02
- ----------------------------------------------------
B-9
Given the stock market's prolonged downturn, we've begun to see some compelling
values that meet our strict investment standards. The decline has allowed us to
add several new stocks to the portfolio that we've long admired, but haven't
been able to purchase because of their high valuations. Omnicom -- one of the
world's leading advertising agencies -- was hit hard as investors worried that
advertising spending would dry up in a slowing economy. The decline brought
Omnicom's valuation down to a level where we felt comfortable buying the stock.
With a solid balance sheet and strong client base throughout the world, we
believe that Omnicom will be one of the biggest beneficiaries of an increase in
advertising that will undoubtedly accompany a stronger economy.
State Street Corp. is another new addition. Being one of the largest financial
processors in the world, the market's downturn has taken a toll on State
Street's revenues. That's because when stock market activity declines, so do
processing needs. We've taken advantage of the company's recent drop to add the
stock to the portfolio. Looking ahead, we believe the company will bounce back
once the stock market turns around.
OUTLOOK
This year ended with a stock market rally that has left many investors wondering
whether the downturn is over and stocks will finally turn around in 2003.
Investors remain skeptical, however, remembering all too well the 2001 year-end
rally, which quickly faded in 2002. As we look ahead, we believe that stock
prices will move higher this year. After three straight years of losses, it
would be highly unlikely for stocks to decline four years in a row. That's
happened only once -- from 1929-1932 during the Depression -- and the situation
is far different today.
Although the economic recovery will gain momentum in 2003, we don't expect to
see a sharp rebound. Since low interest rates have allowed the consumer to
continue spending during this recession, there's not a significant pent up
demand. In addition, excess capacity in the industrial sector will continue to
limit pricing power and therefore, keep pressure on corporate earnings. As a
result, it will be critical to own high quality companies with strong balance
sheets, steady earnings growth and the ability to leverage the gradual upturn in
the economy.
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
A LOOK AT PERFORMANCE
For the period ended 12-31-02
Cumulative total returns
One year -21.29%
Five years -10.09%
Since inception (8-29-96) 25.05%
Average annual total returns
One year -21.29%
Five years -2.10%
Since inception (8-29-96) 3.59%
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.
GROWTH OF $10,000
John Hancock V.A. Sovereign Investors Fund
8-29-96 -- 12-31-02
John Hancock V.A. Sovereign Investors Fund - $12,505
Standard & Poor's 500 Index - $14,821
The chart to the left 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.
B-10
Inception: March 29, 1986
GROWTH & INCOME FUND
INDEPENDENCE INVESTMENT LLC
P. McManus/T. Spicer
PUTNAM INVESTMENTS
Management Team
Growth & Income Fund
.. The Fund employs a multi-style and multi-manager approach with two
sub-advisers independently managing portions of the Fund. The Fund uses
three distinct investment styles intended to complement each other: growth,
value and blend. As of year-end, Independence managed approximately 82%
(blend sleeve at 63% and value sleeve at 19%) and Putnam managed
approximately 18% (growth sleeve).
.. The multi-manager approach seeks to produce more consistent investment
returns over market cycles and to reduce the risk of any one manager or
strategy being out of favor in certain market environments.
.. Independence selects stocks using a combination of fundamental equity
research and quantitative portfolio construction tools. Stocks are purchased
that combine cheapness and improving fundamentals with favorable valuations
and earnings growth prospects.
.. Putnam selects stocks using a combination of a systematic screening approach
and proprietary, fundamental equity research to identify stocks with
opportunities for above average growth.
.. This Fund intends to adopt the "manager of managers" arrangement described
on page 1.
Fund Commentary
.. In 2002, the Fund returned -22.18%, slightly outperforming its customized
benchmark.
Independence Investment LLC
.. Blend Sleeve: This portion of the Fund outperformed its benchmark primarily
due to favorable stock selection, with sector allocation exposures also
positive.
.. Despite having a neutral weight to the technology sector relative to the
benchmark, the Fund's exposure to technology was the largest detractor from
absolute performance. Top detractors to absolute performance included Intel,
Tyco and General Electric, while top contributors were from a variety of
sectors and included Halliburton, Pharmacia and Trigon Healthcare.
.. Value Sleeve: This portion of the Fund underperformed its benchmark
primarily due to unfavorable stock selection, while sector allocation
exposures were positive.
.. Despite having an underweight to the utility sector relative to the
benchmark, the Fund's exposure to utilities was the largest detractor from
absolute performance. The top detractors from absolute performance were El
Paso within energy, TXU and BellSouth within utilities and Citigroup and JP
Morgan Chase within financials. Top contributors to absolute returns were
from a variety of sectors and included Trigon Healthcare, Bank of America
and Entergy.
.. Prospectively, the strategy for these sleeves will remain consistent. The
manager seeks to maintain risk and sector characteristics similar to each
benchmark. The manager continues to pursue investment opportunities in
stocks possessing fundamental catalysts, which differentiate them from their
peers, and exhibit favorable valuation.
Putnam Investments
.. Growth Sleeve: This portion of the Fund underperformed its benchmark
primarily due to unfavorable stock selection.
.. Despite having an underweight to the technology sector relative to the
benchmark, the Fund's exposure to technology was the largest detractor from
absolute performance. The health care sector was also an absolute
performance detractor.
.. The Fund's performance benefited from the capital goods sector, particularly
from Lockheed Martin within the aerospace/defense subsector. Within
health-care, top contributors included Trigon Healthcare and Pharmacia.
Stocks that detracted included technology stocks such as Microsoft and
Intel, while pharmaceutical companies such as Pfizer and Wyeth also
significantly detracted.
B-11
Inception: March 29, 1986
GROWTH & INCOME FUND
INDEPENDENCE INVESTMENT LLC
P. McManus/T. Spicer
PUTNAM INVESTMENTS
Management Team
[CHART]
Historical Fund Return
$10,000
Investment made 12/31/92
(10-Year Period)
Growth & Income Fund Growth & Income Benchmark (1)
-------------------- ----------------------------
12/31/1992 $10,000.00 $10,000.00
01/29/1993 10,103.23 10,073.00
02/26/1993 10,244.37 10,208.99
03/31/1993 10,561.71 10,428.48
04/30/1993 10,279.98 10,172.98
05/28/1993 10,546.60 10,447.65
06/30/1993 10,650.71 10,482.13
07/30/1993 10,592.45 10,432.86
08/31/1993 11,019.61 10,830.35
09/30/1993 11,038.78 10,750.21
10/29/1993 11,227.18 10,968.44
11/30/1993 11,127.04 10,865.34
12/31/1993 11,333.01 10,998.98
01/31/1994 11,669.58 11,367.45
02/28/1994 11,329.97 11,060.52
03/31/1994 10,890.93 10,579.39
04/29/1994 11,080.19 10,716.92
05/31/1994 11,122.59 10,891.61
06/30/1994 10,921.14 10,622.59
07/29/1994 11,215.83 10,974.19
08/31/1994 11,633.23 11,420.84
09/30/1994 11,289.85 11,145.60
10/31/1994 11,469.91 11,400.84
11/30/1994 11,089.24 10,982.43
12/30/1994 11,270.02 11,142.77
01/31/1995 11,502.15 11,432.48
02/28/1995 11,956.09 11,876.06
03/31/1995 12,220.64 12,227.59
04/28/1995 12,577.07 12,583.42
05/31/1995 12,995.56 13,080.46
06/30/1995 13,291.66 13,387.85
07/31/1995 13,715.77 13,833.67
08/31/1995 13,805.22 13,871.02
09/29/1995 14,403.52 14,452.21
10/31/1995 14,309.32 14,401.63
11/30/1995 14,912.68 15,035.30
12/29/1995 15,125.94 15,313.46
01/31/1996 15,528.67 15,840.24
02/29/1996 15,729.38 15,992.30
03/29/1996 15,930.50 16,145.83
04/30/1996 16,109.96 16,383.17
05/31/1996 16,482.92 16,805.86
06/28/1996 16,573.05 16,874.76
07/31/1996 15,790.12 16,123.84
08/30/1996 16,166.38 16,465.66
09/30/1996 16,916.98 17,391.03
10/31/1996 17,330.70 17,867.55
11/29/1996 18,483.80 19,223.69
12/31/1996 18,165.84 18,846.91
01/31/1997 19,100.94 20,017.30
02/28/1997 19,205.64 20,179.44
03/31/1997 18,457.39 19,339.98
04/30/1997 19,352.14 20,494.57
05/30/1997 20,401.70 21,752.94
06/30/1997 21,206.26 22,723.12
07/31/1997 23,101.23 24,527.34
08/29/1997 21,931.01 23,163.62
09/30/1997 23,206.52 24,432.98
10/31/1997 22,333.69 23,616.92
11/28/1997 23,173.89 24,710.39
12/31/1997 23,577.31 25,135.41
01/31/1998 23,831.99 25,414.41
02/27/1998 25,777.32 27,246.79
03/31/1998 27,218.76 28,641.82
04/30/1998 27,294.06 28,931.11
05/29/1998 26,995.92 28,433.49
06/30/1998 28,141.71 29,587.89
07/31/1998 27,813.38 29,274.26
08/31/1998 23,543.44 25,041.20
09/30/1998 24,751.40 26,646.34
10/30/1998 26,957.67 28,812.69
11/30/1998 28,571.50 30,558.74
12/31/1998 30,708.63 32,318.92
01/29/1999 31,739.00 33,669.85
02/26/1999 30,753.36 32,622.72
03/31/1999 31,663.68 33,927.63
04/30/1999 32,998.00 35,240.63
05/28/1999 32,035.80 34,408.95
06/30/1999 34,244.79 36,318.65
07/30/1999 33,072.55 35,185.50
08/31/1999 32,681.32 35,009.58
09/30/1999 31,779.70 34,050.31
10/29/1999 33,638.61 36,205.70
11/30/1999 34,028.44 36,940.67
12/31/1999 35,691.40 39,116.48
01/31/2000 33,516.26 37,152.83
02/29/2000 32,674.50 36,450.64
03/31/2000 36,331.87 40,015.52
04/28/2000 35,442.83 38,811.05
05/31/2000 34,975.94 38,015.42
06/30/2000 35,535.53 38,950.60
07/31/2000 35,103.47 38,342.97
08/31/2000 37,275.50 40,724.07
09/29/2000 35,022.31 38,573.84
10/31/2000 35,107.83 38,411.83
11/30/2000 31,072.81 35,384.98
12/29/2000 25,452.42 35,558.37
01/31/2001 31,923.63 36,820.69
02/28/2001 28,574.24 33,462.64
03/30/2001 26,229.83 31,344.46
04/30/2001 28,750.54 33,779.92
05/31/2001 28,803.90 34,006.25
06/30/2001 28,138.61 33,179.89
07/31/2001 27,461.95 32,854.73
08/31/2001 25,562.27 30,798.02
09/28/2001 23,357.57 28,309.54
10/31/2001 24,102.35 28,850.26
11/30/2001 25,970.22 31,063.07
12/31/2001 26,185.04 31,336.43
01/31/2002 25,821.85 30,878.91
02/28/2002 25,220.44 30,282.95
03/31/2002 26,346.02 31,421.59
04/30/2002 25,087.94 29,517.44
05/31/2002 24,880.61 29,257.69
06/30/2002 23,203.95 27,098.47
07/31/2002 21,348.68 25,093.18
08/31/2002 21,491.12 25,223.67
09/30/2002 19,226.19 22,514.65
10/31/2002 20,632.25 24,385.61
11/30/2002 21,590.69 25,812.17
12/31/2002 20,376.50 24,351.20
Value on 12/31/02:
- -----------------
$20,377 Growth & Income Fund
$24,351 Growth & Income Benchmark
MORNINGSTAR CATEGORY RISK+:
.. Average (VL/VUL)
.. Average (VA)
MORNINGSTAR CATEGORY RATING+:
.. 2 (VL/VUL)
.. 3 (VA)
TOP TEN HOLDINGS (as of December 31, 2002)
% of
Assets
Microsoft Corp. 3.5%
ExxonMobil Corp. 2.9%
Pfizer, Inc. 2.8%
Citigroup, Inc. 2.6%
Johnson & Johnson 2.2%
General Electric Co. 2.1%
Bank of America Corp. 1.9%
Wal-Mart Stores, Inc. 1.8%
Intel Corp. 1.8%
Dell Computer Corp. 1.7%
AVERAGE ANNUAL TOTAL RETURNS*
Growth & Income Growth & Income
Fund Benchmark(1)
--------------- ---------------
1 Year -22.18% -22.29%
3 Years -17.00 -14.61
5 Years -2.85 -0.63
10 Years 7.39 9.31
SECTOR/INDUSTRY ALLOCATION (as of December 31, 2002)
% of % of
Assets Assets
Financial Services 23.82% Integrated Oils 5.26%
Health Care 15.80% Producer Durables 4.03%
Technology 14.48% Other 3.50%
Consumer Discretionary & Materials & Processing 3.28%
Services 12.35% Autos & Transportation 2.41%
Consumer Staples 7.17% Other Energy 1.97%
Utilities 5.93%
(1)The Growth & Income Benchmark represents the S&P 500 Index from April 1986
to April 2002 and then the Russell 1000 from May 2002 to present.
* Total returns are for the period ended December 31, 2002. Returns represent
past performance, assume reinvestment of all distributions and are not
indicative of future performance. Investment returns and principal value of
fund shares will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost. The performance of the Fund on this page
is reported net of Trust level charges (i.e. investment management fees and
operating expenses). It does not reflect expense and charges of the
applicable separate accounts and variable products, all of which vary to a
considerable extent and are described in your product prospectus. There are
additional risks associated with a nondiversified fund, as outlined in the
current prospectus.
+ Source: MorningStar, Inc. Data as of 12/31/02. VL represents Variable Life
subaccounts, VUL represents Variable Universal Life subaccounts and VA
represents Variable Annuity subaccounts Hancock VL/VUL subaccounts were
rated against 781 VL/VUL subaccounts and 1,479 VA subaccounts in the
Morningstar Large Blend category. VL/VUL subaccounts received an overall
Morningstar Rating of out 4,575 subaccounts. VA subaccounts received an
overall Morningstar Rating of 3 out of 8,512 subaccounts.
B-12
PROPOSAL 4
BY FREDERICK L. CAVANAUGH, JR., AND DANIEL S. JANIS, III, PORTFOLIO MANAGERS
John Hancock V.A. Strategic Income Fund
MANAGERS' REPORT
Global bond markets turned in strong gains in 2002, although various sectors of
the market performed far better than others. Among the top-performing
fixed-income investments were foreign bonds, which benefited from both the
global economic weakness that caused interest rates to fall and bond prices to
rise, and the depreciation of the U.S. dollar compared to other major foreign
currencies.
U.S. Treasuries also performed well because of stock market volatility and
strong demand for the relatively safe investments. Falling interest rates also
helped. That said, U.S. Treasury bonds and notes struggled in the fourth quarter
as stocks rallied in response to a brief subsiding in war worries, the
Republican mid-term election victories and a one-half percentage point cut in
interest rates, which many felt could result in stronger economic conditions and
higher inflation in 2003.
High-yield corporate bonds took the opposite track, struggling in the first
three quarters of 2002, but rebounding in the final quarter. High-yield bonds
suffered in response to weak economic conditions. High-yield corporates are
heavily dependent on corporate financial health and as such, are more correlated
to the stock market's performance. More importantly, however, investors became
increasingly skittish and risk-averse amid the financial scandals that engulfed
companies such as Enron, Global Crossing, Adelphia Communications and WorldCom.
But in the final months of the year, high-yield bond prices rallied with the
stock market.
FUND PERFORMANCE
For the 12 months ended December 31, 2002, John Hancock VA Strategic Income Fund
had a total return of 7.87% at net asset value. This compared with the 8.47%
return of the average variable annuity general bond fund.
FOCUS ON QUALITY HELPS
The Fund did well as the result of our asset allocation decisions, which
resulted in the portfolio's gradually tilting toward higher-quality securities.
We benefited from our increased stake in foreign government bonds, as well as
from our relatively light exposure to high-yield corporates. Among foreign
government bonds, our holdings in European government bonds, which we added to
throughout the period, performed quite well. Bonds issued by Germany, Spain and
Italy were attractive based on our expectations of interest-rate cuts amid
growing economic weakness. Although the European Central Bank didn't cut rates
until late in the period, the bonds in those countries generally rallied in
anticipation of the cuts. We also focused on high-quality bonds issued by other
developed countries, including Canada and New Zealand.
Some of our purchases of foreign government bonds came as the result of selling
emerging-market bonds, which we felt had reached their full value. Others came
from selling U.S. Treasury securities. While the Fund benefited from its stake
in Treasury bonds early on, we sold some because we became more negative about
the U.S. dollar as the period progressed. The dollar seemed to us at the time to
be
[PHOTO]
[PHOTO]
Fred Cavanaugh
Dan Janis
Top five industry groups
- ----------------------------------------------------
50%
Foreign governments
- ----------------------------------------------------
17%
U.S. government
- ----------------------------------------------------
6%
Leisure
- ----------------------------------------------------
5%
Media
- ----------------------------------------------------
5%
Oil & gas
- ----------------------------------------------------
As a percentage of net assets on 12-31-02
- ----------------------------------------------------
B-13
overvalued, and we worried about the potential for further declines because of
the record trade deficit and concerns that foreigners' interest in our stock and
bond markets would wane given all the recent volatility. As the dollar continued
to weaken, that positioning served the portfolio well.
HIGH-QUALITY HIGH YIELD
Our focus on the higher-quality names within the high-yield corporate bond
sector also aided our performance. Among our top-performing holdings were some
oil companies, whose prices were driven higher in part by the prospects of
rising energy prices in light of Venezuela's oil workers strike and a potential
U.S. war with Iraq. For similar reasons, our holdings in other energy companies
- -- such as Chesapeake Energy -- also did well. Mexico's leading television
broadcaster, Grupo Televisa, continued to gain market share in the Mexican TV
market and benefited from continued solid performance of Univision and Innova,
in which Televisa owns equity stakes. Innova, the Mexican platform for Sky
International satellite television programming, also performed well by turning
cash flow positive and continuing to take market share from its primary
competitor, DirecTV Latin America.
On the flip side, our holdings in paper company Corporacion Durango weakened
when sales declined due to a boiler explosion at the company's Georgia paper
mill. Coal company Horizon Natural Resources filed for bankruptcy, which
obviously was a disappointment.
OUTLOOK
For now, we plan to maintain our high-quality focus. But we have begun to
gradually increase our historically low exposure to high-yield corporate bonds
and plan to continue to do so once we're more comfortable with the strength of
economic activity, corporate earnings and the geopolitical situation.
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
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 12-31-02
Cumulative total returns
One year 7.87%
Five years 25.75%
Since inception (8-29-96) 49.62%
Average annual total returns
One year 7.87%
Five years 4.69%
Since inception (8-29-96) 6.56%
Yield
SEC 30-Day Yield 5.88%
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.
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. See the prospectus
for details.
GROWTH OF $10,000
John Hancock V.A. Strategic Income Fund
8-29-96 -- 12-31-02
John Hancock V.A. Strategic Income Fund - $14,963
Merrill Lynch AAA U.S. Treasury/Agency Master Index - $16,634
Merrill Lynch High Yield Master II Index - $12,342
Salomon Smith Barney World Government Bond Index - $13,670
The chart to the left 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 three indexes:
Merrill Lynch AAA U.S. Treasury/Agency Master Index, an index of fixed-rate U.S.
Treasury and agency securities
Merrill Lynch High Yield Master II Index, an index of Yankee and high yield
bonds
Salomon Smith Barney World Government Bond Index, an index of bonds issued by
governments in the U.S., Europe and Asia
It is not possible to invest in an index.
B-14
Inception: March 29, 1986
ACTIVE BOND FUND
JOHN HANCOCK ADVISERS, LLC
Greene/Evans/Matthews
.. In 2002, the Fund returned 7.25%, underperforming its benchmark, the Lehman
Aggregate Index.
.. The Fund underperformed its benchmark primarily due to unfavorable sector
allocation and security selection decisions, while duration/yield curve
decisions modestly boosted relative performance.
.. Sector allocation decisions detracted from relative performance primarily
due to the Fund's overweighting in investment grade and high yield corporate
bonds.
.. As 2003 progresses, the manager expects to gradually reduce portfolio
duration below the benchmark as the recovery gains momentum and to maintain
an overweighted position in corporate bonds and mortgage-backed securities.
The manager also continues to seek opportunities in select high yield and
emerging market bonds.
.. The manager's strategy focuses on anticipating shifts in the business cycle,
rather than predicting the direction of interest rates. The Fund capitalizes
on these shifts by using a research-driven process to identify attractive
sectors as well as mispriced securities within those sectors.
.. This Fund intends to adopt the "manager of managers" arrangement described
on page 1.
[CHART]
Historical Fund Return
$10,000
Investment made 12/31/92
(10-Year Period)
Lehman Brothers
Active Bond Fund Aggregate Bond Index
---------------- --------------------
12/31/1992 $10,000.00 $10,000.00
1/29/1993 10,178.64 10,192.00
2/26/1993 10,390.36 10,370.36
3/31/1993 10,447.71 10,413.92
4/30/1993 10,512.60 10,486.81
5/28/1993 10,507.49 10,500.45
6/30/1993 10,722.69 10,690.50
7/30/1993 10,813.44 10,751.44
8/31/1993 11,042.10 10,939.59
9/30/1993 11,096.70 10,969.13
10/29/1993 11,108.49 11,009.71
11/30/1993 11,025.03 10,916.13
12/31/1993 11,076.55 10,975.08
1/31/1994 11,238.18 11,123.24
2/28/1994 11,032.04 10,929.70
3/31/1994 10,798.07 10,659.73
4/29/1994 10,701.06 10,574.45
5/31/1994 10,683.07 10,573.40
6/30/1994 10,672.61 10,550.14
7/29/1994 10,845.24 10,760.08
8/31/1994 10,871.67 10,773.00
9/30/1994 10,744.91 10,614.63
10/31/1994 10,727.38 10,605.08
11/30/1994 10,707.66 10,581.75
12/30/1994 10,791.94 10,654.76
1/31/1995 10,998.00 10,865.73
2/28/1995 11,261.13 11,124.33
3/31/1995 11,348.67 11,192.19
4/28/1995 11,512.83 11,348.88
5/31/1995 12,007.68 11,788.08
6/30/1995 12,111.27 11,874.13
7/31/1995 12,059.11 11,848.01
8/31/1995 12,198.50 11,991.37
9/29/1995 12,320.73 12,107.69
10/31/1995 12,521.33 12,265.09
11/30/1995 12,708.26 12,449.07
12/29/1995 12,901.80 12,623.35
1/31/1996 12,977.73 12,706.67
2/29/1996 12,728.43 12,485.57
3/29/1996 12,650.65 12,398.17
4/30/1996 12,586.67 12,328.74
5/31/1996 12,583.64 12,304.08
6/28/1996 12,711.30 12,468.96
7/31/1996 12,751.95 12,502.62
8/30/1996 12,761.21 12,481.37
9/30/1996 12,992.04 12,698.55
10/31/1996 13,268.37 12,980.45
11/29/1996 13,476.49 13,202.42
12/31/1996 13,431.24 13,079.64
1/31/1997 13,481.13 13,120.18
2/28/1997 13,544.83 13,152.98
3/31/1997 13,401.62 13,006.99
4/30/1997 13,584.38 13,202.09
5/30/1997 13,737.19 13,327.51
6/30/1997 13,917.23 13,486.11
7/31/1997 14,334.57 13,850.23
8/29/1997 14,194.04 13,732.51
9/30/1997 14,423.88 13,935.75
10/31/1997 14,548.42 14,137.82
11/28/1997 14,628.65 14,202.85
12/31/1997 14,788.67 14,346.30
1/31/1998 14,991.29 14,529.93
2/27/1998 14,978.93 14,518.31
3/31/1998 15,063.77 14,567.67
4/30/1998 15,136.97 14,643.42
5/29/1998 15,271.85 14,782.53
6/30/1998 15,418.26 14,908.19
7/31/1998 15,447.03 14,939.49
8/31/1998 15,599.02 15,183.01
9/30/1998 15,956.27 15,538.29
10/30/1998 15,807.16 15,455.94
11/30/1998 15,959.12 15,544.03
12/31/1998 16,006.27 15,590.67
1/29/1999 16,153.25 15,701.36
2/26/1999 15,822.34 15,426.59
3/31/1999 15,935.04 15,511.43
4/30/1999 15,985.01 15,561.07
5/28/1999 15,812.23 15,424.13
6/30/1999 15,772.72 15,374.77
7/30/1999 15,740.58 15,310.20
8/31/1999 15,709.60 15,302.55
9/30/1999 15,849.70 15,480.06
10/29/1999 15,881.90 15,537.33
11/30/1999 15,937.65 15,535.78
12/31/1999 15,855.65 15,461.21
1/31/2000 15,789.68 15,410.18
2/29/2000 15,967.13 15,596.65
3/31/2000 16,128.41 15,802.52
4/28/2000 16,066.28 15,756.70
5/31/2000 16,052.07 15,748.82
6/30/2000 16,388.82 16,076.39
7/31/2000 16,520.02 16,222.69
8/31/2000 16,770.74 16,457.92
9/29/2000 16,864.94 16,561.60
10/31/2000 16,954.45 16,670.91
11/30/2000 17,179.99 16,944.31
12/29/2000 17,512.68 17,259.48
1/31/2001 17,800.01 17,540.80
2/28/2001 17,947.87 17,693.41
3/30/2001 18,030.67 17,781.88
4/30/2001 17,966.74 17,707.19
5/31/2001 18,091.23 17,813.44
6/30/2001 18,147.64 17,881.13
7/31/2001 18,557.33 18,281.66
8/31/2001 18,744.40 18,491.90
9/28/2001 18,739.48 18,706.41
10/31/2001 19,091.16 19,097.37
11/30/2001 18,945.40 18,833.83
12/31/2001 18,822.97 18,713.29
1/31/2002 18,943.10 18,864.87
2/28/2002 19,059.78 19,047.86
3/30/2002 18,817.79 18,731.67
4/30/2002 19,118.25 19,095.06
5/31/2002 19,231.41 19,257.37
6/30/2002 19,170.68 19,424.91
7/31/2002 19,137.11 19,659.95
8/31/2002 19,504.44 19,992.20
9/28/2002 19,749.46 20,316.08
10/31/2002 19,601.47 20,222.62
11/30/2002 19,780.53 20,216.55
12/31/2002 20,187.44 20,635.04
Value on 12/31/02:
- ------------------
$20,187 Active Bond Fund
$20,635 Lehman Brothers Aggregate Bond Index
MORNINGSTAR CATEGORY RISK+:
.. Below Average (VL/VUL)
.. Below Average (VA)
MORNINGSTAR CATEGORY RATING+:
.. 3 (VL/VUL)
.. 3 (VA)
TOP TEN HOLDINGS (as of December 31, 2002)
% of
Assets
Federal National Mortgage Assoc. 36.4%
U.S. Treasury 9.7%
Federal Home Loan Mortgage Corp. 5.9%
Government National Mortgage Assoc. 4.8%
Household Finance Corp. 1.0%
Ford Motor Credit Co. 1.0%
NiSource Finance Corp. 0.9%
Morgan Stanley Dean Witter 0.9%
Amresco Residential Securities 0.7%
News America Holdings, Inc. 0.6%
AVERAGE ANNUAL TOTAL RETURNS*
Lehman Brothers
Active Bond Aggregate Bond
Fund Index
----------- ---------------
1 Year 7.25% 10.27%
3 Years 8.38 10.10
5 Years 6.42 7.54
10 Years 7.28 7.51
FUND COMPOSITION (as of December 31, 2002)
% of
Credit Quality Assets
AAA 60.10%
AA 2.10%
A 8.20%
BBB 18.50%
BB & lower 9.60%
Not rated 0.10%
Short Term 1.40%
Weighted Average Yield 5.05%
* Total returns are for the period ended December 31, 2002, returns represent
past performance, assume reinvestment of all distributions, and are not
indicative of future performance. Investment returns and principal value of
fund shares will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost. The performance of the fund on this page is
reported net of Trust level charges (i.e. investment management fees and
operating expenses). It does not reflect expense and charges of the
applicable separate accounts and variable products, all of which vary to a
considerable extent and are described in your product prospectus.
+ Source: MorningStar, Inc. Data as of 12/31/02. VL represents Variable Life
subaccounts, VUL represents Variable Universal Life subaccounts and VA
represents Variable Annuity subaccounts Hancock VL/VUL subaccounts were rated
against 327 VL/VUL subaccounts and 500 VA subaccounts in the Morningstar
Intermediate-Term Bond category. VL/VUL subaccounts received an overall
Morningstar Rating of 4 out 967 subaccounts. VA subaccounts received an
overall Morningstar Rating of 5 out of 1,697 subaccounts.
B-15
PROPOSAL 5
BY BARRY J. GORDON, MARC H. KLEE, CFA, AND ALAN LOEWENSTEIN, CFA, PORTFOLIO
MANAGERS
John Hancock V.A. Technology Fund
MANAGERS' REPORT
Weak economic conditions and investor uncertainty caused by heightened
geopolitical concerns and corporate scandals resulted in crushing declines for
all but a few technology stocks in 2002, continuing the unprecedented downturn
the group has experienced since early 2000. Tech companies are cyclical growth
enterprises and, as such, their fortunes rise and fall in response to economic
tides. While some external factors can and do come into play at various times --
such as the rush to purchase new equipment prior to Y2K -- the purchase of
technology products and services can and will be deferred during economic
weakness. This reflects the knowledge of both corporations and individuals that
technology users will be able to function for some time even with equipment that
may not be "state of the art." Given the past year's weakening global economy,
it wasn't at all surprising that businesses around the world routinely cut back
capital expenditures and dramatically tightened their purse strings by
postponing or abandoning new information technology projects. Even though
companies could borrow money cheaply thanks to low interest rates, they became
very short-sighted, requiring that paybacks on technology should be measured in
months, rather than years, before they would spend discretionary dollars. One
bright spot was the consumer, who kept on spending even as the economy weakened.
FUND PERFORMANCE
For the 12-month period ended December 31, 2002, John Hancock V.A. Technology
Fund posted a total return of -46.83%, compared with the -43.01% return of the
average open-end science and technology fund, and the -30.91% return of the
average variable annuity specialty miscellaneous fund, according to Lipper, Inc.
SEMICONDUCTOR AND EQUIPMENT STOCK STUMBLE
Heading into 2002, there was a growing belief that the extraordinary actions
taken by the Federal Reserve after the events of September 11, 2001 would lead
to an economic recovery by mid-2002. Since technology is capital-spending
intensive and, therefore, is reliant upon cash flow generation, the thinking was
that a revival in the tech sector would occur one or two quarters after
corporations started to see cash flows improve -- meaning by the second half of
the year. Given our expectations of improving economic conditions, we favored
stocks of "early cyclical" semiconductors and semiconductor-capital equipment
early in the period. But when a healthy economic rebound failed to materialize,
there were growing concerns that reduced corporate spending would hurt sales and
that consumer spending on electronics would eventually decline. Among our
semiconductor-related holdings that were hardest-hit were Integrated Device
Technology, Cypress Semiconductor and Micron Technology.
A SHIFT TOWARD SOFTWARE
In recent months, we have moderated our strategy in response to
weaker-than-expected economic conditions. We repositioned the portfolio on a
bottom-up basis to look for companies that we think are relatively
well-positioned for a more modest recovery. While economic strength ultimately
is critical for the entire sector, the types of companies we've targeted are
better able to absorb a prolonged period of sluggish activity than others. In
particular, we have reduced our holdings
[PHOTO]
[PHOTO]
[PHOTO]
Barry Gordon
Marc Klee
Alan Loewenstein
Top five holdings
- ----------------------------------------------------
5.4%
Dell Computer
- ----------------------------------------------------
4.7%
Microsoft
- ----------------------------------------------------
3.9%
Cisco Systems
- ----------------------------------------------------
3.6%
Citrix Systems
- ----------------------------------------------------
3.3%
Nokia
- ----------------------------------------------------
As a percentage of net assets on 12-31-02
- ----------------------------------------------------
B-16
in semiconductor and related capital equipment companies in favor of software
and hardware (especially personal computer-related) companies, initiating or
adding to holdings such as Seibel Systems, Microsoft and Hewlett Packard.
BRIGHT SPOTS
Despite the broad-based nature of the 2002 tech stock rout, the portfolio did
have its share of winners during the year. One of the best-performing holdings
was Western Digital, the profitable maker of disk drives that go into personal
computers, as well as gaming products such as Microsoft's X-Box. The stock
benefited from strong consumer demand and the company's efforts to cut costs and
boost production efficiencies. Some Internet-related companies also came roaring
back this year. The stock price of Amazon.com, the world's largest on-line
retailer, surged on news that sales and revenues increased and that it had
seemingly stemmed its losses. Yahoo and E-Bay each jumped on
better-than-expected earnings and sales.
Although the makers of computers suffered, they generally held up better than
the tech sector as a whole. Dell, the Fund's largest holding and a leading PC
manufacturer, was one of our best performers, helped by strong execution and
continued expansion into overseas markets. IBM held in a lot better than the
hardware group as a whole, as investors moved in to take advantage of the
stock's historically low valuation.
OUTLOOK
Although technology stocks have sorely tried investors' patience over the last
three years, we're cautiously optimistic about their prospects. We believe an
economic recovery eventually will take hold and ultimately boost corporate tech
spending. What's more, most tech companies have slashed costs, leveraging their
bottom lines when growth resumes. And current tech stock valuations are very
attractive, especially given the high cash positions that many of these
companies currently enjoy. If the sector's fundamentals improve, large
institutional investors most likely will start buying again and that renewed
interest could help stock prices move higher.
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
Sector investing is subject to greater risks than the market as a whole.
A LOOK AT PERFORMANCE
For the period ended 12-31-02
Cumulative total returns
One year -46.83%
Since inception (5-1-00) -78.16%
Average annual total returns
One year -46.83%
Since inception (5-1-00) -43.45%
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.
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. See the prospectus
for details.
GROWTH OF $10,000
John Hancock V.A. Technology Fund
5-1-00 -- 12-31-02
John Hancock V.A. Technology Fund - $2,184
Standard & Poor's 500 Index - $6,290
Russell 3000 Technology Index - $2,456
The chart to the left 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 two indexes:
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
Russell 3000 Technology Index, is a capitalization-weighted index composed of
companies that serve the electronics and computer industries
It is not possible to invest in an index.
B-17
Inception: March 29, 1986
LARGE CAP GROWTH FUND
INDEPENDENCE INVESTMENT LLC
M. Lapman/J. Forelli
.. In 2002, the Fund returned -27.82% slightly outperforming its benchmark, the
Russell 1000 Growth Index.
.. The Fund outperformed its benchmark primarily due to favorable stock
selection decisions. In contrast, sector allocation decisions detracted.
.. Despite having a neutral weight to the technology sector relative to the
benchmark, the Fund's exposure to technology was the largest detractor from
absolute performance. Top detractors within this sector and the overall Fund
included Intel, Microsoft and Cisco.
.. While the health care and consumer discretionary sectors were also
significant performance detractors overall, several of the Fund's top
contributors were within health care such as Pharmacia and Trigon Healthcare
and in consumer discretionary such as Black & Decker and Staples.
.. Going forward, the strategy for this fund remains consistent. The manager
seeks to maintain risk and sector characteristics similar to the benchmark.
The manager continues to pursue investment opportunities in stocks of
growth-oriented companies that possess fundamental catalysts, which
differentiate them from their peers, and exhibit favorable valuation. As
usual, this is done in a risk-controlled framework.
.. The manager selects stocks using a combination of proprietary fundamental
equity research and quantitative portfolio construction tools. Stocks
purchased combine low prices and improving fundamentals with favorable
valuations and earnings growth prospects.
.. This Fund intends to adopt the "manager of managers" arrangement described
on page 1.
[CHART]
Historical Fund Return
$10,000
Investment made 12/31/92
(10-Year Period)
Large Cap Growth Fund Russell 1000(R) Growth Index
--------------------- ----------------------------
12/31/1992 $10,000.00 $10,000.00
1/29/1993 10,094.21 9,885.00
2/26/1993 10,278.19 9,728.82
3/31/1993 10,589.73 9,916.58
4/30/1993 10,208.11 9,519.92
5/28/1993 10,513.95 9,853.12
6/30/1993 10,667.30 9,762.47
7/30/1993 10,585.06 9,587.72
8/31/1993 11,044.16 9,980.82
9/30/1993 11,181.61 9,906.96
10/29/1993 11,350.17 10,182.37
11/30/1993 11,225.71 10,115.17
12/31/1993 11,380.46 10,290.16
1/31/1994 11,725.98 10,527.86
2/28/1994 11,362.74 10,336.26
3/31/1994 10,995.25 9,837.02
4/29/1994 11,211.16 9,883.25
5/31/1994 11,174.87 10,032.49
6/30/1994 11,007.70 9,736.53
7/29/1994 11,282.92 10,069.52
8/31/1994 11,677.66 10,630.39
9/30/1994 11,327.72 10,484.75
10/31/1994 11,435.60 10,732.19
11/30/1994 11,101.76 10,388.76
12/30/1994 11,268.44 10,563.29
1/31/1995 11,479.72 10,788.29
2/28/1995 11,914.33 11,240.32
3/31/1995 12,184.24 11,569.66
4/28/1995 12,485.42 11,823.04
5/31/1995 12,910.19 12,235.66
6/30/1995 13,127.19 12,707.96
7/31/1995 13,552.23 13,236.61
8/31/1995 13,656.22 13,251.17
9/29/1995 14,210.50 13,862.05
10/31/1995 14,047.00 13,871.75
11/30/1995 14,630.30 14,411.36
12/29/1995 14,834.24 14,493.51
1/31/1996 15,181.94 14,979.04
2/29/1996 15,360.96 15,253.16
3/29/1996 15,555.59 15,272.99
4/30/1996 15,817.53 15,674.67
5/31/1996 16,166.80 16,221.71
6/28/1996 16,148.47 16,244.42
7/31/1996 15,075.04 15,292.50
8/30/1996 15,556.22 15,687.05
9/30/1996 16,508.52 16,829.06
10/31/1996 16,630.62 16,930.04
11/29/1996 17,837.45 18,201.48
12/31/1996 17,544.33 17,844.73
1/31/1997 18,548.21 19,095.65
2/28/1997 18,685.70 18,965.80
3/31/1997 17,806.40 17,939.75
4/30/1997 18,748.18 19,130.95
5/30/1997 19,827.38 20,512.20
6/30/1997 20,612.36 21,332.69
7/31/1997 22,601.68 23,218.50
8/29/1997 21,476.69 21,860.22
9/30/1997 22,814.49 22,935.74
10/31/1997 21,895.36 22,087.12
11/28/1997 22,708.95 23,025.82
12/31/1997 22,964.28 23,283.71
1/31/1998 23,578.09 23,979.90
2/27/1998 25,808.93 25,783.18
3/31/1998 27,269.48 26,811.93
4/30/1998 27,476.14 27,181.94
5/29/1998 26,883.29 26,409.97
6/30/1998 28,218.66 28,026.26
7/31/1998 28,081.72 27,841.29
8/31/1998 23,684.31 23,662.31
9/30/1998 25,069.90 25,479.58
10/30/1998 26,958.99 27,528.13
11/30/1998 29,100.55 29,623.02
12/31/1998 32,037.69 32,295.02
1/29/1999 33,821.12 34,190.74
2/26/1999 32,192.86 32,628.22
3/31/1999 33,548.42 34,347.73
4/30/1999 34,042.90 34,392.38
5/28/1999 33,057.91 33,336.54
6/30/1999 35,519.74 35,670.09
7/30/1999 34,344.03 34,535.78
8/31/1999 34,540.60 35,098.72
9/30/1999 33,748.86 34,361.64
10/29/1999 35,727.41 36,955.95
11/30/1999 36,932.73 38,947.87
12/31/1999 39,748.65 42,998.45
1/31/2000 37,370.05 40,981.82
2/29/2000 38,551.17 42,985.84
3/31/2000 42,662.82 46,063.62
4/28/2000 41,213.34 43,870.99
5/31/2000 39,721.33 41,659.90
6/30/2000 42,019.46 44,817.72
7/31/2000 40,653.72 42,948.82
8/31/2000 44,621.13 46,835.68
9/29/2000 39,946.85 42,405.03
10/31/2000 38,759.42 40,399.27
11/30/2000 33,597.70 34,444.42
12/29/2000 32,639.32 33,355.97
1/31/2001 34,530.20 35,660.87
2/28/2001 29,006.16 29,605.66
3/30/2001 25,769.67 26,384.56
4/30/2001 29,313.07 29,722.21
5/31/2001 28,966.58 29,285.29
6/30/2001 28,361.52 28,605.87
7/31/2001 27,498.74 27,890.73
8/31/2001 25,509.66 25,609.26
9/28/2001 23,079.82 23,053.46
10/31/2001 24,478.93 24,263.77
11/30/2001 26,827.92 26,595.51
12/31/2001 26,898.99 26,544.98
1/31/2002 26,623.77 26,075.14
2/28/2002 25,536.20 24,993.02
3/30/2003 26,408.34 25,857.78
4/30/2002 24,760.88 23,747.78
5/31/2002 24,188.86 23,173.09
6/30/2002 22,100.62 21,029.58
7/31/2002 20,561.81 19,872.95
8/31/2002 20,626.00 19,932.57
9/28/2002 18,469.71 17,865.56
10/31/2002 20,007.82 19,503.83
11/30/2002 20,732.54 20,562.89
12/31/2002 19,382.89 19,142.00
Value on 12/31/02:
- ------------------
$24,017 Large Cap Growth Fund
$19,142 Russell 1000(R) Growth Index
MORNINGSTAR
CATEGORY RISK+:
.. Average (VL/VUL)
.. Average (VA)
MORNINGSTAR CATEGORY RATING+:
.. 3 (VL/VUL)
.. 3 (VA)
TOP TEN HOLDINGS (as of December 31, 2002)
% of
Assets
Pfizer, Inc. 6.0%
Microsoft Corp. 5.8%
General Electric Co. 4.7%
Johnson & Johnson 4.4%
Intel Corp. 3.1%
Dell Computer Corp. 2.9%
Wal-Mart Stores, Inc. 2.5%
Kohl's Corp. 2.3%
Federal National Mortgage Assoc. 2.2%
Pharmacia Corp. 1.9%
AVERAGE ANNUAL TOTAL RETURNS*
Large Cap Russell 1000(R)
Growth Fund Growth Index
----------- ---------------
1 Year -27.82% -27.89%
3 Years -21.23 -23.64
5 Years -3.29 -3.84
10 Years 6.87 6.71
SECTOR/INDUSTRY ALLOCATION (as of December 31, 2002)
% of % of
Assets Assets
Health Care 26.02% Producer Durables 4.50%
Technology 21.11% Materials & Processing 1.47%
Consumer Discretionary & Other Energy 0.77%
Services 16.88% Autos & Transportation 0.71%
Financial Services 13.38%
Consumer Staples 9.45%
Other 5.71%
* Total returns are for the period ended December 31, 2002. Returns represent
past performance, assume reinvestment of all distributions and are not
indicative of future performance. Investment returns and principal value of
fund shares will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost. The performance of the fund on this page is
reported net of Trust level charges (i.e. investment management fees and
operating expenses). It does not reflect expense and charges of the
applicable separate accounts and variable products, all of which vary to a
considerable extent and are described in your product prospectus. There are
additional risks associated with a nondiversified fund, as outlined in the
current prospectus.
+ Source: MorningStar, Inc. Data as of 12/31/02. VL represents Variable Life
subaccounts, VUL represents Variable Universal Life subaccounts and VA
represents Variable Annuity subaccounts Hancock VL/VUL subaccounts were rated
against 859 VL/VUL subaccounts and 1,690 VA subaccounts in the Morningstar
Large Growth category. VL/VUL subaccounts received an overall Morningstar
Rating of 2 out 4,575 subaccounts. VA subaccounts received an overall
Morningstar Rating of 2 out of 8,512 subaccounts.
B-18
As with all mutual funds, the Securities and Exchange Commission has not judged
whether the funds of the John Hancock Variable Series Trust I are good
investments or whether the information in this prospectus is adequate and
accurate. Anyone who tells you otherwise is committing a federal crime.
JOHN HANCOCK
VARIABLE SERIES TRUST I
PROSPECTUS
March 17, 2003
Financial Industries Fund
Managed by John Hancock Life Insurance Company
John Hancock Place
Boston, MA 02117
Contents
- --------------------------------------------------------------------------------
John Hancock Variable Series Overview 1
Trust I ("Trust")
A fund-by-fund summary of goals, Your Investment Choices 2
strategies and risks. Financial Industries Fund 4
Policies and instructions for opening, Your Account
maintaining and closing an account in Investments in shares of the funds 6
any fund Share price 6
Valuation 6
Conflicts 6
Further information on the funds Fund Expenses 7
Dividends and Taxes 7
Dividends 7
Taxes 7
Financial Highlights 7
Further information on the Trust Trust Business Structure 8
For more information back cover
Overview
- --------------------------------------------------------------------------------
FUND INFORMATION KEY
A concise fund description begins on page 4. The description provides the
following information:
Goal and Strategy The fund's particular investment goals and the principal
strategies it intends to use in pursuing those goals.
Subadviser/Manager The firm and individual(s) providing investment management
services to the fund.
Past Performance The fund's total return, measured year-by-year and over time.
Main Risks The significant risk factors associated with the fund. The risks are
categorized as "Primary" or "Secondary". The Primary Risks are considered major
factors in the fund's performance and are described first. The Secondary Risks
are not considered major factors in the fund's performance because the fund
would not normally commit a large portion of its assets to the investments
involved. However, the Secondary Risks are of such a nature that they could
significantly affect the fund's performance, even if the investments are held
in relatively small amounts.
Fees and Expenses A table describes the fund's fees and expenses and examples
show the costs over time.
THE FUNDS
The Trust offers investment choices, or funds, for the variable annuity and
variable life insurance contracts ("variable contracts") of:
.. John Hancock Life Insurance Company ("John Hancock"),
.. John Hancock Variable Life Insurance Company ("JHVLICO"), and
.. certain other insurance companies that may or may not be affiliated with John
Hancock.
In some variable contract forms, the Trust may be referred to by some other
term (such as the "Fund" or "Series Fund") and the investment choices may also
be referred to by some other term (such as "Portfolios" or "Series").
RISKS OF FUNDS
These funds, like all mutual funds, are not bank deposits. They are not insured
or guaranteed by the FDIC or any other government agency. You could lose money
by investing in these funds. So, be sure to read all risk disclosure carefully
before investing.
MANAGEMENT
John Hancock is the investment adviser of each fund of the Trust. John Hancock
is a Massachusetts stock life insurance company. On February 1, 2000, John
Hancock changed its form of organization and its name. Prior to that date, it
was John Hancock Mutual Life Insurance Company, a mutual life insurance company
that was chartered in 1862. At the end of 2001, John Hancock and its affiliates
managed approximately $124 billion in assets, of which it owned approximately
$81 billion.
All of the funds of the Trust have subadvisers. John Hancock recommends
subadvisers for the funds to the Trust, and oversees and evaluates the
subadvisers' performance. John Hancock also overseas the allocation of a fund's
assets between subadvisers for those funds that are "multi-managed" (Growth &
Income, Small Cap Value, Real Estate Equity and Managed Funds), and manages the
Trust's joint trading account for various funds' liquidity reserves.
Each subadviser has discretion to purchase and sell securities for the fund, or
the portion of a fund, that it manages. While employing their own investment
approach in managing a fund, each subadviser must also adhere to the fund's
investment goals, strategies and restrictions.
1
Your Investment Choices
- --------------------------------------------------------------------------------
The Trust offers a number of investment choices, or funds, to suit a variety of
objectives under variable contracts. Only 1 of these funds is described in this
prospectus. Each fund has its own strategy and its own risk/reward profile. The
funds can be broadly categorized as equity funds, sector funds, balanced funds,
bond funds, and international/global funds. This prospectus describes a sector
fund.
SECTOR FUNDS
Sector funds invest primarily in a single sector of the stock market and may be
affected by economic factors and other factors specific to that sector. Sector
funds are appropriate for investors who are willing to accept more volatile
investment returns relative to the overall equity market.
ADDITIONAL INFORMATION
In the following pages, any fund investment strategy that is stated as a
percentage of a fund's assets applies at all times, not just at the time the
fund buys or sells an investment security. However, when markets are unusually
volatile or when a fund experiences unusually large cash flows, a fund may be
allowed to temporarily deviate from its normal strategy to avoid unnecessary
transaction costs. The trustees of the Trust can change the investment goals
and strategy of any fund without shareholder (i.e., contractowner) approval.
The fund may participate in initial public offerings (IPOs). Under certain
market conditions, such participation could significantly improve a fund's
total investment return. There is no assurance that such market conditions will
continue and provide the same favorable impact on future investment returns.
If the total investment return for any fund for any given year appears
unusually high, the return may be attributable to unusually favorable market
conditions which will probably not be sustainable. For instance, a high total
investment return may reflect participation in IPOs, "hot" industries (e.g.,
internet-related companies), private placements and/or leveraging investment
techniques during the period indicated. There is no assurance that any of those
methods, or any other investment technique, will continue to have the same
impact on the fund's total investment returns.
In this prospectus, the term "stock" is used as a shorthand reference for
equity investments generally and the term "bond" is used as a shorthand
reference for debt obligations generally.
2
This page intentionally left blank
3
Financial Industries Fund
GOAL AND STRATEGY
This is a non-diversified financial industries stock fund that seeks long-term
capital appreciation.
The Fund normally invests at least 80% of its assets in equity securities of
(a) companies in the financial services industry including banks, thrifts,
credit and finance companies, brokerage and advisory firms, asset management
companies, insurance companies, leasing companies, real estate-related firms,
financial holding companies and similar entities and (b) to a more limited
extent, non-financial industry companies expected to benefit from products or
other market advantages in the financial services industries. The Fund invests
mostly in stocks of U.S. companies but also invests, to a limited extent, in
foreign stocks.
The manager selects financial industry stocks using proprietary fundamental
equity research and quantitative screening. The manager uses fundamental equity
research to identify companies that:
.. are positioned to benefit from industry-wide trends such as consolidation and
regulatory changes; and
.. are comparatively undervalued relative to balance sheet and earnings.
The manager also uses quantitative tools focusing on valuation,
earnings/momentum and fundamentals/capital use to evaluate stocks and to manage
overall risk.
The Fund's industry weightings are primarily a result of stock selection and
therefore may differ significantly from its benchmark. The manager normally
invests in 40 to 100 stocks of companies of any size. The Fund normally has 10%
or less (usually lower) of its assets in cash and cash equivalents. The Fund
may invest in initial public offerings (IPOs).
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: foreign securities denominated in U.S dollars or any
other currency, certain Exchange Traded Funds (ETFs) and certain derivatives
(investments whose value is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
John Hancock Advisors, LLC
101 Huntington Avenue
Boston, Massachusetts 02199
Owned by John Hancock
Managing since 1968
Managing Fund since May, 2003
Managed approximately $26 billion in
assets at the end of 2002
FUND MANAGERS
Management by investment team overseen by:
James K. Schmidt, CFA
- ---------------------
Executive Vice President of
Joined subadviser in 1985
Thomas C. Goggins
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1995
PAST PERFORMANCE
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 and potential rewards. Year-by-year and average annual figures for the
period prior to April 30, 2003 reflect the actual performance of the V.A.
Financial Industries Fund, the fund's predecessor, which was a series of the
John Hancock Declaration Trust. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect deduction of fees and charges payable under the variable contracts.
Such fees and charges would cause the investment returns under the contracts to
be less than that shown below.
Year-by-Year Total Returns -- Calendar Year
[CHART]
1998 1999 2000 2001
- ----- ----- ----- --------
8.55% 1.23% 27.16% (17.51%)
Best quarter: up 19.95%, third quarter 2000 Worst quarter: down 16.76%, third
quarter 1998
Average annual total returns -- for periods ending 12/31/2001*
Fund Index 1 Index 2
1 year -17.51% -11.89% -10.53%
Life of Fund 9.9% 9.71% 11.06%
Index 1: Standard & Poor's 500 Index, an unmanaged index of 500 stocks
Index 2: Standard & Poor's Financial Index, an unmanaged index of financial
sector stocks in the Standard & Poor's 500 Index
*Predecessor fund began operations on April 30, 1997
4
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond 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.
Non-Diversified Fund Risk: The Fund's larger position in individual issuers
could produce more volatile performance relative to more diversified funds. The
less diversified a fund's holdings are, the more likely it is that a specific
security's poor performance will hurt the fund significantly.
Manager Risk: The managers and their respective strategies may fail to produce
the intended results. The Fund could underperform its peers or lose money if
the managers' investment strategies do not perform as expected.
Sector Fund Risk: The Fund's investments are concentrated in a single sector
of the stock market and the Fund's performance could be significantly affected
by developments in that particular sector. Because of this concentration, the
Fund's performance could be worse than the overall market by a wide margin or
for extended periods. Also, the Fund's performance could be more volatile
relative to funds that invest broadly across different sectors of the stock
market.
Financial Industries and Related Securities Risk: Financial industries and
related equity securities may be affected by changes in the regulatory and
competitive environment, by inter-industry consolidation, and by changes in
interest rates and economic conditions. Profitability can be largely dependent
on the availability and cost of capital and can fluctuate significantly when
interest rates change. For example, when interest rates fall or economic
conditions deteriorate, the stocks of banks and financials industries companies
could suffer losses. Rising interest rates can reduce profits by narrowing the
difference between these companies' borrowing and lending rates. Losses
resulting from financial difficulties of borrowers, and downgrades of their
creditworthiness, can also negatively affect lending institutions.
Small/Mid Cap Stock Risk: The Fund's investment in smaller or mid-sized
companies may be subject to more erratic price movements than investments in
large established companies.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
In future years, the Fund's turnover rate may be higher than 100%.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic,
political and social instability. Factors such as lack of liquidity, foreign
ownership limits and restrictions on removing currency also pose special risks.
However, to the extent the Fund invests in emerging market countries, it will
have a significantly higher degree of foreign risk than if it invested
exclusively in developed or newly industrialized countries.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity markets.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in the variable
contract prospectus to which this prospectus is attached.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)(1)
Distribution Total Annual
Investment and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements(2) Expenses
--- ----------- -------- -------- ----------------- --------
0.80% N/A 0.10% 0.90% 0.0% 0.90%
(1) Percentages shown for the Fund are estimates because the Fund was not in
operation in 2002.
(2) Under its current investment management agreement with the Trust, John
Hancock reimburses the Fund when the Fund's "other fund expenses" exceed
0.10% of the Fund's average daily net assets.
Examples. The Examples are intended to help you compare the cost of investing
in shares of the Fund with the costs of investing in other mutual funds. The
Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3
$90 $290
5
Your Account
Investments in shares of the funds
The fund sells its shares directly to separate accounts of John Hancock,
JHVLICO and other insurance companies to fund variable contracts. The fund also
buys back its shares on redemption by the separate accounts.
Under the variable contracts, a separate account buys or redeems the fund's
shares based on:
.. instructions by you and other contractowners to invest or receive back monies
under a contract (such as making a premium payment or surrendering a
contract), and
.. the operation of a contract (such as deduction of fees and charges).
The Trust, as law permits, may:
.. refuse a buy order if the adviser believes it would disrupt management
.. suspend the fund's offer of shares, or
.. suspend the fund's redemption obligation or postpone the fund's payment of
redemption proceeds for more than seven days.
Share price
The fund sells and buys back its shares at the net asset value per share
("NAV") next computed after receipt by a separate account of a contractowner's
instructions.
The fund calculates its NAV:
.. by dividing its net assets by the number of its outstanding shares,
.. once daily as of the close of regular trading on the New York Stock Exchange
(generally at 4 p.m. New York time) on each day the Exchange is open.
The fund may hold securities primarily listed on foreign exchanges that trade
on weekends or other days when the Trust does not calculate NAV. Consequently,
NAV may change on days when contractowners will not be able to instruct a
separate account to buy or redeem fund shares.
Valuation
The fund values securities based on:
.. market quotations,
.. amortized cost,
.. valuations of independent pricing services, or
.. fair value determined in accordance with procedures approved by the Trust's
trustees.
The fund may value securities at fair value where, for example:
.. market quotations are not readily available, or
.. the value of securities has been materially affected after the closing of a
foreign market.
Conflicts
The Trust's trustees monitor for possible material irreconcilable conflicts
among separate accounts buying shares of the funds. The Trust's net asset value
could decrease, if the Trust had to sell investment securities to pay
redemption proceeds to a separate account withdrawing because of a conflict.
6
Fund Expenses
The Financial Industries Fund was not in operation in 2002. The Financial
Industries Fund pays fees to the adviser equal to 0.80% of all net assets of
that fund.
The adviser pays subadvisory fees out of its own assets. The fund does not pay
a fee to its subadviser. The adviser has agreed to limit the fund's annual
expenses (excluding advisory fees and certain other expenses such as brokerage
and taxes) to not more than 0.10 percent of the fund's average daily net assets.
Dividends and Taxes
Dividends
The fund automatically reinvests its dividends and distributions in additional
shares of the fund at NAV.
The fund declares and pays dividends monthly.
The fund generally declares capital gains distributions annually.
Taxes
The fund must meet investment diversification and other requirements under the
Internal Revenue Code, in order to:
.. avoid federal income tax and excise tax, and
.. assure the tax-deferred treatment of variable contracts under the Code.
You should read the prospectus for your variable contract for the federal
income tax consequences for contractowners, including the consequences of a
fund's failure to meet Code requirements.
Financial Highlights
This table details the historical performance of the Fund's predecessor, the
V.A. Financial Industries Fund, including total return information showing how
much an investment in the predecessor fund has increased or decreased each
year. The "total investment return" shown for the predecessor fund does not
reflect the expenses and charges of the applicable separate accounts and
variable contracts. Those expenses and charges vary considerably from contract
to contract and are described in the applicable variable contract prospectus.
On April 30, 2003, the Fund will acquire all of the assets of the V.A.
Financial Industries Fund pursuant to an agreement and plan of reorganization
in exchange for shares of the Fund. The information shown below has been
audited by Ernst & Young LLP, independent auditors. Their report and the
predecessor fund's annual statements are included in the predecessor fund's
Annual Report, which is available upon request.
Period ended: 12-31-97/(1)/ 12-31-98 12-31-99 12-31-00 12-31-01 12-31-02
Per share operating performance
Net asset vale beginning of period $10.00 $13.44 $14.45 $14.46 $18.34 $14.56
Net Investment income/(2)/ 0.11 0.18 0.11 0.06 0.11 0.12
Net realized and unrealized gain (loss) on investment 3.39 0.97 0.06 3.87 (3.33) (2.95)
Total from investment operations 3.50 1.15 0.17 3.93 (3.22) (2.83)
Less distributions
From net investment income (0.05) (0.14) (0.10) (0.05) (0.09) (0.13)
From net realized gain (0.01) -- /(3)/ (0.05) -- (0.47) --
Tax return of capital -- -- (0.01) -- -- --
Total distributions (0.06) (0.14) (0.16) (0.05) (0.56) (0.13)
Net asset value end of period $13.44 $14.45 $14.46 $18.34 $14.56 $11.60
Total investment return/(4)/(%) 35.05/(5,6)/ 8.55 1.23 27.16 (17.51) (19.46)
Ratios and supplement data
Net assets end of period (in millions) $18 $55 $49 $71 $89 $57
Ratio of expenses to average net assets(%) 1.05/(7)/ 0.92 0.90 0.90 0.89 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 0.71 0.87
Portfolio turnover rate(%) 11 38 72 41 97/(9)/ 2
(1) Began operations on
4-30-97.
(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) 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) Excludes merger
activity.
7
- --------------------------------------------------------------------------------
Trust Business Structure
The diagram below shows the basic business structure of the Trust. The Trust's
trustees oversee the Trust's investment and business activities and hire
various service providers to carry out the Trust's operations.
[FLOW CHART]
8
This page intentionally left blank
9
For more information
This prospectus should be used only with a variable contract prospectus.
John Hancock Variable
Series Trust I
John Hancock Place
Boston, Massachusetts 02117
The following document is available that offer further information on John
Hancock Variable Series Trust I and the fund:
Statement of Additional Information (SAI)
The SAI contains more detailed information on all aspects of the fund.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into (i.e., is legally a part of) this prospectus.
To request a free copy of the current SAI, or to make shareholder inquiries,
please contact:
By mail:
John Hancock Variable Series Trust I
John Hancock Place
Boston, MA 02117
By phone: 1-800-732-5543
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, DC
By phone: 1-202-942-8090
By mail: Office of Public Reference Securities and Exchange Commission
450 5th Street, N.W., Room 1300
Washington, DC 20549-0102
(duplicating fee required)
By e-mail: publicinfo@SEC.gov
On the Internet: www.sec.gov
SEC File Number: 811-4490
VSTPRO-FININD
JOHN HANCOCK
VARIABLE SERIES TRUST I
STATEMENT OF ADDITIONAL INFORMATION
March 17, 2003
This Statement of Additional Information (sometimes referred to herein as
the "SAI") is not a prospectus. It is intended that this Statement of Additional
Information be read in conjunction with the Prospectus of the Financial
Institutions Fund of the John Hancock Variable Series Trust I (the "Trust"),
dated March 17, 2003. A copy of the Prospectus may be obtained from John Hancock
Variable Series Trust I, John Hancock Place, P.O. Box 111, Boston, Massachusetts
02117, telephone number 1-800-REAL LIFE.
This Statement of Additional Information relates to the Financial
Institutions Fund of the Trust.
TABLE OF CONTENTS
Page in this
Statement of
Additional
Information
-----------
A. What Is the Trust? 4
B. The Trust's Business History 4
C. The Fund's Investment Activities and Their Risks 5
1. Investing in Money Market Instruments 5
2. Investing in Other Fixed Income Obligations 5
3. Investing in Equity Securities 7
4. Investing in Real Estate Securities 9
5. Investing in Foreign Securities 9
6. Techniques and Instruments for
Managing Currency Exposure 11
7. Reallocating a Fund's Assets Among Asset Classes 13
8. Adopting a Temporary Defensive Strategy 13
9. Investing With an Index-Based Objective 13
10. Investing on a Non-Diversified Basis 14
11. Using Options 15
12. Using Options on Securities
(and related asset segregation requirements) 17
13. Using Financial Futures Contracts, Options on
Such Contracts and Options on Stock Indexes 17
14. "Swaps, "Caps," "Floors" and "Collars" 22
15. Investing In Other Investment Companies 24
16. "When Issued" Securities and Forward Commitments 25
17. Short-Term Trading 25
18. Entering Into Repurchase Agreements 25
19. Participating in Joint Trading Accounts 26
20. Lending of Fund Securities 26
21. Reverse Repurchase Agreements and
Mortgages "Dollar Rolls" 26
22. Investing in Rule 144A and Illiquid Securities 27
23. Investing in Preferred Stock, Convertible
Securities and Warrants 27
24. Investing in Initial Public Offerings ("IPOs") 27
D. The Fund's Fundamental Investment Restrictions 28
E. Board of Trustees and Officers of the Trust 29
F. Investment Advisory Arrangements 33
1. The Trust's Investment Advisory Arrangements With
John Hancock 33
2. The Trust's Arrangements With the Subadviser 33
2
TABLE OF CONTENTS - continued
Page in this
Statement of
Additional
Information
-----------
G. Arrangements With Other Service Providers To The Trust 34
1. Underwriting and Indemnity Agreement 34
2. Custody of the Trust's Assets 34
3. Subadministration Agreement With State Street Bank 35
4. Independent Auditors 36
H. Portfolio Transactions and Brokerage Allocation 36
I. Codes of Ethics 39
J. Features of the Trust's Shares 40
K. Shareholder Meetings and Voting Rights 41
L. Sales and Redemptions of Fund Shares 41
M. Computing the Funds' Net Asset Value 42
N. Taxes 43
O. Information About Fund Performance 44
P. Legal Matters 44
Q. Reports to Contractholders 44
Appendix A - Corporate Bond Ratings 45
3
A. WHAT IS THE TRUST?
John Hancock Variable Series Trust I (the "Trust"), and each of the
Funds of the Trust, is an open-end management investment company.
Shares of the Trust are currently sold to John Hancock Variable Life
Accounts U, V, and S to support variable life insurance policies issued by John
Hancock Variable Life Insurance Company ("JHVLICO"); John Hancock Variable
Annuity Accounts U and V to support variable annuity contracts issued by John
Hancock Life Insurance Company ("John Hancock"); John Hancock Variable Annuity
Accounts I and JF to support variable annuity contracts issued by JHVLICO; and
John Hancock Variable Life Account UV to support variable life insurance
policies issued by John Hancock. It is anticipated that, in the future, Trust
shares may be sold to other separate investment accounts of JHVLICO and John
Hancock and to separate investment accounts of other insurance companies (which
may or may not be affiliated with John Hancock). Each of these separate
investment accounts is hereinafter referred to as a "Separate Account."
Because the Separate Accounts currently own all of the Trust's shares,
those Separate Accounts (or John Hancock and JHVLICO) may be deemed to control
the Trust. John Hancock and JHVLICO, in turn, are both directly or indirectly
controlled by John Hancock Financial Services, Inc., a publicly-traded holding
company. The Trust issues a separate series of shares of beneficial interest for
the Fund. Each share issued with respect to the Fund has a pro rata interest in
the net assets of the Fund. The assets of the Fund are charged with the
liabilities of the Fund and a proportionate share of the general liabilities of
the Trust.
B. THE TRUST'S BUSINESS HISTORY
The Trust is, in part, a successor to three Separate Accounts of
JHVLICO, as well as the six Separate Accounts of John Hancock described below.
On March 28, 1986, all of the investment assets and related liabilities of the
Variable Life Stock, Bond, and Money Market Accounts were transferred to what
are now the Growth & Income, Active Bond and Money Market Funds of the Trust,
respectively, in exchange for shares of those Funds.
On February 20, 1987, all of the investment assets and related
liabilities of six Variable Annuity Stock, Bond and Money Market Accounts were
transferred to what are now the Growth & Income, Active Bond and Money Market
Funds of the Trust, respectively, in exchange for shares of these Funds. The
Trust itself was incorporated on September 23, 1985, under the laws of the State
of Maryland and was reorganized as a Massachusetts business trust effective
April 29, 1988.
4
C. THE FUND'S INVESTMENT ACTIVITIES AND THEIR RISKS
The Fund's different investment activities will affect both its
investment returns and the degree of risk to which it is subject. Sections
1.-24. below describe many (but not all) of these investment activities and
risks. In the following discussion, references to "Sector" Funds refers to the
Fund.
1. Investing in Money Market Instruments
The Fund may invest in "money market" instruments to some extent. These
are high quality, short-term fixed income obligations. Because of their nature,
money market instruments generally do not carry significant risks of loss, but
do have some credit and interest rate risk. The principal risk, however, is that
a Fund's return on money market instruments will be less than it would have
earned on a riskier investment.
2. Investing in Other Fixed Income Obligations
a. Overview: The Fund may have a modest exposure in non-money market
fixed income (i.e., "debt") securities from time to time.
Various types of risk associated with these securities are discussed in
the balance of this Section 2.
b. Interest rate risk: In general, debt securities with longer
maturities than money market instruments have exposure to interest rate risk.
Changes in generally prevailing market interest rates alter a debt security's
market value and introduce volatility into the rate of return of a Fund that
invests in such securities. When prevailing interest rates go up, the market
value of debt securities tends to go down and vice versa. This sensitivity of
the market value of a debt security to changes in interest rates is generally
related to the "duration" of the instrument. The market value of a shorter-term
fixed income security is generally less sensitive to interest rate moves than
that of a longer-term security. For example, the interest rate risk of the
Short-Term Bond Fund, although moderate, is below that of traditional
intermediate or long-term bond portfolios.
c. Credit risk: The value of a fixed income security may also change as
a result of market perceptions regarding its credit risk: i.e., the ability of
the borrower to repay its debts. The market value of a fixed income security can
fall when the market perceives the borrower to be less credit worthy.
Conversely, the market value of a fixed income security can increase due to its
borrower being perceived as financially stronger. All Funds that invest in debt
securities, including money market securities, may have some exposure to credit
risk.
5
Even some U.S. Government obligations have a degree of credit risk.
"U.S. Government obligations" are bills, certificates of indebtedness, notes and
bonds issued or guaranteed as to principal or interest by the United States or
by agencies or authorities controlled or supervised by and acting as
instrumentalities of the U.S. Government and established under the authority
granted by Congress. Some obligations of U.S. Government agencies, authorities,
and other instrumentalities are supported by the full faith and credit of the
U.S. Treasury; others by the right of the issuer to borrow from the Treasury;
and others only by the credit of the issuing agency, authority, or other
instrumentality. These latter types of obligations, therefore, do have a degree
of credit risk. All fixed income funds invest in U.S. Government obligations.
All of the other Funds may also invest in U.S. Government obligations to some
extent.
Securities having one of the four highest rating categories for debt
securities as defined by Moody's Investors Services, Inc. (Aaa, Aa, A, or Baa)
or Standard and Poor's Corporation (AAA, AA, A, or BBB) or, if unrated,
determined to be of comparable quality by the subadviser, are referred to as
"investment grade." The meanings of such ratings are set forth in Appendix A to
this Statement of Additional Information. Lower-rated bonds have more credit
risk than higher rated bonds.
d. Risk of lower-quality instruments: High-yield bonds (or "junk"
bonds) are debt securities rated below "investment grade" as defined above. The
value of these lower rated securities generally is more subject to credit risk
than is the case for higher rated securities, and their values tend to respond
more to changes in interest rates or changes in market perceptions regarding
their credit risk.
Investments in companies issuing high yield securities are considered
to be more speculative than higher quality instruments. As such, these
securities typically pay a higher interest rate than investment grade
securities.
Issuers of high yield securities are typically in weak financial
health, and their ability to pay back principal and interest on the bonds they
issue is uncertain. Some of these issuers may be in default or bankruptcy.
Compared with issuers of investment-grade bonds, they are more likely to
encounter financial difficulties and to be materially affected by these
difficulties when they do encounter them.
High yield bond markets may react strongly to adverse news about an
issuer or the economy, or to the perception or expectations of adverse news.
These debt securities may also have less liquid markets than higher rated
securities.
Judgment plays a greater role in valuing high yield securities than in
the case of other securities for which more extensive quotations and last-sale
information are available. Adverse publicity and changing investor perceptions
may affect the ability of outside pricing services used by a Fund to value its
portfolio securities, and the ability of the Fund to dispose of its lower-rated
bonds.
Past experience may not provide an accurate indication of future
performance of high yield securities, especially during periods of economic
recession. The market prices of high yield securities may decline significantly
in periods of general economic difficulty, which may follow periods of rising
interest rates. During an economic downturn, the ability of issuers of
lower-rated debt to service their payment obligations, meet projected goals, or
obtain additional financing may be impaired. In fact, in 2001, the percentage of
high yield securities that defaulted reached the highest level in ten years. In
some cases, a Fund may find it necessary, at its own expense or
6
in conjunction with others, to pursue litigation or otherwise exercise its
rights as a security holder to seek to protect the interests of security
holders, if it determines this to be in the interest of Fund investors.
Although not customarily referred to as "high yield" securities or
"junk bonds," debt securities that fall in the lowest rating within the
investment grade category are considered medium grade securities that have some
speculative characteristics. Accordingly, to a lesser degree, they may present
the same risks discussed above with respect to high yield securities.
The considerations discussed above for lower-rated debt securities also
are applicable to lower quality unrated debt instruments of all types, including
loans and other direct indebtedness of businesses with poor credit standing.
Unrated debt instruments are not necessarily of lower quality than rated
securities, but they may not be attractive to as many buyers.
e. Prepayment/Call risk: Prepayment risk is the risk that the obligor
on a debt security may repay or "call" the debt before it is due. Most mortgage
backed securities, asset backed securities, other public bond debt securities
and 144A securities that a Fund might own are exposed to this risk. U.S.
Government securities typically have minimal exposure to this risk.
Prepayment/call is most likely to occur when interest rates have declined and a
borrower can refinance the debt at a lower interest rate level. Generally, a
Fund reinvests the proceeds resulting from prepayments in a lower yielding
instrument. This results in a decrease in the Fund's current yield. The values
of securities that are subject to prepayment/call risk also tend to increase
less in response to declining interest rates and decrease more in response to
increasing interest rates than would the value of otherwise similar securities
that do not have prepayment or "call" features.
f. Risks of "zero coupon" instruments: The Fund may, to a modest
degree, have exposure to debt instruments that provide for payment of interest
at the maturity date of the instrument (or payment of interest in the form of
additional securities), rather than payment of interest in cash periodically
over the life of the instrument. The values of such instruments tend to respond
more to changes in interest rates than do otherwise comparable debt obligations
that provide for periodic interest payments.
3. Investing in Equity Securities
a. Overview: The Fund may invest in equity securities and is expected
to make such securities its primary investment.
General risks of investing in equity securities are discussed in the
balance of this Section 3.
7
b. Equity risk: Investments in common stock or other equity securities
historically have offered a higher rate of return than money market instruments
or longer term debt securities. However, the risk associated with equity
securities also tend to be higher, because the investment performance of equity
securities depends upon factors which are difficult to predict. The fundamental
risk associated with any equity portfolio is the risk that the value of the
investments it holds might decrease in value. Equity security values may
fluctuate in response to the activities of an individual company or in response
to general market, interest rate, and/or economic conditions.
c. Market capitalization risk: One indication of the relative risk of a
common stock investment is the size of the company, which is typically defined
by reference to its "market capitalization." Market capitalization is computed
by multiplying the current market price of a share of the company's stock by the
total number of its shares outstanding.
Investing in larger capitalization companies generally involves a
lesser degree of risk than investing in smaller capitalization companies.
Conversely, investing in the equity securities of smaller companies generally
involves greater risks and potential rewards than investing in larger, more
established companies. Small capitalization companies, in particular, often have
limited product lines, markets or financial resources, and they may depend upon
a small group of relatively inexperienced managers. Investments in such
companies can be both more volatile and more speculative. These securities may
have limited marketability and are subject to more abrupt or erratic market
movements than securities of larger companies or the market in general.
The Fund has broad latitude to invest in companies of any size,
depending on the market capitalization of the respective sectors covered by
those Fund, but is generally expected to represent companies that qualify as
small cap and mid cap issuers. The Fund also may invest in the equity securities
of companies that qualify as large cap issuers.
Three capitalization levels are currently used by the Trust for
non-U.S. equities: large, medium ("mid"), and small.
. Large cap: Companies having a capitalization greater than $5 billion
. Mid cap: Companies having a capitalization between $1 billion and
$5 billion
. Small cap: Companies having a capitalization less than $1 billion
8
4. Investing in Real Estate Securities
The Fund may have some exposure to real estate risks through
investments in companies engaged in real estate related businesses or
investments in debt instruments secured by real estate or interests in real
estate.
b. Risks of real estate securities: Generally speaking, real estate
securities may be affected by risks similar to those resulting from the direct
ownership of real estate, as well as by market risks due to changes in interest
rates and by the overall volatility of the equity markets. The market value of
shares in equity real estate investment trusts and commercial property
companies, in particular, is heavily dependent upon the value of their
underlying properties. Overbuilding, declines in local or regional economic
conditions, financial difficulties on the part of major tenants and increases in
real estate taxes and operating expenses all could decrease the value of the
real estate investments.
5. Investing in Foreign Securities
a. Overview: Investments in foreign securities may be made in a
foreign-denominated security, or in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs") or other U.S. dollar denominated securities representing underlying
shares of foreign securities. ADRs, EDRs, GDRs and other securities representing
underlying shares of foreign securities may not necessarily be denominated in
the same currency as the securities into which they may be converted, but rather
in the currency of the market in which they are traded. ADRs are receipts,
typically issued by an American bank or trust company, which evidence ownership
of underlying securities issued by a foreign corporation. EDRs are receipts
issued in Europe by banks or depositories which evidence a similar ownership
arrangement. GDRs are receipts issued in two or more markets by banks or
depositaries which evidence a similar ownership arrangement. Generally, ADRs are
designed for use in U.S. securities markets, EDRs for use in European securities
markets, and GDRs for use in multiple securities markets.
Investments in debt securities issued by foreign issuers may be made in
foreign-denominated debt instruments or in the form of U.S. dollar denominated
debt securities issued by foreign issuers and publicly traded in the United
States ("Yankees") or in Europe ("Eurobonds").
To a limited extent, the Fund may invest in foreign securities,
including foreign-denominated securities.
Funds investing in equity securities may also invest in ADRs and other
U.S. dollar denominated foreign securities. Funds investing in debt securities
may also invest in foreign debt securities denominated in U.S. dollars (i.e.,
Yankees and Eurobonds).
9
The Fund may invest to a lesser extent in developing countries commonly
known as "emerging markets." Emerging markets securities may be denominated in
U.S. dollars or any other currency.
Risks of investing in foreign securities are discussed in the
paragraphs that follow:
b. Currency risks: When a Fund buys foreign-issued securities, it
usually must pay for those securities in the local currency. Therefore, the Fund
must convert funds into the local currency to the extent necessary for this
purpose. Similarly, when a Fund sells a foreign security, it may receive payment
in the local currency. Therefore, if the Fund does not wish to continue to hold
that currency, it must enter into a transaction disposing of it.
In these ways, therefore, a Fund may temporarily hold foreign currency
in order to facilitate the purchase and sale of foreign securities. This exposes
the fund to the risk that the foreign currency's value could, while the Fund was
temporarily holding that currency, decline relative to the U.S. dollar. This
could result in a loss to the Fund, because the Fund's assets and shares are
valued in U.S. dollars. On the other hand, the Fund could experience gains if
the foreign currency's value, relative to the U.S. dollar, increases during the
period when the Fund holds that currency.
More fundamentally, however, because the Fund values its assets and
shares in U.S. dollars, the Fund's gains and/or losses on investments that are
denominated or traded in foreign currencies will depend in part on changes in
the value of that currency relative to the U.S. dollar. This exposes the Fund to
the risk of loss if that foreign currency loses value, as well as the
possibility of gains if that currency gains value, relative to the U.S. dollar.
The Funds may (but are not required to) employ certain strategies to
limit their risks or otherwise manage their exposure to foreign currencies. Such
currency management techniques, as well as the risks that those techniques
themselves present, are discussed in Section 6. below.
Also, a risk exists that a foreign country may have or implement
restrictions on transactions in its currency that prevent a Fund from
effectively managing or reducing its exposure to that currency, even after the
Fund has disposed of any securities denominated or traded in that currency.
c. Political and economic risk: Foreign securities often are subject to
heightened political and economic risks, particularly in emerging markets or
other underdeveloped or developing countries, which may have relatively unstable
governments and economies based on only a few industries. Foreign governments
may take over the assets or operations of a company, may impose additional
taxes, or may place limits on the removal of the Fund's assets from that
country. However, investments in foreign securities also offer the opportunity
to diversify holdings and to invest in economies whose growth may outpace that
of the United States.
d. Regulatory risk: Generally, there is less government supervision of
foreign markets. Foreign issuers generally are not subject to uniform
accounting, auditing, and financial reporting standards and practices applicable
to domestic issuers. There may be less publicly available information about
foreign issuers than domestic issuers. These risks may be greater in emerging
markets or other underdeveloped or developing countries.
e. Market risk: Foreign securities markets, particularly those of
emerging markets or other underdeveloped or developing countries, may be less
liquid and more volatile than domestic markets. Certain markets may require
payment for securities a Fund purchases before delivery of these securities to
the Fund, and
10
delays may be encountered in settling securities transactions. In some foreign
markets, there may be limited protection against failures by other parties to
complete their transactions with a Fund. There may be limited legal recourse
against an issuer in the event of a default on a debt instrument held by a Fund.
f. Transaction costs: Transaction costs of buying and selling foreign
securities, including brokerage, tax, and custody costs, are generally higher
than those involved in domestic transactions. This is particularly likely for
investments in emerging markets, or other underdeveloped or developing
countries.
6. Techniques and Instruments for Managing Currency Exposure
a. General considerations and risks: The Fund is not obligated to try to
hedge against any change in the value of any currency. Even if the Fund wished
to do so, there is no assurance that market conditions would be such as to make
such hedging possible. In general, however, the more foreign securities a given
Fund invests in, the greater its currency management activities are likely to
be. The foreign currency management techniques and instruments discussed below
do not eliminate fluctuations in the prices of portfolio securities or prevent
losses if the prices of such securities decline. The Fund may use certain types
of these instruments in currency management strategies that expose that Fund to
currencies other than the U.S. dollar. Although this would not be done for the
purpose of "leveraging" the Fund's overall exposure to fluctuations in currency
values, such strategies could expose the Fund to greater risks of loss and
greater volatility than it otherwise would experience. Moreover, even where a
Fund establishes positions designed to manage its foreign currency exposure,
there is no assurance that this will be beneficial to the Fund. Such positions
may cause a Fund to forego gains that it otherwise could have achieved or incur
costs and losses that it would not otherwise have incurred. (In general the cost
to the Fund of engaging in foreign currency management transactions varies with
such factors as the currency involved, the type and duration of the instrument
being used for this purpose, and the market conditions then prevailing.) It is
entirely possible, therefore, that any effort to manage a Fund's currency
exposure could have a negative effect on the Fund's investment performance.
The Fund may or may not attempt to hedge some or all of their foreign
portfolio positions. Rather, they will enter into such transactions only to the
extent, if any, deemed appropriate by their subadvisers. Furthermore, no Fund
will use forward foreign currency exchange contracts for the purpose of
leveraging the Fund's currency exposure.
b. Techniques for managing currency exposure: The Fund may employ one or
more of the following techniques for managing currency exposure:
(i) Transaction hedging: When the Fund anticipates having to purchase
or sell a foreign currency to facilitate a foreign securities transaction,
it may wish to "lock in" the current exchange rate for that currency
(vis-a-vis the U.S. dollar) and thus avoid (in whole or in part) exposure
to further changes in that rate that could occur prior to when the purchase
or sale proceeds are actually paid. This is called "transaction hedging."
The Fund can do transaction hedging by purchasing or selling foreign
currencies in the "spot" (i.e., cash) market. Alternatively, the Fund may
use one or more of the instruments described in Section 6.c. below for
transaction hedging.
(ii) Portfolio hedging: The Fund may also use one or more of the
instruments described below to reduce its exposure to changes (relative to
the U.S. dollar) in the value of a foreign currency during a period of time
when the Fund owns securities that are denominated, exposed to or traded in
that currency. This is called "portfolio hedging." The Fund generally will
not engage in portfolio hedging with respect to the currency of a
particular country to an extent greater than the aggregate market value (at
the time of establishing the hedge) of securities held by the Fund which
are denominated in, exposed to or traded primarily in that particular
foreign currency but may do so for purposes if transactions involving
"proxy" currency or "cross hedging."
(iii) "Proxy" currency: For purposes of transaction hedging or
portfolio hedging, the Funds may use instruments on a "proxy" currency,
instead of the currency being hedged. A proxy currency is one that the
subadviser believes will bear a close relationship to the currency being
hedged and believes will approximately
11
equal the performance of such currency relative to the U.S. dollar.
Nevertheless, changes in the value of the currency being hedged may not
correspond to changes in the value of the proxy currency as expected, which
could result in the currency hedge being more favorable or less favorable
to the Fund than the subadviser had expected.
(iv) Cross hedging: The Fund may use additional techniques when their
subadvisers believe that the currency of a particular country may suffer a
significant decline against the U.S. dollar or against another currency. In
that case, a Fund may use an instrument that, in effect, simultaneously
establishes for the Fund (1) a "short" position in an amount of foreign
currency approximating the value of some or all of that Fund's securities
denominated in, traded in, or exposed to such foreign currency and (2) a
corresponding "long" position in U.S. dollars or another currency. The
"long" position might be a currency other than U.S. dollars, for example,
if such other currency is believed to be undervalued or necessary to bring
the Fund's overall exposure to various currencies into a more desirable
balance. This is called "cross hedging."
(v) Other: To otherwise adjust the currency exposure of their
portfolios, the Fund may also enter into contracts that, in effect,
simultaneously establish for the Fund (1) a "short" position in an amount
of U.S. dollars, or other appropriate currency, and (2) a corresponding
"long" position in an amount of foreign currency equal to the value of some
of the Fund's securities.
c. Instruments for managing currency exposure: In furtherance of the
above-described techniques for managing currency exposure, the Funds may use one
or more of the following instruments:
(i) Forward exchange contracts (and related asset segregation
requirements): In a forward exchange contract, a Fund purchases or sells a
specific amount of foreign currency, at a price and time (which may be any
fixed number of days in the future) set in the contract. A Fund's
obligation to deliver an amount of a currency under a forward contract must
at all times be "covered" by the Fund's (a) owning at least that amount of
investments denominated or primarily traded in such currency that are not
segregated to support any other Fund obligation or (b) having a contractual
right to acquire that amount of such investments or such amount of currency
at a price no greater than the amount the Fund will receive on settlement
of the forward contract; or, alternatively, the Fund's sub-adviser must (c)
cause the Fund's custodian to segregate cash or other liquid assets of the
Fund that are not segregated to support any other Fund obligation and that,
together with any margin the Fund has on deposit for that forward contract,
at all times at least equals the amount of the Fund's obligation under that
contract; provided that, as to any forward contract on any currency that
settles on a "net" basis, a Fund may, for purposes of clause (c), consider
its "obligation" to be the net amount it owes under that contract that is
not covered as provided in clauses (a) and (b) of this sentence.
(ii) Options on currencies (and related asset segregation
requirements): The Fund may purchase and write put and call options on
foreign currencies. This could include options traded on U.S. and foreign
exchanges, as well as those traded in "over-the-counter" markets. The
characteristics and risks of these currency option transactions are similar
to those discussed in Sections 11. and 12. below with respect to put and
call options on securities.
The Fund's obligation to deliver an amount of currency upon exercise
of a call option written by the Fund must at all times be "covered" by the
Fund's (a) owning at least that amount of investments denominated or
primarily traded in such currency that are not segregated to support any
other Fund obligation or (b) having a contractual right to acquire such
investments or such amount of currency at a price no greater than the
amount the Fund will receive upon exercise of the option; or,
alternatively, the Fund's sub-adviser must cause the Fund's custodian at
all times to have segregated cash or other liquid assets of the Fund that
are not segregated to support any other Fund obligation and that, together
with any margin the Fund has on deposit with respect to that option, at all
times at least equals the value of the currency that the Fund is obligated
to deliver under the option and that is not covered as provided in clause
(a) or (b) of this sentence.
12
In connection with any currency put option written by the Fund, the
Fund's sub-adviser will cause the Fund's custodian at all times to have
segregated cash or other liquid assets of the Fund that are not segregated
to support any other obligation of the Fund and that, together with any
margin the Fund has on deposit with respect to such option, at all times at
least equals the amount the Fund is obligated to pay upon exercise of the
option.
(iii) Currency futures contracts (and options thereon): The Fund may
use currency futures contracts and options thereon to manage currency
exposure. The characteristics and risks of such futures and options
transactions are similar to those discussed in Sections 11, 12, and 13.
below for other transactions in futures contracts and options thereon. All
transactions in currency futures and options thereon also would be subject
to the applicable limitations in Section 13.c.(ix) below.
(iv) Other derivative instruments: The Fund may use certain "swaps,"
"caps," "floors," and "collars" to manage currency exposure. The
characteristics and risks of such "derivative" transactions, as discussed
in Section 14 below, are generally also applicable when such instruments
are used for currency management purposes.
7. Reallocating a Fund's Assets Among Asset Classes
The continual reallocation of assets among the major asset classes (e.g.,
stocks, bonds, and cash) involves the risk that the subadviser may reduce the
Fund's holdings in an asset class whose value increases unexpectedly, or may
increase the Fund's holdings in an asset class just prior to that asset class
experiencing a loss of value.
The Fund generally allows the subadviser some latitude to allocate across
asset classes. Nevertheless, this latitude is expected to be exercised to a
lesser degree than in the balanced funds.
8. Adopting a Temporary Defensive Strategy
The Fund may (but is not required to) adopt a defensive investment
posture if the subadviser believes the investment environment for the Fund is
negative. Such a defensive posture would involve reallocating some or all of a
Fund's assets in a manner different from that contemplated by its primary
investment objective and strategies and normal level of assets, cash and cash
equivalents. For most "actively managed" funds, (i.e., Funds that do not invest
with an index-based objective), this level is 10% or less, except in abnormal
market conditions, when the level can be higher.
The Funds are limited only by fundamental investment restrictions as to
the types of investments they could use temporarily for defensive purposes.
Thus, for example, a small cap equity fund might temporarily invest in stocks of
larger cap companies or in high quality, short term debt securities. A bond fund
might shorten maturities or tighten its investment quality parameters. An
international fund might, for example, limit the countries it would invest in or
temporarily invest only in high quality, short-term debt securities in the
United States.
There can be no assurance that the transaction costs and lost investment
opportunities will not outweigh any benefits to a Fund that attempts to adopt a
defensive strategy.
9. Investing With an Index-Based Objective
The S&P 500 Index: The S&P 500 is an index that is constructed by the
Standard & Poor's Corporation ("Standard & Poor's" or "S&P"), which chooses
stocks on the basis of market values and industry diversification. Most of the
largest 500 companies listed on U.S. stock exchanges are included in the index.
Additional stocks that are not among the 500 largest stocks, by market value,
may be included in the S&P 500 for diversification purposes. The index is
capitalization weighted -- that is, stocks with a larger capitalization (shares
outstanding times current price) have a greater weight in the index. Selection
of a stock for inclusion in the S&P 500 Index in no way implies an opinion by
S&P as to its attractiveness as an investment.
13
The Trust and the insurance products supported by the Trust are not
sponsored, endorsed, sold or promoted by Standard & Poor's. Standard & Poor's
makes no representation or warranty, express or implied, to the owners of the
insurance products supported by the Trust or to any member of the public
regarding the advisability of investing in the Trust or such insurance products.
Standard & Poor's only relationship to the Trust is the licensing of Standard &
Poor's "marks" and the S&P 500 Index, which is determined, composed and
calculated by Standard & Poor's without regard to the Fund or the Trust.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of McGraw-Hill, Inc. and have been licensed for use by the
Trust. In determining, composing, or calculating the S&P 500 Index, S&P has no
obligation to take into consideration the needs of the Trust or those of the
owners of the insurance products supported by the Trust. S&P is not responsible
for and has not participated in the determination of the prices and amount of
the insurance products supported by the Trust or the timing of the issuance or
sale of such products or in the determination or calculation of the equations by
which such products are to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing, or trading of such
products.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE TRUST, OWNERS OF THE PRODUCTS
SUPPORTED BY THE TRUST, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN. S&P 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 S&P
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
10. Investing on a Non-Diversified Basis
The Fund is a "non-diversified Fund." Non-diversified Funds are less
restricted in the extent to which they may invest more than 5% of their assets
in any issuer or purchase more than 10% of the voting securities of any issuer.
Because a relatively high percentage of a non-diversified Fund's assets may be
invested in the obligations of a single issuer or a limited number of issuers,
the value of that Fund's shares may be more volatile and more susceptible to any
single economic, political, or regulatory event, or to credit and market risks
associated with a single issuer, than would the shares of a diversified Fund.
14
11. Using Options
a. Overview: The Fund may, in varying degrees, use options on the following
(which, for simplicity, may be referred to as the "subject" of an option):
currencies, securities, equity indexes, interest rate indexes, and financial
futures contracts. This Section 11. discusses certain characteristics and risks
that are generally common to all of these types of options. The Fund's use of
specific types is further discussed in Section 6. above and 12. below, including
characteristics and risks peculiar to those types of options.
b. Purchasing "call" options: If the Fund (or anyone else) "purchases" a
"call" option, it pays a purchase price (often called a "premium") plus, in most
cases, a commission to the broker through whom the purchase was made. In return
the Fund (or other purchaser) has the right (but not the obligation), at or
before a specified future time (called the "expiration date"), to acquire a
specified amount of the option's subject (or the economic equivalent thereof) at
a specified price (called the "strike price" or "exercise price"). If the
purchaser of an option decides to exercise this right, we say the option has
been "exercised." If an option is never exercised before its expiration date, it
expires unexercised.
The Fund (or other purchasers of a call option) may profit in one of two
ways. First, the Fund may be able to exercise the call option at a date when the
value of the option's subject exceeds the purchase price of the option
(including any brokerage commission) plus the exercise price. Whether the Fund
will be able to do this depends on how favorable those prices were and how the
value of the option's subject has changed since the option was purchased.
Secondly, the Fund may profit from purchasing an option if the Fund is able
to sell the option (unexercised) at a profit sometime before its expiration
date. (As a practical matter, such a sale would generally be accomplished by
having the Fund sell (i.e., "write") an option identical to the option it owns,
thereby "netting out" the Fund's exposure to the position.) Whether such a
profit will be possible, of course depends on whether the then market price for
the option (less any commission payable on the sale) exceeds the option's
purchase price (including any related commission). In this regard, one of the
general risks of purchasing options is that, for a variety of reasons, the
market price of an option usually does not vary in the same way or to the same
extent as the value of the option's subject varies. Therefore, the Fund can lose
money purchasing a call option, even if the value of the option's subject
increases.
The basic risk in purchasing an option is that, if the Fund never exercises
or sells the option at a profit, the Fund will lose the entire purchase price of
the option (plus any related commissions). That is the maximum amount the Fund
could lose, however.
c. Selling or "writing" call options: Selling an option is commonly
referred to as "writing" an option. If the Fund (or anyone else) sells
("writes") a call option, it receives the premium (less any commission) paid by
the option's purchaser and has the obligation to sell the option's subject to
the purchaser at the exercise price if the purchaser exercises the option before
it expires.
15
The Fund can make a profit writing a call option if the purchaser fails to
exercise the option (which usually would happen only if the value of the
option's subject were below the exercise price). In this case, the option's
purchase price (net of any commissions) would be a profit to the Fund.
Alternatively, the Fund could profit from writing a call option if it is
able to subsequently purchase an identical option that would close out the
Fund's position at a profit. This could be done only if the market price of the
option then exceeded the Fund's purchase price by an amount greater than any
commissions payable by the Fund on the purchase and sale transactions. There is
a risk, however, that a Fund may be unable to do this, even if the value of the
call option's subject has declined. This is because, as noted above, the value
of an option does not vary in identical fashion to the value of the option's
subject.
The risk of writing a call option is that, if the value of the option's
subject exceeds the option's exercise price, the option is almost sure to be
exercised. In that case, the Fund will suffer a loss to the extent that the
premium it received for writing the option (net of any commissions), plus the
exercise price it receives are less than the value of the option's subject at
the time of exercise. Therefore, the higher the value of the option's subject
rises, the greater the Fund's potential loss on an option it has written. A Fund
could cut off its further exposure in such a case by purchasing an identical
call option that would close out its position. The Fund would, however, probably
realize a loss on the transaction, because the purchase price it would have to
pay for that call option would probably have increased to reflect the increasing
value of the option's subject.
d. Writing call options on a "covered" basis. One way for the Fund to limit
its risk exposure on call options it has written is to "cover." A call option
may be considered "covered" if, as long as the option is outstanding, the writer
(seller) of the option owns assets that are identical to, or have the same or
similar investment characteristics to, the option's subject. In such a case, if
the value of the option's subject increases, the losses that the Fund will incur
on the call option it has written will tend to be offset by gains that Fund
earns on the assets it is holding to "cover" the option.
Naturally, the more similar the assets held by the fund are to the option's
subject, the more assurance the Fund will have that its losses on call options
it has written will be "covered."
Call options written by Fund can also be considered to be "covered" to the
extent that the Fund's liabilities under these options are fully offset by its
rights under call options on the same subject owned by the Fund.
e. Purchasing and selling (writing) "put" options: A "put" option is the
same as a call option, except that the Fund (or any other person) that purchases
a put option, by paying the purchase price ("premium") has the right to sell
(rather than buy) the option's subject for a stated exercise ("strike") price.
Conversely, the seller (writer) of a put option receives the premium (net of any
commissions) but has the obligation to purchase the option's subject at its
exercise price if the option is exercised.
Thus, if the Fund purchases a put option, its maximum potential loss would
equal the purchase price (plus any commissions thereon). If the Fund actually
owns at least the amount of whatever assets are the subject of the option, the
option is sometimes referred to as a "protective" put option. If the market
value of such underlying securities remains above the option's exercise price,
the Fund will, in effect, lose the premium it has paid for the option. The Fund,
however, avoids the risk of loss on the underlying securities, to the extent
that the market value of the underlying securities falls below the exercise
price of the put option.
16
On the other hand, if a Fund sells (writes) a put option, the Fund could
experience continuing losses while the option is outstanding, to the extent that
the value of the subject of the option continues to decline. If the subject lost
its value entirely, the Fund's maximum loss would equal the exercise price less
the premium (net of any commissions) that the Fund received initially for
writing the option. Because of this risk exposure, a Fund that writes a put
option may seek to "cover" that option with other assets that it owns
f. Accounting for options: The value of any option that the Fund has
purchased, and the amount of the Fund's obligation under any outstanding option
it has written, will vary as market prices change. These variations are
reflected daily in the Fund's calculation of its net asset value, so that such
value always reflects the estimated impact of current market conditions on all
of the Fund's option positions.
g. Liquidity risk: The Fund intends to write and purchase options only if
the subadviser believes that adequate liquidity exists. If for any reason the
Fund cannot, however, close out its open option position when deemed advisable,
the Fund's investment performance could be adversely affected.
h. Using options traded over-the-counter or on foreign exchanges: The Fund
may use options on securities and options on indexes that are traded
"over-the-counter" or on foreign exchanges, in any manner and to the same extent
that they would be permitted to use such options that were traded on domestic
exchanges. The Funds will engage in over-the-counter options only with member
banks of the Federal Reserve System and primary dealers in U.S. Government
securities. The Funds will treat over-the-counter options they have purchased
and assets used to cover over-the-counter options they have written as illiquid
securities. However, with respect to options written with primary dealers in
U.S. Government securities pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount of illiquid securities may be
calculated with reference to the formula price.
12. Using Options on Securities (and related asset segregation requirements)
The Fund may purchase or write (sell) put and call options on securities of
a type that the Fund could invest in directly.
If the Fund writes a call option, it will at all times while that option is
outstanding, own an amount of securities subject to the option that are not
segregated to support any other obligation of the Fund and/or a call option on
the same securities at an exercise price that is not higher than that of the
call option written by the Fund; or, alternatively, the Fund's subadviser will
cause the Fund's custodian at all times to have segregated cash or other liquid
assets of the Fund that are not segregated to support any other Fund obligation
and that, together with any margin the Fund has on deposit with respect to the
option it has written, at all times at least equals the value of the securities
subject to the option that are not "covered" by the means set out in the first
clause of this sentence.
The Fund's obligation to make a payment upon the exercise of a put option
on securities written by the Fund will at all times be fully covered by the
Fund's owning a put option on the same securities at an exercise price that is
no less than the amount the Fund must pay upon exercise of the put it has
written; or, alternatively, the Fund's sub-adviser will cause the Fund's
custodian at all times to have segregated cash or other liquid assets of the
Fund that are not segregated to support any other Fund obligation and that,
together with any margin the Fund has on deposit with respect to the put option
it has written, at all times at least equals the amount of the Fund's obligation
upon exercise of the put option that is not covered as provided in the first
clause of this sentence.
13. Using Financial Futures Contracts, Options on Such Contracts and Options on
Stock Indexes
a. Overview: The Fund may, in varying degrees, use financial futures
contracts, options on such futures and options on stock indexes. This Section 13
discusses certain characteristics and risks that generally pertain to these
instruments, as well as the Fund's specific uses of these instruments and
specific risks related to those uses.
17
b. General characteristics and risks: The general characteristics and risks
of financial futures, options on such contracts and options on stock indexes are
discussed in the following subsections.
(i) Financial futures contracts: Financial futures contracts consist
of interest rate futures contracts, stock index futures contracts, and
currency futures contracts.
An interest rate futures contract is a contract to buy or sell
specified debt securities at a future time for a fixed price. A public
market currently exists for interest rate futures contracts on United
States Treasury Bills, United States Treasury Notes, bank certificates of
deposit, and various other domestic or foreign instruments and indexes.
Stock index futures contracts bind purchaser and seller to delivery at
a future date specified in the contract of a cash amount equal to a
multiple of the difference between the value of a specified stock index on
that date and settlement price specified by the contract. That is, the
seller of the futures contract must pay and the purchaser would receive a
multiple of any excess of the value of the index over the settlement price,
and the purchaser must pay and the seller would receive a multiple of any
excess of the settlement price over the value of the index. A public market
currently exists for stock index futures contracts based on the Standard &
Poor's 500 Stock Index, the Standard & Poor's Midcap Index, the New York
Stock Exchange Composite Index, the Value Line Stock Index, and various
other domestic or foreign indexes.
A currency futures contract is a contract to buy or sell a specified
amount of another currency at a future time for a fixed price.
(ii) Options on financial futures contracts: The writer of an option
on a financial futures contract agrees to assume a position in such
financial futures contract having a specified price, if the purchaser
exercises the option and thereby assumes the opposite position in the
financial futures contract. If the option purchaser would assume the sale
side of the futures contract upon exercise of the option, the option is
commonly called a "put" option. If the option writer would assume the
purchase side, it is commonly called a "call" option. As with other types
of options, the party that writes the option receives a premium for doing
so, and the party that purchases an option pays a premium therefor.
However, there is no exercise (or strike) price, as such. Rather, if the
value of the futures contract moves against the writer of the option, so
that the option is (or is likely to be) exercised, the option writer, in
effect, has the obligation to pay those losses.
More specifically, an option written by the Fund on a financial
futures contract requires the Fund to pay any amount by which the
fluctuating price of the underlying debt instrument or index exceeds (in
the case of a call option) or is less than (in the case of a put option)
the price specified in the futures contract to which the option relates.
Therefore, if the price of the debt instrument or stock index on which the
futures contract is based increases (in the case of a call option written
by the Fund) or decreases (in the case of a put option written by the
Fund), the Fund may incur losses that exceed the amount of the premium
received by the Fund for writing the option.
18
(iii) Stock index options: After payment of a specified premium at the
time a stock index option is entered into, the purchaser of a stock index
call option obtains the right to receive a sum of money upon exercise of
the option equal to a multiple of the excess of a specified stock index on
the exercise date over the exercise or "strike" price specified by the
option. The purchaser of a put option obtains the right to receive a sum of
money upon exercise of the option equal to a multiple of any excess of the
strike price over the stock index. The writer of a call or put stock index
option receives a premium, but has the obligation, upon exercise of the
option, to pay a multiple of the difference between the index and the
strike price. Thus, if the price of the stock index on which an index
option is based increases (in the case of a call option written by a Fund)
or decreases (in the case of a put option written by a Fund), the Fund may
incur losses that exceed the premium it received for writing the option.
Stock indexes for which options are currently traded include the
Standard & Poor's 100 and Standard & Poor's 500 Indexes.
(iv) Margin requirements for futures and options: When futures
contracts are traded, both buyer and seller are required to post an initial
margin of cash or U.S. Treasury Bills equaling as much as 5 to 10 percent
or more of the contract settlement price. The nature of the margin
requirements in futures transactions differs from traditional margin
payments made in securities transactions in that margins for futures
contracts do not involve the borrowing of funds by the customer to finance
the transaction. Instead, a customer's margin on a futures contract
represents a good faith deposit securing the customer's contractual
obligations under the futures contract. If the market moves against the
Trust, so that the Fund has a net loss on its outstanding futures contracts
for a given day, the Fund generally will be required to post additional
margin to that extent. The margin deposit is returned, assuming the Trust's
obligations have been met, when the futures contract is terminated.
Similar margin requirements will apply in connection with any
transactions in which a Fund writes any options. This includes options on
indexes and futures contracts, as well as other types of options.
(v) Certain risks: Financial futures, options thereon, and stock index
options, if used by the Fund, will in most cases be based on securities or
stock indexes the components of which are not identical to the portfolio
securities owned or intended to be acquired by the Fund and in connection
with which such instruments are used. Furthermore, due to supply and demand
imbalances and other market factors, the price movements of financial
futures, options thereon, and stock index options do not necessarily
correspond exactly to the price movements of the securities, currencies, or
stock index on which such instruments are based. These factors increase the
difficulty of implementing a successful strategy using futures and options
contracts.
The Fund generally will not take delivery of debt instruments pursuant
to purchasing an interest rate futures contract, nor make a delivery of
debt instruments pursuant to selling an interest rate futures contract. Nor
will the Funds necessarily take delivery of or deliver currencies in
connection with currency futures contracts. Instead, the Fund will more
typically close out such futures positions by entering into closing futures
contract transactions. Similarly, the Fund may wish to close out an option
on a futures contract or an option on an index by entering into an
offsetting position in those instruments.
19
Generally speaking, entering into closing transactions such as
described immediately above would not affect gains and losses of the Fund
resulting from market action prior to such closing transactions. Moreover,
there is a risk that, at the time a Fund wishes to enter into such a
closing transaction, trading in futures or options could be interrupted,
for example, because of supply and demand imbalances arising from a lack of
either buyers or sellers. The futures and options exchanges also may
suspend trading after the price has risen or fallen more than the maximum
amount specified by the exchange. Exercise of options could also be
restricted or delayed because of regulatory restrictions or other factors.
Although the subadvisers will seek to avoid situations where these factors
would be likely to cause a problem for the Trust, in some cases they could
adversely affect particular Fund transactions in these instruments.
(vi) Asset segregation requirement for certain futures and options
positions: A Fund will maintain at all times in a segregated account with
its custodian cash or liquid securities that are not segregated to support
any other obligations of the Fund and that at all times at least equals (a)
the sum of the purchase prices of all of the Fund's open futures purchase
positions, plus (b) the current value of the securities underlying all of
the Fund's open futures sales positions that are maintained for purposes
other than bona fide hedging, plus (c) the exercise price of all
outstanding put options on futures contracts written by the Fund, minus (d)
the amount of margin deposits with respect to all of such contracts.
(c) Specific uses of financial futures, options thereon, and stock index
options: The Fund may use exchange-traded financial futures contracts, options
thereon, and exchange-traded put or call options on stock indexes, for the
purposes discussed below. It should be emphasized that the Fund is not required
to use any of these strategies, and doing so is not a principal investment
strategy of any of their investment portfolios. Therefore, it should not be
assumed that the Fund will ever necessarily use any of these strategies to a
significant extent.
(i) Hedging with financial futures contracts against market changes,
and risks thereon: The Fund may use financial futures contracts, and
options thereon, as a hedge to protect against possible changes in interest
rates and security prices.
Thus, for example, to hedge against the possibility that interest
rates or other factors may result in a general decline in prices of equity
securities of a type it owns, the Fund may sell stock index futures
contracts. Similarly, to hedge against the possibility that increases in
interest rates may adversely affect the market values of debt securities it
holds, the Fund may enter into interest rate futures sale contracts.
20
(ii) Establishing market exposure and managing cash flow with
financial futures contracts and options thereon: A Fund may purchase and
sell stock index and interest rate futures, and options thereon, to
maintain market exposure and manage cash flows. Purchasing futures
contracts, and options thereon, could enable a Fund to take the approximate
economic equivalent of a substantial position in bonds or equity
securities, although there is no assurance that this goal can be achieved.
(iii) Managing foreign currency exposure with foreign currency futures
contracts: A Fund may use foreign currency futures contracts, and options
thereon, to the same extent and in the same manner as it is authorized to
use forward foreign exchange contracts in Section 6. above.
(iv) Risks of hedging type strategies: If, after the Fund establishes
a hedge position, the value of the securities or currency being hedged
moves in the opposite direction from that anticipated, the Fund as a whole
will perform less well than it would have had it not entered into the
futures or option transaction.
The success of the Fund in using hedging-type techniques depends,
among other things, on the subadviser's ability to predict the direction
and volatility of price movements in the futures or options markets, as
well as the securities markets and, in some cases, currency markets, and on
the subadviser's ability to select the proper type, time and duration of
option or futures contracts. Certain of the subadvisers have limited
experience in utilizing these hedging-type techniques, and there can be no
assurance that these techniques will produce their intended result.
The prices of the futures and options contracts used for hedging-type
strategies may not vary as contemplated in relation to changes in the price
of the securities or currencies being hedged. Accordingly, there is a risk
that transactions in these instruments, if used by the Fund, may not in
fact offset the impact of adverse market developments in the manner or to
the extent contemplated or that such transactions may result in losses to
the Fund which would not be offset by gains with respect to corresponding
portfolio securities owned or to be purchased by the Fund. Hedging-type
transactions also may be more, rather than less, favorable to a Fund than
originally anticipated.
(v) Writing "covered" index options (and related asset segregation
requirements): The Fund may write put and call options on indexes composed
of securities in which the Fund may invest. The Fund's obligation to make a
payment upon the exercise of a put or call option on an index written by
the Fund will at all times be fully covered by (a) in the case of a put
option, the Fund's owning a put option on the same index at an exercise
price not lower than that of the option written by the Fund, or (b) in the
case of a call option, the Fund's owning a call option on the same index at
an exercise price not higher than that of the option written by the Fund;
or, alternatively, the Fund's sub-adviser will cause the Fund's custodian
at all times to have segregated cash of other liquid assets of the Fund
that are not segregated to support any other Fund obligation and that,
together with any margin the Fund has on deposit with respect to the option
it has written, at all times at least equals the amount of the Fund's
obligation upon exercise of the option it has written that is not covered
as provided in clause (a) or (b) of this sentence.
(vi) Purchasing index options. The Fund may purchase put and call
options on indexes composed of securities in which the Fund may invest,
without specific restriction on the circumstances of such purchases. Option
purchases of this type, however, would have to be consistent with the
Fund's investment objective. Also, the Fund is subject to the limitation
on certain futures and options transactions described in Section 13.c.(ix).
(vii) Using futures contracts and options on futures contracts: A Fund
may use futures contracts on securities or on market indexes, and options
on such futures contracts, without specific restriction on the purposes of
such transactions. Nevertheless, such transactions would have to be
consistent with the Fund's investment objective.
There is no specific overall limit on the amount of the assets the
Fund may devote to financial futures contracts and options thereon, even if
such contracts are not limited to hedging-type transactions.
21
Nevertheless (except through the purchase of options, as discussed below)
the Funds will not use these techniques for purpose of "leveraging" the
Fund's exposure to the securities underlying any futures contract or option
thereon or its exposure to foreign currencies. Although this limitation
does not apply to options on futures contracts that are purchased by a
Fund, the total amount of assets on deposit as margin to secure options on
futures contracts that are not used for bona fide hedging purposes plus the
amount of premiums paid by a Fund for such options is (pursuant to the
limitations set forth below) limited to 5% of the Fund's net assets.
(viii) Risks of potentially more aggressive options and futures
strategies: To the extent that a Fund exercises its broad authority to
enter into options and futures transactions for purposes that are not
solely for hedging-type purposes or that otherwise may be for more
speculative purposes, it may incur greater risks than another Fund that
limits its strategy to hedging-type transactions.
(ix) Limitations on the Fund's exposure to certain futures and
option transactions: The Fund may not purchase, sell or write futures
contracts or options thereon other than for "bona fide" hedging purposes
(as defined by the U.S. Commodity Futures Trading Commission) if
immediately thereafter the Fund's initial margin deposits on such
outstanding non-hedging futures and options positions, plus the amount of
premiums paid by the Fund for such outstanding non-hedging options on
futures contracts, exceeds 5% of the market value of the Fund's net assets.
For the purpose of this calculation, any amount by which an option is "in
the money" at the time of its purchase is excluded from the premium paid
therefor.
Nor will the Fund consider as "hedging" any transaction that is
intended to leverage the Fund's investment exposure to the type of security
being hedged or to leverage the Fund's currency exposure.
14. "Swaps," "Caps," "Floors," and "Collars"
a. Overview: The nature and risks of these types of transactions are
discussed in the paragraphs that follow.
b. Interest rate swaps: In a typical interest rate swap agreement, one
party agrees to make payments equal to a floating interest rate on a specified
amount (the "notional amount") in return for payments equal to a fixed interest
rate on the same amount for a specified period. If a swap agreement provides for
payments in different currencies, the parties might agree to exchange the
notional amount as well.
Provided the contract so permits, the Fund will usually enter into swaps on
a "net" basis: that is, the two payment streams are netted out in a cash
settlement on the payment date or dates specified in the instrument, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments.
c. Interest rate caps, floors and collars: The purchaser of an interest
rate cap or floor, upon payment of a fee, has the right to receive payments (and
the seller of the cap is obligated to make payments) to the extent a specified
interest rate exceeds (in the case of a cap) or is less than (in the case of a
floor) a specified level over a specified period of time or at specified dates.
The purchaser of an interest rate collar, upon payment of a fee, has the right
to receive payments (and the seller of the collar is obligated to make payments)
to the extent that a specified interest rate falls outside an agreed upon range
over a specified period of time or at specified dates.
d. Currency, index and equity swaps, caps, floors and collars: Currency,
index, and equity swaps, caps, floors, and collars are similar to those for
interest rates described in the two preceding paragraphs above, except that,
rather than being determined by variations in specified interest rates, the
obligations of the parties are determined by variations in a specified currency,
interest rate index, or equity index, as the case may be.
e. Certain risks: The amount of the Fund's potential gain or loss on any
swap transaction is not subject to any fixed limit. Nor is there any fixed limit
on the Fund's potential loss if it sells a cap, floor or collar. If a Fund buys
a cap, floor or collar, however, the Fund's potential loss is limited to the
amount of the fee that it has paid.
Swaps, caps, floors and collars tend to be more volatile than many other
types of investments.
22
Nevertheless, the Fund will use these techniques only as a risk management tool
and not for purposes of leveraging the Fund's market exposure or its exposure to
changing interest rates, security values or currency values. Rather, the Fund
will use these transactions only to preserve a return or spread on a particular
investment or portion of its investments, to protect against currency
fluctuations, as a duration management technique, to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date, or to gain exposure to certain markets in the most economical way
possible. Nor will the Fund sell interest rate caps, floors or collars if it
does not own securities providing the interest that the Fund may be required to
pay under such derivative instruments. Finally, of course, the Fund may use
these derivative instruments only in ways that are consistent with its
investment objective.
The use of swaps, caps, floors and collars involves investment techniques
and risks different from those associated with other portfolio security
transactions. If the subadviser is incorrect in its forecasts of market values,
interest rates, currency rates and other applicable factors, the investment
performance of a Fund might be less favorable than if these techniques had not
been used.
These instruments are typically not traded on exchanges. Accordingly, there
is a heightened risk that the other party to certain of these instruments will
not perform its obligations to the Fund. The Fund will not enter into any swap,
cap, floor, or collar, unless the other party to the transaction is deemed
creditworthy by the subadviser.
There also is a risk that a Fund may be unable to enter into offsetting
positions to terminate its exposure or liquidate its investment under certain of
these instruments when it wishes to do so. Such occurrences could result in
losses to the Fund. In recent years, the swap market has become relatively
liquid. Caps, floors and collars are more recent innovations for which
standardized documentation has not yet been fully developed and, for that
reason, they are less liquid than swaps.
The liquidity of swaps, caps, floors and collars will be determined by the
subadviser based on various factors, including (1) the frequency of trades and
quotations, (2) the number of dealers and prospective purchasers in the
marketplace, (3) dealer undertakings to make a market, (4) the nature of the
instrument (including any demand or tender features) and (5) the nature of the
marketplace for trades (including the ability to assign or offset a Fund's
rights and obligations relating to the investment). Such determinations will
govern whether the instrument will be deemed within the Fund's 15% restriction
on investments in securities that are not readily marketable.
f. Segregation requirements for these derivatives: The Fund's sub-adviser
will cause the Fund's custodian to segregate cash or liquid assets of the Fund
that are not then segregated to cover any other obligation of the Fund and that,
together with any margin the Fund has deposited in connection with its
outstanding swaps, caps, floors, and collars, at all times at least equals the
amount of the Fund's obligations under these instruments. If a swap is on a net
basis, the Fund's obligation for this purpose is deemed to be the net amount, if
any, that the Fund owes on the swap. In all other cases, the full amount of the
Fund's accrued obligation will be segregated.
23
15. Investing in Other Investment Companies
a. Overview: The Fund may invest up to 10% of its total assets in
shares of other investment companies investing exclusively in securities in
which that Fund may otherwise invest. Such investments may involve the payment
of substantial premiums above the net asset value of those investment companies'
portfolio securities and are subject to limitations under the Investment Company
Act of 1940. As a shareholder in an investment company, the Fund would bear its
ratable share of that investment company's expenses, including advisory and
administration fees, except as specifically stated otherwise in the paragraphs
that follow.
b. Investing in passive foreign investment companies: Because of
restrictions on direct investment by U.S. entities in certain countries, other
investment companies may provide the most practical (or only) way for a Fund to
invest in certain markets. A Fund may incur tax liability to the extent it
invests in the stock of a foreign issuer that is a "passive foreign investment
company," regardless of whether such "passive foreign investment company" makes
distributions to the Fund.
c. Investing in exchange traded funds: The Fund may invest in certain
forms of Exchange Traded Funds ("ETFs"), provided such investment is consistent
with the Fund's investment objectives. ETFs are registered open-end investment
companies whose shares can be bought and sold on various exchanges in the same
way as stocks. ETFs may be used for several reasons, including but not limited
to: facilitating the handling of cash flows or trading, or reducing transaction
costs. There are various forms of ETFs, but the ones that are most commonly used
at the current time are iShares (formerly called World Equity Benchmark Shares
or "WEBS") and SPDRs (Standard and Poor's Depository Receipts).
(i) Investing in iShares: iShares(SM) are shares of an
open-end investment company that invests substantially all of its
assets in securities included in various indices. iShares(SM) are
listed on the AMEX and were initially offered to the public in 1996.
The market prices of iShares(SM) are expected to fluctuate in
accordance with both changes in the NAVs of their underlying indices
and supply and demand of iShares(SM) on the AMEX. To date, iShares(SM)
have traded at relatively modest discounts and premiums to the NAVs.
However, iShares have a limited operating history and information is
lacking regarding the actual performance and trading liquidity of
iShares(SM) for extended periods or over complete market cycles. In
addition, there is no assurance that the requirements of the AMEX
necessary to maintain the listing of iShares(SM) will continue to be
met or will remain unchanged. In the event substantial market or other
disruptions affecting iShares(SM) should occur in the future, the
liquidity and value of a Fund's shares could also be substantially and
adversely affected. If such disruptions were to occur, a Fund could be
required to reconsider the use of iShares(SM) as part of its investment
strategy.
(ii) Investing in SPDRs: SPDRs are American Stock
Exchange-traded securities that represent ownership in the SPDR Trust,
a trust which has been established to accumulate and hold a portfolio
of common stocks that is intended to track the price performance and
dividend yield of the S&P 500. This trust is a regulated investment
company that is sponsored by a subsidiary of the American Stock
Exchange.
24
16. "When Issued" Securities and Forward Commitments
a. Overview: The Fund may purchase securities on a when issued or
delayed delivery basis. When such transactions are negotiated, the price of such
securities is fixed at the time of commitment, but delivery and payment for the
securities may take place a month or more after the date of the commitment to
purchase. The securities so purchased are subject to market fluctuations, and no
interest accrues to the purchaser during this period.
In addition, the Fund may make contracts to purchase securities for
a fixed price at a future date beyond customary settlement time ("forward
commitments"), because new issues of securities are typically offered to
investors on that basis. Forward commitments involve a risk of loss if the value
of the security to be purchased declines prior to the settlement date. This risk
is in addition to the risk of decline in value of the Fund's other assets.
Although a Fund will enter into such contracts with the intention of acquiring
the securities, the Fund may dispose of a commitment prior to settlement if its
subadviser deems it appropriate to do so.
b. Asset segregation requirement for these transactions. The Fund's
sub-adviser will cause the Fund's custodian to segregate cash or other liquid
assets of the Fund that are not then segregated to cover any other obligation to
the Fund and that, together with any margin the Fund has deposited in connection
with when-issued securities and forward commitments, at all times at least
equals the aggregate amount of the Fund's when-issued and forward commitments.
17. Short-Term Trading
The Fund can use short-term trading of securities as a means of
managing its portfolios to achieve its investment objectives. As used herein,
"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 Fund may engage in
short-term trading to the extent that the subadviser believes the transactions,
net of costs (including commissions, if any), will benefit the Fund. Generally
speaking, short-term trading can be expected to generate expenses for the Fund
that would not be incurred if the Fund did not engage in that practice.
18. Entering Into Repurchase Agreements
The Fund may enter into repurchase agreements.
A repurchase agreement is a contract under which the Fund would acquire
a security for a relatively short period (e.g., 7 days), subject to the seller's
obligation to repurchase the security at a fixed time and price (representing
the Fund's cost plus interest). Repurchase agreements will be entered into only
with member banks of the Federal Reserve System, with "primary dealers" in U.S.
Government securities or with other dealers and banks who meet a subadviser's
credit standards
The Fund will not invest in repurchase agreements maturing in more than
7 days if that investment, together with any other investments deemed
"illiquid," would exceed 15% of the Fund's net assets.
The Fund has a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian, co-custodian, or sub-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 a
bankruptcy or other default by a seller of a repurchase agreement, however, the
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 while the Fund seeks to enforce its rights thereto,
possible subnormal levels of income and lack of access to income during this
period, and expenses of enforcing its rights).
25
19. Participating in Joint Trading Accounts
John Hancock has established a "joint trading account" that all Funds,
in the discretion of their subadvisers, can use to invest relatively small
amounts of cash on a more favorable basis than they could do individually. John
Hancock is responsible for investing the aggregate cash balances in the joint
trading account into one or more repurchase agreements, as described in Section
18. above, or in other money market instruments. The joint trading account was
established pursuant to an order of the SEC and the Fund may regularly
participate in it.
20. Lending of Fund Securities
In order to generate additional income, the Fund may lend securities
from its portfolios to brokers, dealers and financial institutions such as
banks and trust companies. Such loans will be secured by collateral consisting
of cash or U.S. Government securities, which will be maintained in an amount
equal to at least 100% of the current market value of the loaned securities.
During the period of the loan, the Fund receives the income (if any) on the
loaned securities, as well as additional compensation for making the loan. Cash
collateral may be invested in short-term securities, which will increase the
current income of the Fund. Such loans will be terminable by the Fund at any
time. The Fund will have the right to regain record ownership of loaned
securities in order to exercise rights of a holder thereof including receiving
interest or other distributions or exercising voting rights. The Fund may pay
reasonable fees to persons unaffiliated with the Fund for services in arranging
such loans.
Lending of portfolio securities involves a risk of failure by the
borrower to return the loaned securities, in which event the Fund may incur a
loss. However, most of the Funds' loans of securities are pursuant to an
arrangement with State Street Bank & Trust Company, the Trust's primary
custodian. Under these arrangements, State Street Bank & Trust Company
guarantees the Trust against any loss or damages that any Fund incurs as a
result of the borrower failing to return the Fund's securities in accordance
with the terms of the loan. The Fund will not lend portfolio securities having a
total value in excess of 33 1/3% of its total assets.
21. Reverse Repurchase Agreements and Mortgage "Dollar Rolls"
a. Overview: The Fund may enter into reverse repurchase agreements to
facilitate portfolio liquidity, or in arbitrage transactions (discussed below).
In a reverse repurchase agreement, the Fund sells a security and enters into an
agreement to repurchase the security at a specified future date, but at a lower
price. The Fund generally retains the right to interest and principal payments
on the security, as well as use of the proceeds while the repurchase agreement
is outstanding.
The Fund may enter into mortgage dollar rolls, in which the Fund sells
mortgage-backed securities for delivery in the current month and simultaneously
contracts to purchase substantially similar securities at a specified future
date and price. While the Fund foregoes principal and interest paid on the
mortgage-backed securities during the "roll" period, the Fund is compensated by
the difference between the current sale price and the lower price for the future
purchase as well as by any return earned on the proceeds of the initial sale.
The mortgage dollar rolls and reverse repurchase agreements entered
into by the Fund may be used as arbitrage transactions in which the Fund will
maintain an offsetting position in investment-grade debt obligations or
repurchase agreements that mature on or before the settlement date of the
related mortgage dollar roll or reverse repurchase agreement. Since the Fund
will receive interest on the securities or repurchase agreements in which it
26
invests the transaction proceeds, such transactions could be considered to
involve financial leverage. However, since such securities or repurchase
agreements will be high quality and will mature on or before the settlement date
of the mortgage dollar roll or reverse repurchase agreement, the Trust does not
believe that such arbitrage transactions present the risks to the Fund that are
generally associated with financial leverage.
b. Asset segregation requirements for reverse repurchase agreements and
mortgage dollar rolls: The Fund's sub-adviser will cause the Fund's custodian to
have segregated cash or other liquid assets of the Fund that are not segregated
to support any other Fund obligation and that at all times at least equals the
amount of the Fund's obligations under outstanding mortgage dollar rolls and
reverse repurchase agreements.
22. Investing in Rule 144A and Illiquid Securities
The Fund may purchase unregistered securities that are eligible for
resale to the "qualified institutional buyers" pursuant to Rule 144A under the
Securities Act of 1933. Case-by-case determinations are made whether each issue
of Rule 144A securities owned by the Fund is an illiquid security.
The Fund may purchase illiquid Rule 144A securities, or other illiquid
assets if, and only if, the total of all the Fund's illiquid assets would not
thereby be made to exceed 15% of the Fund's net assets.
23. Investing in Preferred Stock, Convertible Securities and Warrants
Investments may be made in debt or preferred equity securities and
those convertible into, or exchangeable for, equity securities. Traditionally,
convertible securities have paid dividends or interest at rates higher than
common stocks but lower than nonconvertible securities. They generally
participate in the appreciation or depreciation of the underlying stock into
which they are convertible, but to a lesser degree. In recent years,
convertibles have been developed which combine higher or lower current income
with options and other features. Warrants are options to buy a stated number of
shares of common stock at a specified price anytime during the life of the
warrants (generally, two or more years).
24. Investing in Initial Public Offerings ("IPOs")
IPO investments may be more volatile than other types of investments
and the Fund's investments in IPOs may be subject to more erratic price
movements than the overall equity market. IPOs could have a substantial impact
on performance, either positive or negative, particularly on a fund with a small
asset base. The actual effect of IPOs on performance depends on a variety of
factors, including the number of IPOs the Fund invests in, whether and to what
extent a security purchased in an IPO appreciates in value, and the asset base
of the Fund. There is no guarantee that the Fund's investments in IPOs, if any,
will continue to have a similar impact on the Fund's performance in the future.
27
D. THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund's investment objectives and strategies may, in general, be
changed without the approval of shareholders.
In a few cases, however, the Investment Company Act requires such
approval. In addition, the Trust has adopted as "fundamental" the below-listed
restrictions relating to the investment of the Fund's assets. That these
restrictions are "fundamental" policies means that they may not be changed for
the Fund without the approval of a majority of the outstanding voting shares of
the Fund. (The term "majority of the outstanding voting shares" means the lesser
of (1) 67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (2) more than 50% of the outstanding
shares.)
To the extent the Trust's prospectus or this Statement of Additional
Information anywhere sets forth investment restrictions more restrictive than
the fundamental restrictions described below, the more restrictive limitation
controls; but any such more restrictive limitation may be changed without any
shareholder approval, subject to the below fundamental restrictions.
The Trust's current fundamental investment restrictions are as follows:
1. REAL ESTATE. No Fund will purchase or sell real estate. This restriction does
not prevent (a) a Fund from acquiring real estate as a result of ownership of
those securities or other instruments in which the Fund is permitted to invest;
(b) a Fund from investing in securities that are secured by real estate or
interests therein; (c) a Fund from investing in issuers that invest, deal, or
otherwise engage in transactions in real estate or interests therein; or (d) the
Real Estate Equity Fund from making any type of investment that it is otherwise
permitted to make.
2. LOANS. No Fund will make loans, except that this restriction does not prevent
a Fund from (a) making loans through the acquisition of obligations in which the
Fund may invest consistent with its objective and investment policies; (b)
lending portfolio securities; or (c) making loans to other Funds or investment
companies managed or sponsored by an investment adviser to the Fund or by any
company controlling, controlled by, or under common control with such investment
adviser.
3. COMMODITIES. No Fund will purchase or sell physical commodities, except that
a Fund may sell physical commodities acquired as a result of ownership of those
securities or other instruments in which a Fund is permitted to invest.
4. UNDERWRITING. No Fund will engage in the underwriting of securities of other
issuers. This restriction will not prevent a Fund from disposing of its
portfolio securities regardless of its status as an underwriter under any
federal or state securities laws.
5. BORROWING. No Fund will borrow money, except that this restriction will not
prevent a Fund from borrowing (a) from banks for any purpose, provided that
immediately after any such borrowing there is an asset coverage of at least 300%
for all borrowings of the Fund as required under Section 18(f)(1) of the
Investment Company Act (subject to any amendments to, regulations under, or
exemptions from Section 18(f)(1) of the Investment Company Act); (b) for
temporary purposes only, provided that loans for temporary purposes do not
exceed 5% of the value of the total assets of the Fund as of the time when each
such loan is made; or (c) from another fund, or from a related entity of another
fund, pursuant to any amendments to, regulations under, exemptions from or
interpretations of the Investment Company Act./1/
- --------------------
/1/ All of the Funds also operate under a non-fundamental policy that, if
borrowings by a Fund ever exceed 5% of its total assets, that Fund will make no
new investments until it has paid down its borrowings to below 5%.
28
6. SENIOR SECURITIES. No Fund will issue senior securities, except as permitted
under Section 18(f) of the Investment Company Act, any amendments thereto, any
regulations thereunder, or any applicable exceptions therefrom.
7. INDUSTRY CONCENTRATION. No Fund will purchase the securities of issuers
conducting their principal business activity in the same industry, if,
immediately after such purchase, the Fund's investments in such industry would
exceed 25% of the value of its total assets at the time of such investment. This
restriction does not limit the Money Market Fund's investments in instruments
issued by domestic banks (or by a foreign branch of a domestic bank, but only if
the domestic bank is unconditionally liable in the event that the foreign branch
fails to honor the instrument)."
E. BOARD OF TRUSTEES AND OFFICERS OF THE TRUST
The Board of Trustees of the Trust is responsible for overall
management of the Trust. The Board may exercise all powers of the Trust, except
those powers which are conferred solely upon or reserved to the shareholders.
The Board has three standing committees, which are discussed below.
The Governance Committee of the Board consists of the Trust's four
independent Trustees: Ms. Cook, Ms. Kessler, Mr. Verdonck and Mr. McClellan. The
Governance Committee assists the Board of Trustees by considering and making
recommendations on such matters as the Board's structure, composition, manner of
operations, and effectiveness; and the compensation and continuing education of
independent Trustees. This committee also gives particular consideration to
certain matters that involve actual or potential conflicts of interest between
the Trust and its service providers. The terms of the Trust's advisory
agreements are one important example of this. This committee met four times in
2001.
The Nominating Committee of the Board also consists of the Trust's four
independent Trustees. This committee is responsible for the selection and
nomination of candidates to be independent Trustees. Although the Nominating
Committee may receive input from John Hancock in this regard, the committee
controls the selection and nominating process. The extent of this committee's
activities in a given year will vary somewhat, depending on how many vacancies
for the office of independent trustee need to be filled. The Nominating
Committee did not meet during 2001.
The Audit Committee of the Board consists of the following independent
Trustees: Ms. Cook, Mr. McClellan and Mr. Verdonck. The Audit Committee assists
the Board in fulfilling its oversight responsibilities relating to the quality
and objectivity of financial reporting, the effectiveness and efficiency of
operations (including internal controls), and compliance with applicable laws
and regulations. Among other things, the Audit Committee seeks to maintain good
communication among the Trustees, the Trust's independent auditors and the
Trust's management. Each year, the committee evaluates and makes a
recommendation to the Board of Trustees as to the independent auditors to be
retained by the Trust to audit the Trust's financial statements. The committee
also reviews with such auditors the scope of the audit to be performed and the
results of such audit. The Audit Committee met three times during 2001.
Each of the above-described committees has authority to retain, at the
Trust's expense, legal counsel and such other experts as the committee deems
advisable to help discharge its functions.
29
The following table provides information about the members of the Board of
Trustees and the officers of the Trust:
Name, Address and Age Position with Term of Principal Occupation Number of Other
--------------------- Trust Office During Past 5 years the Directorships
----- ------ ------------------- Trust's Held by
Funds Trustees
Overseen --------
by
Trustees
--------
Interested Trustees*:
Michele G. Van Leer Chairman and Indefinite Senior Vice President, 27 None
(age 44) Trustee (Commenced Product Management, John
John Hancock Place September 1998) Hancock Life Insurance
Boston, Massachusetts Company; President and
02117 Director John Hancock
Variable Life Insurance
Company
Kathleen F. Driscoll Vice Chairman, Indefinite Vice President, Signator 27 None
(age 45) President and (Commenced June, Brokerage, John Hancock
John Hancock Place Trustee 2001) Life Insurance Company,
Boston, Massachusetts Vice President, Corporate
02117 Communications, John
Hancock Life Insurance
Company
Independent Trustees:
Elizabeth G. Cook
(age 64) Trustee Indefinite Expressive Arts Therapist, 27 None
c/o John Hancock (Commenced April Dana Farber Cancer
Variable Series Trust 1993) Institute; President, The
I, John Hancock Place, Advertising Club of
Boston, Massachusetts Greater Boston
02117
Diane C. Kessler Trustee Indefinite Executive Director, 27 None
(age 55) (Commenced April Massachusetts Council of
c/o John Hancock 1999) Churches
Variable Series Trust
I, John Hancock Place,
Boston, Massachusetts
02117
- ------------
* Ms. Van Leer and Ms. Driscoll are the only Trustees who are "interested
persons" as defined in the Investment Company Act.
30
Robert F. Verdonck Trustee Indefinite President and Chief 27 None
(age 56) (Commenced Executive Officer, East
c/o John Hancock April 1999) Boston Savings Bank
Variable Series
Trust I, John
Hancock Place,
Boston,
Massachusetts
02117
Hassell H. Trustee Indefinite Professor and Graduate 27 None
McClellan (age 56) (Commenced Dean, The Graduate
c/o John Hancock February, 2001) School of the Wallace G.
Variable Series Carroll School of
Trust I, John Management, Boston
Hancock Place, College
Boston,
Massachusetts
02117
Other Officers
Jude A. Curtis (age Compliance Indefinite Second Vice President N/A N/A
43) Officer (Commenced and Chief Investment
John Hancock Place June, 2000) Compliance Officer, John
Boston, Hancock Life Insurance
Massachusetts Company; formerly
02117 Second Vice President
and Counsel, Office of
Business Conduct; John
Hancock Life Insurance
Company; formerly a
Partner at Hale and Dorr
LLP (law firm)
Maryellen Carney Asst. Indefinite Compliance Specialist, N/A N/A
(age 36) Compliance (Commenced John Hancock Life
John Hancock Place Officer June, 1999) Insurance Company;
Boston, formerly Investment
Massachusetts Company and Investment
02117 Adviser Examiner, U.S.
Securities & Exchange
Commission, Fort Worth
Office and Boston Office
31
Raymond F. Skiba Treasurer Indefinite Director of Fund N/A N/A
(age 56) (Commenced Operations, John Hancock
John Hancock Place February, 1986) Life Insurance Company
Boston,
Massachusetts
02117
Karen Q. Visconti Secretary Indefinite Senior Marketing N/A N/A
(age 48) (Commenced August, Consultant, Life Product
John Hancock Place August, 1999) Management, John
Boston, Hancock Life Insurance
Massachusetts Company
02117
Arnold R. Bergman Assistant Indefinite Senior Counsel, Law N/A N/A
(age 51) John Secretary (Commenced Department, John
Hancock Place, December, 1999) Hancock Life Insurance
Boston, company; formerly Vice
Massachusetts President, General
02117 Counsel and Secretary,
First Variable Life
Insurance Company
Certain members of the Trust's Board of Trustees may own either
variable annuity contracts or variable life insurance policies that are
supported by one of the Separate Accounts and, in that sense, have an interest
in shares of the Trust.
The names and range of each Trustee's interest in any Fund as of
December 31, 2001 are set forth in the table below
Name of Trustee Dollar Range of Interest in Dollar Range of Interest in
Any Fund All Funds
Interested Trustees:
Michele G. Van Leer 0 0
Kathleen F. Driscoll $10,000-$50,000 $10,000-$50,000
Independent Trustees:
Elizabeth G. Cook $50,000-$100,000 $50,000-$100,000
Diane C. Kessler $10,000-$50,000 $10,000-$50,000
Robert F. Verdonck $1,000-$10,000 $1,000-$10,000
Hassell H. McClellan 0 0
Compensation paid by the Trust to its current disinterested Trustees
during 2001 was as follows:
Ms. Cook $61,000
Ms. Kessler $53,000
Mr. Verdonck $59,000
Mr. McClellan $57,000
The Trust paid no compensation to any other officer or Trustee. The
Trustees' fees are allocated among the Trust's Funds in proportion to their
relative net assets. The average aggregate net assets for all of the Funds
totaled approximately $10.3 billion for the year 2001.
32
F. INVESTMENT ADVISORY ARRANGEMENTS
1. The Trust's Investment Advisory Arrangements With John Hancock
John Hancock, the Trust's investment adviser, is a Massachusetts
corporation. Until February 1, 2000, John Hancock was a mutual life insurance
company. Now, it is a subsidiary of John Hancock Financial Services, Inc., a
publicly-traded holding company. John Hancock provides advisory services to the
Funds pursuant to several investment advisory agreements. The Trust is party to
each of these investment advisory agreements with John Hancock.
The Trust currently pays John Hancock investment advisory fees for
management of the Fund at the following rate:
John Hancock's Investment Advisory Fee
as an Annual Percentage of Each Portion
Fund of the Fund's Average Daily Net Assets
- ---- --------------------------------------
Financial Industries .80%
Under its investment advisory agreements with the Trust, John Hancock
advises the Trust in connection with policy and strategy decisions; provides
administration of much of the Trust's day-to-day operations; serves as the
Trust's transfer agent and dividend disbursing agent; prepares the Trust's
financial statements; maintains records required by the Investment Company Act
of 1940; and supervises activities of the subadvisers (discussed below) and of
other service providers to the Trust. John Hancock also provides the Trust with
office space, supplies and other facilities required for the business of the
Trust. John Hancock pays the compensation of Trust officers and employees and
the expenses of clerical services relating to the administration of the Trust.
To the extent that any administrative or legal services for the Trust are
provided by John Hancock's Law Department, however, John Hancock charges the
Trust separately, and the Trust pays such charges in accordance with the terms
of the investment advisory agreements.
All other expenses not expressly assumed by John Hancock under the
investment advisory agreements are paid by the Trust. These include, but are not
limited to, the Trust's taxes (if any); custodian fees; auditing fees; brokerage
commissions; advisory fees; the compensation of Trustees who are not affiliated
with John Hancock; the Trust's fidelity bond coverage; the costs of printing and
distributing annual and semi-annual reports and voting materials to holders of
variable annuity contracts and variable life insurance policies that participate
in the Trust; tabulating votes; fees for certain accounting, valuation, and
compliance services; legal fees; SEC registration costs; proxy costs; costs of
organizing any new Funds; and other expenses related to the Trust's operations.
2. The Trust's Arrangements With the Subadviser
Set forth below are the names to the Fund's subadvisers and certain
persons who may control them.
Subadviser Subadviser's General Nature
and the Funds Controlling Basis of of
It Manages Person Control Control Person's Business
---------- ------ ----------- -------------------------
John Hancock John Hancock Indirectly owns Financial services holding
Advisers, LLC Financial 100% of voting company
Services Inc. stock
John Indirectly owns Life insurance and other
Hancock 100% of voting financial services provided
Life Insurance stock directly or through
Company subsidiaries
33
Set forth below are the sub-advisory fees that John Hancock will pay the
subadviser for the Fund. The below fees are paid by John Hancock and not by the
Fund.
Subadvisory Fees Payable by John Hancock,
Fund as a Percentage of Each Fund's Average Daily Net Assets
---- -------------------------------------------------------
Financial Industries .70% of first $50 million; .60% of next $50 million;
.50% of next $100 million; and
.40% of all assets above $200 million
Under the investment advisory agreement, for any fiscal year in which
the normal operating costs and expenses of the Fund, exclusive of the investment
advisory fee, interest, brokerage commissions, taxes and extraordinary expenses
outside the control of John Hancock exceed 0.10% of that Fund's average daily
net assets, John Hancock will reimburse the Fund in an amount equal to such
excess.
G. ARRANGEMENTS WITH OTHER SERVICE PROVIDERS TO THE TRUST
1. Underwriting and Indemnity Agreement
Pursuant to an Underwriting and Indemnity Agreement, Signator
Investors, Inc. ("Signator") serves as the Trust's principal underwriter, and
John Hancock provides certain indemnities to the Trust and its Trustees. Neither
Signator nor John Hancock receives any additional compensation from the Trust
for the services and indemnities they provide pursuant to the Underwriting and
Indemnity Agreement. The offering of the Trust's shares through Signator is a
continuous offering on a "best efforts" basis. Signator is a wholly-owned
subsidiary of John Hancock and is located at 197 Clarendon Street, Boston, MA
02117.
2. Custody of the Trust's Assets
State Street Bank and Trust Company ("State Street Bank") is the
primary custodian of the assets of all Funds. State Street Bank's principal
business address is 225 Franklin Street, Boston MA 02110. The primary
custodian's duties include safeguarding and controlling the Trust's cash and
investments, handling the receipt and delivery of securities, and collecting
interest and dividends on the Trust's investments. Fund securities
purchased in the United States are maintained in the custody of State Street
Bank, although such securities may be deposited in the book-entry system of the
Federal Reserve System, with Depository Trust Company, or with other qualified
purchased in the United States are maintained in the custody of State Street
Bank, although such securities may be deposited in the book-entry system of the
Federal Reserve System, with Depository Trust Company, or with other qualified
34
domestic book-entry systems or depositories. Also, pursuant to its agreement
with the Trust, State Street Bank provides certain accounting and recordkeeping
services to the Trust and generally values the Trust's assets by computing each
Fund's net asset value each day. The Trust compensates State Street Bank for
these functions through the payment of an annual custody asset fee of .01% of
the total net assets of the Trust, allocated to each Fund based on the
percentage of that Fund's total net assets to the total net assets of the Trust;
miscellaneous transaction charges ranging from $7.00 to $25.00; global asset and
transaction fees that vary by the country in which a Fund's assets are held or
traded; a monthly accounting fee charge that is allocated to each Fund based on
the percentage of that Fund's total net assets to the total net assets of the
Trust; valuation and monthly quote charges; special service fees for activities
of a non-recurring nature; and reimbursement of specified out-of-pocket
expenses.
Foreign securities are generally held through subcustodian banks and
depositories around the world with whom State Street Bank has relationships. In
some cases, Funds whose securities are held in this manner may be exposed to
greater risks of loss. This is because the soundness of such foreign entities,
as well as foreign regulatory practices and procedures, may provide less
protection to security holders than is available in the U.S.
In certain circumstances, brokers may have access to assets that a Fund
posts as "margin" in connection with futures and options transactions. In the
event of a broker's insolvency or bankruptcy, a Fund could experience a delay or
incur costs in recovering such assets or might recover less than the full amount
due. Also the value of such assets could decline by the time the Trust could
effect such recovery.
If on any day the Fund experiences net realized or unrealized gains
with respect to financial futures contracts held through a given broker, it will
be entitled immediately to receive from the broker the net amount of such gains.
The Trust will request payment of such amounts promptly after notification by
the broker that such amounts are due. Thereupon, these assets will be deposited
in the Trust's general or segregated account with its primary custodian, as
appropriate.
3. Subadministration Agreement With State Street Bank
Pursuant to a Subadministration agreement, with the Trust, State Street
Bank also provides assistance to John Hancock and the subadvisers in computing
total return information for the Trust and in monitoring each Fund's compliance
with the Fund's investment objectives and restrictions, as well as compliance
with certain other applicable legal requirements. The Trust compensates State
Street Bank for these services through payment of an annual fee that accrues
daily and is billed monthly in arrears. The annual fee is based on the average
net assets of the Trust and is 0.012% of the first $1 billion of average net
assets, 0.0075% of the next $1 of average net assets, and 0.0025% of average net
assets after that. Each Fund is allocated the greater of a minimum monthly Fund
fee or the basis point annual fee, based on the pro-rata total net asset value
of that Fund. The minimum monthly Fund fee is $1,333.
35
4. Independent Auditors
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts, are the
independent auditors of the Trust. Ernst & Young audits the financial statements
of the Trust, prepares the Trust's tax returns, and renders other advice to the
Trust concerning accounting and tax matters. Ernst & Young also meets
periodically with the Trust's Board and with the Audit Committee of the Board to
discuss matters within the scope of Ernst & Young's activities with respect to
the Trust.
H. PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Fund will pay brokers' commissions, transfer taxes, and other fees
relating to their specific portfolio transactions. (Investments in debt
securities are, however, generally traded on a "net" basis through issuers or
dealers acting for their own account as principals and not as brokers.
Therefore, no brokerage commissions are payable on most such transactions,
although the price to the Trust usually reflects a dealer "spread" or
"mark-up.")
How Brokers and Dealers are Selected
Orders for the purchase and sale of Fund portfolio investments are
placed by the subadvisers to the Fund. The subadviser uses its best efforts to
obtain best available price (including brokerage commissions and other
transaction costs) and most favorable execution for all transactions. The
subadvisers select brokers and dealers to execute Fund portfolio transactions
primarily on the basis of their execution capability and trading expertise.
Consideration is also given to such factors as the price of the security, the
rate of the commission, the size and difficulty of the order, the
confidentiality of trades, the reliability, integrity, financial condition, and
operational capabilities of competing brokers or dealers, and the brokerage and
research services which they provide. Applicability of specific criteria will
vary depending on the nature of the transaction, the market in which it is
effected, and the extent to which it is possible to select from among multiple
brokers or dealers capable of effecting the transaction.
It is not the policy of the subadviser to seek the lowest available commission
if, in its reasonable judgment, there is a material risk that the total cost or
proceeds from the transaction might be less favorable than may be obtainable
elsewhere.
36
Research and Statistical Services Furnished by Brokers and Dealers
Research and statistical assistance typically furnished by brokers or
dealers includes analysts' reports on companies and industries, market
forecasts, and economic analyses. Brokers or dealers may also provide reports on
pertinent federal and state legislative developments and changes in accounting
practices; direct access by telephone or meetings with leading research analysts
throughout the financial community, corporate management personnel, industry
experts, leading economists and government officials; comparative performance
and evaluation and technical performance measurement services; portfolio
optimization software; availability of economic advice; quotation services; and
services from recognized experts on investment matters of particular interest to
the subadviser. In addition, the foregoing services may comprise the use of or
be delivered by computer systems whose software and hardware components may be
provided to the subadviser as part of the services. In any case in which the
foregoing systems can be used for both research and non-research purposes, the
subadviser makes an appropriate allocation of those uses and will permit brokers
and dealers to provide only the portion of the systems to be used for research
services. Costs which are allocable to non-research purposes will be paid
directly by the subadviser.
Research and statistical services furnished by brokers and dealers
handling the Fund's transactions may be used by the subadvisers for the benefit
of all of the accounts managed by them and not all of such research and
statistical services may be used by the subadvisers in connection with the
Fund.
Relationship Between Brokerage Commissions and Research and Statistical Services
Furnished by Brokers and Dealers
When the subadviser reasonably determines that more than one broker or
dealer can offer the brokerage and execution services needed to obtain best
available price and most favorable execution, consideration may be given to
selecting the brokers or dealers who supply research and statistical services to
the subadviser. In receiving these services, which are designed to augment the
subadviser's own internal research capabilities, the subadvisers comply with
Section 28(e) of the Securities Exchange Act of 1934. This means that the
sub-advisers' traders for the Fund, on the basis of their experience and
judgement, evaluate the overall reasonableness of any broker's commissions in
light of all of the brokerage and research services the broker provides. If the
trader for a Fund concludes that the commission rate is reasonable, and the
other requirements of Section 28(e) are met, the law protects the sub-adviser
from any legal liability that might otherwise result from causing the Fund to
pay the broker a commission in excess of what another broker would have charged.
The subadviser of the Fund will not at any time make a commitment pursuant to
an agreement with a broker because of research services provided. The
sub-advisers do, however, have internal procedures that seek to direct certain
amounts to broker-dealers that provide research and statistical services of a
type covered by Section 28(e). These internal procedures do not mandate that any
amount of business be directed to any broker-dealer, and in no event will a
broker-dealer be used unless the sub-adviser believes that the broker-dealer
also will provide the best available price and most favorable execution, as
discussed above.
37
Evaluations of the overall reasonableness of any broker's commissions
are made by the subadvisers' traders for the funds on the basis of their
experience and judgment. To the extent permitted by Section 28(e) of the
Securities Exchange Act of 1934, such traders are authorized to pay a brokerage
commission on a particular transaction in excess of what another broker might
have charged in recognition of the value of the broker's brokerage or research
services.
Brokerage Transactions in Foreign Markets
Brokerage transactions in securities of companies domiciled in
countries other than the United States are anticipated to be normally conducted
on the stock exchanges or other markets of those countries in which the
particular security is traded. Fixed commissions on foreign stock exchange
transactions are generally higher than negotiated commissions available in the
United States. Moreover, there is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the United
States. Settlement periods in non-U.S. markets may differ from the normal
settlement period in the United States.
Simultaneous Transactions with Other Accounts
The subadviser also performs investment advisory services for a number
of other accounts and clients, none of which is given preference over the Trust
in allocating investment opportunities. When opportunities occur which are
consistent with the investment objective of more than one account, it is the
policy of each subadviser to avoid favoring any one account over another.
Accordingly, investment opportunities in such cases are allocated in a manner
deemed equitable by the subadviser to the particular accounts involved. The
allocation may be based, for example, on such factors as the accounts'
respective investment objectives and then current investment and cash positions.
Subject to these requirements, Trust orders may be combined with orders of other
accounts or clients advised by the subadviser at share prices which are
approximately averaged.
The subadviser's allocation policies recognize that no rigid formula will
always lead to a fair and reasonable result, and that a degree of flexibility to
adjust to specific circumstances is necessary. Therefore, under certain
circumstances, allocation on a basis other than strictly pro rata or based on
order size is permitted if it is believed that such allocation is fair and
reasonable.
Use of Brokers Who are Affiliated With a Subadviser
The Fund may place portfolio transactions through certain brokers who
are affiliated with the Fund's subadviser. The Trust has implemented special
procedures governing the circumstances of these transactions. In addition to
complying with any applicable provisions of the Trust's procedures, these
transactions must comply with all applicable legal requirements, including,
where applicable, Rule 17e-1 under the Investment Company Act. Among other
things, that rule requires the commissions or other compensation paid to the
affiliated broker to be reasonable and fair compared to those in similar
transactions between unrelated parties.
38
I. CODES OF ETHICS
Employees of John Hancock Life Insurance Company, the Trust, and the
sub-advisers to the Trust and officers and Trustees of the Trust are subject to
restrictions on engaging in personal securities transactions. These restrictions
are set forth in the John Hancock Insider Information Policy and Procedures, the
Variable Series Trust Code of Ethics, and the Codes of Ethics of the
sub-advisers to the various Funds of the Trust ("Sub-Advisers' Codes of
Ethics"), (combined, "Codes"). The Codes, in accordance with rule 17j-1 of the
Investment Company Act of 1940, as amended, contain provisions and requirements
designed to identify and address certain conflicts of interest between personal
investment activities of employees of the adviser and sub-advisers to the Funds
and the interests of the Fund. These Codes do not prohibit personnel from
investing in securities that may be purchased or held by the Funds within the
Trust. However, the Codes, consistent with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing and
requirements established by rule 17j-1, among other things, prohibit personal
securities investments without pre-clearance for certain employees, impose time
periods during which personal transactions may not be made in certain securities
by employees with access to investment information, and require the timely
submission to compliance personnel of broker confirmations and quarterly
reporting of personal securities transactions. Additional restrictions apply to
portfolio managers, traders, research analysts and others involved in the
investment advisory process. The Variable Series Trust Code of Ethics
incorporates and applies its restrictions to officers and Trustees of the Trust
who are affiliated with John Hancock Life Insurance Company. The Variable Series
Trust Code of Ethics does not prohibit unaffiliated Trustees from investing in
securities that may be held by the Trust; however, the Variable Series Trust
Code of Ethics does regulate the personal securities transactions of
unaffiliated Trustees of the Trust, including limiting the time periods during
which they may personally buy and sell certain securities about which they may
receive information. The Trust's Trustees, in compliance with rule 17j-1, have
approved the Variable Series Trust Codes of Ethics and the Sub-Advisers' Codes
of Ethics and are required to approve any material changes to the Variable
Series Trust Code of Ethics as well as to the Sub-Advisers' Codes of Ethics. The
Trustees also provide continuing oversight of personal investment policies and
annually evaluate the implementation and effectiveness of the Codes. The Codes
are on public file with, and are available from, the Securities and Exchange
Commission.
39
J. FEATURES OF THE TRUST'S SHARES
The shares of beneficial interest of the Trust currently are divided into
28 series, each corresponding to one of the Trust's 28 Funds. The Trust has the
right to establish additional series and issue additional shares without the
consent of its shareholders.
If the holders of variable annuity contracts and variable life insurance
policies show minimal interest in the Fund, the Trust's Board of Trustees, by
majority vote, may eliminate the Fund or substitute shares of another investment
company. Any such action by the Board would be subject to compliance with any
requirements for governmental approvals or exemptions or for shareholder
approval. The holders of variable annuity contracts and variable life insurance
policies participating in any such Fund will be notified in writing of the
Trust's intention to eliminate the Fund and given 30 days to transfer amounts
from such Fund to other Funds without incurring any transaction fee. Amounts not
transferred or withdrawn would automatically be transferred, at the discretion
of the Fund's management.
The assets received by the Trust for the issuance or sale of shares of the
Fund and all income, earnings, profits, and proceeds thereof are specifically
allocated to that Fund. They constitute the underlying assets of each Fund, are
segregated on the books of the Trust, and are to be charged with the expenses of
such Fund. Any assets which are not clearly allocable to a particular Fund or
Funds are allocated in a manner determined by the Board of Trustees. Accrued
liabilities which are not clearly allocable to one or more Funds would generally
be allocated among the Funds in proportion to their relative net assets before
adjustment for such unallocated liabilities.
Each issued and outstanding share in the Fund is entitled to participate
equally in dividends and distributions declared with respect to such Fund and in
the net assets of such Fund upon liquidation or dissolution remaining after
satisfaction of outstanding liabilities.
Dividends from net investment income of the Fund will be declared and
distributed monthly. The Trust will distribute all of its net realized capital
gains annually. Dividends and capital gains distributions will normally be
reinvested in additional full or fractional shares of the Fund to which they
relate and will be appropriately credited to investment performance under the
variable life insurance policies and variable annuity contracts participating in
that Fund.
The shares of the Fund, when issued, will be fully paid and non-assessable,
and will have no preference, preemptive, exchange or similar rights. Shares do
not have cumulative voting rights.
40
K. SHAREHOLDER MEETINGS AND VOTING RIGHTS
Under the Trust's Declaration of Trust, the Trust is not required to hold
an annual shareholders' meeting. Normally, for example, there will be no
shareholders meetings for the purpose of electing Trustees.
In addition, it is expected that the Trustees generally will elect their
own successors and appoint Trustees to fill any vacancy, so long as, after
filling the vacancy, at least two-thirds of the Trustees then in office have
been elected by the shareholders.
Notwithstanding the above, if at any time less than a majority of Trustees
in office have been elected by the shareholders, the Trustees must call a
special shareholders' meeting promptly. Also the Trustees will promptly call a
meeting of shareholders for the purpose of voting upon the question of removal
of any Trustee or all of the Trustees, if requested in writing to do so by
holders of 10% or more of the outstanding shares. In this regard, whenever ten
or more shareholders who have been such for at least six months and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the outstanding shares, whichever is less, apply to the Trustees in
writing stating that they wish to communicate with other shareholders with a
view to obtaining signatures to a request for a shareholders' meeting, for
consideration of the removal of any or all of the Trustees and accompanied by
the material which they wish to transmit, the Trustees will within five business
days after receipt either afford to such applicants access to the Trust's
shareholder list or inform such applicants as to the approximate number of
shareholders of record, and the approximate cost of mailing the material. If the
Trustees elect the latter, the Trustees, upon written request of such
applicants, accompanied by the material to be mailed and the reasonable expenses
of mailing, shall promptly mail such material to all shareholders of record,
unless within five business days the Trustees shall mail to such applicants and
file with the SEC, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Trustees to the effect that, in
their opinion, either such material is misleading or in violation of applicable
law and specifying the basis of such opinion.
At any shareholders' meeting, all shares of the Trust of whatever class are
entitled to one vote, and the votes of all classes are cast on an aggregate
basis, except on matters where the interests of the Funds differ. Where the
interests of the Funds differ, the voting is on a Fund-by-Fund basis. Approval
or disapproval by the shareholders in one Fund on such a matter would not
generally be a prerequisite of approval or disapproval by shareholders in
another Fund; and shareholders in a Fund not affected by a matter generally
would not be entitled to vote on that matter. Examples of matters which would
require a Fund-by-Fund vote are changes in the fundamental investment policy of
a particular Fund and approval of investment management or sub-investment
management agreements.
L. SALES AND REDEMPTIONS OF FUND SHARES
"Seed Money" Shares
Typically, when a new fund is added to the Trust, John Hancock (or one of
its affiliates) initially purchases a substantial amount of that Fund's shares
to provide the new fund with a reasonable asset base with which to commence
operations.
John Hancock anticipates that it will seed the Fund with an initial
purchase of $500,000 of Fund shares on or about April 28, 2003.
41
John Hancock (or its affiliate) may redeem these shares (and thus withdraw
its seed money investment) at some time. However, before withdrawing any part of
their interests in the Fund, John Hancock (or its affiliate) will consider any
possible adverse impact the withdrawal might have on the Fund.
Purchases and redemptions of seed money shares are made at the applicable
Fund's net asset value per share (with no additions or deductions for charges)
next computed after the purchase or redemption order is placed.
Shares Sold and Redeemed In Connection With Transactions Under Variable Annuity
Contracts and Variable Life Insurance Policies
Fund shares are sold at their net asset value as next determined after
receipt of net premiums by the Separate Account, without the addition of any
selling commission or sales load.
Shares are redeemed at their net asset value as next determined after
receipt of net surrender requests by the Separate Account. No fee is charged on
redemption. Redemption payments will usually be paid within seven days after
receipt of the redemption request, except that the right of redemption may be
suspended or payments postponed whenever permitted by applicable law and
regulations. Redemptions are normally made in cash, but the Trust reserves the
right, at its discretion, to make full or partial payment by assignment to the
appropriate Separate Account of portfolio securities at their value used in
determining the redemption price. In such cases, the Separate Account would
incur brokerage costs should it wish to liquidate these portfolio securities.
Trust shares are also sold and redeemed as a result of transfer requests,
loans, loan repayments, and similar Separate Account transactions, in each case
without any sales load or commission or at the net asset value per share
computed for the day as of which such Separate Account transactions are
effected.
M. COMPUTING THE FUND'S NET ASSET VALUE
The Fund determines its net asset value per share once daily as of the
close of the customary trading session of the New York Stock Exchange
("Exchange") on each business day of the Fund. The Exchange generally closes at
4:00 p.m. Eastern Standard Time. However, ETFs and certain derivative
instruments may be valued using prices as late as 4:15 p.m. Eastern Standard
Time. In the event the Exchange closes at any time other than 4:00 p.m. Eastern
Standard Time on a particular day, the Fund will determine its net asset value
per share as of the close of the Exchange on that day.
The net asset value per share of the Fund is determined by adding the value
of all portfolio securities and other assets, deducting all portfolio
liabilities, and dividing by the number of outstanding shares. All Trust
expenses will be accrued daily for this purpose.
Short-term investments with a remaining maturity of 60 days or less are
valued at "amortized cost," which approximates market value. This involves
valuing a security at its cost and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates. While this method provides certainty in valuation, it may result
in periods during which the value of an instrument, as determined by amortized
cost, is higher or lower than the price the Fund would receive upon the sale of
the instrument.
42
Securities and call and put options that are listed on a stock exchange are
normally valued at the closing sales price. If there were no sales during the
day, they are normally valued at the last previous sale or bid price reported,
as are equity securities that are traded in the over-the-counter market.
Non-exchange traded debt securities (other than certain short-term
investments) are valued on the basis of valuations furnished by a pricing
service which uses electronic data processing techniques, without exclusive
reliance upon quoted prices.
Any other security for which market quotations are not readily available,
and any other property for which valuation is not otherwise available, is valued
at fair value as determined in good faith by, or under the direction of, the
Board of Trustees.
Financial futures contracts, options thereon and options on stock indexes
are valued at the last trade price of the day. In the absence of a trade on a
given day, the value generally is used which is established by the exchange on
which the instrument is traded.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed at various times before the close
of business on each day on which the New York Stock Exchange is open. The values
of such securities used in computing net asset value per share are normally
determined as of such times. Trading of these securities may not take place on
every New York Stock Exchange business day and may take place on days which are
not business days in New York. The Trust calculates net asset value per share as
of the close of regular trading on the New York Stock Exchange on each day on
which that exchange is open. Therefore, such calculation does not take place
contemporaneously with the determination of the prices of many of the Funds'
securities used in such calculation. If events affecting the value of such
securities occur between the time when their price is determined and the time as
of which the Fund's net asset value is calculated, such securities may be valued
at fair value by or under the direction of the Board of Trustees.
N. TAXES
The Trust intends that the Fund qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code ("Code"). This requires that
each Fund comply with certain requirements as to the nature of its income and
amounts of dividends and other distributions it pays. Also, in order to qualify
under Subchapter M, at the end of each quarter of a Fund's taxable year, (i) at
least 50% of the market value of the Fund's assets must be represented by cash
and cash items, U.S. Government securities, securities of other regulated
investment companies, and other securities, with such other securities limited,
in respect of any one issuer, to an amount that does not exceed 10% of the
voting securities of such issuer or 5% of the value of the Fund's total assets;
and (ii) not more than 25% of the value of its assets may be invested in the
securities (other than U.S. Government securities and securities of other RICs)
of any one issuer or two or more issuers which the Fund controls and which are
engaged in the same, similar or related trades or businesses.
The Trust also intends that the Fund comply with certain other
diversification requirements, promulgated under Section 817(h) of the Code.
Under these requirements, no more than 55% of the total value of the assets of
each Fund may be represented by any one investment, no more than 70% by any two
investments, no more than 80% by three investments and no more than 90% by four
investments. Generally, for these purposes, all securities of the same issuer
are treated as one investment. In the context of U.S. Government securities
(including any security that is issued, guaranteed or insured by the United
States or an instrumentality of the United States), each U.S. Government agency
or instrumentality is treated as a separate issuer.
43
Assuming the Fund qualifies as regulated investment companies under
Subchapter M, they will not owe any income taxes. On the other hand, if the Fund
fails to qualify under Subchapter M, it may incur income tax liabilities, which
will negatively affect its investment performance.
Also, qualification under Subchapter M, as well as compliance with the
Section 817(h) diversification requirements, (among other things) are necessary
to secure the tax treatment intended for most holders of variable annuity
contracts and variable life insurance policies that are supported by the Trust.
Therefore, any such failure to qualify under Subchapter M or to meet the
diversification standards under Section 817(h) could have serious adverse
consequences for such investors.
For a discussion of these and other tax implications of owning a variable
annuity contract or a variable life insurance policy for which the Fund serves
as the investment medium, please refer to the Prospectus for such contract or
policy attached at the front of this Prospectus.
If the Fund invests substantial amounts of its assets in foreign
securities, it may be able to make an election to pass through to the insurance
company issuing the variable annuity contract or a variable life insurance
policy any taxes withheld by foreign taxing jurisdictions on foreign source
income. Such an election will result in additional taxable income and income tax
to the insurance company. The amount of additional income tax, however, may be
more than offset by credits for the foreign taxes withheld, which are also
passed through.
O. INFORMATION ABOUT FUND PERFORMANCE
Charges Under Variable Life Insurance and Variable Annuity Policies
Yield and total return quotations do not reflect any charges imposed on any
Separate Account or otherwise imposed pursuant to the variable life insurance
policies and variable annuity contracts that are supported by the Fund. (Those
charges are discussed in the prospectus for such policies or contracts.)
Therefore, the yield or total return of the Fund is not comparable to that of a
publicly available fund. Nor should yield or total return quotations
be considered representative of the Fund's yield or total return in any future
period.
P. LEGAL MATTERS
The law firm of Foley & Lardner of Washington, D.C., advises the Trust on
certain legal matters relating to the Federal securities laws.
Q. REPORTS TO CONTRACTHOLDERS
Annual and semi-annual reports containing financial statements of the Fund,
as well as any materials soliciting voting instructions for Fund shares, will be
sent to variable life insurance and annuity contractowners having an interest in
the Fund.
44
APPENDIX A
CORPORATE BOND RATINGS
Moody's Investors Service, Inc., describes its ratings for corporate bonds as
follows:
. 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.
. 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 fluctuation of protection 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.
. 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
some time in the future.
. 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.
. Bonds which are rated Ba have speculative elements and their future
cannot be considered as well assured. 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. Bonds in
this class are characterized by uncertainty of position.
. Bonds which are rated B generally lack characteristics of a 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.
. Bonds which are rated Caa are of poor standing. Issues may be in
default or there may be present elements of danger with respect to
principal or interest.
. Bonds which are rated Ca are speculative in a high degree. They are
often in default or have other marked shortcomings.
. Bonds which are rated C are the lowest rated class of bonds. They can
be regarded as having extremely poor prospects of ever attaining any
real investment standing.
45
Standard & Poor's Corporation describes its ratings for corporate bonds as
follows:
. AAA -- This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay
principal and interest.
. AA -- Bonds rated AA also qualify as high-quality obligations.
Capacity to pay principal and interest is very strong, and in the
majority of instances, they differ from AAA issues only in small
degree.
. A -- Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
. BBB -- Bonds rated BBB are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay principal and
interest for bonds in this category than for bonds in the A category.
. BB, B, CCC, CC, C -- Bonds rated in these categories are 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 C the
highest degree of speculation. While this debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
. C1 -- This rating is reserved for income bonds on which no interest is
being paid.
. D -- Bonds rated D are in default and payment of interest and/or
repayment of principal is in arrears.
46
As with all mutual funds, the Securities and Exchange Commission has not judged
whether the funds of the John Hancock Variable Series Trust I are good
investments or whether the information in this prospectus is adequate and
accurate. Anyone who tells you otherwise is committing a federal crime.
JOHN HANCOCK
VARIABLE SERIES TRUST I
PROSPECTUS
September 19, 2002
Large Cap Growth Fund
Growth & Income Fund
Managed Fund
Active Bond Fund
Money Market Fund
Managed by John Hancock Life Insurance Company
John Hancock Place
Boston, MA 02117
Contents
- --------------------------------------------------------------------------------
John Hancock Variable Series Overview 1
Trust I ("Trust")
Your Investment Choices 2
A fund-by-fund summary of goals, Large Cap Growth Fund 6
strategies and risks. Growth & Income Fund 8
Managed Fund 12
Active Bond Fund 16
Money Market Fund 18
Policies and instructions for opening, Your Account 20
maintaining and closing an account in Investments in shares of the funds 20
any fund Share price 20
Valuation 20
Conflicts 20
Further information on the funds Funds' Expenses 21
Dividends and Taxes 21
Dividends 21
Taxes 21
Further information on the Trust Trust Business Structure 22
Additional subadviser information Appendix A 23
Appendix B 24
For more information back cover
Overview
- --------------------------------------------------------------------------------
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on page 6. Each description provides
the following information:
Goal and Strategy The fund's particular investment goals and the principal
strategies it intends to use in pursuing those goals.
Subadviser/Manager The firm and individual(s) providing investment management
services to the fund.
Past Performance The fund's total return, measured year-by-year and over time.
Main Risks The significant risk factors associated with the fund. The risks are
categorized as "Primary" or "Secondary". The Primary Risks are considered major
factors in the fund's performance and are described first. The Secondary Risks
are not considered major factors in the fund's performance because the fund
would not normally commit a large portion of its assets to the investments
involved. However, the Secondary Risks are of such a nature that they could
significantly affect the fund's performance, even if the investments are held
in relatively small amounts.
Financial Highlights The fund's operating performance per share, measured
year-by-year.
THE FUNDS
The Trust offers investment choices, or funds, for the variable annuity and
variable life insurance contracts ("variable contracts") of:
.. John Hancock Life Insurance Company ("John Hancock"),
.. John Hancock Variable Life Insurance Company ("JHVLICO"), and
.. certain other insurance companies that may or may not be affiliated with John
Hancock.
In some variable contract forms, the Trust may be referred to by some other
term (such as the "Fund" or "Series Fund") and the investment choices may also
be referred to by some other term (such as "Portfolios" or "Series").
RISKS OF FUNDS
These funds, like all mutual funds, are not bank deposits. They are not insured
or guaranteed by the FDIC or any other government agency. You could lose money
by investing in these funds. So, be sure to read all risk disclosure carefully
before investing.
MANAGEMENT
John Hancock is the investment adviser of each fund of the Trust. John Hancock
is a Massachusetts stock life insurance company. On February 1, 2000, John
Hancock changed its form of organization and its name. Prior to that date, it
was John Hancock Mutual Life Insurance Company, a mutual life insurance company
that was chartered in 1862. At the end of 2001, John Hancock and its affiliates
managed approximately $124 billion in assets, of which it owned approximately
$81 billion.
All of the funds of the Trust have subadvisers. John Hancock recommends
subadvisers for the funds to the Trust, and oversees and evaluates the
subadvisers' performance. John Hancock also overseas the allocation of assets
between subadvisers for the "multi-managed" Growth & Income Fund, and manages
the Trust's joint trading account for various funds' liquidity reserves.
Each subadviser has discretion to purchase and sell securities for the fund, or
the portion of a fund, that it manages. While employing their own investment
approach in managing a fund, each subadviser must also adhere to the fund's
investment goals, strategies and restrictions.
1
Your Investment Choices
- --------------------------------------------------------------------------------
The Trust offers a number of investment choices, or funds, to suit a variety of
objectives under variable contracts. Four of these funds--the Large Cap Growth,
Growth & Income, Managed, and Active Bond Funds--support investment options
available under your variable contract. The Money Market Fund is used only as a
place to hold premium payments processed prior to the twentieth day after the
contract's date of issue. It is not an investment option you can select. Each
fund has its own strategy and its own risk/reward profile.The funds can be
broadly categorized as equity funds and bond funds. Within these broad
categories, the funds can be further categorized as follows:
EQUITY FUNDS
Equity funds can be categorized in two ways--by capitalization and by
investment style.
Capitalization Equity funds can be categorized by market capitalization, which is defined as the market
value of all shares of a company's stock. Capitalization requirements for each equity fund
are described in the "Goal and Strategy" discussion for the fund and will differ from fund
to fund within each capitalization category. For more information on these capitalization
requirements, turn to page 5. In volatile market environments, a fund's market cap ex-
posure may be allowed to shift temporarily outside of the normal range in order to avoid
unnecessary transaction costs.
Large Cap Funds:
.. Large Cap Growth Fund These funds invest primarily in large, well-established companies that typically are very
actively traded and provide more stable investment returns over time. Large cap funds are
appropriate for investors who want the least volatile investment returns within the overall
equity markets.
Large/Mid Cap Funds:
.. Growth & Income Fund These funds invest primarily in large cap and mid cap companies. The capitalization of
these funds can shift over time from primarily large cap to primarily mid cap or vice versa
depending on where the manager identifies investment opportunities. These funds are gen-
erally more volatile than pure large cap funds, but generally less volatile than pure mid cap
funds.
Mid Cap Funds:
These funds invest primarily in medium-sized, less established companies that are less ac-
tively traded and provide more share price volatility over time than large cap stocks. Mid
cap funds are appropriate for investors who are willing to accept more volatile investment
returns within the overall equity markets for the potential reward of higher long-term re-
turns.
Small/Mid Cap Funds:
These funds invest primarily in mid cap and small cap companies. The capitalization of
these funds can shift over time from primarily mid cap to primarily small cap or vice versa
depending on where the manager identifies investment opportunities. These funds are gen-
erally more volatile than pure mid cap funds, but generally less volatile than pure small cap
funds.
Small Cap Funds:
These funds invest primarily in small newly established companies that are less actively
traded and have a high level of share price volatility over time. Small cap funds are appro-
priate for investors who are willing to accept the most volatile investment returns within the
overall equity markets for the potential reward of higher long-term returns.
Multi Cap Funds:
These Funds invest in large cap, mid cap and small cap companies. The capitalization of
these Funds can shift over time depending on where the manager identifies investment op-
portunities. These Funds are generally more volatile than pure large cap Funds, but gen-
erally less volatile than pure small cap Funds.
2
Investment Style
Value Funds:
Value funds invest in companies that are attractively priced, considering their asset and
earnings history. These stocks typically pay above average dividends and have low stock
prices relative to measures of earnings and book value. Value funds are appropriate for in-
vestors who want some dividend income and the potential for capital gains, but are less tol-
erant of share-price fluctuations.
Growth Funds:
.. Large Cap Growth Fund Growth funds invest in companies believed to have above-average prospects for capital
growth due to their strong earnings and revenue potential. Growth stocks typically have
high stock prices relative to measures of earnings and book value. Growth funds are appro-
priate for investors who are willing to accept more share-price volatility for the potential
reward of higher long-term returns.
Blend Funds:
.. Growth & Income Fund Blend funds invest in both value and growth companies. Blend funds are appropriate for
investors who seek both dividend and capital appreciation characteristics.
BALANCED FUNDS
Balanced funds invest in a combination of stocks and bonds and actively manage the mix of stocks and bonds within a target range.
Domestic balanced funds invest in U.S. stocks and bonds. Global balanced funds invest in foreign and U.S. stocks and bonds.
.. Managed Fund
BOND FUNDS
Bond funds can be categorized in two ways--by average maturity and by credit quality:
Average Maturity Bond maturity is a key measure of interest rate risk. A bond's maturity measures the time
remaining until the bond matures, or until the repayment of the bond's principal comes
due. The longer a bond's maturity, the more sensitive the bond's price is to changes in
interest rates.
Short:
.. Money Market Fund These funds invest primarily in bonds with short maturities, and maintain a weighted aver-
age effective maturity which is typically between one and three years. These funds have less
interest rate risk than intermediate-term bond funds.
Intermediate:
.. Active Bond Fund These funds invest in bonds of all maturities and maintain a weighted average effective
maturity which is typically between three and ten years. These funds have more interest
rate risk than short-term bond funds.
Credit Quality Credit quality is a measure of the ability of a bond issuer to meet its financial obligations
and repay principal and interest. High quality bonds have less credit risk than lower quality
bonds. Investment grade bonds typically have "high" or "medium" credit quality ratings
(as defined below), while high-yield bonds have "low" credit quality ratings.
High:
.. Money Market Fund These funds focus on the highest-rated, most creditworthy bonds or money market instru-
ments and typically maintain an average credit quality rating of AAA/Aaa (A-1/P-1 for
money market funds).
3
Medium:
.. Active Bond Fund These funds invest in bonds of all credit quality levels with a focus on investment grade
bonds. These funds typically maintain an average credit quality rating of AA/Aa, A or
BBB/Baa.
Low:
These funds invest primarily in lower rated bonds--known as high yield or "junk" bonds.
These funds typically maintain a below investment-grade average credit quality rating of
BB/Ba or B.
MARKET CAPITALIZATION DATA
The Large Cap Growth Fund describes its market capitalization requirement by
referring to the Russell 1000(R) Growth Index, a widely recognized source of
market capitalization data. Publishers of such equity indexes typically define
their constituents at least annually. The range of market capitalization for
the Russell 1000(R) Growth Index changes with daily changes in the overall
equity market levels.
The following market capitalization ranges for the Russell 1000(R) Growth Index
are based on statistics at year-end 2001:
Smallest Largest Weighted Average Used with the following
Index Stock Stock Market Capitalization Fund:
Russell 1000(R) Growth $240 million $398 billion $126 billion Large Cap Growth
Some of the equity funds also describe investment strategies by referring to
investments in companies with market capitalizations that are within the range
of capitalizations of a segment of the Russell 3000(R) Index. The market
capitalization related to each segment is typically adjusted on a quarterly
basis, but in extraordinary circumstances adjustments may be made as frequently
as monthly. Market capitalization ranges for the following segments of that
index are based on statistics at year-end 2001:
Approximate Used with the following
Segment of Index Market Capitalization Fund(s):
300 largest companies in the Russell 3000(R) Index greater than $6.9 billion Large Cap Growth
1000 largest companies in the Russell 3000(R) Index greater than $1.4 billion Growth & Income Managed
The Russell 3000(R) Index and Russell 1000(R) Growth Index are service marks of
Frank Russell Company, which does not sponsor and is not in any way affiliated
with the Trust. Inclusion of a security in the index in no way implies an
opinion on the part of Frank Russell Company as to its attractiveness or
appropriateness as an investment.
4
ADDITIONAL INFORMATION
Financial Highlights Tables
The financial highlights tables on the following pages detail the historical
performance of each fund, including total return information for the past 5
years (or such shorter period as the fund has been in operation). The "total
returns" in each table represent the rate that an investor would have earned
(or lost) on an investment in the fund (assuming reinvestment of all dividends
and distributions). Certain information in each table reflects financial
results for a single fund share. The "total investment return" shown for each
fund does not reflect the expenses and charges of the applicable separate
accounts and variable contracts. Those expenses and charges vary considerably
from contract to contract and are described in the variable contract prospectus
to which this prospectus is attached. If the earliest period shown in the
financial highlights table is less than a full calendar year, the two "Ratios"
shown for that period have been annualized (i.e., projected as if the fund had
been in effect for a full year). However, the "total investment return" and
"turnover rate" for that period have not been annualized. The financial
highlights have been audited by Ernst & Young LLP, whose report (along with the
Trust's financial statements) are included in the Trust's annual report, which
is available upon request.
During the year 2000, the Trust entered into a new subadvisory agreement (i)
with Putnam Investment Management, LLC for management of the Growth & Income
Fund and (ii) with Capital Guardian Trust Company for management of the Managed
Fund.
Had the Managed and Active Bond Funds not amortized premiums and accreted
discounts on debt securities, the "ratio of net investment income to average
net assets" for the period ended December 31, 2001 would have been 2.29% and
6.28%, respectively.
General
In the following pages, any fund investment strategy that is stated as a
percentage of a fund's assets applies at all times, not just at the time the
fund buys or sells an investment security. However, when markets are unusually
volatile or when a fund experiences unusually large cash flows, a fund may be
allowed to temporarily deviate from its normal strategy to avoid unnecessary
transaction costs. The trustees of the Trust can change the investment goals
and strategy of any fund without shareholder (i.e., contractowner) approval.
The equity funds may participate in initial public offerings (IPOs). Under
certain market conditions, such participation could significantly improve a
fund's total investment return. There is no assurance that such market
conditions will continue and provide the same favorable impact on future
investment returns.
If the total investment return for any fund for any given year appears
unusually high, the return may be attributable to unusually favorable market
conditions which will probably not be sustainable. For instance, a high total
investment return may reflect participation in IPOs, "hot" industries (e.g.,
internet-related companies), private placements and/or leveraging investment
techniques during the period indicated. There is no assurance that any of those
methods, or any other investment technique, will continue to have the same
impact on the fund's total investment returns.
In this prospectus, the term "stock" is used as a shorthand reference for
equity investments generally and the term "bond" is used as a shorthand
reference for debt obligations generally.
5
Large Cap Growth Fund
GOAL AND STRATEGY
This is a non-diversified large cap stock fund with a growth emphasis that
seeks capital appreciation.
The Fund invests primarily in a diversified mix of common stocks of large
established U.S. companies that are believed to offer above-average potential
for growth in revenues and earnings.
The manager selects stocks using a combination of proprietary equity research
and quantitative tools. Stocks are purchased that are undervalued relative to
the stock's history and have improving earnings growth prospects. The manager
seeks to maintain risk and sector characteristics similar to the Russell
1000(R) Growth Index.
The Fund is "non-diversified" which means it can take larger positions in
individual issuers. The Fund normally invests in 75 to 160 stocks, and at least
80% of its assets in large cap companies. For the purpose of this Fund, "large
cap companies" are those with market capitalizations that are within the range
of capitalization of companies represented in the Russell 1000(R) Growth Index.
Moreover, the Fund normally invests at least 65% (usually higher) of its assets
in companies with market capitalizations that are within the range of
capitalization of the 300 largest companies in the Russell 3000(R) Index. At
year-end 2001, those companies had market capitalizations greater than $6.9
billion. The Fund normally has 10% or less (usually lower) of its assets in
cash and cash equivalents. The Fund may invest in initial public offerings
(IPOs).
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: U.S. dollar denominated foreign securities, certain
Exchange Traded Funds (ETFs), and certain derivatives (investments whose value
is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Independence Investment LLC
53 State Street
Boston, Massachusetts 02109
Owned by John Hancock
Managing since 1982
Managing Fund and its predecessor since March, 1986
Managed approximately $20 billion in assets at the end of 2001
FUND MANAGERS
Management by investment team overseen by:
Mark C. Lapman
- ---------------------
President and CEO of subadviser
Joined subadviser in 1982
John C. Forelli
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1990
PAST PERFORMANCE
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 and potential rewards. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect the deduction of fees and charges payable under the variable
contracts. Such fees and charges would cause the investment returns under the
contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
- ------ ----- ------ ------- ------ ------ ------ ------ ------ -------- --------
25.50% 9.90% 13.80% (0.98)% 31.64% 18.27% 30.89% 39.51% 24.07% (17.89)% (17.54)%
Best quarter: up 27.79%, fourth quarter 1998 Worst quarter: down 21.05%,
first quarter 2001
Average annual total returns -- for periods ending 12/31/2001*
Fund Index
1 year -17.54% -20.42%
5 years 8.94% 8.27%
10 years 11.46% 10.79%
Life of fund 12.49% 12.33%
Index: Russell 1000(R) Growth Index
* Began operations on March 29, 1986.
6
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond 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. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Non-Diversified Fund Risk: The Fund's larger position in individual issuers
could produce more volatile performance relative to more diversified funds. The
less diversified a fund's holdings are, the more likely it is that a specific
security's poor performance will hurt the fund significantly.
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.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "growth" approach carries the risk that in certain markets "growth"
stocks will underperform "value" stocks. Also, the Fund's "large cap" approach
carries the risk that in certain markets large cap stocks will underperform
small cap and mid cap stocks.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
Period ended December 31: 1997 1998 1999 2000 2001
Net asset value, beginning of period $ 17.49 $ 20.82 $ 26.19 $ 27.33 $ 18.89
Income from investment operations:
Net investment income (loss) 0.17 0.14 0.09 0.03 0.04
Net realized and unrealized gain (loss) on investments* 5.21 8.05 6.03 (4.89) (3.36)
Total from investment operations 5.38 8.19 6.12 (4.86) (3.32)
Less distributions:
Distributions from net investment income and capital paid in (0.17) (0.14) (0.09) (0.11) (0.03)
Distributions from net realized gain on investments sold (1.88) (2.68) (4.89) (2.69) --
Distributions in excess of income & gains -- -- -- (0.78) --
Total distributions (2.05) (2.82) (4.98) (3.58) (0.03)
Net asset value, end of period $ 20.82 $ 26.19 $ 27.33 $ 18.89 $ 15.54
Total investment return 30.89% 39.51% 24.07% (17.89)% (17.54)%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) $754,398 $1,126,764 $1,382,473 $1,146,787 $770,915
Ratio of expenses to average net assets (%) 0.44% 0.41% 0.39% 0.46% 0.41%
Ratio of net investment income (loss) to average net assets (%) 0.86% 0.59% 0.33% 0.10% 0.23%
Turnover rate (%) 83.82% 56.41% 37.42% 89.30% 63.96%
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of
purchases and withdrawals of shares in relation to the fluctuation in
market values of the fund.
7
Growth & Income Fund
GOAL AND STRATEGY
This is a non-diversified large and mid-cap stock fund that seeks income and
long-term capital appreciation.
The Fund invests primarily in a diversified mix of common stocks of large and
mid-sized U.S. companies.
The Fund employs a multi-style and multi-manager approach with two
sub-advisers, each of which employs its own investment approach and
independently manages its portion or portions of the Fund. The Fund uses three
distinct investment styles intended to complement each other: growth, value and
blend. The allocation across styles as of year-end 2001 is approximately:
growth portion 20%, value portion 20% and blend portion 60%. All investments in
the Fund will be allocated equally between the two subadvisers, while
redemptions will be allocated on an asset-weighted basis. Moreover, the
allocation between the value and blend portions will be managed so that the
value portion will be approximately equal to the growth portion over time. All
of these allocation methodologies may change in the future.
Independence Investment LLC ("Independence") manages two portions of the
Fund--the value style portion and the blend style portion. Independence selects
stocks using a combination of proprietary equity research and quantitative
tools. Stocks are purchased that are undervalued relative to the stock's
history and have improving earnings growth prospects.
Independence seeks to maintain risk and sector characteristics similar to the
market benchmark for its portion of the Fund. Independence normally invests its
portion of the Fund in 75 to 160 stocks, with at least 65% (usually higher) of
its assets in companies with market capitalizations that are within the range
of capitalization of the 1000 largest companies in the Russell 3000(R) Index.
At year-end 2001, those companies had market capitalizations greater that $1.4
billion.
Putnam Investment Management, LLC ("Putnam") manages the growth style portion
of the Fund. Putnam selects stocks using a combination of:
.. a systematic screening approach to rank stocks based on: fundamental catalyst
(such as earnings surprise and momentum); valuation (such as price-to-sales
ratio); and financial strength (such as superior cash flow); and
.. proprietary fundamental equity research to identify companies with strong and
innovative management teams, opportunities for above average growth within
their industry and strong competitive positioning relative to peers and
suppliers.
Putnam seeks broad diversification by security and sector and uses risk
management tools and qualitative judgment to determine sector and
stock-specific weightings. Putnam normally invests in 65 to 120 stocks, with at
least 65% (usually higher) of its assets in companies with market
capitalizations that are within the range of capitalization of the 1000 largest
companies in the Russell 3000(R) Index. At year-end 2001, those companies had
market capitalizations greater that $1.4 billion.
The Fund is "non-diversified", which means that it can take larger positions in
individual issuers.
Each portion of the Fund normally has 10% or less (usually lower) of its assets
in cash and cash equivalents. Each portion of the Fund may invest in initial
public offerings (IPOs). Each portion of the Fund may purchase other types of
securities that are not primary investment vehicles, for example: U.S. dollar
denominated foreign securities, certain Exchange Traded Funds (ETFs), and
certain derivatives (investments whose value is based on indices or other
securities).
In abnormal market conditions, each portion of the Fund may take temporary
defensive measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
(less than)/TC
SUBADVISER
Independence Investment LLC
53 State Street
Boston, Massachusetts 02109
Owned by John Hancock
Managing since 1982
Managing Fund and its predecessor since March, 1986
Managed approximately $20 billion in assets at end of 2001
FUND MANAGERS
Management by investment team overseen by:
Paul F. McManus
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1982
Thomas D. Spicer
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1991
SUBADVISER
Putnam Investment Management, LLC
One Post Office Square
Boston, Massachusetts 02109
Managing since 1937
Managing Fund since November, 2000
Managed approximately $315 Billion in assets at the end of 2001
FUND MANAGERS
Team Managed By:
4 Portfolio Managers
Average 8 years with Putnam
Average 17 years industry experience
See Appendix A for more details
8
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond 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. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Non-Diversified Fund Risk: The Fund's larger position in individual issuers
could produce more volatile performance relative to more diversified funds. The
less diversified a fund's holdings are, the more likely it is that a specific
security's poor performance will hurt the fund significantly.
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.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "large/mid cap" approach carries the risk that in certain markets
large/mid cap stocks will underperform small cap stocks.
Small/Mid Cap Stock Risk: The Fund's investment in smaller or mid-sized
companies may be subject to more erratic price movements than investment in
large established companies.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
Normally, the Fund's turnover rate will be greater than 100%.
Initial Public Offering Risk: The fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9
Growth & Income Fund -- continued
PAST PERFORMANCE
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 also help provide an indication of the
fund's risks and potential rewards. All figures assume dividend reinvestment.
Past performance does not indicate future results. The performance figures
below do not reflect the deduction of fees and charges payable under the
variable contracts. Such fees and charges would cause the investment returns
under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
- ----- ------ ------- ------ ------ ------ ------ ------ -------- -------
8.90% 13.33% (0.56)% 34.21% 20.10% 29.79% 30.25% 16.23% (13.10)% (15.44)%
Best quarter: up 24.07%, fourth quarter 1998 Worst quarter: down 16.99%, third
quarter 2001
Average annual total return -- for periods
ending 12/31/2001*
Fund Index 1 Index 2 Index 3**
1 year -15.44% -11.87% -12.45% -11.87%
5 years 7.62% 10.70% 10.50% 10.70%
10 years 11.06% 12.93% 12.85% 12.93%
Life of fund 12.02% 13.31% 13.05% 13.31%
Index 1: S&P 500 Index
Index 2: Russell 1000 Index (effective May, 2002)
Index 3: S&P 500 Index (from inception through April, 2002) and Russell 1000
Index (after April, 2002)
* Began operations on March 29, 1986.
** John Hancock believes Index 3 is a more suitable index against which to
measure the fund's performance because it more closely matches the fund's
changes in investment strategy since inception.
10
FINANCIAL HIGHLIGHTS
(Selected data for each share interest outstanding throughout the period
indicated)
The following financial highlights have been audited by Ernst & Young LLP.
Period ended December 31: 1997 1998 1999 2000 2001
Net asset value, beginning of period $ 14.65 $ 16.61 $ 19.49 $ 20.01 $ 14.18
Income from investment operations:
Net investment income (loss) 0.27 0.23 0.20 0.17 0.06
Net realized and unrealized gain (loss) on investments* 4.07 4.75 2.88 (2.77) (2.25)
Total from investment operations 4.34 4.98 3.08 (2.60) (2.19)
Less distributions:
Distributions from net investment income and capital paid in (0.27) (0.23) (0.20) (0.40) (0.06)
Distributions from net realized gain on investments sold (2.11) (1.87) (2.36) (2.69) --
Distributions in excess of income & gains -- -- -- (0.14) --
Total distributions (2.38) (2.10) (2.56) (3.23) (0.06)
Net asset value, end of period $ 16.61 $ 19.49 $ 20.01 $ 14.18 $ 11.93
Total investment return 29.79% 30.25% 16.23% (13.10)% (15.44)%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) $2,785,964 $3,670,785 $4,218,841 $3,324,988 $2,476,319
Ratio of expenses to average net assets (%) 0.28% 0.27% 0.28% 0.40% 0.72%
Ratio of net investment income (loss) to average net assets (%) 1.61% 1.24% 0.98% 0.84% 0.49%
Turnover rate (%) 74.56% 48.45% 70.16% 112.94% 104.47%(1)
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of
purchases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
(1) Excludes merger activity.
11
Managed Fund
GOAL AND STRATEGY
This is a non-diversified balanced stock and bond fund that seeks income and
long-term capital appreciation.
The Fund invests primarily in a diversified mix of:
.. common stocks of large and mid-sized U.S. companies, and
.. bonds with an overall intermediate term average maturity.
The Fund employs a multi-manager approach with two subadvisers, each of which
employs its own investment approach and independently manages its portion of
the Fund. At year-end 2001, Independence managed approximately 80% of the
assets of the Fund and Capital Guardian managed the remainder. All investments
in the Fund will be allocated equally between the two subadvisers, while
redemptions will be allocated on an asset-weighted basis. These allocation
methodologies may change in the future.
Independence Investment LLC ("Independence") selects stocks and bonds using a
combination of proprietary research and quantitative tools. Stocks are
purchased that are undervalued relative to the stock's history and have
improving earnings growth prospects. Independence seeks to maintain the equity
risk and sector characteristics of its portion of the Fund similar to those of
the overall equity market. Independence invests in bonds and bond sectors that
are attractively priced based on market fundamentals and technical factors. The
manager opportunistically emphasizes bonds with yields in excess of Treasury
securities.
Independence's portion of the Fund has a target mix of 60% equities and 40%
bonds, but Independence actively manages the mix within +/- 10 percentage
points of the target mix. Independence normally invests its equity portion in
75 to 160 stocks, with at least 65% (usually higher) in companies with market
capitalizations that are within the range of capitalization of the 1000 largest
companies in the Russell 3000(R) Index. At year-end 2001, those companies had
market capitalizations greater than $1.4 billion. Independence may invest up to
30% of its bond assets in high yield and foreign bonds (denominated in foreign
currencies).
Capital Guardian Trust Company ("Capital Guardian") selects stocks and bonds
using proprietary fundamental research that focuses on identifying securities
that are believed to be undervalued (i.e., with current prices below long-term
value).
Capital Guardian's portion of the Fund has a target mix of 70% equities and 30%
bonds, but Capital Guardian actively manages the mix within +/- 15 percentage
points of the target mix.
Capital Guardian uses a multiple portfolio manager system in which the stock
and bond portions of the Fund are divided into segments that are each managed
by individual portfolio managers and/or research analysts. Capital Guardian's
strategy is normally broadly diversified since its exposures reflect the
aggregate decisions of the multiple portfolio managers and research analysts.
Capital Guardian's equity sector exposures are a result of stock selection as
opposed to predetermined allocations. Capital Guardian normally invests its
equity portion in 75 to 150 stocks, with at least 65% (usually higher) in
companies with market capitalizations that are within the range of
capitalization of the 1000 largest companies in the Russell 3000(R) Index. At
year-end 2001, those companies had market capitalizations greater than $1.4
billion. Capital Guardian may invest up to 30% of its bond assets in high yield
and foreign bonds (denominated in foreign currencies).
The Fund is "non-diversified," which means that it can take larger positions in
individual issuers.
Each portion of the Fund normally has 10% or less (usually lower) of its assets
in cash and cash equivalents. Each portion of the Fund may invest in initial
public offerings (IPOs). Each portion of the Fund may purchase other types of
securities that are not primary investment vehicles, for example: U.S. dollar
denominated foreign securities, certain Exchange Traded Funds (ETFs), and
certain derivatives (investments whose value is based on indices or other
securities).
In abnormal market conditions, each portion of the Fund may take temporary
defensive measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Independence Investment LLC
53 State Street
Boston, Massachusetts 02109
Owned by John Hancock
Managing since 1982
Managing Fund and its predecessor since March, 1986
Managed approximately $20 billion in assets at the end of 2001
FUND MANAGERS
Management by investment team overseen by:
John C. Forelli (equity)
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1990
James E. Shallcross (fixed income)
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1991
SUBADVISER
Capital Guardian Trust Company
333 South Hope Street
Los Angeles, California 90071
Managing since 1968
Managing Fund since November, 2000
Managed approximately $120 billion in assets at the end of 2001
FUND MANAGERS
Equity
- ---------------------
Managed by team of 22 research analysts
Average of 10 years with Capital Guardian
Average of 14 years industry experience
Fixed Income
- ---------------------
Team managed by 4 portfolio managers
Average of 12 years with Capital Guardian
Average of 16 years industry experience
See Appendix B for more details
12
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond 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. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Non-Diversified Fund Risk: The Fund's larger position in individual issuers
could produce more volatile performance relative to more diversified funds. The
less diversified a fund's holdings are, the more likely it is that a specific
security's poor performance will hurt the fund significantly.
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.
Market Allocation Risk: The allocation of the Fund's assets among major asset
classes (i.e., stocks, bonds, and short-term debt securities) may (1) reduce
the Fund's holdings in a class whose value then increases unexpectedly, or (2)
increase the Fund's holdings in a class just prior to its experiencing a loss
of value.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "large/mid cap" approach carries the risk that in certain markets
large/mid cap stocks will underperform small cap stocks.
Interest Rate Risk: When interest rates rise, the Fund's bond yields will
generally rise and the Fund's bond prices will gener ally fall. When interest
rates fall, the reverse will generally occur. The longer the average remaining
maturity of bonds held by the Fund, the more sensitive the Fund is to interest
rate risk. This Fund has more interest rate risk than a short-term bond fund,
but less interest rate risk than a long-term bond fund.
Credit Risk: An issuer of a bond held by the Fund may default on its
obligation to pay interest and repay principal. Also, the credit rating of a
bond held by the Fund may be downgraded. In either case, the value of the bond
held by the Fund would fall. All bonds have some credit risk, but in general
lower-rated bonds have higher credit risk.
Small/Mid Cap Stock Risk: The Fund's investment in smaller or mid-sized
companies may be subject to more erratic price movements than investment in
large established companies.
High Yield Bond Risk: Junk bonds, defined as bond securities rated below
BBB-/Baa3, may be subject to more volatile or erratic price movements due to
investor sentiment. In a down market, these high yield securities become harder
to value or to sell at a fair price.
Prepayment/Call Risk: The Fund's share price or yield could be hurt if
interest rate movements cause the Fund's mortgage-related and callable
securities to be paid off substantially earlier than expected.
Concentration Risk. The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
Normally, the Fund's turnover rate will be greater than 100%.
Secondary
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing
currency also pose special risks. However, to the extent the Fund invests in
emerging market countries, it will have a significantly higher degree of
foreign risk than if it invested exclusively in developed or
newly-industrialized countries.
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
- --------------------------------------------------------------------------------
13
Managed Fund -- continued
PAST PERFORMANCE
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 also help provide an indication of the
fund's risks and potential rewards. All figures assume dividend reinvestment.
Past performance does not indicate future results. The performance figures
below do not reflect the deduction of fees and charges payable under the
variable contracts. Such fees and charges would cause the investment returns
under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
------ ----- ------ ------- ------ ------ ------ ------ ----- ----- -------
22.00% 7.70% 11.60% (2.23)% 27.09% 10.72% 18.72% 20.42% 9.10% 0.03% (2.84)%
Best quarter: up 14.77%, fourth quarter 1998 Worst quarter: down 8.28%, third
quarter 2001
Average annual total return -- for periods ending 12/31/2001*
Fund Index 1 Index 2 Index 3**
1 year -2.84% -11.88% 8.42% -3.72%
5 years 8.67% 10.70% 7.43% 9.39%
10 years 9.63% 12.93% 7.23% 10.26%
Life of fund 10.59% 13.31% 8.18% 11.02%
Index 1: S&P 500 Index
Index 2: Lehman Brothers Aggregate Bond Index
Index 3: A composite index combining the performance of the following indices
over the periods indicated: 50% S&P 500 Index/50% Lehman Brothers
Aggregate Bond Index (from inception through December, 1997) and 60% S&P
500 Index/40% Lehman Brothers Aggregate Bond Index (after December, 1997)
* Began operations on March 29, 1986.
** John Hancock believes Index 3 is a more suitable index against which to
measure the fund's performance because it more closely matches the fund's
changes in investment strategy since inception.
14
FINANCIAL HIGHLIGHTS
(Selected data for each share interest outstanding throughout the period
indicated)
The following financial highlights have been audited by Ernst & Young LLP.
Period ended December 31: 1997 1998 1999 2000 2001
Net asset value, beginning of period $ 13.35 $ 14.35 $ 15.64 $ 15.45 $ 13.82
Income from investment operations:
Net investment income (loss) 0.59 0.46 0.44 0.44 0.28
Net realized and unrealized gain (loss) on investments* 1.86 2.43 0.94 (0.45) (0.67)
Total from investment operations 2.45 2.89 1.38 (0.01) (0.39)
Less distributions:
Distributions from net investment income and capital paid in (0.67) (0.51) (0.43) (0.44) (0.28)
Distributions from net realized gain on investments sold (0.78) (1.09) (1.14) (1.18) (0.07)
Distributions in excess of income & gains -- -- -- -- --
Total distributions (1.45) (1.60) (1.57) (1.62) (0.35)
Net asset value, end of period $ 14.35 $ 15.64 $ 15.45 $ 13.82 $ 13.08
Total investment return 18.72% 20.42% 9.10% 0.03% (2.84)%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) $2,800,127 $3,301,910 $3,430,919 $2,995,794 $2,526,703
Ratio of expenses to average net assets (%) 0.37% 0.36% 0.36% 0.46% 0.73%
Ratio of net investment income (loss) to average net assets (%) 4.18% 2.99% 2.75% 2.86% 2.10%
Turnover rate (%) 200.41% 160.57% 203.86% 199.27% 190.73%(1)
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of
purchases and withdrawals of shares in relation to the fluctuation in
market values of the fund.
(1) Excludes merger activity.
15
Active Bond Fund
GOAL AND STRATEGY
This is an intermediate term bond fund of medium credit quality that seeks
income and capital appreciation.
The Fund normally invests at least 80% of its assets in a diversified mix of
debt securities including but not limited to:
.. U.S. Treasury and agency securities;
..asset-backed and mortgage-backed securities, including commercial
mortgage-backed securities;
.. corporate bonds, both U.S. and foreign (if dollar-denominated); and
.. foreign government and agency securities (if dollar-denominated).
The manager normally invests:
.. mostly in investment grade debt securities; and
.. no more than 25% of the Fund's assets in high yield bonds.
The manager seeks to identify specific bond sectors, industries and specific
bonds that are attractively priced. The manager tries to anticipate shifts in
the business cycle, using economic and industry analysis to determine which
sectors and industries might benefit over the next 12 months. The manager uses
proprietary research to identify securities that are undervalued.
The manager evaluates bonds of all quality levels and maturities from many
different issuers. The Fund normally has an average credit rating of "A" or
higher.
The Fund normally has 10% or less of its assets in cash and cash equivalents.
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: emerging market debt securities, and certain derivatives
(investments whose value is based on indices or other securities). The manager
actively uses derivatives, such as futures, to adjust the Fund's average
maturity and seeks to keep the Fund's interest rate sensitivity in line with
the overall market.
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199
Owned by John Hancock
Managing since 1968
Managing Fund since May, 1995
Managed approximately $29 billion in assets at the end of 2001
FUND MANAGERS
James K. Ho, CFA
- ---------------------
Executive Vice President of subadviser
Joined subadviser in 1985
Benjamin A. Matthews, CFA
- ---------------------
Vice President of subadviser
Joined subadviser in 1995
PAST PERFORMANCE
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 and potential rewards. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect the deduction of fees and charges payable under the variable
contracts. Such fees and charges would cause the investment returns under the
contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
- ------- ------ ------- ----- ----- ------- ------ ------ ------- ------
7.70% 10.80% (2.57)% 19.55% 4.10% 10.11% 8.23% (0.94)% 10.45% 7.48%
Best quarter: up 7.14%, second quarter 1989 Worst quarter: down 2.51%, first
quarter 1994
Average annual total returns -- for periods ending 12/31/2001*
Fund Index
1 year 7.48% 8.42%
5 years 6.98% 7.43%
10 years 7.32% 7.23%
Life of fund 8.00% 8.18%
Index: Lehman Brothers Aggregate Bond Index
* Began operations on March 29, 1986.
16
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond 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. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
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.
Interest Rate Risk: When interest rates rise, the Fund's bond yields will
generally rise and the Fund's bond prices will generally fall. When interest
rates fall, the reverse will generally occur. The longer the average remaining
maturity of bonds held by the Fund, the more sensitive the Fund is to interest
rate risk. This Fund has more interest rate risk than a short-term bond fund,
but less interest rate risk than a long-term bond fund.
Credit Risk: An issuer of a bond held by the Fund may default on its
obligation to pay interest and repay principal. Also, the credit rating of a
bond held by the fund may be downgraded. In either case, the value of the bond
held by the Fund would fall. All bonds have some credit risk, but in general
lower-rated bonds have higher credit risk.
High Yield Bond Risk: Junk bonds, defined as bond securities rated below
BBB-/Baa3, may be subject to more volatile or erratic price movements due to
investor sentiment. In a down market, these high yield securities become harder
to value or to sell at a fair price.
Prepayment/Call Risk: The Fund's share price or yield could be hurt if
interest rate movements cause the Fund's mortgage-related and callable
securities to be paid off substantially earlier than expected.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the Fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
Normally, the Fund's turnover rate will be greater than 100%.
Secondary
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic,
political and social instability. Factors such as lack of liquidity, foreign
ownership limits and restrictions on removing currency also pose special risks.
All foreign securities have some degree of foreign risk. However, to the extent
the Fund invests in emerging market countries, it will have a significantly
higher degree of foreign risk than if it invested exclusively in developed or
newly-industrialized countries.
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
Period ended December 31: 1997 1998 1999 2000 2001
Net asset value, beginning of period $ 9.77 $ 9.95 $ 9.92 $ 9.12 $ 9.44
Income from investment operations:
Net investment income (loss) 0.71 0.69 0.67 0.64 0.58
Net realized and unrealized gain (loss) on investments* 0.24 0.11 (0.76) 0.28 0.11
Total from investment operations 0.95 0.80 (0.09) 0.92 0.69
Less distributions:
Distributions from net investment income and capital paid in (0.71) (0.69) (0.71) (0.60) (0.58)
Distributions from net realized gain on investments sold (0.06) (0.14) -- -- --
Distributions in excess of income & gains -- -- -- -- --
Total distributions (0.77) (0.83) (0.71) (0.60) (0.58)
Net asset value, end of period $ 9.95 $ 9.92 $ 9.12 $ 9.44 $ 9.55
Total investment return 10.11% 8.23% (0.94)% 10.45% 7.48%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) $803,770 $907,121 $850,286 $842,299 $947,514
Ratio of expenses to average net assets (%)** 0.31% 0.29% 0.28% 0.41% 0.67%
Ratio of net investment income (loss) to average net assets (%) 7.18% 6.84% 6.97% 6.98% 5.97%
Turnover rate (%) 138.29% 228.74% 182.90% 224.24% 206.80%(1)
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of
purchases and withdrawals of shares in relation to the fluctuation in
market values of the fund.
** Expense ratio is net of expense reimbursements. Had such reimbursement not
been made the expense ratio would have been .44% for the year ended
December 31, 2001.
(1) Excludes merger activity.
17
Money Market Fund
GOAL AND STRATEGY
This is a money market fund that seeks to preserve capital and liquidity while
also seeking to achieve a competitive yield. The Fund intends to maintain a
stable net asset value of $1.00 per share.
The Fund invests in U.S. dollar denominated money market instruments rated in
one of the two highest short-term credit rating categories, primarily including:
.. commercial paper and other short-term obligations of U.S. and foreign issuers
(including asset-backed securities);
.. certificates of deposit, bank notes and other obligations of U.S. and foreign
banks and other lending institutions;
.. debt securities issued by foreign governments and agencies;
.. U.S. Treasury, agency and state and local government obligations; and,
.. repurchase agreements.
The manager's investment approach combines top-down analysis with fundamental
bottom-up security selection. The manager considers factors such as the
anticipated level of interest rates and the maturity of individual securities
to determine the Fund's overall weighted average maturity. The manager seeks
securities;
.. with an acceptable maturity;
.. issued by issuers on a sound financial footing;
.. that are marketable and liquid; and
.. that offer competitive yields.
The Fund only invests in individual securities with a maximum remaining
maturity of 397 days (13 months). The overall weighted average maturity of the
Fund's investments is 90 days or less. The Fund may invest:
.. up to 5% of assets in securities rated in the second-highest short-term
category (or unrated equivalents); and
.. up to 1% of assets or $1 million (whichever is greater) in securities of a
single issuer rated in the second-highest short-term category (or unrated
equivalents).
- --------------------------------------------------------------------------------
SUBADVISER
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109
Managing, with predecessors, since 1928
Managing Fund since May, 2001
Managed approximately $311 billion in assets at the end of 2001
FUND MANAGERS
Management by investment team overseen by:
John Keogh
- ---------------------
Senior Vice President and Partner of subadviser
Joined subadviser in 1983
PAST PERFORMANCE
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 also help provide
an indication of the fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
- ------- ------ ------- ----- ----- ------- ------ ------ ------ -------
3.60% 3.41% 4.03% 5.78% 5.32% 5.38% 5.40% 5.05% 6.29% 3.93%
Best quarter: up 2.38%, second quarter 1989 Worst quarter: up 0.74%, second
quarter 1993
Average annual total return -- for periods ending 12/31/2001*
Fund
1 year 3.93%
5 years 5.22%
10 years 4.79%
Life of fund 6.69%
* Began operations on March 29, 1986.
18
MAIN RISKS
Primary
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.
Interest Rate Risk: When interest rates rise, yields on the Fund's investments
will generally rise and prices on the Fund's investments will generally fall.
When interest rates fall, the reverse will generally occur. The longer the
average remaining maturity of instruments held by the Fund, the more sensitive
the Fund is to interest rate risk. This Fund has less interest rate risk than
an intermediate-term or long-term bond fund.
Credit Risk: An issuer of an instrument held by the Fund may default on its
obligation to pay interest and repay principal. Also, the credit rating of an
instrument held by the Fund may be downgraded. In either case, the value of the
instrument held by the Fund would fall. All money market instruments have some
credit risk, but in general lower-rated instruments have higher credit risk.
Principal Risk: An investment in the Fund is not a bank deposit and is not
guaranteed as to principal and interest. Although the Fund seeks to maintain a
stable net asset value of $1.00 per share, investors may lose money by
investing in the Fund.
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic,
political and social instability. Factors such as lack of liquidity, foreign
ownership limits and restrictions on removing currency also pose special risks.
All foreign securities have some degree of foreign risk. However, to the extent
the Fund invests in emerging market countries, it will have a significantly
higher degree of foreign risk than if it invested exclusively in developed or
newly-industrialized countries.
Secondary
None
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.**
Period ended December 31: 1997 1998 1999 2000 2001
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income (loss) 0.05 0.05 0.04 0.06 0.04
Net realized and unrealized gain (loss) on investments* -- -- -- -- --
Total from investment operations 0.05 0.05 0.04 0.06 0.04
Less distributions:
Distributions from net investment income and capital paid in (0.05) (0.05) (0.04) (0.06) (0.04)
Distributions from net realized gain on investments sold -- -- -- -- --
Distributions in excess of income & gains -- -- -- -- --
Total distributions $ (0.05) $ (0.05) (0.04) (0.06) $ (0.04)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total investment return 5.38% 5.40% 5.05% 6.29%(1) 3.93%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) $229,443 $395,195 $451,235 $496,853 $745,516
Ratio of expenses to average net assets (%) 0.33% 0.31% 0.31% 0.29% 0.32%
Ratio of net investment income (loss) to average net assets (%) 5.32% 5.29% 4.95% 6.05% 3.72%
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing
of purchases and withdrawals of shares in relation to the fluctuation in
market values of the fund.
** Per share amounts have been restated to reflect a 10-for-1 stock split
effective May 1, 2001.
(1) The total investment return includes the effect of the capital contribution
of $0.01 per share. The total investment return without the capital
contribution would have been 6.18%.
19
Your Account
Investments in shares of the funds
Each fund sells its shares directly to separate accounts of John Hancock,
JHVLICO and other insurance companies to fund variable contracts. Each fund
also buys back its shares on redemption by the separate accounts.
Under the variable contracts, a separate account buys or redeems a fund's
shares based on:
.. instructions by you and other contractowners to invest or receive back monies
under a contract (such as making a premium payment or surrendering a
contract), and
.. the operation of a contract (such as deduction of fees and charges).
The Trust, as law permits, may:
.. refuse a buy order if the adviser believes it would disrupt management
.. suspend a fund's offer of shares, or
.. suspend a fund's redemption obligation or postpone a fund's payment of
redemption proceeds for more than seven days.
Share price
Each fund sells and buys back its shares at the net asset value per share
("NAV") next computed after receipt by a separate account of a contractowner's
instructions.
Each fund calculates its NAV:
.. by dividing its net assets by the number of its outstanding shares,
.. once daily as of the close of regular trading on the New York Stock Exchange
(generally at 4 p.m. New York time) on each day the Exchange is open.
Certain funds may hold securities primarily listed on foreign exchanges that
trade on weekends or other days when the Trust does not calculate NAV.
Consequently, NAV may change on days when contractowners will not be able to
instruct a separate account to buy or redeem fund shares.
Valuation
The Money Market Fund values its securities at amortized cost. Each of the
other funds values securities based on:
.. market quotations,
.. amortized cost,
.. valuations of independent pricing services, or
.. fair value determined in accordance with procedures approved by the Trust's
trustees.
A fund may value securities at fair value where, for example:
.. market quotations are not readily available, or
.. the value of securities has been materially affected after the closing of a
foreign market.
Conflicts
The Trust's trustees monitor for possible material irreconcilable conflicts
among separate accounts buying shares of the funds. The Trust's net asset value
could decrease, if the Trust had to sell investment securities to pay
redemption proceeds to a separate account withdrawing because of a conflict.
20
Funds' Expenses
The advisory fee paid by each fund to the adviser in 2001 was:
Funds % of net assets
Large Cap Growth Fund 0.38%
Growth & Income Fund 0.67%
Managed Fund 0.67%
Active Bond Fund 0.62%
Money Market Fund 0.25%
The adviser pays subadvisory fees out of its own assets. No fund pays a fee to
its subadviser(s). The adviser has agreed to limit each fund's annual expenses
(excluding advisory fees and certain other expenses such as brokerage and
taxes) to not more than 0.10 percent of the fund's average daily net assets.
Dividends and Taxes
Dividends
Each fund automatically reinvests its dividends and distributions in additional
shares of the fund at NAV.
Each fund declares and pays dividends monthly, except that the Money Market
Fund does so daily.
Funds generally declare capital gains distributions annually.
Taxes
Each fund must meet investment diversification and other requirements under the
Internal Revenue Code, in order to:
.. avoid federal income tax and excise tax, and
.. assure the tax-deferred treatment of variable contracts under the Code.
You should read the prospectus for your variable contract for the federal
income tax consequences for contractowners, including the consequences of a
fund's failure to meet Code requirements.
21
Trust Business Structure
The diagram below shows the basic business structure of the Trust. The Trust's
trustees oversee the Trust's investment and business activities and hire
various service providers to carry out the Trust's operations.
22
Variable
Contractowners
John Hancock and
JHVLICO
Separate Accounts
The Trust
Trustees oversee the
Trust's investment and business activities.
Investment Adviser
John Hancock Life
Insurance Company
Manages the Trust's
investment and business
activities.
Custodian
State Street Bank and Trust
Company
Holds the Trust's assets, settles all Trust
trades and collects most of the valuation
data required for calculating the Trust's
NAV.
Subadvisers
Capital Guardian Trust Putnam Investment
Company Management, LLC
Independence Investment Wellington Management
LLC Company, LLP
John Hancock Advisers,
LLC
Provide management to various funds.
APPENDIX A
Putnam Investment Management, LLC uses the U.S. Growth Equity Team to provide
day to day investment management services to the Growth & Income Fund. Set
forth below are the members of that team:
GROWTH & INCOME FUND
C. Beth Cotner, CFA
- -------------------
Managing Director and Chief Investment Officer of subadviser
Joined subadviser in 1995
(Retiring in fourth quarter of 2002)
Jeffrey R. Lindsey, CFA
- -----------------------
Managing Director of subadviser
Joined subadviser in 1994
David J. Santos
- ---------------
Senior Vice President of subadviser
Joined subadviser in 1986
Anthony R. Sellitto, III, CFA
- -----------------------------
Senior Vice President of subadviser
Joined subadviser in 2000
Portfolio Manager, Berger Associates 1998-2000
Assistant Portfolio Manager, Crestone Capital Management 1995-1998
23
APPENDIX B
Capital Guardian Trust Company uses a multiple portfolio manager system in
which each Fund it subadvises is divided into segments that are managed by
individual portfolio managers and/or research analysts. This multiple manager
approach seeks to deliver the best ideas of individual portfolio managers and
analysts within each Fund. Each portfolio manager and research analyst decides
how their respective segment will be invested within the limits provided by the
Fund's goal and strategy and investment policies. Capital Guardian's Investment
Committee determines the specific allocation to individual portfolio managers
and the research analyst team. The equity portion of the Managed Fund is
managed directly by the equity research analysts, led by the Research Portfolio
Coordinator, each of whom has investment discretion over a segment of the total
Portfolio. The size of each analyst's segment will vary over time and may be
based upon: (1) the level of conviction of specific research analysts as to
their designated sectors; (2) industry weights within the relevant benchmark
for the Fund; and (3) the judgment of the Research Portfolio Coordinator in
assessing the level of conviction of research analysts compared to industry
weights within the relevant benchmark. Set forth below are details regarding
the multiple portfolio managers of Capital Guardian who are involved in the
management of the Managed Fund:
Equity Investments:
The Equity Research team consists of the following 22 research analysts with an
average of 10 years experience with Capital Guardian and 14 years of industry
experience:
Gene Barron Reed H. Lowenstein
Andrew F. Barth (Research Portfolio Coordinator) Karen A. Miller
Terry Berkemeier Jason M. Pilalas
Steven Connell Lars Reierson
Caroline E. Ford Carlos A. Schonfeld
Zachary E. Guevara Lawrence R. Solomon
Todd S. James Eric H. Stern
James S. Kang Suzanne Stewart
Karin L. Larson Eva Sudol
Jin Lee Steven R. Wanek
John A. Longhurst Alan J. Wilson
Fixed Income Investments:
Christine Cronin James R. Mulally
- ---------------- ----------------
Vice President of subadviser Senior Vice President of subadviser
Joined subadviser in 1997 Joined subadviser in 1980
Michael Locke John W. Ressner
- ------------- ---------------
Vice President of subadviser Executive Vice President of subadviser
Joined subadviser in 1996 Joined subadviser in 1988
24
For more information
This prospectus should be used only with a variable contract prospectus.
John Hancock Variable
Series Trust I
John Hancock Place
Boston, Massachusetts 02117
Two documents are available that offer further information on John Hancock
Variable Series Trust I:
Annual/Semiannual Report to shareholders
Includes financial statements, a discussion of the market conditions and
investment strategies that significantly affected performance, and the
auditors' report (in the annual report only).
Statement of Additional Information (SAI)
The SAI contains more detailed information on all aspects of the funds.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into (i.e., is legally a part of) this prospectus.
To request a free copy of the current annual/semiannual report or the SAI, or
to make shareholder inquiries, please contact:
By mail:
John Hancock Variable Series Trust I
John Hancock Place
Boston, MA 02117
By phone: 1-800-732-5543
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, DC
By phone: 1-202-942-8090
By mail: Office of Public Reference Securities and Exchange Commission
450 5th Street, N.W., Room 1300
Washington, DC 20549-0102
(duplicating fee required)
By e-mail: publicinfo@SEC.gov
On the Internet: www.sec.gov
SEC File Number: 811-4490
VSTPRO-10
STATEMENT OF ASSETS AND LIABILITIES
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
Large Cap Fundamental Active
Growth Growth Bond
--------- ----------- ----------
ASSETS
Long term investments at cost........................................................... $ 594,766 $ 22,620 $ 938,182
Net unrealized appreciation (depreciation) of investments............................... (102,410) (3,025) 24,881
Short-term investments at value......................................................... 11,941 1,608 302,112
--------- -------- ----------
Total investments.................................................................... 504,297 21,203 1,265,175
Cash.................................................................................... 4
Foreign currency at value (cost $0, $0, $0, $104, $38, $0, $0, $0, and $0, respectively)
Receivable for:
Investments sold....................................................................... 8 20,600
Fund shares sold....................................................................... 946 1,349
Interest............................................................................... 10,779
Dividends.............................................................................. 473 5 84
Futures contracts variation margin.....................................................
Forward foreign currency exchange contracts sold.......................................
Unrealized appreciation in forward currency contracts..................................
Other assets........................................................................... 22
--------- -------- ----------
Total assets............................................................................ 505,716 21,216 1,298,013
--------- -------- ----------
LIABILITIES
Payables for:
Investments purchased.................................................................. 1 213,633
Fund shares purchased.................................................................. 6
Futures contracts variation margin.....................................................
Collateral for securities on loan...................................................... 8,792 1,140 96,601
Forward foreign currency exchange contracts purchased..................................
Unrealized depreciation in forward currency contracts..................................
Other liabilities...................................................................... 296 4 325
--------- -------- ----------
Total liabilities....................................................................... 9,088 1,151 310,559
--------- -------- ----------
Net assets.............................................................................. $ 496,628 $ 20,065 $ 987,454
========= ======== ==========
Shares of beneficial interest outstanding............................................... 44,414 3,393 101,837
--------- -------- ----------
Net asset value per share............................................................... $ 11.18 $ 5.91 $ 9.70
========= ======== ==========
Composition of net assets:
Capital paid-in........................................................................ $ 931,089 $ 58,577 $ 983,823
Accumulated net realized gain (loss) on investments, futures and foreign currency
transactions.......................................................................... (332,464) (35,487) (23,110)
Undistributed (distribution in excess of) net investment income (loss)................. 413 1,860
Net unrealized appreciation (depreciation) of:
Investments.......................................................................... (102,410) (3,025) 24,881
Futures..............................................................................
Translation of assets and liabilities in foreign currencies..........................
--------- -------- ----------
Net assets.............................................................................. $ 496,628 $ 20,065 $ 987,454
========= ======== ==========
Emerging International Small Cap
Markets Equity Equity Index Growth
-------------- ------------- ---------
ASSETS
Long term investments at cost........................................................... $ 36,369 $132,394 $133,081
Net unrealized appreciation (depreciation) of investments............................... (2,280) (37,871) (15,430)
Short-term investments at value......................................................... 29,631 34,360
-------- -------- --------
Total investments.................................................................... 34,089 124,154 152,011
Cash.................................................................................... 5
Foreign currency at value (cost $0, $0, $0, $104, $38, $0, $0, $0, and $0, respectively) 104 38
Receivable for:
Investments sold....................................................................... 338 30
Fund shares sold....................................................................... 217
Interest............................................................................... 1
Dividends.............................................................................. 37 100 18
Futures contracts variation margin..................................................... 4
Forward foreign currency exchange contracts sold....................................... 17 3,251
Unrealized appreciation in forward currency contracts.................................. 8 63
Other assets...........................................................................
-------- -------- --------
Total assets............................................................................ 34,810 127,616 152,059
-------- -------- --------
LIABILITIES
Payables for:
Investments purchased.................................................................. 131 97
Fund shares purchased.................................................................. 7 134
Futures contracts variation margin.....................................................
Collateral for securities on loan...................................................... 25,433 31,085
Forward foreign currency exchange contracts purchased.................................. 17 3,251
Unrealized depreciation in forward currency contracts..................................
Other liabilities...................................................................... 156 8 20
-------- -------- --------
Total liabilities....................................................................... 304 28,699 31,336
-------- -------- --------
Net assets.............................................................................. $ 34,506 $ 98,917 $120,723
======== ======== ========
Shares of beneficial interest outstanding............................................... 5,759 9,840 14,639
-------- -------- --------
Net asset value per share............................................................... $ 5.99 $ 10.05 $ 8.25
======== ======== ========
Composition of net assets:
Capital paid-in........................................................................ $ 55,274 $152,830 $229,193
Accumulated net realized gain (loss) on investments, futures and foreign currency
transactions.......................................................................... (18,665) (16,146) (93,040)
Undistributed (distribution in excess of) net investment income (loss)................. 169 134
Net unrealized appreciation (depreciation) of:
Investments.......................................................................... (2,280) (37,871) (15,430)
Futures.............................................................................. (93)
Translation of assets and liabilities in foreign currencies.......................... 8 63
-------- -------- --------
Net assets.............................................................................. $ 34,506 $ 98,917 $120,723
======== ======== ========
Health Global Multi Cap
Sciences Balanced Growth
-------- -------- ---------
ASSETS
Long term investments at cost........................................................... $24,335 $30,870 $ 160,605
Net unrealized appreciation (depreciation) of investments............................... (2,342) (2,299) (6,569)
Short-term investments at value......................................................... 6,358 1,612 16,769
------- ------- ---------
Total investments.................................................................... 28,351 30,183 170,805
Cash....................................................................................
Foreign currency at value (cost $0, $0, $0, $104, $38, $0, $0, $0, and $0, respectively)
Receivable for:
Investments sold....................................................................... 22 169
Fund shares sold....................................................................... 26
Interest............................................................................... 303
Dividends.............................................................................. 33 25 63
Futures contracts variation margin.....................................................
Forward foreign currency exchange contracts sold....................................... 1,546 1,438 3,481
Unrealized appreciation in forward currency contracts.................................. 61 18
Other assets...........................................................................
------- ------- ---------
Total assets............................................................................ 30,017 31,989 174,518
------- ------- ---------
LIABILITIES
Payables for:
Investments purchased.................................................................. 22 579 861
Fund shares purchased.................................................................. 15 8
Futures contracts variation margin.....................................................
Collateral for securities on loan...................................................... 5,759 10,176
Forward foreign currency exchange contracts purchased.................................. 1,546 1,438 3,481
Unrealized depreciation in forward currency contracts.................................. 4 87
Other liabilities...................................................................... 16 21 46
------- ------- ---------
Total liabilities....................................................................... 7,347 2,053 14,659
------- ------- ---------
Net assets.............................................................................. $22,670 $29,936 $ 159,859
======= ======= =========
Shares of beneficial interest outstanding............................................... 2,898 3,778 24,029
------- ------- ---------
Net asset value per share............................................................... $ 7.82 $ 7.92 $ 6.65
======= ======= =========
Composition of net assets:
Capital paid-in........................................................................ $29,830 $35,155 $ 486,278
Accumulated net realized gain (loss) on investments, futures and foreign currency
transactions.......................................................................... (4,872) (3,230) (319,850)
Undistributed (distribution in excess of) net investment income (loss)................. (3) 271 87
Net unrealized appreciation (depreciation) of:
Investments.......................................................................... (2,342) (2,299) (6,569)
Futures..............................................................................
Translation of assets and liabilities in foreign currencies.......................... 57 39 (87)
------- ------- ---------
Net assets.............................................................................. $22,670 $29,936 $ 159,859
======= ======= =========
See notes to financial statements.
34
STATEMENT OF ASSETS AND LIABILITIES--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
Large Cap Large Cap Fundamental Money Small/Mid
Value Value CORE Value Market Cap Growth
--------- ---------- ----------- -------- ----------
ASSETS
Long term investments at cost.............................................. $283,900 $45,162 $130,328 $156,851
Net unrealized appreciation (depreciation) of investments.................. (33,406) (4,519) (11,527) (18,403)
Short-term investments at value............................................ 15,185 5,448 $917,550 18,061
-------- ------- -------- -------- --------
Total investments....................................................... 265,679 40,643 124,249 917,550 156,509
Cash....................................................................... 37
Foreign currency at value (cost $0, $0, $0, $0, $0, $0, $0, $0, and $0,
respectively).............................................................
Receivable for:
Investments sold......................................................... 35 937
Fund shares sold......................................................... 899 35 316
Interest................................................................. 558
Dividends................................................................ 723 53 156 29
Futures contracts variation margin....................................... 2
Forward foreign currency exchange contracts sold.........................
Unrealized appreciation in forward currency contracts....................
Other assets.............................................................
-------- ------- -------- -------- --------
Total assets............................................................... 267,301 40,768 124,442 918,424 157,475
-------- ------- -------- -------- --------
LIABILITIES
Payables for:
Investments purchased.................................................... 1,906 30 448
Fund shares purchased.................................................... 292 108
Futures contracts variation margin.......................................
Collateral for securities on loan........................................ 5,152 3,002 15,946
Forward foreign currency exchange contracts purchased....................
Unrealized depreciation in forward currency contracts....................
Other liabilities........................................................ 102 3 16 308 15
-------- ------- -------- -------- --------
Total liabilities.......................................................... 7,160 3 3,340 308 16,517
-------- ------- -------- -------- --------
Net assets................................................................. $260,141 $40,765 $121,102 $918,116 $140,958
======== ======= ======== ======== ========
Shares of beneficial interest outstanding.................................. 21,843 5,130 13,927 918,116 12,838
-------- ------- -------- -------- --------
Net asset value per share.................................................. $ 11.91 $ 7.95 $ 8.70 $ 1.00 $ 10.98
======== ======= ======== ======== ========
Composition of net assets:
Capital paid-in.......................................................... $293,717 $52,628 $155,487 $918,116 $169,706
Accumulated net realized gain (loss) on investments, futures and foreign
currency transactions................................................... (679) (7,344) (22,754) (82) (10,345)
Undistributed (distribution in excess of) net investment income (loss)... 509 82
Net unrealized appreciation (depreciation) of:
Investments............................................................. (33,406) (4,519) (11,527) (18,403)
Futures................................................................. (104)
Translation of assets and liabilities in foreign currencies.............
-------- ------- -------- -------- --------
Net assets................................................................. $260,141 $40,765 $121,102 $918,116 $140,958
======== ======= ======== ======== ========
Bond Large Cap Small/Mid Small Cap
Index Aggressive Growth Cap CORE Value
-------- ----------------- --------- ---------
ASSETS
Long term investments at cost.............................................. $196,026 $ 27,252 $50,945 $121,440
Net unrealized appreciation (depreciation) of investments.................. 8,974 (3,314) (3,524) (4,412)
Short-term investments at value............................................ 59,761 280 13,021 35,043
-------- -------- ------- --------
Total investments....................................................... 264,761 24,218 60,442 152,071
Cash....................................................................... 76
Foreign currency at value (cost $0, $0, $0, $0, $0, $0, $0, $0, and $0,
respectively).............................................................
Receivable for:
Investments sold......................................................... 556
Fund shares sold......................................................... 1,315 14 280
Interest................................................................. 2,420
Dividends................................................................ 22 70 181
Futures contracts variation margin.......................................
Forward foreign currency exchange contracts sold.........................
Unrealized appreciation in forward currency contracts....................
Other assets.............................................................
-------- -------- ------- --------
Total assets............................................................... 269,052 24,254 60,868 152,252
-------- -------- ------- --------
LIABILITIES
Payables for:
Investments purchased.................................................... 7,690 1,069
Fund shares purchased.................................................... 358
Futures contracts variation margin.......................................
Collateral for securities on loan........................................ 53,245 12,721 30,729
Forward foreign currency exchange contracts purchased....................
Unrealized depreciation in forward currency contracts....................
Other liabilities........................................................ 22 5 4 26
-------- -------- ------- --------
Total liabilities.......................................................... 60,957 5 12,725 32,182
-------- -------- ------- --------
Net assets................................................................. $208,095 $ 24,249 $48,143 $120,070
======== ======== ======= ========
Shares of beneficial interest outstanding.................................. 20,205 4,352 5,811 9,570
-------- -------- ------- --------
Net asset value per share.................................................. $ 10.30 $ 5.57 $ 8.28 $ 12.55
======== ======== ======= ========
Composition of net assets:
Capital paid-in.......................................................... $199,185 $ 44,887 $55,672 $124,950
Accumulated net realized gain (loss) on investments, futures and foreign
currency transactions................................................... (64) (17,324) (4,003) (468)
Undistributed (distribution in excess of) net investment income (loss)...
Net unrealized appreciation (depreciation) of:
Investments............................................................. 8,974 (3,314) (3,524) (4,412)
Futures................................................................. (2)
Translation of assets and liabilities in foreign currencies.............
-------- -------- ------- --------
Net assets................................................................. $208,095 $ 24,249 $48,143 $120,070
======== ======== ======= ========
See notes to financial statements.
35
STATEMENT OF ASSETS AND LIABILITIES--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
Real Estate Growth &
Equity Income Managed
----------- ---------- ----------
ASSETS
Long term investments at cost....................................................... $169,453 $1,911,633 $2,023,100
Net unrealized appreciation (depreciation) of investments........................... 6,913 (161,558) (105,609)
Short-term investments at value..................................................... 1,114 22,164 332,298
-------- ---------- ----------
Total investments................................................................ 177,480 1,772,239 2,249,789
Cash................................................................................
Foreign currency at value (cost $0, $0, $0, $0, $0, $1401, $0, $0, and $0,
respectively)......................................................................
Receivable for:
Investments sold.................................................................. 102 15,053 53,830
Fund shares sold.................................................................. 120
Interest.......................................................................... 5,918
Dividends......................................................................... 1,281 1,992 1,567
Futures contracts variation margin................................................
Forward foreign currency exchange contracts sold..................................
Unrealized appreciation in forward currency contracts.............................
Other assets...................................................................... 1
-------- ---------- ----------
Total assets........................................................................ 178,863 1,789,404 2,311,105
-------- ---------- ----------
LIABILITIES
Payables for:
Investments purchased............................................................. 54 14,742 270,373
Fund shares purchased............................................................. 349 1,145
Futures contracts variation margin................................................
Collateral for securities on loan................................................. 11,578 101,925
Forward foreign currency exchange contracts purchased.............................
Unrealized depreciation in forward currency contracts.............................
Other liabilities................................................................. 534 881 798
-------- ---------- ----------
Total liabilities................................................................... 937 27,201 374,241
-------- ---------- ----------
Net assets.......................................................................... $177,926 $1,762,203 $1,936,864
======== ========== ==========
Shares of beneficial interest outstanding........................................... 13,912 191,197 173,755
-------- ---------- ----------
Net asset value per share........................................................... $ 12.79 $ 9.22 $ 11.15
======== ========== ==========
Composition of net assets:
Capital paid-in................................................................... $169,881 $2,687,372 $2,220,655
Accumulated net realized gain (loss) on investments, futures and foreign currency
transactions..................................................................... 1,132 (763,831) (209,476)
Undistributed (distribution in excess of) net investment income (loss)............ 220 31,294
Net unrealized appreciation (depreciation) of:
Investments...................................................................... 6,913 (161,558) (105,609)
Futures..........................................................................
Translation of assets and liabilities in foreign currencies......................
-------- ---------- ----------
Net assets.......................................................................... $177,926 $1,762,203 $1,936,864
======== ========== ==========
Short-Term Small Cap International
Bond Equity Opportunities
---------- --------- -------------
ASSETS
Long term investments at cost....................................................... $221,884 $ 67,585 $ 97,325
Net unrealized appreciation (depreciation) of investments........................... 4,895 (18,768) (15,365)
Short-term investments at value..................................................... 58,645 14,421 13,856
-------- -------- --------
Total investments................................................................ 285,424 63,238 95,816
Cash................................................................................
Foreign currency at value (cost $0, $0, $0, $0, $0, $1401, $0, $0, and $0,
respectively)...................................................................... 1,401
Receivable for:
Investments sold.................................................................. 1
Fund shares sold.................................................................. 438 293 1,275
Interest.......................................................................... 1,949 1 1
Dividends......................................................................... 83 157
Futures contracts variation margin................................................
Forward foreign currency exchange contracts sold.................................. 193
Unrealized appreciation in forward currency contracts............................. 3
Other assets...................................................................... 2
-------- -------- --------
Total assets........................................................................ 287,811 63,616 98,848
-------- -------- --------
LIABILITIES
Payables for:
Investments purchased............................................................. 15,910 49
Fund shares purchased.............................................................
Futures contracts variation margin................................................
Collateral for securities on loan................................................. 30,727 13,237 11,364
Forward foreign currency exchange contracts purchased............................. 193
Unrealized depreciation in forward currency contracts.............................
Other liabilities................................................................. 57 3 13
-------- -------- --------
Total liabilities................................................................... 46,694 13,289 11,570
-------- -------- --------
Net assets.......................................................................... $241,117 $ 50,327 $ 87,278
======== ======== ========
Shares of beneficial interest outstanding........................................... 23,567 7,993 11,550
-------- -------- --------
Net asset value per share........................................................... $ 10.23 $ 6.30 $ 7.56
======== ======== ========
Composition of net assets:
Capital paid-in................................................................... $237,529 $ 86,762 $145,329
Accumulated net realized gain (loss) on investments, futures and foreign currency
transactions..................................................................... (1,307) (17,667) (42,898)
Undistributed (distribution in excess of) net investment income (loss)............ 209
Net unrealized appreciation (depreciation) of:
Investments...................................................................... 4,895 (18,768) (15,365)
Futures..........................................................................
Translation of assets and liabilities in foreign currencies...................... 3
-------- -------- --------
Net assets.......................................................................... $241,117 $ 50,327 $ 87,278
======== ======== ========
Equity High Yield Global
Index Bond Bond
--------- ---------- -------
ASSETS
Long term investments at cost....................................................... $ 635,806 $ 57,877 $67,572
Net unrealized appreciation (depreciation) of investments........................... (183,409) (1,957) 7,034
Short-term investments at value..................................................... 16,301 3,494 7,604
--------- -------- -------
Total investments................................................................ 468,698 59,414 82,210
Cash................................................................................
Foreign currency at value (cost $0, $0, $0, $0, $0, $1401, $0, $0, and $0,
respectively)......................................................................
Receivable for:
Investments sold.................................................................. 66 626
Fund shares sold.................................................................. 422
Interest.......................................................................... 1,488 1,824
Dividends......................................................................... 703
Futures contracts variation margin................................................ 22
Forward foreign currency exchange contracts sold.................................. 6,649
Unrealized appreciation in forward currency contracts............................. 102
Other assets...................................................................... 68
--------- -------- -------
Total assets........................................................................ 469,557 60,902 91,833
--------- -------- -------
LIABILITIES
Payables for:
Investments purchased............................................................. 2,398 1,851
Fund shares purchased............................................................. 710 115
Futures contracts variation margin................................................
Collateral for securities on loan................................................. 4,711
Forward foreign currency exchange contracts purchased............................. 6,649
Unrealized depreciation in forward currency contracts............................. 143
Other liabilities................................................................. 191 6 8
--------- -------- -------
Total liabilities................................................................... 3,299 121 13,362
--------- -------- -------
Net assets.......................................................................... $ 466,258 $ 60,781 $78,471
========= ======== =======
Shares of beneficial interest outstanding........................................... 41,029 10,287 7,093
--------- -------- -------
Net asset value per share........................................................... $ 11.36 $ 5.91 $ 11.06
========= ======== =======
Composition of net assets:
Capital paid-in................................................................... $ 676,545 $ 78,979 $74,138
Accumulated net realized gain (loss) on investments, futures and foreign currency
transactions..................................................................... (32,139) (16,266) (2,808)
Undistributed (distribution in excess of) net investment income (loss)............ 5,533 25 41
Net unrealized appreciation (depreciation) of:
Investments...................................................................... (183,409) (1,957) 7,034
Futures.......................................................................... (272)
Translation of assets and liabilities in foreign currencies...................... 66
--------- -------- -------
Net assets.......................................................................... $ 466,258 $ 60,781 $78,471
========= ======== =======
See notes to financial statements.
36
STATEMENT OF OPERATIONS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
Large Cap Fundamental Active Emerging International
Growth Growth Bond Markets Equity Equity Index
--------- ----------- ------- -------------- -------------
INVESTMENT INCOME
Interest..................................................... $ 190 $ 11 $56,152 $ 29 $ 60
Dividends.................................................... 5,182 110 335 665 2,140
Securities lending........................................... 44 15 165 166
--------- -------- ------- ------- --------
Total investment income......................................... 5,416 136 56,652 694 2,366
--------- -------- ------- ------- --------
EXPENSES
Investment advisory fee...................................... 2,906 253 5,841 557 197
Auditors fees................................................ 61 3 90 4 11
Custodian fees............................................... 153 45 266 695 261
Fidelity Bond fees........................................... 1 1
Legal fees................................................... 53 7 74 3 9
Printing & mailing fees...................................... 182 17 305 11 21
Trustees' fees............................................... 16 1 23 1 3
Other fees................................................... 21 28 8 8
--------- -------- ------- ------- --------
Total expenses.................................................. 3,393 326 6,628 1,279 510
Less expenses reimbursed..................................... (45) (684) (202)
--------- -------- ------- ------- --------
Net expenses.................................................... 3,393 281 6,628 595 308
--------- -------- ------- ------- --------
Net investment income (loss).................................... 2,023 (145) 50,024 99 2,058
--------- -------- ------- ------- --------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments.................................................. (121,609) (9,185) 2,847 (2,025) (7,953)
Financial futures contracts.................................. (921)
Foreign currency transactions................................ 140 212
Change in unrealized appreciation (depreciation) on:
Investments.................................................. (90,461) (1,424) 14,002 (1,361) (10,669)
Futures...................................................... (106)
Translation of assets and liabilities in foreign currencies.. 142 109
--------- -------- ------- ------- --------
Net realized and unrealized gain (loss)....................... (212,070) (10,609) 16,849 (3,104) (19,328)
--------- -------- ------- ------- --------
Net increase (decrease) in net assets resulting from
operations................................................... $(210,047) $(10,754) $66,873 $(3,005) $(17,270)
========= ======== ======= ======= ========
Small Cap Health Global Multi Cap
Growth Sciences Balanced Growth
--------- -------- -------- ---------
INVESTMENT INCOME
Interest..................................................... $ 125 $ 10 $ 459 $ 261
Dividends.................................................... 201 313 247 791
Securities lending........................................... 115 113
-------- ------- ------- --------
Total investment income......................................... 441 323 706 1,165
-------- ------- ------- --------
EXPENSES
Investment advisory fee...................................... 1,549 277 305 1,797
Auditors fees................................................ 15 3 3 19
Custodian fees............................................... 65 64 102 67
Fidelity Bond fees...........................................
Legal fees................................................... 2 2 2 16
Printing & mailing fees...................................... 22 25 8 56
Trustees' fees............................................... 4 1 1 5
Other fees................................................... 8 1 1 6
-------- ------- ------- --------
Total expenses.................................................. 1,665 373 422 1,966
Less expenses reimbursed..................................... (77) (88)
-------- ------- ------- --------
Net expenses.................................................... 1,665 296 334 1,966
-------- ------- ------- --------
Net investment income (loss).................................... (1,224) 27 372 (801)
-------- ------- ------- --------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments.................................................. (35,969) (4,588) (2,524) (95,363)
Financial futures contracts..................................
Foreign currency transactions................................ 26 370 (1)
Change in unrealized appreciation (depreciation) on:
Investments.................................................. (17,803) (2,173) (96) 16,719
Futures......................................................
Translation of assets and liabilities in foreign currencies.. 57 (8) (87)
-------- ------- ------- --------
Net realized and unrealized gain (loss)....................... (53,772) (6,678) (2,258) (78,732)
-------- ------- ------- --------
Net increase (decrease) in net assets resulting from
operations................................................... $(54,996) $(6,651) $(1,886) $(79,533)
======== ======= ======= ========
See notes to financial statements.
37
STATEMENT OF OPERATIONS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
Large Cap Large Cap Fundamental Money Small/Mid Cap Bond
Value Value CORE Value Market Growth Index
--------- ---------- ----------- ------- ------------- -------
INVESTMENT INCOME
Interest............................................ $ 181 $ 6 $ 90 $14,043 $ 103 $ 9,631
Dividends........................................... 6,332 990 2,908 349
Securities lending.................................. 13 9 85 74
-------- -------- -------- ------- -------- -------
Total investment income................................ 6,526 996 3,007 14,043 537 9,705
-------- -------- -------- ------- -------- -------
EXPENSES
Investment advisory fee............................. 1,959 366 1,098 1,967 1,516 249
Auditors fees....................................... 25 5 14 72 16 16
Custodian fees...................................... 80 49 84 175 87 101
Fidelity Bond fees.................................. 1
Legal fees.......................................... 20 4 12 58 13 12
Printing & mailing fees............................. 75 51 (3) 217 46 46
Trustees' fees...................................... 7 1 4 18 4 4
Other fees.......................................... 8 3 4 22 5 5
-------- -------- -------- ------- -------- -------
Total expenses......................................... 2,174 479 1,213 2,530 1,687 433
Less expenses reimbursed............................ (64) (13) (53)
-------- -------- -------- ------- -------- -------
Net expenses........................................... 2,174 415 1,213 2,530 1,674 380
-------- -------- -------- ------- -------- -------
Net investment income (loss)........................... 4,352 581 1,794 11,513 (1,137) 9,325
-------- -------- -------- ------- -------- -------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments......................................... 2,769 (6,163) (19,935) (5,715) 302
Financial futures contracts......................... (90) (365)
Foreign currency transactions.......................
Change in unrealized appreciation (depreciation) on:
Investments......................................... (45,256) (3,794) (10,518) (31,900) 7,403
Futures............................................. 3 (93)
Translation of assets and liabilities in foreign
currencies.........................................
-------- -------- -------- ------- -------- -------
Net realized and unrealized gain (loss).............. (42,487) (10,044) (30,911) (37,615) 7,705
-------- -------- -------- ------- -------- -------
Net increase (decrease) in net assets resulting from
operations.......................................... $(38,135) $ (9,463) $(29,117) $11,513 $(38,752) $17,030
======== ======== ======== ======= ======== =======
Large Cap
Aggressive Small/Mid Cap Small Cap
Growth CORE Value
---------- ------------- ---------
INVESTMENT INCOME
Interest............................................ $ 9 $ 21 $ 93
Dividends........................................... 247 639 1,955
Securities lending.................................. 8 7 19
-------- ------- --------
Total investment income................................ 264 667 2,067
-------- ------- --------
EXPENSES
Investment advisory fee............................. 278 393 1,179
Auditors fees....................................... 3 4 12
Custodian fees...................................... 20 92 51
Fidelity Bond fees..................................
Legal fees.......................................... 2 4 9
Printing & mailing fees............................. 9 13 37
Trustees' fees...................................... 1 1 3
Other fees.......................................... 2 2 2
-------- ------- --------
Total expenses......................................... 315 509 1,293
Less expenses reimbursed............................ (5) (71) (2)
-------- ------- --------
Net expenses........................................... 310 438 1,291
-------- ------- --------
Net investment income (loss)........................... (46) 229 776
-------- ------- --------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments......................................... (10,039) (3,636) 459
Financial futures contracts......................... (177) (80)
Foreign currency transactions.......................
Change in unrealized appreciation (depreciation) on:
Investments......................................... (2,376) (4,659) (12,111)
Futures............................................. (2) (22)
Translation of assets and liabilities in foreign
currencies.........................................
-------- ------- --------
Net realized and unrealized gain (loss).............. (12,415) (8,474) (11,754)
-------- ------- --------
Net increase (decrease) in net assets resulting from
operations.......................................... $(12,461) $(8,245) $(10,978)
======== ======= ========
See notes to financial statements.
38
STATEMENT OF OPERATIONS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
Real Estate Growth & Short-Term Small Cap
Equity Income Managed Bond Equity
----------- --------- --------- ---------- ---------
INVESTMENT INCOME
Interest....................................................... $ 90 $ 490 $ 33,907 $ 9,448 $ 25
Dividends...................................................... 10,277 30,434 21,738 621
Securities lending............................................. 143 429 77 66
-------- --------- --------- ------- --------
Total investment income........................................... 10,367 31,067 56,074 9,525 712
-------- --------- --------- ------- --------
EXPENSES
Investment advisory fee........................................ 1,797 14,166 15,022 1,152 539
Auditors fees.................................................. 18 211 220 17 6
Custodian fees................................................. 70 440 580 60 47
Fidelity Bond fees............................................. 4 4
Legal fees..................................................... 14 175 182 14 5
Printing & mailing fees........................................ 52 687 679 49 19
Trustees' fees................................................. 5 53 56 4 2
Other fees..................................................... 4 76 71 3 3
-------- --------- --------- ------- --------
Total expenses.................................................... 1,960 15,812 16,814 1,299 621
Less expenses reimbursed....................................... (23)
-------- --------- --------- ------- --------
Net expenses...................................................... 1,960 15,812 16,814 1,299 598
-------- --------- --------- ------- --------
Net investment income (loss)...................................... 8,407 15,255 39,260 8,226 114
-------- --------- --------- ------- --------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments.................................................... 3,167 (269,774) (107,101) (385) (6,232)
Financial futures contracts....................................
Foreign currency transactions.................................. (1,470)
Change in unrealized appreciation (depreciation) on:
Investments.................................................... (10,761) (277,602) (257,912) 2,688 (13,044)
Futures........................................................
Translation of assets and liabilities in foreign currencies.... 927
-------- --------- --------- ------- --------
Net realized and unrealized gain (loss)......................... (7,594) (547,376) (365,556) 2,303 (19,276)
-------- --------- --------- ------- --------
Net increase (decrease) in net assets resulting from operations. $ 813 $(532,121) $(326,296) $10,529 $(19,162)
======== ========= ========= ======= ========
International Equity High Yield Global
Opportunities Index Bond Bond
------------- --------- ---------- -------
INVESTMENT INCOME
Interest....................................................... $ 39 $ 274 $ 6,221 $ 2,592
Dividends...................................................... 1,557 7,825 11
Securities lending............................................. 76 7
-------- --------- -------- -------
Total investment income........................................... 1,672 8,099 6,232 2,599
-------- --------- -------- -------
EXPENSES
Investment advisory fee........................................ 988 671 464 493
Auditors fees.................................................. 8 49 5 5
Custodian fees................................................. 287 166 61 68
Fidelity Bond fees............................................. 1
Legal fees..................................................... 6 40 4 4
Printing & mailing fees........................................ 25 166 17 14
Trustees' fees................................................. 2 12 2 1
Other fees..................................................... 21 50 2 3
-------- --------- -------- -------
Total expenses.................................................... 1,337 1,155 555 588
Less expenses reimbursed....................................... (263) (33) (37)
-------- --------- -------- -------
Net expenses...................................................... 1,074 1,155 522 551
-------- --------- -------- -------
Net investment income (loss)...................................... 598 6,944 5,710 2,048
-------- --------- -------- -------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments.................................................... (24,574) (15,504) (13,395) 39
Financial futures contracts.................................... (3,824)
Foreign currency transactions.................................. 203 2 665
Change in unrealized appreciation (depreciation) on:
Investments.................................................... 3,186 (117,431) 5,078 7,105
Futures........................................................ (369)
Translation of assets and liabilities in foreign currencies.... 5 290
-------- --------- -------- -------
Net realized and unrealized gain (loss)......................... (21,180) (137,128) (8,315) 8,099
-------- --------- -------- -------
Net increase (decrease) in net assets resulting from operations. $(20,582) $(130,184) $ (2,605) $10,147
======== ========= ======== =======
See notes to financial statements.
39
STATEMENT OF CHANGES IN NET ASSETS
JOHN HANCOCK VARIABLE SERIES TRUST I
- --------------------------------------------------------------------------------
(000's Omitted)
Large Cap Growth Fundamental Growth
------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income (loss)........................... $ 2,023 $ 1,985 $ (145) $ (169)
Net realized gain (loss)............................... (121,609) (170,555) (9,185) (20,009)
Change in net unrealized appreciation (depreciation)... (90,461) (26,354) (1,424) 4,341
--------- ---------- -------- --------
Net increase (decrease) in net assets resulting from
operations........................................... (210,047) (194,924) (10,754) (15,837)
Distributions to shareholders from:
Net investment income.................................. (2,023) (1,518)
In excess of net investment income.....................
Realized gains.........................................
In excess of realized gain.............................
Capital paid-in........................................
--------- ---------- -------- --------
Decrease in net assets resulting from distributions... (2,023) (1,518)
Capital contributions
From fund share transactions:
Proceeds from shares sold.............................. 76,521 122,592 6,642 15,212
Shares issued in reorganization........................ 4,720
Distributions reinvested............................... 2,023 1,518
Payment for shares redeemed............................ (140,761) (303,540) (13,720) (12,312)
--------- ---------- -------- --------
Increase (decrease) in net assets from fund share
transactions......................................... (62,217) (179,430) (7,078) 7,620
--------- ---------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS.................... (274,287) (375,872) (17,832) (8,217)
NET ASSETS
Beginning of Period.................................... 770,915 1,146,787 37,897 46,114
--------- ---------- -------- --------
End of Period.......................................... $ 496,628 $ 770,915 $ 20,065 $ 37,897
========= ========== ======== ========
Analysis of fund share transactions:
Sold................................................... 5,775 7,744 999 1,669
Issued in reorganization............................... 554
Reinvested............................................. 155 102
Redeemed............................................... (11,115) (18,966) (2,073) (1,440)
--------- ---------- -------- --------
Net increase (decrease) in fund shares outstanding....... (5,185) (11,120) (1,074) 783
========= ========== ======== ========
Active Bond Emerging Markets Equity
------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income (loss)........................... $ 50,024 $ 50,779 $ 99 $ 216
Net realized gain (loss)............................... 2,847 15,343 (1,885) (13,346)
Change in net unrealized appreciation (depreciation)... 14,002 (4,949) (1,219) 11,780
--------- --------- -------- --------
Net increase (decrease) in net assets resulting from
operations........................................... 66,873 61,173 (3,005) (1,350)
Distributions to shareholders from:
Net investment income.................................. (50,011) (51,604) (93) (65)
In excess of net investment income.....................
Realized gains......................................... (2,663)
In excess of realized gain.............................
Capital paid-in........................................
--------- --------- -------- --------
Decrease in net assets resulting from distributions... (52,674) (51,604) (93) (65)
Capital contributions
From fund share transactions:
Proceeds from shares sold.............................. 133,638 193,838 98,743 36,173
Shares issued in reorganization........................ 77,902
Distributions reinvested............................... 52,674 51,604 93 65
Payment for shares redeemed............................ (160,571) (227,698) (90,188) (36,877)
--------- --------- -------- --------
Increase (decrease) in net assets from fund share
transactions......................................... 25,741 95,646 8,648 (639)
--------- --------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS.................... 39,940 105,215 5,550 (2,054)
NET ASSETS
Beginning of Period.................................... 947,514 842,299 28,956 31,010
--------- --------- -------- --------
End of Period.......................................... $ 987,454 $ 947,514 $ 34,506 $ 28,956
========= ========= ======== ========
Analysis of fund share transactions:
Sold................................................... 13,944 20,141 15,252 5,789
Issued in reorganization............................... 8,180
Reinvested............................................. 5,525 5,380 14 12
Redeemed............................................... (16,811) (23,719) (14,004) (5,933)
--------- --------- -------- --------
Net increase (decrease) in fund shares outstanding....... 2,658 9,982 1,262 (132)
========= ========= ======== ========
See notes to financial statements.
40
STATEMENT OF CHANGES IN NET ASSETS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
- --------------------------------------------------------------------------------
(000's Omitted)
International Equity Index Small Cap Growth
------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income (loss)...................... $ 2,058 $ 2,559 $ (1,224) $ (1,022)
Net realized gain (loss).......................... (8,662) (7,738) (35,969) (40,555)
Change in net unrealized appreciation
(depreciation)................................... (10,666) (31,880) (17,803) 11,615
-------- -------- -------- ---------
Net increase (decrease) in net assets resulting
from operations................................. (17,270) (37,059) (54,996) (29,962)
Distributions to shareholders from:
Net investment income............................. (2,052) (1,958)
In excess of net investment income................
Realized gains....................................
In excess of realized gain........................
Capital paid-in................................... (594)
-------- -------- -------- ---------
Decrease in net assets resulting from
distributions................................... (2,052) (2,552)
Capital contributions
From fund share transactions:
Proceeds from shares sold......................... 92,695 33,664 60,295 81,975
Shares issued in reorganization................... 10,743
Distributions reinvested.......................... 2,052 2,552
Payment for shares redeemed....................... (98,528) (69,597) (73,977) (107,897)
-------- -------- -------- ---------
Increase (decrease) in net assets from fund
share transactions.............................. (3,781) (33,381) (13,682) (15,179)
-------- -------- -------- ---------
NET INCREASE (DECREASE) IN NET ASSETS............... (23,103) (72,992) (68,678) (45,141)
NET ASSETS
Beginning of Period............................... 122,020 195,012 189,401 234,542
-------- -------- -------- ---------
End of Period..................................... $ 98,917 $122,020 $120,723 $ 189,401
======== ======== ======== =========
Analysis of fund share transactions:
Sold.............................................. 8,608 2,623 6,154 7,185
Issued in reorganization.......................... 904
Reinvested........................................ 183 190
Redeemed.......................................... (9,057) (5,375) (7,603) (9,410)
-------- -------- -------- ---------
Net increase (decrease) in fund shares outstanding.. (266) (2,562) (1,449) (1,321)
======== ======== ======== =========
Health Sciences Global Balanced
--------------------------- ------------------------
Period from
Year Ended May 1, 2001 (*) Year Ended Year Ended
December 31, to December 31, December 31, December 31,
2002 2001 2002 2001
------------ --------------- ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income (loss)...................... $ 27 $ (26) $ 372 $ 360
Net realized gain (loss).......................... (4,562) (284) (2,154) (588)
Change in net unrealized appreciation
(depreciation)................................... (2,116) (169) (104) (1,657)
-------- ------- -------- -------
Net increase (decrease) in net assets resulting
from operations................................. (6,651) (479) (1,886) (1,885)
Distributions to shareholders from:
Net investment income............................. (56) (374) (355)
In excess of net investment income................
Realized gains....................................
In excess of realized gain........................
Capital paid-in................................... (16)
-------- ------- -------- -------
Decrease in net assets resulting from
distributions................................... (56) (16) (374) (355)
Capital contributions
From fund share transactions:
Proceeds from shares sold......................... 9,884 30,688 14,757 13,556
Shares issued in reorganization...................
Distributions reinvested.......................... 56 16 374 355
Payment for shares redeemed....................... (10,436) (336) (14,225) (8,908)
-------- ------- -------- -------
Increase (decrease) in net assets from fund
share transactions.............................. (496) 30,368 906 5,003
-------- ------- -------- -------
NET INCREASE (DECREASE) IN NET ASSETS............... (7,203) 29,873 (1,354) 2,763
NET ASSETS
Beginning of Period............................... 29,873 31,290 28,527
-------- ------- -------- -------
End of Period..................................... $ 22,670 $29,873 $ 29,936 $31,290
======== ======= ======== =======
Analysis of fund share transactions:
Sold.............................................. 1,133 3,079 1,868 1,552
Issued in reorganization..........................
Reinvested........................................ 7 2 46 40
Redeemed.......................................... (1,288) (35) (1,788) (1,016)
-------- ------- -------- -------
Net increase (decrease) in fund shares outstanding.. (148) 3,046 126 576
======== ======= ======== =======
(*) Commencement of operations
See notes to financial statements.
41
STATEMENT OF CHANGES IN NET ASSETS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
- --------------------------------------------------------------------------------
(000's Omitted)
Multi Cap Growth Large Cap Value
------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income (loss)...................................... $ (801) $ (1,408) $ 4,352 $ 3,436
Net realized gain (loss).......................................... (95,364) (183,155) 2,769 4,078
Change in net unrealized appreciation (depreciation).............. 16,632 36,046 (45,256) (4,226)
-------- --------- -------- --------
Net increase (decrease) in net assets resulting from operations.. (79,533) (148,517) (38,135) 3,288
Distributions to shareholders from:
Net investment income............................................. (4,351) (3,428)
In excess of net investment income................................
Realized gains.................................................... (3,600) (3,273)
In excess of realized gain........................................
Capital paid-in...................................................
-------- --------- -------- --------
Decrease in net assets resulting from distributions.............. (7,951) (6,701)
Capital contributions
From fund share transactions:
Proceeds from shares sold......................................... 56,048 136,156 110,232 143,863
Shares issued in reorganization...................................
Distributions reinvested.......................................... 7,951 6,701
Payment for shares redeemed....................................... (62,555) (135,728) (72,602) (91,040)
-------- --------- -------- --------
Increase (decrease) in net assets from fund share transactions... (6,507) 428 45,581 59,524
-------- --------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS............................... (86,040) (148,089) (505) 56,111
NET ASSETS
Beginning of Period............................................... 245,899 393,988 260,646 204,535
-------- --------- -------- --------
End of Period..................................................... $159,859 $ 245,899 $260,141 $260,646
======== ========= ======== ========
Analysis of fund share transactions:
Sold.............................................................. 7,156 11,975 8,372 10,119
Issued in reorganization..........................................
Reinvested........................................................ 637 473
Redeemed.......................................................... (8,119) (12,237) (5,580) (6,403)
-------- --------- -------- --------
Net increase (decrease) in fund shares outstanding.................. (963) (262) 3,429 4,189
======== ========= ======== ========
Large Cap Value CORE Fundamental Value
------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income (loss)...................................... $ 581 $ 364 $ 1,794 $ 348
Net realized gain (loss).......................................... (6,253) (972) (20,300) (1,269)
Change in net unrealized appreciation (depreciation).............. (3,791) (1,425) (10,611) (2,551)
-------- ------- -------- --------
Net increase (decrease) in net assets resulting from operations.. (9,463) (2,033) (29,117) (3,472)
Distributions to shareholders from:
Net investment income............................................. (581) (364) (1,766) (348)
In excess of net investment income................................
Realized gains....................................................
In excess of realized gain........................................
Capital paid-in................................................... (28)
-------- ------- -------- --------
Decrease in net assets resulting from distributions.............. (581) (364) (1,794) (348)
Capital contributions
From fund share transactions:
Proceeds from shares sold......................................... 13,044 41,157 39,206 58,803
Shares issued in reorganization................................... 6,577 102,164
Distributions reinvested.......................................... 581 364 1,794 348
Payment for shares redeemed....................................... (23,648) (3,033) (50,697) (11,513)
-------- ------- -------- --------
Increase (decrease) in net assets from fund share transactions... (10,023) 45,065 (9,697) 149,802
-------- ------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS............................... (20,067) 42,668 (40,608) 145,982
NET ASSETS
Beginning of Period............................................... 60,832 18,164 161,710 15,728
-------- ------- -------- --------
End of Period..................................................... $ 40,765 $60,832 $121,102 $161,710
======== ======= ======== ========
Analysis of fund share transactions:
Sold.............................................................. 1,462 4,056 3,997 5,182
Issued in reorganization.......................................... 673 9,640
Reinvested........................................................ 67 37 190 32
Redeemed.......................................................... (2,585) (323) (5,425) (1,049)
-------- ------- -------- --------
Net increase (decrease) in fund shares outstanding.................. (1,056) 4,443 (1,238) 13,805
======== ======= ======== ========
See notes to financial statements.
42
STATEMENT OF CHANGES IN NET ASSETS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
- --------------------------------------------------------------------------------
(000's Omitted)
Money Market Small/Mid Cap Growth
------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income (loss)........................ $ 11,513 $ 19,646 $ (1,137) $ (696)
Net realized gain (loss)............................ (5,715) (4,700)
Change in net unrealized appreciation
(depreciation)..................................... (31,900) 9,988
----------- --------- -------- --------
Net increase (decrease) in net assets resulting
from operations................................... 11,513 19,646 (38,752) 4,592
Distributions to shareholders from:
Net investment income............................... (11,513) (19,646)
In excess of net investment income..................
Realized gains......................................
In excess of realized gain..........................
Capital paid-in..................................... (1,738)
----------- --------- -------- --------
Decrease in net assets resulting from
distributions..................................... (11,513) (19,646) (1,738)
Capital contributions
From fund share transactions:
Proceeds from shares sold........................... 1,263,747 808,300 56,477 64,594
Shares issued in reorganization..................... 130,550
Distributions reinvested............................ 11,513 19,646 1,738
Payment for shares redeemed......................... (1,102,660) (709,833) (61,999) (73,964)
----------- --------- -------- --------
Increase (decrease) in net assets from fund share
transactions...................................... 172,600 248,663 (3,784) (9,370)
----------- --------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS................. 172,600 248,663 (44,274) (4,778)
NET ASSETS
Beginning of Period................................. 745,516 496,853 185,232 190,010
----------- --------- -------- --------
End of Period....................................... $ 918,116 $ 745,516 $140,958 $185,232
=========== ========= ======== ========
Analysis of fund share transactions:
Sold................................................ 1,263,747 808,300 4,608 4,850
Issued in 10 for 1 stock split...................... 447,168
Issued in reorganization............................ 130,550
Reinvested.......................................... 11,513 19,646 156
Redeemed............................................ (1,102,660) (709,833) (5,071) (5,571)
----------- --------- -------- --------
Net increase (decrease) in fund shares outstanding.... 172,600 695,831 (307) (721)
=========== ========= ======== ========
Bond Index Large Cap Aggressive Growth
------------------------ --------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income (loss)........................ $ 9,325 $ 5,265 $ (46) $ (19)
Net realized gain (loss)............................ 302 759 (10,039) (6,465)
Change in net unrealized appreciation
(depreciation)..................................... 7,403 195 (2,376) 2,147
-------- -------- -------- --------
Net increase (decrease) in net assets resulting
from operations................................... 17,030 6,219 (12,461) (4,337)
Distributions to shareholders from:
Net investment income............................... (9,249) (5,371)
In excess of net investment income..................
Realized gains...................................... (179) (207)
In excess of realized gain..........................
Capital paid-in..................................... (217)
-------- -------- -------- --------
Decrease in net assets resulting from
distributions..................................... (9,645) (5,578)
Capital contributions
From fund share transactions:
Proceeds from shares sold........................... 130,836 123,885 7,724 31,123
Shares issued in reorganization.....................
Distributions reinvested............................ 9,645 5,578
Payment for shares redeemed......................... (69,129) (65,514) (10,752) (13,292)
-------- -------- -------- --------
Increase (decrease) in net assets from fund share
transactions...................................... 71,352 63,949 (3,028) 17,831
-------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS................. 78,737 64,590 (15,489) 13,494
NET ASSETS
Beginning of Period................................. 129,358 64,768 39,738 26,244
-------- -------- -------- --------
End of Period....................................... $208,095 $129,358 $ 24,249 $ 39,738
======== ======== ======== ========
Analysis of fund share transactions:
Sold................................................ 13,015 12,513 1,161 3,742
Issued in 10 for 1 stock split......................
Issued in reorganization............................
Reinvested.......................................... 959 563
Redeemed............................................ (6,852) (6,641) (1,704) (1,605)
-------- -------- -------- --------
Net increase (decrease) in fund shares outstanding.... 7,122 6,435 (543) 2,137
======== ======== ======== ========
See notes to financial statements.
43
STATEMENT OF CHANGES IN NET ASSETS
JOHN HANCOCK VARIABLE SERIES TRUST I
- --------------------------------------------------------------------------------
(000's Omitted)
Small/Mid Cap CORE Small Cap Value
------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income (loss)........................... $ 229 $ 143 $ 776 $ 511
Net realized gain (loss)............................... (3,813) (90) 379 821
Change in net unrealized appreciation (depreciation)... (4,661) 822 (12,133) 7,864
-------- -------- -------- --------
Net increase (decrease) in net assets resulting from
operations........................................... (8,245) 875 (10,978) 9,196
Distributions to shareholders from:
Net investment income.................................. (227) (143) (885) (510)
In excess of net investment income.....................
Realized gains......................................... (1,001) (564)
In excess of realized gain.............................
Capital paid-in........................................ (2) (1,231)
-------- -------- -------- --------
Decrease in net assets resulting from distributions... (229) (143) (3,117) (1,074)
Capital contributions
From fund share transactions:
Proceeds from shares sold.............................. 53,157 36,196 76,240 92,515
Shares issued in reorganization........................
Distributions reinvested............................... 229 143 3,117 1,074
Payment for shares redeemed............................ (43,215) (12,261) (48,416) (27,923)
-------- -------- -------- --------
Increase (decrease) in net assets from fund share
transactions......................................... 10,171 24,078 30,941 65,666
-------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS.................... 1,697 24,810 16,846 73,788
NET ASSETS
Beginning of Period.................................... 46,446 21,636 103,224 29,436
-------- -------- -------- --------
End of Period.......................................... $ 48,143 $ 46,446 $120,070 $103,224
======== ======== ======== ========
Analysis of fund share transactions:
Sold................................................... 5,734 3,812 5,465 7,099
Issued in reorganization...............................
Reinvested............................................. 26 15 244 80
Redeemed............................................... (4,680) (1,300) (3,640) (2,193)
-------- -------- -------- --------
Net increase (decrease) in fund shares outstanding....... 1,080 2,527 2,069 4,986
======== ======== ======== ========
Real Estate Equity Growth & Income
------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income (loss)........................... $ 8,407 $ 7,773 $ 15,255 $ 13,246
Net realized gain (loss)............................... 3,167 5,123 (269,774) (453,534)
Change in net unrealized appreciation (depreciation)... (10,761) (3,410) (277,602) (51,250)
-------- -------- ---------- ----------
Net increase (decrease) in net assets resulting from
operations........................................... 813 9,486 (532,121) (491,538)
Distributions to shareholders from:
Net investment income.................................. (8,765) (6,732) (15,248) (13,030)
In excess of net investment income.....................
Realized gains......................................... (4,175) (4,879)
In excess of realized gain.............................
Capital paid-in........................................
-------- -------- ---------- ----------
Decrease in net assets resulting from distributions... (12,940) (11,611) (15,248) (13,030)
Capital contributions
From fund share transactions:
Proceeds from shares sold.............................. 75,035 73,008 122,967 311,376
Shares issued in reorganization........................ 59,218
Distributions reinvested............................... 12,940 11,611 15,248 13,030
Payment for shares redeemed............................ (61,575) (77,652) (304,962) (727,725)
-------- -------- ---------- ----------
Increase (decrease) in net assets from fund share
transactions......................................... 26,400 6,967 (166,747) (344,101)
-------- -------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS.................... 14,273 4,842 (714,116) (848,669)
NET ASSETS
Beginning of Period.................................... 163,653 158,811 2,476,319 3,324,988
-------- -------- ---------- ----------
End of Period.......................................... $177,926 $163,653 $1,762,203 $2,476,319
======== ======== ========== ==========
Analysis of fund share transactions:
Sold................................................... 5,436 5,313 11,661 25,462
Issued in reorganization............................... 4,976
Reinvested............................................. 969 852 1,471 1,064
Redeemed............................................... (4,574) (5,701) (29,468) (58,433)
-------- -------- ---------- ----------
Net increase (decrease) in fund shares outstanding....... 1,831 464 (16,336) (26,931)
======== ======== ========== ==========
See notes to financial statements.
44
STATEMENT OF CHANGES IN NET ASSETS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
- --------------------------------------------------------------------------------
(000's Omitted)
Managed Short-Term Bond
------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income (loss)........................ $ 39,260 $ 56,511 $ 8,226 $ 6,163
Net realized gain (loss)............................ (108,571) (102,981) (385) 872
Change in net unrealized appreciation
(depreciation)..................................... (256,985) (40,305) 2,688 1,584
---------- ----------- -------- --------
Net increase (decrease) in net assets resulting
from operations................................... (326,296) (86,775) 10,529 8,619
Distributions to shareholders from:
Net investment income............................... (39,246) (57,251) (7,972) (6,318)
In excess of net investment income..................
Realized gains...................................... (13,282)
In excess of realized gain..........................
Capital paid-in..................................... (489)
---------- ----------- -------- --------
Decrease in net assets resulting from
distributions..................................... (39,246) (70,533) (8,461) (6,318)
Capital contributions
From fund share transactions:
Proceeds from shares sold........................... 141,803 704,451 121,761 115,976
Shares issued in reorganization..................... 16,164
Distributions reinvested............................ 39,246 70,533 8,461 6,318
Payment for shares redeemed......................... (405,346) (1,102,931) (40,623) (55,254)
---------- ----------- -------- --------
Increase (decrease) in net assets from fund share
transactions...................................... (224,297) (311,783) 89,599 67,040
---------- ----------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS................. (589,839) (469,091) 91,667 69,341
NET ASSETS
Beginning of Period................................. 2,526,703 2,995,794 149,450 80,109
---------- ----------- -------- --------
End of Period....................................... $1,936,864 $ 2,526,703 $241,117 $149,450
========== =========== ======== ========
Analysis of fund share transactions:
Sold................................................ 11,521 52,990 11,951 11,522
Issued in reorganization............................ 1,253
Reinvested.......................................... 3,304 5,344 833 628
Redeemed............................................ (34,237) (83,108) (3,998) (5,491)
---------- ----------- -------- --------
Net increase (decrease) in fund shares outstanding.... (19,412) (23,521) 8,786 6,659
========== =========== ======== ========
Small Cap Equity International Opportunities
------------------------ --------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income (loss)........................ $ 114 $ 44 $ 598 $ 601
Net realized gain (loss)............................ (6,232) (11,331) (24,371) (9,189)
Change in net unrealized appreciation
(depreciation)..................................... (13,044) 7,970 3,191 (14,512)
-------- -------- --------- ---------
Net increase (decrease) in net assets resulting
from operations................................... (19,162) (3,317) (20,582) (23,100)
Distributions to shareholders from:
Net investment income............................... (114) (42) (592) (455)
In excess of net investment income..................
Realized gains......................................
In excess of realized gain..........................
Capital paid-in..................................... (246)
-------- -------- --------- ---------
Decrease in net assets resulting from
distributions..................................... (114) (42) (592) (701)
Capital contributions
From fund share transactions:
Proceeds from shares sold........................... 40,696 46,272 219,231 96,153
Shares issued in reorganization..................... 24,706
Distributions reinvested............................ 114 42 592 701
Payment for shares redeemed......................... (42,400) (41,793) (219,668) (109,496)
-------- -------- --------- ---------
Increase (decrease) in net assets from fund share
transactions...................................... (1,590) 4,521 24,861 (12,642)
-------- -------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS................. (20,866) 1,162 3,687 (36,443)
NET ASSETS
Beginning of Period................................. 71,193 70,031 83,591 120,034
-------- -------- --------- ---------
End of Period....................................... $ 50,327 $ 71,193 $ 87,278 $ 83,591
======== ======== ========= =========
Analysis of fund share transactions:
Sold................................................ 5,357 5,345 28,860 9,857
Issued in reorganization............................
Reinvested.......................................... 19 4 69 68
Redeemed............................................ (5,481) (4,912) (26,366) (11,066)
-------- -------- --------- ---------
Net increase (decrease) in fund shares outstanding.... (105) 437 2,563 (1,141)
======== ======== ========= =========
See notes to financial statements.
45
STATEMENT OF CHANGES IN NET ASSETS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
- --------------------------------------------------------------------------------
(000's Omitted)
Equity Index High Yield Bond
------------------------ ------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income (loss)...................................... $ 6,944 $ 6,124 $ 5,710 $ 3,877
Net realized gain (loss).......................................... (19,328) 11,749 (13,393) (2,487)
Change in net unrealized appreciation (depreciation).............. (117,800) (80,644) 5,078 (1,683)
--------- --------- -------- --------
Net increase (decrease) in net assets resulting from operations.. (130,184) (62,771) (2,605) (293)
Distributions to shareholders from:
Net investment income............................................. (4,601) (6,122) (5,697) (3,490)
In excess of net investment income................................
Realized gains.................................................... (2,918) (17,290)
In excess of realized gain........................................
Capital paid-in...................................................
--------- --------- -------- --------
Decrease in net assets resulting from distributions.............. (7,519) (23,412) (5,697) (3,490)
Capital contributions
From fund share transactions:
Proceeds from shares sold......................................... 170,409 278,829 68,950 85,962
Shares issued in reorganization................................... 15,141
Distributions reinvested.......................................... 7,519 23,412 5,697 3,490
Payment for shares redeemed....................................... (112,758) (218,067) (56,838) (60,373)
--------- --------- -------- --------
Increase (decrease) in net assets from fund share transactions... 65,170 99,315 17,809 29,079
--------- --------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS............................... (72,533) 13,132 9,507 25,296
NET ASSETS
Beginning of Period............................................... 538,791 525,659 51,274 25,978
--------- --------- -------- --------
End of Period..................................................... $ 466,258 $ 538,791 $ 60,781 $ 51,274
========= ========= ======== ========
Analysis of fund share transactions:
Sold.............................................................. 13,047 17,585 11,198 11,506
Issued in reorganization.......................................... 1,009
Reinvested........................................................ 598 1,555 919 481
Redeemed.......................................................... (8,896) (13,662) (9,337) (8,023)
--------- --------- -------- --------
Net increase (decrease) in fund shares outstanding.................. 4,749 6,487 2,780 3,964
========= ========= ======== ========
Global Bond
------------------------
Year Ended Year Ended
December 31, December 31,
2002 2001
------------ ------------
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income (loss)...................................... $ 2,048 $ 2,276
Net realized gain (loss).......................................... 704 (379)
Change in net unrealized appreciation (depreciation).............. 7,395 (2,871)
-------- --------
Net increase (decrease) in net assets resulting from operations.. 10,147 (974)
Distributions to shareholders from:
Net investment income............................................. (3,132) (2,242)
In excess of net investment income................................
Realized gains....................................................
In excess of realized gain........................................
Capital paid-in................................................... (335)
-------- --------
Decrease in net assets resulting from distributions.............. (3,467) (2,242)
Capital contributions
From fund share transactions:
Proceeds from shares sold......................................... 64,973 28,530
Shares issued in reorganization...................................
Distributions reinvested.......................................... 3,467 2,242
Payment for shares redeemed....................................... (44,295) (48,383)
-------- --------
Increase (decrease) in net assets from fund share transactions... 24,145 (17,611)
-------- --------
NET INCREASE (DECREASE) IN NET ASSETS............................... 30,825 (20,827)
NET ASSETS
Beginning of Period............................................... 47,646 68,473
-------- --------
End of Period..................................................... $ 78,471 $ 47,646
======== ========
Analysis of fund share transactions:
Sold.............................................................. 6,063 2,771
Issued in reorganization..........................................
Reinvested........................................................ 313 227
Redeemed.......................................................... (4,176) (4,728)
-------- --------
Net increase (decrease) in fund shares outstanding.................. 2,200 (1,730)
======== ========
See notes to financial statements.
46
FINANCIAL HIGHLIGHTS
JOHN HANCOCK VARIABLE SERIES TRUST I
- --------------------------------------------------------------------------------
Selected data for each fund share of beneficial interest outstanding throughout
the year end indicated:
Income from Investment Operations Less Distributions
-------------------------------------- ------------------------------------------------------
Net Realized Distribution
Net Assets Net and Total Distribution From Net Distribution in Distribution
Value at Investment Unrealized From From Net Realized Excess of From
Beginning Income Gain (Loss) Investment Investment Gains on Net Investment Capital
of Period (Loss) on Investments(a) Operations Income Investments Income/Gains Paid-in
---------- ---------- ----------------- ---------- ------------ ------------ --------------- ------------
Large Cap Growth
- ----------------
Year Ended
December 31,
2002.............. $15.54 $ 0.04 $(4.36) $(4.32) $(0.04) $ $ $
2001.............. 18.89 0.04 (3.36) (3.32) (0.03)
2000.............. 27.33 0.03 (4.89) (4.86) (0.04) (2.69) (0.78) (0.07)
1999.............. 26.19 0.09 6.03 6.12 (0.09) (4.89)
1998.............. 20.82 0.14 8.05 8.19 (0.14) (2.68)
- -------------------------------------------------------------------------------------------------------------------------------
Fundamental Growth
- ------------------
Year Ended
December 31,
2002.............. 8.48 (0.06) (2.51) (2.57)
2001.............. 12.52 (0.03) (4.01) (4.04)
2000 (e).......... 14.42 (0.02) (0.44) (0.46) (0.76) (0.65) (0.03)
Period from August
31, to December
31, 1999 (g)...... 10.00 (0.02) 5.34 5.32 (0.90)
- -------------------------------------------------------------------------------------------------------------------------------
Active Bond
- -----------
Year Ended
December 31,
2002.............. 9.55 0.50 0.18 0.68 (0.53)
2001.............. 9.44 0.58 0.11 0.69 (0.58)
2000.............. 9.12 0.64 0.28 0.92 (0.60)
1999.............. 9.92 0.67 (0.76) (0.09) (0.71)
1998.............. 9.95 0.69 0.11 0.80 (0.69) (0.14)
- -------------------------------------------------------------------------------------------------------------------------------
Emerging Markets
Equity
------
Year Ended
December 31,
2002.............. 6.44 0.02 (0.45) (0.43) (0.02)
2001.............. 6.70 0.05 (0.29) (0.24) (0.02)
2000.............. 12.26 (0.02) (4.91) (4.93) (0.62) (0.01)
1999 (k).......... 7.09 0.03 5.35 5.38 (0.01) (0.10) (0.42)
Period from May 1,
to December 31,
1988 (g).......... 10.00 0.03 (2.91) (2.88) (0.02) (0.01)
- -------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
---------------------------------------------------
Net Net
Assets Net Assets Operating Investment
Value at Total End of Period Expenses to Income (Loss) Portfolio
Total Capital End of Investment (000s Average to Average Turnover
Distributions Contributions Period Return(b) Omitted) Net Assets Net Assets Rate
------------- ------------- -------- ---------- ------------- ----------- ------------- ---------
Large Cap Growth
- ----------------
Year Ended
December 31,
2002.............. $(0.04) $ $11.18 (27.82)% $ 496,628 0.55% 0.33% 95.04%
2001.............. (0.03) 15.54 (17.54)% 770,915 0.41% 0.23% 63.96%
2000.............. (3.58) 18.89 (17.89)% 1,146,787 0.46% 0.10% 89.30%
1999.............. (4.98) 27.33 24.07% 1,382,473 0.39% 0.33% 37.42%
1998.............. (2.82) 26.19 39.51% 1,126,764 0.41% 0.59% 56.41%
- -------------------------------------------------------------------------------------------------------------------------------
Fundamental Growth
- ------------------
Year Ended
December 31,
2002.............. 5.91 (30.28)% 20,065 1.00%(f) (0.52)% 93.77%
2001.............. 8.48 (32.23)% 37,897 1.00%(f) (0.46)% 118.01%(5)
2000 (e).......... (1.44) 12.52 (3.03)% 46,114 0.96%(f) (0.38)% 250.46%
Period from August
31, to December
31, 1999 (g)...... (0.90) 14.42 54.57%(c) 9,175 0.95%(d)(f) (0.55)%(d) 61.66%(c)
- -------------------------------------------------------------------------------------------------------------------------------
Active Bond
- -----------
Year Ended
December 31,
2002.............. (0.53) 9.70 7.25% 987,454 0.69% 5.24% 290.73%
2001.............. (0.58) 9.55 7.48% 947,514 0.67% 5.97%(11) 206.80%(5)
2000.............. (0.60) 9.44 10.45% 842,299 0.41%(h) 6.98% 224.24%
1999.............. (0.71) 9.12 (0.94)% 850,286 0.28% 6.97% 182.90%
1998.............. (0.83) 9.92 8.23% 907,121 0.29% 6.84% 228.74%
- -------------------------------------------------------------------------------------------------------------------------------
Emerging Markets
Equity
------
Year Ended
December 31,
2002.............. (0.02) 5.99 (6.73)% 34,506 1.60%(j) 0.27% 88.40%
2001.............. (0.02) 6.44 (3.63)% 28,956 1.40%(j) 0.77% 120.72%
2000.............. (0.63) 6.70 (40.11)% 31,010 1.32%(j) (0.28)% 103.90%
1999 (k).......... (0.53) 0.32 12.26 81.37%(l) 32,596 1.39%(j) 0.19% 196.32%
Period from May 1,
to December 31,
1988 (g).......... (0.03) 7.09 (28.87)%(c) 7,310 1.55%(d)(j) 0.51%(d) 53.95%(c)
- -------------------------------------------------------------------------------------------------------------------------------
47
FINANCIAL HIGHLIGHTS
JOHN HANCOCK VARIABLE SERIES TRUST I
- --------------------------------------------------------------------------------
Selected data for each fund share of beneficial interest outstanding throughout
the year end indicated:
Income from Investment Operations Less Distributions
-------------------------------------- ------------------------------------------------------
Net Realized Distribution
Net Assets Net and Total Distribution From Net Distribution in Distribution
Value at Investment Unrealized From From Net Realized Excess of From
Beginning Income Gain (Loss) Investment Investment Gains on Net Investment Capital
of Period (Loss) on Investments(a) Operations Income Investments Income/Gains Paid-in
---------- ---------- ----------------- ---------- ------------ ------------ --------------- ------------
International
Equity Index
------------
Year Ended
December 31,
2002............. $12.07 $ 0.21 $(2.02) $(1.81) $(0.21) $ $ $
2001............. 15.39 0.22 (3.32) (3.10) (0.17) (0.05)
2000............. 19.64 0.23 (3.64) (3.41) (0.18) (0.59) (0.07)
1999............. 15.56 0.21 4.51 4.72 (0.21) (0.38) (0.05)
1998............. 15.20 0.23 2.91 3.14 (0.23) (2.55)
- -------------------------------------------------------------------------------------------------------------------------------
Small Cap Growth
- ----------------
Year Ended
December 31,
2002............. 11.77 (0.11) (3.41) (3.52)
2001............. 13.47 (0.08) (1.62) (1.70)
2000............. 19.12 (0.02) (4.16) (4.18) (0.12) (1.35)
1999............. 12.99 (0.21) 9.06 8.85 (2.72)
1998............. 11.34 (0.05) 1.70 1.65
- -------------------------------------------------------------------------------------------------------------------------------
Health Sciences
- ---------------
Year Ended
December 31, 2002 9.81 0.01 (1.98) (1.97) (0.02)
Period from May 1,
2001, to
December 31,
2001 (g)......... 10.00 (0.00) (0.18) (0.18) (0.11) (0.01)
- -------------------------------------------------------------------------------------------------------------------------------
Global Balanced
- ---------------
Year Ended
December 31,
2002............. 8.57 0.10 (0.65) (0.55) (0.10)
2001............. 9.27 0.11 (0.70) (0.59) (0.11)
2000 (q)......... 10.71 0.23 (1.20) (0.97) (0.24) (0.01) (0.10) (0.12)
1999............. 11.12 0.29 0.25 0.54 (0.29) (0.44) (0.16) (0.06)
1998............. 10.11 0.34 1.44 1.78 (0.34) (0.42) -- (0.01)
- -------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
---------------------------------------------------
Net
Net Assets Net Assets Operating Investment
Value at Total End of Period Expenses to Income (Loss) Portfolio
Total Capital End Investment (000s Average to Average Turnover
Distributions Contributions of Period Return(b) Omitted) Net Assets Net Assets Rate
------------- ------------- ---------- ---------- ------------- ----------- ------------- ---------
International
Equity Index
------------
Year Ended
December 31,
2002............. $(0.21) $ $ 10.05 (15.18)% $ 98,917 0.28%(m) 1.85% 17.55%
2001............. (0.22) 12.07 (20.30)% 122,020 0.27%(m) 1.66% 8.31%
2000............. (0.84) 15.39 (17.42)% 195,012 0.28%(m) 1.40% 14.86%
1999............. (0.64) 19.64 30.87% 244,017 0.31%(m) 1.26% 19.01%
1998............. (2.78) 15.56 20.82% 173,137 0.56%(m) 1.45% 158.63%
- ---------------------------------------------------------------------------------------------------------------------------------
Small Cap Growth
- ----------------
Year Ended
December 31,
2002............. 8.25 (29.95)% 120,723 1.13% (0.83)% 77.38%
2001............. 11.77 (12.61)% 189,401 0.91%(o) (0.55)% 91.48%(5)
2000............. (1.47) 13.47 (21.43)% 234,542 0.82% (0.50)% 97.73%
1999............. (2.72) 19.12 70.38% 179,570 0.89% (0.70)% 113.11%
1998............. 12.99 14.49% 74,849 1.00%(o) (0.65)% 101.16%
- ---------------------------------------------------------------------------------------------------------------------------------
Health Sciences
- ---------------
Year Ended
December 31, 2002 (0.02) 7.82 (19.99)% 22,670 1.07%(i) 0.10% 98.91%
Period from May 1,
2001, to
December 31,
2001 (g)......... (0.01) 9.81 (1.85)%(c) 29,873 1.10%(d)(i) (0.16)%(d) 37.76%(c)
- ---------------------------------------------------------------------------------------------------------------------------------
Global Balanced
- ---------------
Year Ended
December 31,
2002............. (0.10) 7.92 (6.32)% 29,936 1.15%(p) 1.28% 71.20%
2001............. (0.11) 8.57 (6.45)% 31,290 1.15%(p) 1.30%(12) 53.11%
2000 (q)......... (0.47) 9.27 (9.08)% 28,527 0.98%(p) 2.32% 204.98%
1999............. (0.95) 10.71 5.11% 31,577 1.00%(p) 2.73% 131.21%
1998............. (0.77) 11.12 17.99% 30,416 1.10%(p) 3.20% 103.55%
- ---------------------------------------------------------------------------------------------------------------------------------
48
FINANCIAL HIGHLIGHTS
JOHN HANCOCK VARIABLE SERIES TRUST I
- --------------------------------------------------------------------------------
Selected data for each fund share of beneficial interest outstanding throughout
the year end indicated:
Income from Investment Operations
-------------------------------------- -------------------------
Net Realized Distribution
Net Assets Net and Total Distribution From Net
Value at Investment Unrealized From From Net Realized
Beginning Income Gain (Loss) Investment Investment Gains on
of Period (Loss) on Investments(a) Operations Income Investments
---------- ---------- ----------------- ---------- ------------ ------------
Multi Cap Growth
- ----------------
Year Ended December 31,
2002................... $ 9.84 $(0.04) $ (3.15) $ (3.19) $ $
2001................... 15.60 (0.06) (5.70) (5.76)
2000................... 29.22 (0.05) (10.49) (10.54) (0.41)
1999................... 15.12 (0.19) 17.70 17.51 (3.41)
1998................... 11.93 (0.09) 4.75 4.66 (1.32)
- --------------------------------------------------------------------------------------------------------
Large Cap Value
- ---------------
Year Ended December 31,
2002................... 14.15 0.22 (2.07) (1.85) (0.22) (0.17)
2001................... 14.38 0.22 (0.05) 0.17 (0.22) (0.18)
2000................... 13.49 0.27 1.45 1.72 (0.28) (0.53)
1999................... 14.02 0.27 0.18 0.45 (0.27) (0.71)
1998................... 13.57 0.28 0.96 1.24 (0.28) (0.51)
- --------------------------------------------------------------------------------------------------------
Large Cap Value CORE
- --------------------
Year Ended December 31,
2002................... 9.83 0.11 (1.88) (1.77) (0.11)
2001................... 10.42 0.09 (0.58) (0.49) (0.09)
2000................... 10.16 0.15 0.36 0.51 (0.15) (0.06)
Period from August 31, to
December 31, 1999 (g)... 10.00 0.04 0.31 0.35 (0.03) (0.14)
- --------------------------------------------------------------------------------------------------------
Fundamental Value
- -----------------
Year Ended December 31,
2002................... 10.66 0.12 (1.96) (1.84) (0.12)
2001................... 11.57 0.10 (0.91) (0.81) (0.10)
2000................... 10.42 0.09 1.30 1.39 (0.10) (0.08)
Period from August 31, to
December 31, 1999 (g)... 10.00 0.03 0.45 0.48 (0.03) (0.02)
- --------------------------------------------------------------------------------------------------------
Net
Distribution in Distribution Assets
Excess of From Value at Total
Net Investment Capital Total Capital End Investment
Income/Gains Paid-in Distributions Contributions of Period Return(b)
--------------- ------------ ------------- ------------- --------- ----------
Multi Cap Growth
- ----------------
Year Ended December 31,
2002................... $ $ $ $ $ 6.65 (32.39)%
2001................... 9.84 (36.93)%
2000................... (1.61) (1.06) (3.08) 15.60 (35.86)%
1999................... (3.41) 29.22 118.31%
1998................... (0.15) (1.47) 15.12 39.07%
- -----------------------------------------------------------------------------------------------------------
Large Cap Value
- ---------------
Year Ended December 31,
2002................... (0.39) 11.91 (13.24)%
2001................... (0.40) 14.15 1.25%
2000................... (0.01) (0.01) (0.83) 14.38 12.97%
1999................... (0.98) 13.49 3.28%
1998................... (0.79) 14.02 9.26%
- -----------------------------------------------------------------------------------------------------------
Large Cap Value CORE
- --------------------
Year Ended December 31,
2002................... (0.11) 7.95 (18.21)%
2001................... (0.09) 9.83 (4.75)%
2000................... (0.03) (0.01) (0.25) 10.42 5.12%
Period from August 31, to
December 31, 1999 (g)... (0.01) (0.01) (0.19) 10.16 3.58%(c)
- -----------------------------------------------------------------------------------------------------------
Fundamental Value
- -----------------
Year Ended December 31,
2002................... (0.12) 8.70 (17.40)%
2001................... (0.10) 10.66 (6.99)%
2000................... (0.06) (0.24) 11.57 13.41%
Period from August 31, to
December 31, 1999 (g)... (0.01) (0.06) 10.42 4.72%(c)
- -----------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
--------------------------------------------------
Net
Net Assets Operating Investment
End of Period Expenses to Income (Loss) Portfolio
(000s Average to Average Turnover
Omitted) Net Assets Net Assets Rate
------------- ----------- ------------- ---------
Multi Cap Growth
- ----------------
Year Ended December 31,
2002................... $159,859 1.04% (0.42)% 192.54%
2001................... 245,899 0.94% (0.49)% 111.69%
2000................... 393,988 0.85% (0.43)% 140.94%
1999................... 452,937 0.93% (0.68)% 106.06%
1998................... 94,085 1.10%(r) (0.64)% 137.01%
- ---------------------------------------------------------------------------------
Large Cap Value
- ---------------
Year Ended December 31,
2002................... 260,141 0.83% 1.67% 16.04%
2001................... 260,646 0.82% 1.54% 18.19%
2000................... 204,535 0.78% 2.04% 42.12%
1999................... 155,849 0.85% 1.88% 32.62%
1998................... 123,365 0.92% 2.08% 18.46%
- ---------------------------------------------------------------------------------
Large Cap Value CORE
- --------------------
Year Ended December 31,
2002................... 40,765 0.84%(s) 1.18% 89.43%
2001................... 60,832 0.85%(s) 0.98% 74.91%(5)
2000................... 18,164 0.85%(s) 1.54% 59.15%
Period from August 31, to
December 31, 1999 (g)... 6,371 0.85%(d)(s) 1.13%(d) 30.90%(c)
- ---------------------------------------------------------------------------------
Fundamental Value
- -----------------
Year Ended December 31,
2002................... 121,102 0.85% 1.26% 82.22%
2001................... 161,710 0.99%(t) 0.91% 85.20%(5)
2000................... 15,728 1.05%(t) 0.97% 86.97%
Period from August 31, to
December 31, 1999 (g)... 6,101 1.05%(d)(t) 0.94%(d) 23.03%(c)
- ---------------------------------------------------------------------------------
49
FINANCIAL HIGHLIGHTS
JOHN HANCOCK VARIABLE SERIES TRUST I
- --------------------------------------------------------------------------------
Selected data for each fund share of beneficial interest outstanding throughout
the year end indicated:
Income from Investment Operations
-------------------------------------- -------------------------
Net Realized Distribution
Net Assets Net and Total Distribution From Net
Value at Investment Unrealized From From Net Realized
Beginning Income Gain (Loss) Investment Investment Gains on
of Period (Loss) on Investments(a) Operations Income Investments
---------- ---------- ----------------- ---------- ------------ ------------
Money Market
- ------------
Year Ended December 31,
2002 (7)................ $ 1.00 $ 0.01 $ -- $ 0.01 $(0.01) $
2001 (10)............... 1.00 0.04 -- 0.04 (0.04)
2000 (10)............... 1.00 0.06 -- 0.06 (0.06)
1999 (10)............... 1.00 0.04 -- 0.04 (0.04)
1998 (10)............... 1.00 0.05 -- 0.05 (0.05)
- ---------------------------------------------------------------------------------------------------------
Small/Mid Cap Growth
- --------------------
Year Ended December 31,
2002.................... 14.09 (0.09) (2.88) (2.97) (0.14)
2001.................... 13.70 (0.06) 0.45 0.39
2000.................... 14.03 (0.02) 1.27 1.25 (1.43)
1999.................... 15.94 (0.07) 0.74 0.67 (2.41)
1998.................... 15.39 (0.02) 0.88 0.86 (0.31)
- ---------------------------------------------------------------------------------------------------------
Bond Index
- ----------
Year Ended December 31,
2002.................... 9.89 0.54 0.42 0.96 (0.51) (0.04)
2001.................... 9.74 0.57 0.17 0.74 (0.58) (0.01)
2000.................... 9.32 0.62 0.43 1.05 (0.63)
1999.................... 10.19 0.63 (0.89) (0.26) (0.61)
Period from May 1, to
December 31, 1998 (g).... 10.00 0.42 0.29 0.71 (0.42) (0.10)
- ---------------------------------------------------------------------------------------------------------
Large Cap Aggressive Growth
- ---------------------------
Year Ended December 31,
2002.................... 8.12 (0.01) (2.54) (2.55)
2001.................... 9.52 0.01 (1.41) (1.40)
2000.................... 11.94 (0.03) (2.21) (2.24) (0.01)
Period from August 31, to
December 31, 1999 (g).... 10.00 (0.01) 2.03 2.01 (0.08)
- ---------------------------------------------------------------------------------------------------------
Distribution in Distribution Net Assets
Excess of From Value at Total
Net Investment Capital Total Capital End of Investment
Income/Gains Paid-in Distributions Contributions Period Return(b)
--------------- ------------ ------------- ------------- ---------- ----------
Money Market
- ------------
Year Ended December 31,
2002 (7)................ $ $ $(0.01) $ $ 1.00 1.48%
2001 (10)............... (0.04) 1.00 3.93%
2000 (10)............... (0.06) 1.00 6.29%(u)
1999 (10)............... (0.04) 1.00 5.05%
1998 (10)............... (0.05) 1.00 5.40%
- -------------------------------------------------------------------------------------------------------------
Small/Mid Cap Growth
- --------------------
Year Ended December 31,
2002.................... (0.14) 10.98 (21.13)%
2001.................... -- 14.09 2.83%
2000.................... (0.15) (1.58) 13.70 9.25%
1999.................... (0.17) (2.58) 14.03 5.15%
1998.................... (0.31) 15.94 5.61%
- -------------------------------------------------------------------------------------------------------------
Bond Index
- ----------
Year Ended December 31,
2002.................... (0.55) 10.30 9.95%
2001.................... (0.59) 9.89 7.76%
2000.................... (0.63) 9.74 11.81%
1999.................... (0.61) 9.32 (2.57)%
Period from May 1, to
December 31, 1998 (g).... (0.52) 10.19 7.20%(c)
- -------------------------------------------------------------------------------------------------------------
Large Cap Aggressive Growth
- ---------------------------
Year Ended December 31,
2002.................... 5.57 (31.36)%
2001.................... 8.12 (14.69)%
2000.................... (0.06) (0.11) (0.18) 9.52 (18.77)%
Period from August 31, to
December 31, 1999 (g).... (0.08) 11.94 20.18%(c)
- -------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
---------------------------------------------------
Net
Net Assets Operating Investment
End of Period Expenses to Income (Loss) Portfolio
(000s Average to Average Turnover
Omitted) Net Assets Net Assets Rate
------------- ----------- ------------- ---------
Money Market
- ------------
Year Ended December 31,
2002 (7)................ $918,116 0.32% 1.46% n/a
2001 (10)............... 745,516 0.32% 3.72% n/a
2000 (10)............... 496,853 0.29% 6.05% n/a
1999 (10)............... 451,235 0.31% 4.95% n/a
1998 (10)............... 395,195 0.31% 5.29% n/a
- -----------------------------------------------------------------------------------
Small/Mid Cap Growth
- --------------------
Year Ended December 31,
2002.................... 140,958 1.07%(1) (0.72)% 130.01%
2001.................... 185,232 0.91%(1) (0.40)% 113.73%
2000.................... 190,010 0.85% (0.20)% 103.19%
1999.................... 181,931 0.85% (0.27)% 172.58%
1998.................... 193,332 0.89% (0.11)% 162.21%
- -----------------------------------------------------------------------------------
Bond Index
- ----------
Year Ended December 31,
2002.................... 208,095 0.22%(v) 5.30% 57.31%
2001.................... 129,358 0.24% 5.77%(13) 68.70%
2000.................... 64,768 0.25%(v) 6.80% 40.46%
1999.................... 38,436 0.29%(v) 6.56% 17.06%
Period from May 1, to
December 31, 1998 (g).... 28,001 0.40%(d)(v) 6.17%(d) 21.09%(c)
- -----------------------------------------------------------------------------------
Large Cap Aggressive Growth
- ---------------------------
Year Ended December 31,
2002.................... 24,249 0.97%(w) (0.14)% 61.67%
2001.................... 39,738 0.97%(w) (0.06)% 87.90%
2000.................... 26,244 1.00%(w) (0.37)% 75.97%
Period from August 31, to
December 31, 1999 (g).... 15,074 1.08%(d)(w) (0.39)%(d) 18.97%(c)
- -----------------------------------------------------------------------------------
50
FINANCIAL HIGHLIGHTS
JOHN HANCOCK VARIABLE SERIES TRUST I
- --------------------------------------------------------------------------------
Selected data for each fund share of beneficial interest outstanding throughout
the year end indicated:
Income from Investment Operations
-------------------------------------- -------------------------
Net Realized Distribution
Net Assets Net and Total Distribution From Net
Value at Investment Unrealized From From Net Realized
Beginning Income Gain (Loss) Investment Investment Gains on
of Period (Loss) on Investments(a) Operations Income Investments
---------- ---------- ----------------- ---------- ------------ ------------
Small/Mid Cap CORE
- ------------------
Year Ended December 31,
2002................... $ 9.82 $0.04 $(1.54) $(1.50) $(0.04) $
2001................... 9.82 0.05 -- 0.05 (0.05)
2000................... 9.82 0.05 0.39 0.44 (0.05) (0.32)
1999................... 9.02 0.02 1.77 1.79 (0.03) (0.96)
Period from May 1, to
December 31, 1998 (g).. 10.00 -- (0.98) (0.98)
- -------------------------------------------------------------------------------------------------------
Small Cap Value
- ---------------
Year Ended December 31,
2002 (7)............... 13.76 0.08 (0.96) (0.88) (0.09) (0.24)
2001 (y)............... 11.70 0.09 2.14 2.23 (0.09) (0.08)
2000................... 10.13 0.01 3.37 3.38 (0.01) (1.80)
Period from August 31,
to December 31, 1999
(g).................... 10.00 -- 0.49 0.49 (0.36)
- -------------------------------------------------------------------------------------------------------
Real Estate Equity
- ------------------
Year Ended December 31,
2002................... 13.55 0.62 (0.43) 0.19 (0.65) (0.30)
2001................... 13.67 0.67 0.21 0.88 (0.58) (0.42)
2000 (k)............... 11.47 0.76 2.73 3.49 (0.76) (0.06)
1999................... 12.46 0.78 (0.99) (0.21) (0.78)
1998................... 15.91 0.77 (3.38) (2.61) (0.70) (0.14)
- -------------------------------------------------------------------------------------------------------
Growth & Income
- ---------------
Year Ended December 31,
2002................... 11.93 0.08 (2.71) (2.63) (0.08)
2001................... 14.18 0.06 (2.25) (2.19) (0.06)
2000 (e)............... 20.01 0.17 (2.77) (2.60) (0.17) (2.69)
1999................... 19.49 0.20 2.88 3.08 (0.20) (2.36)
1998................... 16.61 0.23 4.75 4.98 (0.23) (1.87)
- -------------------------------------------------------------------------------------------------------
Net
Distribution in Distribution Assets
Excess of From Value at Total
Net Investment Capital Total Capital End of Investment
Income/Gains Paid-in Distributions Contributions Period Return(b)
--------------- ------------ ------------- ------------- -------- ----------
Small/Mid Cap CORE
- ------------------
Year Ended December 31,
2002................... $ $ $(0.04) $ $ 8.28 (15.19)%
2001................... (0.05) 9.82 0.53%
2000................... (0.05) (0.02) (0.44) 9.82 4.63%
1999................... (0.99) 9.82 20.54%
Period from May 1, to
December 31, 1998 (g).. 9.02 (9.81)%(c)
- ----------------------------------------------------------------------------------------------------------
Small Cap Value
- ---------------
Year Ended December 31,
2002 (7)............... (0.33) 12.55 (6.43)%
2001 (y)............... (0.17) 13.76 19.10%
2000................... (1.81) 11.70 34.19%
Period from August 31,
to December 31, 1999
(g).................... (0.36) 10.13 5.08%(c)
- ----------------------------------------------------------------------------------------------------------
Real Estate Equity
- ------------------
Year Ended December 31,
2002................... (0.95) 12.79 1.36%
2001................... (1.00) 13.55 (6.61)%
2000 (k)............... (0.17) (0.30) (1.29) 13.67 31.29%
1999................... (0.78) 11.47 (1.69)%
1998................... (0.84) 12.46 (16.71)%
- ----------------------------------------------------------------------------------------------------------
Growth & Income
- ---------------
Year Ended December 31,
2002................... (0.08) 9.22 (22.18)%
2001................... (0.06) 11.93 (15.44)%
2000 (e)............... (0.14) (0.23) (3.23) 14.18 (13.10)%
1999................... (2.56) 20.01 16.23%
1998................... (2.10) 19.49 30.25%
- ----------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
---------------------------------------------------
Net
Net Assets Operating Investment
End of Period Expenses to Income (Loss) Portfolio
(000s Average to Average Turnover
Omitted) Net Assets Net Assets Rate
------------- ----------- ------------- ---------
Small/Mid Cap CORE
- ------------------
Year Ended December 31,
2002................... $ 48,143 0.96%(x) 0.50% 125.11%
2001................... 46,446 0.90%(x) 0.52% 96.88%
2000................... 21,636 0.90%(x) 0.56% 94.78%
1999................... 8,248 0.94%(x) 0.30% 109.12%
Period from May 1, to
December 31, 1998 (g).. 5,015 1.05%(d)(x) (0.01)%(d) 60.1%(c)
- ---------------------------------------------------------------------------------
Small Cap Value
- ---------------
Year Ended December 31,
2002 (7)............... 120,070 1.04%(z) 0.62% 41.46%
2001 (y)............... 103,224 1.05%(z) 0.87% 60.36%
2000................... 29,436 1.05%(z) 0.13% 220.80%
Period from August 31,
to December 31, 1999
(g).................... 5,570 1.05%(d)(z) (0.12)%(d) 51.97%(c)
- ---------------------------------------------------------------------------------
Real Estate Equity
- ------------------
Year Ended December 31,
2002................... 177,926 1.07% 4.60% 22.74%
2001................... 163,653 1.07% 4.97% 29.07%
2000 (k)............... 158,811 0.76% 5.99% 58.81%
1999................... 126,214 0.70% 6.38% 12.95%
1998................... 152,789 0.69% 5.48% 22.69%
- ---------------------------------------------------------------------------------
Growth & Income
- ---------------
Year Ended December 31,
2002................... 1,762,203 0.75% 0.73% 73.60%
2001................... 2,476,319 0.72% 0.49% 104.47%(5)
2000 (e)............... 3,324,988 0.40% 0.84% 112.94%
1999................... 4,218,841 0.28% 0.98% 70.16%
1998................... 3,670,785 0.27% 1.24% 48.45%
- ---------------------------------------------------------------------------------
51
FINANCIAL HIGHLIGHTS
JOHN HANCOCK VARIABLE SERIES TRUST I
- --------------------------------------------------------------------------------
Selected data for each fund share of beneficial interest outstanding throughout
the year end indicated:
Income from Investment Operations
-------------------------------------- -------------------------
Net Realized Distribution
Net Assets Net and Total Distribution From Net
Value at Investment Unrealized From From Net Realized
Beginning Income Gain (Loss) Investment Investment Gains on
of Period (Loss) on Investments(a) Operations Income Investments
---------- ---------- ----------------- ---------- ------------ ------------
Managed
- -------
Year Ended December 31,
2002.................... $13.08 $0.21 $(1.93) $(1.72) $(0.21) $
2001.................... 13.82 0.28 (0.67) (0.39) (0.28) (0.07)
2000 (q)................ 15.45 0.44 (0.45) (0.01) (0.44) (1.18)
1999.................... 15.64 0.44 0.94 1.38 (0.43) (1.14)
1998.................... 14.35 0.46 2.43 2.89 (0.46) (1.09)
- ---------------------------------------------------------------------------------------------------------
Short-Term Bond
- ---------------
Year Ended December 31,
2002.................... 10.11 0.44 0.12 0.56 (0.41) (0.03)
2001.................... 9.86 0.52 0.26 0.78 (0.53)
2000.................... 9.72 0.61 0.14 0.75 (0.61)
1999.................... 10.05 0.61 (0.33) 0.28 (0.61)
1998.................... 10.08 0.61 (0.03) 0.58 (0.61)
- ---------------------------------------------------------------------------------------------------------
Small Cap Equity
- ----------------
Year Ended December 31,
2002.................... 8.79 0.01 (2.49) (2.48) (0.01)
2001.................... 9.14 0.01 (0.35) (0.34) (0.01)
2000 (q)................ 10.92 0.14 (1.13) (0.99) (0.15) (0.14)
1999.................... 11.59 0.09 (0.50) (0.41) (0.07) (0.01)
1998.................... 12.40 0.07 (0.81) (0.74) (0.07)
- ---------------------------------------------------------------------------------------------------------
International Opportunities
- ---------------------------
Year Ended December 31,
2002.................... 9.30 0.07 (1.75) (1.68) (0.06)
2001.................... 11.85 0.06 (2.53) (2.47) (0.05)
2000 (4)................ 15.17 0.07 (2.57) (2.50) (0.06) (0.62)
1999.................... 12.21 0.10 3.95 4.05 (0.11) (0.94)
1998.................... 10.63 0.11 1.57 1.68 (0.10)
- ---------------------------------------------------------------------------------------------------------
Distribution in Distribution Net Assets
Excess of From Value at Total
Net Investment Capital Total Capital End Investment
Income/Gains Paid-in Distributions Contributions of Period Return(b)
--------------- ------------ ------------- ------------- ---------- ----------
Managed
- -------
Year Ended December 31,
2002.................... $ $ $(0.21) $ $11.15 (13.23)%
2001.................... (0.35) 13.08 (2.84)%
2000 (q)................ (1.62) 13.82 0.03%
1999.................... (1.57) 15.45 9.10%
1998.................... (0.05) (1.60) 15.64 20.42%
- --------------------------------------------------------------------------------------------------------------
Short-Term Bond
- ---------------
Year Ended December 31,
2002.................... (0.44) 10.23 5.67%
2001.................... (0.53) 10.11 8.09%
2000.................... (0.61) 9.86 7.98%
1999.................... (0.61) 9.72 2.96%
1998.................... (0.61) 10.05 5.82%
- --------------------------------------------------------------------------------------------------------------
Small Cap Equity
- ----------------
Year Ended December 31,
2002.................... (0.01) 6.30 (28.21)%
2001.................... (0.01) 8.79 (3.78)%
2000 (q)................ (0.20) (0.30) (0.79) 9.14 (8.89)%
1999.................... (0.18) (0.26) 10.92 (3.43)%
1998.................... (0.07) 11.59 5.96%
- --------------------------------------------------------------------------------------------------------------
International Opportunities
- ---------------------------
Year Ended December 31,
2002.................... (0.06) 7.56 (18.22)%
2001.................... (0.03) (0.08) 9.30 (20.93)%
2000 (4)................ (0.05) (0.09) (0.82) 11.85 (16.36)%(5)
1999.................... (0.04) (1.09) 15.17 34.01%
1998.................... (0.10) 12.21 15.92%
- --------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
-----------------------------------------------
Net
Net Assets Operating Investment
End of Period Expenses to Income (Loss) Portfolio
(000s Average to Average Turnover
Omitted) Net Assets Net Assets Rate
------------- ----------- ------------- ---------
Managed
- -------
Year Ended December 31,
2002.................... $1,936,864 0.76% 1.77% 234.62%
2001.................... 2,526,703 0.73% 2.10%(14) 190.73%(5)
2000 (q)................ 2,995,794 0.46% 2.86% 210.35%
1999.................... 3,430,919 0.36% 2.75% 203.86%
1998.................... 3,301,910 0.36% 2.99% 160.57%
- -------------------------------------------------------------------------------
Short-Term Bond
- ---------------
Year Ended December 31,
2002.................... 241,117 0.68% 4.29% 97.00%
2001.................... 149,450 0.48% 5.20%(15) 86.39%
2000.................... 80,109 0.36% 6.27% 52.68%
1999.................... 68,844 0.43% 6.25% 100.04%
1998.................... 77,194 0.53% 6.17% 184.50%
- -------------------------------------------------------------------------------
Small Cap Equity
- ----------------
Year Ended December 31,
2002.................... 50,327 1.00%(2) 0.19% 45.03%
2001.................... 71,193 1.00%(2) 0.06% 60.73%
2000 (q)................ 70,031 0.92%(2) 1.25% 189.57%
1999.................... 68,900 0.95%(2) 0.78% 117.33%
1998.................... 64,095 1.05%(2) 0.63% 100.83%
- -------------------------------------------------------------------------------
International Opportunities
- ---------------------------
Year Ended December 31,
2002.................... 87,278 1.24%(3) 0.69% 78.14%(5)
2001.................... 83,591 1.00%(3) 0.64% 33.31%
2000 (4)................ 120,034 0.93%(3) 0.47% 37.92%(5)
1999.................... 79,794 1.02%(3) 0.77% 34.02%
1998.................... 64,250 1.16%(3) 0.89% 18.67%
- -------------------------------------------------------------------------------
52
FINANCIAL HIGHLIGHTS
JOHN HANCOCK VARIABLE SERIES TRUST I
- --------------------------------------------------------------------------------
Selected data for each fund share of beneficial interest outstanding throughout
the year end indicated:
Income from Investment Operations Less Distributions
------------------------------------------ ------------------------------------------------------
Net Realized Distribution
Net Assets Net and Total Distribution From Net Distribution in Distribution
Value at Investment Unrealized From From Net Realized Excess of From
Beginning Income Gain (Loss) Investment Investment Gains on Net Investment Capital
of Period (Loss) on Investments(a) Operations Income Investments Income/Gains Paid-in
---------- ---------- ----------------- ---------- ------------ ------------ --------------- ------------
Equity Index
- ------------
Year Ended
December 31,
2002......... $14.85 $0.16 $(3.48) $(3.32) $(0.11) $(0.06) $ $
2001......... 17.64 0.19 (2.30) (2.11) (0.19) (0.49)
2000......... 20.46 0.22 (2.09) (1.87) (0.22) (0.72) (0.01)
1999......... 17.70 0.27 3.41 3.68 (0.26) (0.66)
1998......... 14.21 0.25 3.76 4.01 (0.24) (0.28)
- ------------------------------------------------------------------------------------------------------------------------------
High Yield Bond
- ---------------
Year Ended
December 31,
2002......... 6.83 0.57 (0.87) (0.30) (0.62)
2001......... 7.33 0.73 (0.55) 0.18 (0.68)
2000......... 8.99 0.73 (1.65) (0.92) (0.74)
1999......... 9.23 0.72 (0.26) 0.46 (0.70)
Period from
May 1, to
December 31,
1998 (g)..... 10.00 0.46 (0.76) (0.30) (0.46) (0.01)
- ------------------------------------------------------------------------------------------------------------------------------
Global Bond
- -----------
Year Ended
December 31,
2002......... 9.74 0.40 1.43 1.83 (0.46) (0.05)
2001......... 10.34 0.38 (0.53) (0.15) (0.45)
2000 (q)..... 9.82 0.48 0.67 1.15 (0.63)
1999......... 10.60 0.48 (0.70) (0.22) (0.56)
1998......... 10.24 0.54 0.38 0.92 (0.29) (0.09) (0.18)
Ratios/Supplemental Data
---------------------------------------------------
Net
Net Assets Net Assets Operating Investment
Value at Total End of Period Expenses to Income (Loss) Portfolio
Total Capital End Investment (000s Average to Average Turnover
Distributions Contributions of Period Return(b) Omitted) Net Assets Net Assets Rate
------------- ------------- ---------- ---------- ------------- ----------- ------------- ---------
Equity Index
- ------------
Year Ended
December 31,
2002......... $(0.17) $ $11.36 (22.31)% $466,258 0.23% 1.39% 10.63%
2001......... (0.68) 14.85 (11.98)% 538,791 0.20% 1.20% 17.61%(5)
2000......... (0.95) 17.64 (9.15)% 525,659 0.19% 1.12% 34.11%
1999......... (0.92) 20.46 21.08% 451,296 0.00%(6) 1.42% 55.24%
1998......... (0.52) 17.70 28.45% 232,578 0.00%(6) 1.59% 43.31%
- ----------------------------------------------------------------------------------------------------------------------------
High Yield Bond
- ---------------
Year Ended
December 31,
2002......... (0.62) 5.91 (4.51)% 60,781 0.90%(8) 9.84% 89.30%
2001......... (0.68) 6.83 2.13% 51,274 0.80%(8) 10.39%(16) 32.50%
2000......... (0.74) 7.33 (10.81)% 25,978 0.75%(8) 8.88% 21.94%
1999......... (0.70) 8.99 5.13% 19,921 0.80%(8) 7.94% 38.62%
Period from
May 1, to
December 31,
1998 (g)..... (0.47) 9.23 (2.98)%(c) 14,789 0.90%(d)(8) 7.43%(d) 17.67%(c)
- ----------------------------------------------------------------------------------------------------------------------------
Global Bond
- -----------
Year Ended
December 31,
2002......... (0.51) 11.06 18.85% 78,471 0.95%(9) 3.53% 64.15%
2001......... (0.45) 9.74 (1.45)% 47,646 0.95%(9) 3.73%(17) 41.75%
2000 (q)..... (0.63) 10.34 12.00% 68,473 0.81%(9) 4.71% 259.60%
1999......... (0.56) 9.82 (2.16)% 70,991 0.83%(9) 4.70% 332.06%
1998......... (0.56) 10.60 9.15% 66,791 0.95%(9) 5.27% 186.70%
(a) The amount shown at this caption for each fund share outstanding throughout
the year may not accord with the change in the aggregate gains and losses
in the portfolio securities for the year because of the timing of the
purchases and withdrawals of the fund shares in relation to the fluctuating
market values of the portfolio.
(b) The performance of the Funds shown on this page does not reflect expenses
and charges of the applicable separate accounts and variable products, all
of which vary to a considerable extent and are described in your product's
prospectus.
(c) Not annualized
(d) Annualized
(e) The fund entered into a new sub-advisory agreement with Putnam Investment
Management, Inc. during the period shown.
(f) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made the expense ratio would have been 1.16%, 1.19%, 1.00%, and 1.09%
for the years ended December 31, 2002, 2001, 2000, and 1999, respectively.
(g) Commencement of investment operations
(h) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the expense ratio would have been .44% for the year ended
December 31, 2000.
(i) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the expense ratio would have been 1.35%, and 1.19% for the years
ended December 31, 2002, and 2001.
(j) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made the expense ratio would have been 3.45%, 4.02%, 2.49%, 3.44%, and
3.69% for the years ended December 31, 2002, 2001, 2000, 1999, and 1998,
respectively.
53
FINANCIAL HIGHLIGHTS
JOHN HANCOCK VARIABLE SERIES TRUST I
- --------------------------------------------------------------------------------
(k) The Fund entered into a new sub-advisory agreement with Morgan Stanley Dean
Witter Investment Management, Inc. during the period shown.
(l) The total investment return includes the effect of the capital contribution
of $.32 per share. The total investment return without the capital
contribution would have been 79.02%.
(m) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made the expense ratio would have been .46%, .40%, .37%, .38% and .63%
for the years ended December 31, 2002, 2001, 2000, 1999, and 1998,
respectively.
(o) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made the expense ratio would have been .94%, and 1.05%, for the years
ended December 31, 2001, and 1998, respectively.
(p) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made the expense ratio would have been 1.45%, 1.36%, 1.27%, 1.31%, and
1.82%, for the years ended December 31, 2002, 2001, 2000, 1999, and 1998,
respectively.
(q) The Fund entered into a new sub-advisory agreement with Capital Guardian
Trust Company during the period shown.
(r) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made the expense ratio would have been 1.13%, for the year ended
December 31, 1998.
(s) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made the expense ratio would have been .97%, .88%, 1.09% and 1.17% for
the years ended December 31, 2002, 2001, 2000 and 1999, respectively.
(t) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made the expense ratio would have been 1.20%, 1.36%, and 1.42% for the
years ended December 31, 2001, 2000, and 1999, respectively.
(u) The total investment return includes the effect of the capital contribution
of $0.01 per share. The total investment return without the capital
contribution would have been 6.18%.
(v) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been .25%, .27%, .35%, and
.71%, for the years ended December 31, 2002, 2000, 1999, and 1998,
respectively.
(w) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made the expense ratio would have been .98%, 1.06%, 1.05%, and 1.17%
for the years ended December 31, 2002, 2001, 2000, and 1999, respectively.
(x) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made the expense ratio would have been 1.12%, 1.15%, 1.23%, 2.24%, and
4.55%, for the years ended December 31, 2002, 2001, 2000, 1999, and 1998,
respectively.
(y) The Fund entered into a new sub-advisory agreement with T. Rowe Price
Associates, Inc. during the period shown.
(z) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made the expense ratio would have been 1.04%, 1.08%, 1.29%, and 1.61%
for the years ended December 31, 2002, 2001, 2000 and 1999, respectively.
(1) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been 1.07%, and 0.91% for
the years ended December 31, 2002, and 2001, respectively.
(2) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made the expense ratio would have been 1.04%, 1.02%, .95%, .96%, and
1.08%, for the years ended December 31, 2002, 2001, 2000, 1999, 1998,
respectively.
(3) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made the expense ratio would have been 1.55%, 1.16%, 1.09%, 1.15%, and
1.46%, for the years ended December 31, 2002, 2001, 2000, 1999, and 1998,
respectively.
(4) The Fund entered into a new sub-advisory agreement with T. Rowe Price
International, Inc. during the period shown.
(5) Excludes merger activity.
(6) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been .22%, and .34%, for the
years ended December 31, 1999, and 1998, respectively.
(7) The fund entered into a new sub-advisory agreement with Wellington during
the period shown.
(8) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made the expense ratio would have been .96%, .90%, .87%, 1.04%, and
2.03%, for the years ended December 31, 2002, 2001, 2000, 1999, and 1998,
respectively.
(9) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made the expense ratio would have been 1.01%, .95%, .91%, .84%, and
1.02%, for the years ended December 31, 2002, 2001, 2000, 1999, and 1998,
respectively.
(10) Per share amounts have been restated to reflect a 10-for-1 stock split
effective May 1, 2001.
(11) Had the Fund not amortized premiums and accreted discounts on debt
securities, the annual ratio of net investment income to average net
assets would have been 6.28% for the year ended December 31, 2001.
(12) Had the Fund not amortized premiums and accreted discounts on debt
securities, the annual ratio of net investment income to average net
assets would have been 1.38% for the year ended December 31, 2001.
(13) Had the Fund not amortized premiums and accreted discounts on debt
securities, the annual ratio of net investment income to average net
assets would have been 6.37% for the year ended December 31, 2001.
(14) Had the Fund not amortized premiums and accreted discounts on debt
securities, the annual ratio of net investment income to average net
assets would have been 2.29% for the year ended December 31, 2001.
(15) Had the Fund not amortized premiums and accreted discounts on debt
securities, the annual ratio of net investment income to average net
assets would have been 5.32% for the year ended December 31, 2001.
(16) Had the Fund not amortized premiums and accreted discounts on debt
securities, the annual ratio of net investment income to average net
assets would have been 9.35% for the year ended December 31, 2001.
(17) Had the Fund not amortized premiums and accreted discounts on debt
securities, the annual ratio of net investment income to average net
assets would have been 3.96% for the year ended December 31, 2001.
54
SCHEDULE OF INVESTMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
LARGE CAP GROWTH FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Aerospace & Defense - 0.8%
Boeing Co. * ................................ 113,700 $ 3,751
Air Freight & Couriers - 0.4%
United Parcel Service, Inc. - Cl.B .......... 30,000 1,892
Automobiles - 0.3%
Harley-Davidson, Inc. * ..................... 35,000 1,617
Banks - 0.3%
Charter One Financial, Inc. ................. 44,600 1,281
Beverages - 3.1%
Anheuser-Busch Cos., Inc. ................... 131,300 6,355
Pepsi Bottling Group, Inc. * ................ 82,700 2,126
PepsiCo, Inc. * ............................. 165,900 7,004
----------
15,485
Biotechnology - 2.5%
Amgen, Inc. * ............................... 164,100 7,933
CV Therapeutics. Inc. * ..................... 60,000 1,093
Shire Pharmaceuticals Group Place - ADR * ... 173,600 3,279
----------
12,305
Chemicals - 0.7%
Praxair, Inc. * ............................. 63,200 3,651
Commercial Services & Supplies - 1.5%
Automatic Data Processing, Inc. ............. 79,500 3,120
Certegy, Inc. * ............................. 92,400 2,269
The Bisys Group Inc. * ...................... 117,600 1,870
----------
7,259
Communications Equipment - 1.2%
Cisco Systems, Inc. * ....................... 454,400 5,953
Computers & Peripherals - 4.9%
Dell Computer Corp. * ....................... 524,900 14,036
EMC Corp. * ................................. 330,800 2,031
International Business Machines
Corp. ...................................... 81,300 6,301
Lexmark International Group, Inc.-
Cl. A * .................................... 36,400 2,202
----------
24,570
Containers & Packaging - 0.7%
Ball Corp. .................................. 69,800 3,573
Credit Card - 0.3%
MBNA Corp. * ................................ 88,000 1,674
Diversified Financials - 2.7%
American Express Co. * ...................... 98,100 3,468
Citigroup, Inc. * ........................... 180,500 6,352
Well Fargo & Co. * .......................... 75,000 3,515
----------
13,335
Electrical Equipment - 0.3%
United Technologies Corp. * ................. 25,000 1,549
Electronic Equipment & Instruments - 0.6%
Tech Data Corp. * ........................... 81,100 2,187
Vishay Intertechnology, Inc. * .............. 90,000 1,006
----------
3,193
Energy Equipment & Services - 0.8%
Halliburton Co. * ........................... 101,800 1,905
Noble Corp. * ............................... 53,300 1,873
----------
3,778
Food & Drug Retailing - 0.2%
Williams-Sonoma, Inc. * ..................... 35,000 950
Food Products - 2.8%
Kellogg Co. * ............................... 70,000 2,399
Kraft Foods, Inc. - Cl. A ................... 211,400 8,230
Unilever NV * ............................... 49,800 3,073
----------
13,702
Health Care Equipment & Supplies - 1.8%
Boston Scientific Corp. * ................... 60,000 2,551
Medtronic, Inc. * ........................... 87,000 3,967
St. Jude Medical, Inc. * .................... 58,600 2,328
----------
8,846
Health Care Providers & Services - 5.1%
Anthem, Inc. * .............................. 98,800 6,215
HCA-The Healthcare Corp. * .................. 100,000 4,150
McKesson HBOC, Inc. ......................... 82,200 2,222
United Health Group, Inc. * ................. 64,300 5,369
Universal Health Services, Inc. - Cl. B * ... 35,000 1,578
Wellpoint Health Networks, Inc. * ........... 80,000 5,693
----------
25,227
Household Durables - 0.9%
Black & Decker Corp. * ...................... 102,000 4,375
Household Products - 1.9%
Procter & Gamble Co. * ...................... 107,300 9,221
Industrial Conglomerates - 5.7%
General Electric Co. * ...................... 957,000 23,303
Textron, Inc. * ............................. 111,400 4,789
----------
28,092
Insurance - 4.1%
AFLAC, Inc. * ............................... 40,000 1,205
American International Group, Inc. * ........ 80,600 4,663
Everest Re Group, Ltd. ...................... 25,000 1,383
Hartford Financial Services Group,. Inc. * .. 32,400 1,472
Metlife, Inc. * ............................. 213,700 5,778
Radian Group, Inc. .......................... 48,000 1,783
The PMI Group, Inc. ......................... 75,300 2,262
55
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
LARGE CAP GROWTH FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Insurance - Continued
Travelers Property Casualty Corp. -
Cl. A * ................................ 108,840 $ 1,594
----------
20,140
Internet Software & Services - 0.2%
Yahoo, Inc. * ............................... 52,800 863
IT Consulting & Services - 2.6%
Computer Sciences Corp. * ................... 188,800 6,504
SunGard Data Systems, Inc. * ................ 279,200 6,578
----------
13,082
Leisure Equipment & Products - 0.3%
Mattel, Inc. * .............................. 75,000 1,436
Machinery - 1.0%
Danaher Corp. * ............................. 78,700 5,171
Media - 2.0%
Viacom, Inc. - Cl. B * ...................... 143,200 5,837
Westwood One, Inc. .......................... 114,500 4,278
----------
10,115
Multiline Retail - 5.3%
Kohl's Corp. * .............................. 204,000 11,414
Target Corp. * .............................. 93,300 2,799
Wal-Mart Stores, Inc. * ..................... 245,000 12,375
----------
26,588
Personal Products - 0.6%
Estee Lauder Cos., Inc. - Cl. A ............. 50,000 1,320
Gillette Co. ................................ 48,500 1,472
----------
2,792
Pharmaceuticals - 16.5%
Abbott Laboratories * ....................... 113,000 4,520
Forest Laboratories, Inc. * ................. 82,700 8,123
Johnson & Johnson * ......................... 400,000 21,484
King Pharmaceuticals, Inc. * ................ 233,000 4,005
Pfizer, Inc. * .............................. 962,100 29,411
Pharmacia Corp. * ........................... 224,400 9,380
Wyeth ....................................... 129,000 4,825
----------
81,748
Semiconductor Equipment & Products - 6.4%
Altera Corp. * .............................. 98,600 1,217
Applied Materials, Inc. * ................... 413,100 5,383
Intel Corp. ................................. 970,000 15,103
KLA-Tencor Corp. * .......................... 26,000 919
Novellus Systems, Inc. * .................... 42,300 1,188
Teradyne, Inc. * ............................ 154,600 2,011
Texas Instruments, Inc. * ................... 413,800 6,211
----------
32,032
Software - 9.2%
BMC Software, Inc. * ........................ 278,200 4,760
Intuit, Inc. * .............................. 100,900 4,734
Microsoft Corp. * ........................... 555,000 28,694
Network Associates, Inc. * .................. 142,400 2,291
Oracle Corp. * .............................. 472,200 5,100
----------
45,579
Specialty Retail - 5.9%
AutoZone, Inc. * ............................ 44,400 3,137
Bed Bath & Beyond, Inc. * ................... 107,700 3,719
Home Depot, Inc. * .......................... 275,300 6,596
Lowe's Cos., Inc. * ......................... 250,100 9,379
Staples, Inc. * ............................. 158,600 2,902
TJX Cos., Inc. * ............................ 186,900 3,648
----------
29,381
Textiles & Apparel - 0.9%
Nike, Inc. - Cl. B .......................... 100,000 4,447
Tobacco - 1.6%
Philip Morris Cos., Inc. * .................. 158,700 6,432
UST, Inc. * ................................. 49,900 1,668
----------
8,100
U.S. Government Agencies - 3.1%
Federal Home Loan Mortgage Corp. ............ 79,800 4,712
Federal National Mortgage Assoc. * .......... 169,300 10,891
----------
15,603
----------
TOTAL COMMON STOCK- 99.2% 492,356
Par
Value
(000's)
INVESTMENT COMPANIES HELD
AS COLLATERAL ON LOANED
SECURITIES - 1.7%
State Street Navigator Securities
Lending Portfolio .......................... $ 8,792 8,792
SHORT-TERM INVESTMENTS - 0.6%
Investment in joint trading account
(Note B)
1.388% due 01/02/03 .................... 3,149 3,149
---------- ----------
TOTAL INVESTMENTS- 101.5% 504,297
Cash and Receivables, less payables- (1.5)% (7,699)
---------- ----------
NET ASSETS- 100.0% $ 496,628
========== ==========
ADR-American Depository Receipts.
* Non-income producing security.
See notes to financial statements.
56
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
FUNDAMENTAL GROWTH FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Airlines - 0.8%
Southwest Airlines Co. ...................... 11,400 $ 159
Banks - 2.7%
Commerce Bancorp, Inc. ...................... 1,900 82
Investors Financial Services Corp. .......... 5,400 148
North Fork Bancorporation, Inc. * ........... 2,600 88
Northern Trust Corp. ........................ 2,900 101
TCF Financial Corp. ......................... 2,700 118
----------
537
Beverages - 2.8%
Pepsi Bottling Group, Inc. * ................ 11,400 293
Starbucks Corp. * ........................... 12,700 259
----------
552
Biotechnology - 6.5%
Cephalon, Inc. * ............................ 4,700 229
Genzyme Corp. * ............................. 8,700 257
Gilead Sciences, Inc. * ..................... 6,700 228
Idec Pharmaceuticals Corp. * ................ 6,700 222
IDEXX Laboratories, Inc. * .................. 700 23
MedImmune, Inc. * ........................... 6,900 188
Shire Pharmaceuticals Group Place - ADR * ... 8,162 154
----------
1,301
Chemicals - 0.6%
Rohm & Haas Co. ............................. 3,900 127
Commercial Services & Supplies - 7.5%
Apollo Group, Inc. - Cl. A * ................ 2,300 101
Career Education Corp. * .................... 3,500 140
Choicepoint, Inc. * ......................... 4,400 174
Cintas Corp. * .............................. 3,300 151
Concord EFS, Inc. * ......................... 9,100 143
DST Systems, Inc. * ......................... 3,900 139
Ecolab, Inc. * .............................. 1,900 94
Fiserv, Inc. * .............................. 5,275 179
Pitney Bowes, Inc. * ........................ 5,200 170
Stericycle, Inc. * .......................... 1,700 55
The Bisys Group, Inc. * ..................... 9,700 154
----------
1,500
Communications Equipment - 0.9%
Emulex Corp. * .............................. 8,600 159
Extreme Networks, Inc. * .................... 4,300 14
McData Corp. * .............................. 1,800 13
----------
186
Computers & Peripherals - 2.2%
Business Objects SA - ADR * ................. 6,200 93
Lexmark International Group, Inc. - Cl. A * . 5,700 345
----------
438
Diversified Financials - 4.0%
Capital One Financial Corp. ................. 3,100 92
Investment Technology Group, Inc. * ......... 3,100 69
Midcap Trust ................................ 2,700 $ 213
SEI Investments Company ..................... 9,200 250
Waddell & Reed Financial, Inc. - Cl. A ...... 8,900 175
----------
799
Diversified Telecommunication Services - 1.1%
CenturyTel, Inc. ............................ 7,800 229
Electric Utilities - 1.9%
Entergy Corp. * ............................. 5,900 269
Progress Energy, Inc. * ..................... 2,700 117
----------
386
Electrical Equipment - 0.4%
FLIR Systems, Inc. * ........................ 1,600 78
Energy Equipment & Services - 3.4%
Cooper Cameron Corp. * ...................... 3,900 194
Global Santa Fe Corp. ....................... 7,968 194
Noble Corp. * ............................... 5,900 208
Smith International, Inc. * ................. 2,800 91
----------
687
Food & Drug Retailing - 0.9%
Williams-Sonoma, Inc. * ..................... 6,600 179
Food Products - 0.6%
McCormick & Co., Inc. ....................... 4,900 114
Health Care Equipment & Supplies - 5.9%
Amerisource Bergen Corp. * .................. 7,800 423
Apogent Technologies, Inc. * ................ 7,200 150
Biomet, Inc. * .............................. 7,000 201
Cytyc Corp. * ............................... 6,900 70
St. Jude Medical, Inc. * .................... 4,300 171
Steris Corp. * .............................. 2,100 51
Zimmer Holdings, Inc. * ..................... 2,600 108
----------
1,174
Health Care Providers & Services - 9.4%
Advance PCS * ............................... 4,600 102
Anthem, Inc. * .............................. 3,400 214
Caremark Rx, Inc. * ......................... 15,400 250
Express Scripts, Inc. - Cl. A * ............. 6,200 298
Health Management Assoc., Inc. - Cl. A * .... 10,600 190
Quest Diagnostics, Inc. * ................... 4,500 256
Triad Hospitals, Inc. * ..................... 2,700 81
Universal Health Services, Inc. - Cl. B * ... 5,100 230
Wellchoice, Inc. ............................ 20
Wellpoint Health Networks, Inc. * ........... 3,800 270
----------
1,891
Hotels Restaurants & Leisure - 7.7%
Darden Restaurants, Inc. * .................. 10,900 223
Four Seasons Hotels, Inc. ................... 2,500 71
Harrah's Entertainment, Inc. ................ 4,300 170
International Game Technology * ............. 2,800 213
57
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
FUNDAMENTAL GROWTH FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Hotels Restaurants & Leisure - Continued
Krispy Kreme Doughnuts, Inc. * .............. 5,200 $ 176
Marriott International, Inc. - Cl. A * ...... 3,300 108
Royal Caribbean Cruises, Ltd. ............... 16,600 277
Yum Brands, Inc. * .......................... 12,600 305
----------
1,543
Household Durables - 1.7%
Fortune Brands, Inc. * ...................... 1,600 74
Newell Rubbermaid, Inc. * ................... 8,800 267
----------
341
Household Products - 0.3%
Church & Dwight Co., Inc. ................... 1,800 55
Insurance - 0.5%
Ace, Ltd. ................................... 3,200 94
Internet Software & Services - 0.2%
Internet Security System, Inc. * ............ 2,600 48
IT Consulting & Services - 3.8%
Affiliated Computer Services, Inc. - Cl. A * 9,000 474
SunGard Data Systems, Inc. * ................ 12,500 294
----------
768
Machinery - 2.7%
Dover Corp. ................................. 10,100 295
Parker-Hannifin Corp. ....................... 5,300 244
----------
539
Media - 1.8%
EchoStar Communications Corp. - Cl. A * ..... 5,800 129
Lamar Advertising Co. * ..................... 7,200 242
----------
371
Multiline Retail - 1.2%
Family Dollar Stores, Inc. .................. 7,900 247
Oil & Gas - 3.2%
BJ Services Co. * ........................... 6,700 217
Burlington Resources, Inc. * ................ 5,000 213
Murphy Oil Corp. ............................ 5,000 214
----------
644
Pharmaceuticals - 3.7%
Allergan, Inc. * ............................ 4,600 265
Andrx Corp. * ............................... 3,500 51
Intermune, Inc.* ............................ 1,700 44
King Pharmaceuticals, Inc. * ................ 11,305 194
Teva Pharmaceutical Industries, Ltd. - ADR * 4,900 189
----------
743
Semiconductor Equipment & Products - 7.8%
Brooks PRI Automation, Inc. * ............... 8,400 96
Integrated Device Technology, Inc. * ........ 6,400 53
KLA-Tencor Corp. * .......................... 7,200 255
Lam Research Corp. * ........................ 12,000 $ 130
Linear Technology Corp. * ................... 7,900 203
Marvell Technology Group, Ltd. * ............ 3,900 73
Microchip Technology, Inc. * ................ 8,000 196
Novellus Systems, Inc. * .................... 5,700 160
QLogic Corp. * .............................. 4,600 159
Silicon Laboratories, Inc. * ................ 6,000 114
Teradyne, Inc. * ............................ 9,500 124
----------
1,563
Software - 4.4%
Adobe Systems, Inc. ......................... 9,700 241
BMC Software, Inc. * ........................ 8,700 149
Mercury Interactive Corp. * ................. 3,400 101
NetIQ Corp. * ............................... 4,900 60
Network Associates, Inc. * .................. 15,400 248
Peoplesoft, Inc. * .......................... 4,500 82
----------
881
Specialty Retail - 7.1%
Advanced Auto Parts * ....................... 4,000 196
AutoZone, Inc. * ............................ 2,400 170
Bed Bath & Beyond, Inc. * ................... 4,900 169
CDW Computer Centers, Inc. * ................ 2,200 96
Michaels Stores, Inc. * ..................... 6,600 207
Staples, Inc. * ............................. 14,800 271
TJX Cos., Inc. * ............................ 16,000 312
----------
1,421
----------
TOTAL COMMON STOCK- 97.7% 19,595
Par
Value
(000's)
INVESTMENT COMPANIES HELD
AS COLLATERAL ON LOANED
SECURITIES - 5.7%
State Street Navigator Securities Lending
Portfolio .................................. $ 1,140 1,140
SHORT-TERM INVESTMENTS - 2.3%
Investment in joint trading account (Note B)
1.388% due 01/02/03 .................... 468 468
---------- ----------
TOTAL INVESTMENTS- 105.7% 21,203
Cash and Receivables, less payables- (5.7)% (1,138)
---------- ----------
NET ASSETS- 100.0% $ 20,065
========== ==========
* Non-income producing security.
ADR-American Depository Receipt.
See notes to financial statements.
58
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
ACTIVE BOND FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS
Aerospace & Defense - 0.0%
Jet Equipment Trust
10.91% due 08/15/14 .................... $ 2,100 $ 144
Airlines - 0.3%
Continental Airlines - CTF Ser. 1999-1
Cl. A
6.545% due 02/02/19 .................... 54 47
Continental Airlines, Inc.
7.206% due 06/30/04 .................... 2,051 1,347
Northwest Airlines Corp. - Ser. 1996-1
8.97% due 01/02/15 ..................... 196 99
NWA Trust - Sr. Notes
9.25% due 06/21/14 ..................... 2,084 1,963
----------
3,456
Auto Loan - 1.6%
Ford Motor Credit Co.
7.375% due 10/28/09 .................... 5,685 5,633
Ford Motor Credit Co. - Notes
6.875% due 02/01/06 .................... 4,180 4,187
General Motors Acceptance Corp.
6.875% due 08/28/12 .................... 1,825 1,799
General Motors Acceptance Corp. -
Notes
7.75% due 01/19/10 ..................... 615 644
General Motors Acceptance Corp. -
Sr. Notes
6.125% due 08/28/07 .................... 2,895 2,929
GMAC Commercial Securities, Inc.
6.411% due 11/15/07 .................... 177 188
----------
15,380
Automobiles - 0.1%
Hertz Corp. - Notes
7.625% due 06/01/12 .................... 1,240 1,184
Banks - 3.4%
Abbey National First Capital - Sr. Sub.
Notes
8.2% due 10/15/04 ...................... 2,100 2,316
Bank of New York Institution Capital -
144A(a)
7.78% due 12/01/26 ..................... 3,400 3,669
Barclays Bank plc - 144A(a)
6.86% due 06/15/32 ..................... 2,870 2,940
Capital One Bank - Sr. Notes
6.875% due 02/01/06 .................... 3,115 3,014
CS First Boston Mortgage Securities
Corp. - Ser. 1998-Cl Cl. A1A
6.26% due 04/11/30 ..................... 4,170 4,421
First Union National Bank Chase - CTF
1999-C2
6.36% due 06/15/08 ..................... 2,468 2,644
MBNA National
7.125% due 11/15/12 .................... 1,545 1,617
RBSG Capital Corp. - Notes
10.125% due 03/01/04 ................... $ 5,385 $ 5,880
Royal Bank of Scotland Group plc
8.817% due 03/31/05 .................... 1,900 2,132
Royal Bank of Scotland Group plc
7.648% due 08/31/49 .................... 2,260 2,616
Zions Financial Corp. - Notes
6.95% due 05/15/11 ..................... 2,625 2,794
----------
34,043
Chemicals - 0.5%
Equistar Chemical - Notes
8.5% due 02/15/04 ...................... 1,795 1,777
Lyondell Chemical Co. - Sr. Notes
9.5% due 12/15/08 ...................... 605 563
NOVA Chemicals Corp. - Notes
7.0% due 05/15/06 ...................... 2,565 2,488
----------
4,828
Commerical Services & Supplies - 1.2%
Allied Waste North America
10.0% due 08/01/09 ..................... 2,670 2,657
Cendant Corp. - Notes
6.875% due 08/15/06 .................... 4,570 4,742
Delaware Montecorp - Sr. Sub. Notes
144A(a)
8.625% due 12/15/12 .................... 1,090 1,112
Republic Services, Inc.
6.75% due 08/15/11 ..................... 2,670 2,919
----------
11,430
Communications Equipment - 0.2%
Deutsche Telekom International Finance
8.25% due 06/15/05 ..................... 1,740 1,902
Computers & Peripherals - 0.1%
NCR Corp. - Sr. Notes 144A(a)
7.125% due 06/15/09 .................... 1,365 1,420
Construction Materials - 0.2%
Toll Brothers, Inc. - Sr. Notes 144A(a)
6.875% due 11/15/12 .................... 1,835 1,890
Containers & Packaging - 0.5%
Owens Brockway Glass Container -
Sr. Notes 144A(a)
8.75% due 11/15/12 ..................... 1,435 1,457
Stone Container Corp. - Sr. Notes
8.375% due 07/01/12 .................... 1,650 1,691
9.75% due 02/01/11 ..................... 1,460 1,569
----------
4,717
Credit Card - 0.7%
Midland Funding Corp. II - Debs.
11.75% due 07/23/05 .................... 5,185 5,263
59
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
ACTIVE BOND FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Credit Card - Continued
Tiers Fixed Rate Certificates - Ser. 2001 -
14 CTF 144A(a)
7.2% due 06/15/04 ...................... $ 3,360 $ 1,445
----------
6,708
Diversified Financials - 4.8%
CIT Group, Inc. - Sr. Notes
7.375% due 04/02/07 .................... 2,910 3,172
Deutsche Mortgage & Asset Receiving
Corp. - Ser. 1998-Cl. Cl. C
6.861% due 03/15/08 .................... 2,265 2,492
ERAC USA Finance Co.
7.95% due 12/15/09 ..................... 2,050 2,366
ERAC USA Finance Co. - Notes 144A(a)
7.35% due 06/15/08 ..................... 1,870 2,105
Hyatt Equities LC - Notes 144A(a)
6.875% due 06/15/07 .................... 1,675 1,668
ING Capital Funding Trust III
8.439% due 12/31/49 .................... 2,995 3,483
MDP Acquisitions plc - Sr. Notes 144A(a)
9.625% due 10/01/12 .................... 1,000 1,045
Morgan Stanley Dean Witter - Notes
6.6% due 04/01/12 ...................... 3,335 3,696
Morgan Stanley Dean Witter Capital -
CTF Cl. Al
4.57% due 12/18/32 ..................... 4,344 4,537
Newcourt Credit Group, Inc. - Ser. B
6.875% due 02/16/05 .................... 2,325 2,444
Pemex Project Funding Trust - Notes
9.125% due 10/13/10 .................... 4,735 5,422
Sun Canada Financial Co. - Bonds 144A(a)
6.625% due 12/15/07 .................... 3,760 4,096
TFM SA DE CV - Sr. Disc. Debs.
11.75% due 06/15/09 .................... 1,465 1,428
The MONY Group, Inc. - Sr. Notes
7.45% due 12/15/05 ..................... 2,635 2,744
UBS Preferred Funding TRI
8.622% due 10/29/49 .................... 4,205 5,083
URC Holdings Corp. - Sr. Notes 144A(a)
7.875% due 06/30/06 .................... 1,865 2,143
----------
47,924
Diversified Telecommunication Services - 3.6%
AT&T Broadband Corp. - Notes
8.375% due 03/15/13 .................... 1,639 1,862
Citizens Communications Co. - Notes
8.5% due 05/15/06 ...................... 4,345 4,812
Citizens Communications Co. - Sr. Notes
6.375% due 08/15/04 .................... 1,390 1,424
Cox Communications, Inc. - Notes
7.5% due 08/15/04 ...................... 3,685 3,915
Deutsche Telekom International
8.5% due 06/15/10 ...................... $ 2,245 $ 2,586
France Telecom SA - Notes
9.25% due 03/01/11 ..................... 4,040 4,671
Nextel Communications, Inc. - Sr. Notes
9.375% due 11/15/09 .................... 1,900 1,724
Sprint Capital Corp. - Notes
7.125% due 01/30/06 .................... 2,975 2,945
Tele-Communications, Inc. - Debs.
9.8% due 02/01/12 ...................... 1,265 1,521
Telefonosde Mexico - Sr. Notes
8.25% due 01/26/06 ..................... 3,625 3,969
Tellus Corp. - Notes
8.0% due 06/01/11 ...................... 3,250 3,120
Verizon New York, Inc. - Debs. Ser. A
7.375% due 04/01/32 .................... 1,570 1,816
Voicestream Wireless Corp.
11.5% due 09/15/09 ..................... 1,560 1,630
----------
35,995
Electric Utilities - 1.1%
CalEnergy Co., Inc. - Bonds
8.48% due 09/15/28 ..................... 2,745 3,230
CalEnergy Co., Inc. - Sr. Notes
7.63% due 10/15/07 ..................... 1,390 1,560
Calpine Canada Energy
8.5% due 05/01/08 ...................... 1,395 628
CMS Energy Corp. - Sr. Notes
6.75% due 01/15/04 ..................... 2,095 1,990
Pennsylvania Power Co. ......................
8.5% due 07/15/22 ...................... 610 636
Pinnacle West Capital Corp. - Sr. Notes
6.4% due 04/01/06 ...................... 2,485 2,530
----------
10,574
Electric/Gas - 2.3%
AES Eastern Energy
9.0% due 01/02/17 ...................... 2,155 1,985
Cleveland Electric Illuminating Co.
9.5% due 05/15/05 ...................... 5,820 5,832
Long Island Lighting Co. - Debs.
8.2% due 03/15/23 ...................... 3,275 3,425
Monterrey Power SA de CV - Sec. Bonds 144A(a)
9.625% due 11/15/09 .................... 650 721
Niagara Mohawk Power Corp. - Debs.
8.77% due 01/01/18 ..................... 3,824 4,002
PNPP II Funding Corp. - Debs.
9.12% due 05/30/16 ..................... 2,495 2,540
Waterford 3 Funding - Entergy - Bonds
8.09% due 01/02/17 ..................... 3,835 4,139
----------
22,644
60
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
ACTIVE BOND FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Electrical Equipment - 0.3%
HQI Transelec Chile SA
7.875% due 04/15/11 .................... $ 2,990 $ 3,312
Electronic Equipment & Instruments - 0.3%
Pinnacle Partners
8.83% due 08/15/04 ..................... 2,720 2,502
Energy Equipment & Services - 0.5%
Colonial Pipeline Co. - Sr. Notes 144A(a)
7.63% due 04/15/32 ..................... 2,785 3,324
XTO Energy, Inc. - Sr. Notes
7.5% due 04/15/12 ...................... 1,095 1,161
----------
4,485
Finance - 3.6%
Beaver Valley Funding Corp. - Debs.
9.0% due 06/01/17 ...................... 2,388 2,647
BVPS II Funding Corp. - Bonds
8.89% due 06/01/17 ..................... 2,469 2,701
Conseco Finance Securitizations Co. -
Ser. 2002-A CTF Cl. A3
5.33% due 04/15/27 ..................... 4,710 4,818
EIP Funding Corp.
10.25% due 10/01/12 .................... 2,170 2,194
Household Finance Corp. - Note
6.375% due 11/27/12 .................... 2,420 2,526
Household Financial Corp. - Notes
6.75% due 05/15/11 ..................... 5,270 5,619
Household Financial Corp. - Notes
7.2% due 07/15/06 ...................... 1,810 1,958
NiSource Finance Corp. ......................
7.875% due 11/15/10 .................... 2,945 3,237
NiSource Finance Corp. - Notes
7.5% due 11/15/03 ...................... 5,565 5,609
PDVSA Finance, Ltd. - Notes
8.5% due 11/16/12 ...................... 575 471
9.75% due 02/15/10 ..................... 830 739
PTC International Finance BV - GTD Sr.
Sub. Disc. Notes
10.75% due 07/01/07 .................... 935 954
PTC International Finance II SA - Sr.
Sub. Notes
11.25% due 12/01/09 .................... 1,190 1,261
Ucar Finance, Inc. - Sr. Notes
10.25% due 02/15/12 .................... 1,455 1,135
----------
35,869
Food & Drug Retailing - 0.1%
Delhaize America, Inc. - Notes
7.375% due 04/15/06 .................... 1,085 1,061
Food Products - 0.3%
Conagra, Inc.
7.4% due 09/15/04 ...................... 805 872
Corn Products International, Inc. - Sr.
Notes
8.45% due 08/15/09 ..................... $ 2,525 $ 2,555
----------
3,427
Foreign Governmental - 0.4%
Republic of Panama - Bonds
9.375% due 01/16/23 .................... 2,045 2,106
Republic of Peru - Bonds
9.125% due 01/15/08 .................... 1,730 1,739
----------
3,845
Gas Utilities - 0.4%
Kinder Morgan, Inc. - Sr. Notes 144A(a)
6.5% due 09/01/12 ...................... 1,835 1,918
Louis Dreyfus Natural Gas Corp.
6.875% due 12/01/07 .................... 1,730 1,936
----------
3,854
Health Care Providers & Services - 0.8%
Columbia/HCA Healthcare Corp. - Notes
7.0% due 07/01/07 ...................... 940 998
HCA-The Healthcare Corp. - Notes
7.125% due 06/01/06 .................... 2,710 2,846
8.75% due 09/01/10 ..................... 1,380 1,581
Quest Diagnostics, Inc. - Sr. Notes
6.75% due 07/12/06 ..................... 1,810 1,966
Triad Hospitals, Inc. - Sr. Notes Ser. B
8.75% due 05/01/09 ..................... 895 958
----------
8,349
Home Equity Loan - 1.3%
Contimortgage Home Equity Loan - CTF
Cl. A5
8.1% due 08/15/25 ...................... 164 164
EQCC Home Equity Loan Trust
6.57% due 02/15/29 ..................... 2,305 2,436
IMC Home Equity Loan Trust - Ser.
1998-1 A4
6.6% due 03/20/25 ...................... 711 736
Money Store Home Equity Trust - Ser.
1997-Cl DAF7
6.485% due 12/15/28 .................... 3,341 3,461
UCFC Home Equity Loan
7.18% due 02/15/25 ..................... 1,339 1,384
UCFC Home Equity Loan - Ser. 1997-A1
A8
7.22% due 06/15/28 ..................... 4,495 4,724
----------
12,905
Hotels Restaurants & Leisure - 0.7%
Argosy Gaming Co. - Sr. Sub. Notes
9.0% due 09/01/11 ...................... 1,160 1,224
Harrahs Operating Co., Inc.
7.875% due 12/15/05 .................... 4,115 4,392
61
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
ACTIVE BOND FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Hotels Restaurants & Leisure - Continued
Wynn Las Vegas LLC
12.0% due 11/01/10 ..................... $ 1,575 $ 1,583
----------
7,199
Insurance - 0.5%
Equitable Life Assurance Society USA -
Notes 144A(a)
6.95% due 12/01/05 ..................... 1,470 1,599
Mass. Mutual Life Insurance Co. - Notes
144A(a)
7.625% due 11/15/23 .................... 2,645 2,969
----------
4,568
Machinery - 0.2%
Kennametal, Inc. - Sr. Notes
7.2% due 06/15/12 ...................... 2,175 2,248
Media - 3.8%
AOL Time Warner, Inc.
7.625% due 04/15/31 .................... 3,480 3,577
British Sky Broadcasting
8.2% due 07/15/09 ...................... 3,935 4,299
Clear Channel Communications, Inc. - Sr.
Notes
7.875% due 06/15/05 .................... 3,570 3,908
Continental Cablevision - Sr. Notes
8.3% due 05/15/06 ...................... 3,065 3,320
EchoStar DBS Corp. - Sr. Notes
9.375% due 02/01/09 .................... 1,775 1,882
Grupo Televisa SA De CV - Sr. Notes
8.0% due 09/13/11 ...................... 1,105 1,152
8.5% due 03/11/32 ...................... 745 708
Lenfest Communications, Inc.
8.375% due 11/01/05 .................... 1,730 1,872
News America Holdings, Inc.
8.5% due 02/15/05 ...................... 2,925 3,163
News America Holdings, Inc. - Debs.
8.25% due 08/10/18 ..................... 2,810 3,080
Panamsat Corp. 144A(a)
8.75% due 02/01/12 ..................... 1,070 1,022
Rogers Cablesystems - Sr. Notes
10.0% due 03/15/05 ..................... 1,205 1,235
Rogers Cablesystems, Ltd. - Debs.
10.0% due 12/01/07 ..................... 1,667 1,700
Shaw Communications, Inc. - Sr. Notes
8.25% due 04/11/10 ..................... 1,720 1,606
TCI Communications, Inc. - Debs.
7.875% due 02/15/26 .................... 1,955 1,983
Time Warner, Inc. - Debs.
9.125% due 01/15/13 .................... 2,166 2,540
USA Interactive - Sr.Notes 144A(a)
7.0% due 01/15/13 ...................... 915 946
----------
37,993
Metals & Mining - 0.6%
Great Central Mines, Ltd. - Sr. Notes
8.875% due 04/01/08 .................... $ 3,255 $ 3,320
Newmont Mining Corp. - Notes
8.625% due 05/15/11 .................... 1,640 1,916
Yanacocha Receivables - 144A(a)
8.4% due 06/15/05 ...................... 829 837
----------
6,073
Multi-Utilities - 0.1%
Indiana Michigan Power Co.
8.5% due 12/15/22 ...................... 1,135 1,191
Multiline Retail - 0.2%
Sears Roebuck Acceptance Corp. - Sr.
Notes
6.7% due 04/15/12 ...................... 1,775 1,685
Oil & Gas - 2.2%
Alberta Energy, Ltd. - Notes
7.375% due 11/01/31 .................... 1,870 2,195
8.125% due 09/15/30 .................... 2,025 2,567
Anadarko Petroleum Corp.
7.0% due 10/15/06 ...................... 50 56
Forest Oil Corp. - Sr. Notes
8.0% due 06/15/08 ...................... 1,100 1,161
Humpuss Funding Corp. - 144A(a)
7.72% due 12/15/09 ..................... 1,520 893
MidAmerican Energy Holdings Co. - Sr.
Notes 144A(a)
5.875% due 10/01/12 .................... 1,195 1,211
Occidental Petroleum Corp. - Sr. Debs.
10.125% due 09/15/09 ................... 3,015 4,024
PSEG Energy Holdings, Inc. - Sr. Notes
8.625% due 02/15/08 .................... 1,730 1,401
Tosco Corp. .................................
8.125% due 02/15/30 .................... 3,590 4,576
Valero Energy Corp. - Notes
7.375% due 03/15/06 .................... 2,015 2,146
8.375% due 06/15/05 .................... 1,095 1,170
----------
21,400
Other Mortgage - 0.6%
Commercial Mortgage Acceptance Corp.
- Ser. 1991-Cl A1
6.79% due 06/15/31 ..................... 2,740 3,012
LB Commercial Conduit Mortgage Trust
- Ser. 1999-Cl
6.41% due 08/15/07 ..................... 3,039 3,287
----------
6,299
Paper & Forest Products - 0.9%
Abitibi Consolidated, Inc.
8.3% due 08/01/05 ...................... 4,760 5,073
62
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
ACTIVE BOND FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Paper & Forest Products - Continued
Corporation Durango SA de CV -
Sr. Notes
13.75% due 07/15/09 .................... $ 2,905 $ 1,017
Weyerhaeuser Co. - Notes
6.0% due 08/01/06 ...................... 2,670 2,817
----------
8,907
Real Estate Investment Trust - 2.0%
American Health Properties, Inc. - Notes
7.5% due 01/15/07 ...................... 1,370 1,470
Amresco Residential Securities
6.51% due 08/25/27 ..................... 6,128 6,522
Cabot Industrial Properties LP - Notes
7.125% due 05/01/04 .................... 2,025 2,106
Camden Property Trust - Sr. Notes
7.0% due 04/15/04 ...................... 2,880 3,014
Healthcare Realty Trust - Sr. Notes
8.125% due 05/01/11 .................... 885 953
Socgen Real Estate Co. LLC - Ser. A
144(a)
7.64% due 12/29/49 ..................... 4,875 5,362
----------
19,427
Real Estate Operations- 0.2%
HMH Properties, Inc. - Ser. A
7.875% due 08/01/05 .................... 1,625 1,601
Road & Rail - 0.5%
Burlington Northern Santa Fe Corp.
7.95% due 08/15/30 ..................... 3,585 4,499
Specialty Retail - 0.3%
Gap, Inc. - Notes
10.55% due 12/15/08 .................... 1,010 1,106
Staples, Inc. - Sr. Notes 144A(a)
7.375% due 10/01/12 .................... 1,770 1,943
----------
3,049
Telephone - 0.3%
Qwest Corp. - Notes 144A(a)
8.875% due 03/15/12 .................... 2,740 2,658
U.S. Government Agencies - 46.0%
Federal Home Loan Mortgage Corp. -
Bonds
6.0% due 12/15/25 ...................... 5,530 5,780
6.5% due 08/01/32 ...................... 19,455 20,274
6.5% due 09/01/32 ...................... 2,569 2,677
Federal Home Loan Mortgage Corp. -
Bonds - Cl. PD
6.0% due 12/15/30 ...................... 4,400 4,604
Federal Home Loan Mortgage Corp. -
Bonds - Cl. PM
5.0% due 07/15/21 ...................... 12,745 13,154
Federal Home Loan Mortgage Corp. -
Bonds- Ser. 2367 Cl. PJ
6.0% due 03/15/27 ...................... $ 2,154 $ 2,223
Federal Home Loan Mortgage Corp. -
Cl. PE
5.5% due 07/15/31 ...................... 3,465 3,648
Federal Home Loan Mortgage Corp. -
Cl. TB
5.0% due 11/15/11 ...................... 4,725 4,916
Federal National Mortgage Assoc. -
Bonds
5.0% due 12/25/17 ...................... 16,110 16,498
5.5% due 12/01/14 ...................... 5,840 6,113
5.5% due 12/25/17 ...................... 19,420 20,118
5.5% due 11/25/32 ...................... 8,525 8,847
5.5% due 12/25/32 ...................... 27,185 27,720
5.5% due 02/25/32 ...................... 1,905 1,934
6.0% due 09/01/14 ...................... 5,733 6,021
6.0% due 07/01/17 ...................... 3,237 3,387
6.0% due 01/25/32 ...................... 107,205 110,790
6.5% due 07/01/14 ...................... 4,717 4,997
6.5% due 10/01/31 ...................... 40,664 42,359
6.5% due 01/25/32 ...................... 8,230 8,567
6.5% due 07/01/32 ...................... 23,712 24,700
6.5% due 07/01/32 ...................... 15,126 15,756
6.5% due 11/01/32 ...................... 6,319 6,583
7.0% due 09/01/10 ...................... 1,781 1,899
7.0% due 01/01/12 ...................... 510 542
7.0% due 04/01/17 ...................... 3,126 3,323
7.0% due 04/01/17 ...................... 751 798
7.0% due 05/01/17 ...................... 265 282
7.0% due 07/01/32 ...................... 11,600 12,201
7.0% due 07/01/32 ...................... 8,243 8,670
Federal National Mortgage Assoc. -
Bonds - Ser. 1997-M8 Cl.A
6.94% due 01/25/22 ..................... 1,203 1,259
Federal National Mortgage Assoc. -
Notes
4.75% due 06/18/07 ..................... 9,685 10,120
Federal National Mortgage Assoc. -
Notes - Cl. QB
5.5% due 08/25/12 ...................... 6,965 7,304
Government National Mortgage Assoc. -
Bonds
6.0% due 12/15/32 ...................... 8,800 9,152
6.5% due 09/15/28 ...................... 2,659 2,795
6.5% due 01/15/29 ...................... 1,640 1,724
6.5% due 09/15/29 ...................... 1,690 1,776
6.5% due 08/15/31 ...................... 4,253 4,467
6.5% due 09/15/31 ...................... 1,091 1,146
6.5% due 12/15/31 ...................... 3,456 3,630
7.0% due 09/15/25 ...................... 1,181 1,258
7.0% due 12/15/28 ...................... 3,054 3,245
63
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
ACTIVE BOND FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
U.S. Government Agencies - Continued
7.0% due 04/15/31 ...................... $ 2,331 $ 2,473
7.0% due 07/15/31 ...................... 4,236 4,492
7.0% due 03/15/32 ...................... 7,267 7,705
7.0% due 05/15/32 ...................... 1,084 1,150
8.5% due 09/15/21 ...................... 220 243
9.0% due 05/15/21 ...................... 277 309
9.0% due 08/15/21 ...................... 245 273
9.5% due 06/15/16 ...................... 259 291
----------
454,193
U.S. Governmental - 9.5%
U.S. Treasury - Bonds
5.375% due 02/15/31 .................... 43,275 47,176
6.875% due 08/15/25 .................... 4,225 5,344
U.S. Treasury - Notes
4.0% due 11/15/12 ...................... 5,630 5,710
6.0% due 08/15/09 ...................... 30,300 35,228
----------
93,458
----------
TOTAL PUBLICLY-TRADED BONDS- 97.2% 960,296
Shares
PREFERRED STOCK
Media - 0.3%
CSC Holdings, Inc. - Ser. H ................. 15,525 1,482
CSC Holdings, Inc. - Ser. M ................. 13,740 1,285
----------
TOTAL PREFERRED STOCK- 0.3% 2,767
Par
Value
(000's)
INVESTMENT COMPANIES HELD
AS COLLATERAL ON LOANED
SECURITIES - 9.8%
State Street Navigator Securities Lending
Portfolio .................................. $ 96,601 96,601
SHORT-TERM INVESTMENTS - 20.8%
Investment in joint trading account (Note B)
1.388% due 01/02/03 .................... 205,511 205,511
---------- ----------
TOTAL INVESTMENTS- 128.1% 1,265,175
Payables, less cash and receivables- (28.1)% (277,721)
---------- ----------
NET ASSETS- 100.0% $ 987,454
========== ==========
(a) Pursuant to Rule 144A under the Securities Act of 1993, these securities may
be resold in transactions exempt from registration, normally to qualified
institutional buyers. At December 31, 2002, securities aggregated $50,423 or
5.1% of net assets of the Portfolio.
See notes to financial statements.
64
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
EMERGING MARKETS EQUITY FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Brazil - 0.1%
Aracruz Celulose SA - ADR* (BG) ............. 1,000 $ 19
Czech Republic - 0.1%
Komercni Banka AS* (JP) ..................... 304 21
Hong Kong - 5.5%
BYD Co.(BL) ................................. 34,000 69
China Shipping Development* (BR) ............ 356,000 74
China Southern Airlines Co. Ltd* (BQ) ....... 718,000 196
China Telecom, Ltd. (J2) .................... 262,000 625
CNOOC, Ltd. *(BB) ........................... 372,000 486
Cosco Pacific, Ltd. (BO) .................... 118,000 97
Huaneng Power International * (J3) .......... 172,000 138
Shanghai Petrochemical Co., Ltd. (BC) ....... 454,000 69
Texwinca Holdings * (BY) .................... 122,000 91
Yanzhou Coal Mining * (BF) .................. 132,000 52
----------
1,897
Hungary - 1.7%
Magyar Tavkozlesi * (J1) .................... 27,891 101
MOL Magyar Olaj-es Gazipari Rt. (BB) ........ 6,763 158
OTP Bank (JP) ............................... 33,923 333
----------
592
India - 5.9%
Bharat Heavy Electricals, Ltd. (BK) ......... 25,700 92
Colgate Palmolive Co. * (JK) ................ 17,051 48
Container Corp. of India, Ltd. (BJ) ......... 20,092 96
Gujarat Ambuja Cements Ltd. (BD) ............ 21,250 72
Hero Honda Motors, Ltd. (BV) ................ 23,850 135
Hindlaco Industries (BD) .................... 7,100 87
Hindustan Lever Ltd. (JJ) ................... 32,200 122
Hindustan Petroleum Corp., Ltd. (BB) ........ 12,500 75
Housing Development Financing Corp.,
Ltd. (JQ) .................................. 11,608 87
IndiaInfo, Ltd. (JA) ........................ 10,639
Infosys Technologies, Ltd. * (JU) ........... 2,440 243
Mahanagar Telephone Nigam, Ltd. (J1) ........ 31,750 63
Morgan Stanley Group (JQ) ................... 705,000 139
Oil & Natural Gas (BB) ...................... 9,750 71
Ranbaxy Laboratories, Ltd. (JO) ............. 8,660 107
Reliance Industries, Inc.* (BC) ............. 13,300 83
State Bank of India (JP) .................... 44,100 267
Steel Author India *(BF) .................... 202,000 43
Tata Ironsteel (BF) ......................... 32,000 101
Tata Engineering and Locomotive Co.,
Ltd. (BD) .................................. 15,000 50
Wipro Ltd. *(JU) ............................ 1,200 41
----------
2,022
Indonesia - 3.4%
Astra International (BV) .................... 1,072,000 377
Bank Central (JP) ........................... 555,500 155
HM Sampoerna (JI) ........................... 387,000 160
Ramayana Lestari *(JD) ...................... 442,500 125
Telekomunikasi Indiana - Ser. B (JI) ........ 809,000 $ 348
----------
1,165
Israel - 0.3%
Teva pharmaceutical Industries, Ltd. * (JO) . 2,980 111
Luxembourg - 0.1%
OTP Bank - GDR (JP) ......................... 2,456 48
Malaysia - 4.1%
AMMB Holdings (JQ) .......................... 89,000 89
Celcom (J2) ................................. 351,000 225
Commerce Asset Holdings *(JP) ............... 102,000 87
Gamuda Berhad (BJ) .......................... 156,000 226
Magnum Corp. Berhad * (BZ) .................. 241,000 145
Malayan Banking Berhad * (JP) ............... 148,200 289
Malaysian Pacific Industries (J0) ........... 22,000 81
Public Bank Berhad (JP) ..................... 102,875 61
Resorts World Berhad * (BZ) ................. 45,000 111
SP Setia (JS) ............................... 136,499 88
----------
1,402
Mexico - 2.3%
Cifra SA de CV - Ser. V * (JD) .............. 148,172 338
Fomento Economico Mexicano SA de CV * (JG) .. 1,799 7
GF BBVA Bancomer - Ser. B (JP) .............. 302,261 229
Grupo Aeroportuario del Sureste SA de CV*
(BT) ....................................... 18,100 20
Grupo Modelo SA de CV - Ser. C *(JG) ........ 68,600 168
Wal-Mart de Mexico SA de CV - Ser. C *
(JD) ....................................... 22,106 43
----------
805
Philippines - 0.1%
Ayala Land, Inc. *(JS) ...................... 542,500 46
Poland - 1.4%
Bank Polska Kasa Opeiki SA (JP) ............. 14,984 370
Polski Koncern Nafto *(BB) .................. 18,663 86
Telekomunikacja (J1) ........................ 5,662 19
----------
475
Singapore - 0.5%
TPV Technology (JX) ......................... 589,000 182
South Africa - 10.5%
Anglo American Platinum Corp., Ltd. (BF) .... 7,448 274
Anglo American plc * (BF) ................... 59,327 875
Anglogold * (BF) ............................ 3,400 115
Bidvest Group, Ltd. (BL) .................... 25,165 132
FirstRand, Ltd. (JP) ........................ 316,998 272
Gold Fields Mining * (BF) ................... 28,900 404
Impala Platinum Holdings, Ltd. (BF) ......... 2,228 142
65
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
EMERGING MARKETS EQUITY FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
South Africa - Continued
Liberty Life Association of Africa, Ltd. ....
(JR) ....................................... 7,220 $ 46
M-Cell, Ltd. (J2) ........................... 38,710 55
Nedcor, Ltd. *(JP) .......................... 4,750 62
Old Mutual plc * (BB) ....................... 39,500 56
Sanlam, Ltd. (JR) ........................... 127,890 113
Sappi, Ltd. * (BG) .......................... 12,610 168
Sasol, Ltd. * (BB) .......................... 36,963 453
Standard Bank Investment Corp., Ltd. (JP) ... 125,313 440
----------
3,607
South Korea - 20.4%
39Shopping Corp. (JD) ....................... 4,555 162
Daishin Securities *(JQ) .................... 13,040 157
Humax Co., Ltd. * (BW) ...................... 8,420 103
Hyundai Fire & Marin (BU) ................... 3,890 83
Hyundai Mobis (BM) .......................... 14,520 267
Hyundai Motor Co., Ltd (BV) ................. 5,260 123
Kookmin Bank * (JP) ......................... 2,145 76
LG Chemical (BC) ............................ 6,880 236
LG Electronics, Inc. (JY) ................... 9,607 335
LG Household & Health (BW) .................. 3,420 108
LG Investment & Securities Co., Ltd. * (JQ) . 15,770 177
Pantech Co., Ltd. (JW) ...................... 10,140 122
Pohang Iron & Steel Co., Ltd. (BF) .......... 6,640 661
Samsung Electronics * (JY) .................. 9,870 2,613
Samsung Securities Co., Ltd. (JQ) ........... 10,910 264
Seoul Securities (JQ) ....................... 25,750 92
Shinhan Financial (JP) ...................... 30,120 315
Shinsegaeco, Ltd. (JD) ...................... 850 107
SK Telecom Co., Ltd. * (J2) ................. 4,710 909
Tongyang Cement Co. (BI) .................... 2,590 127
----------
7,037
Taiwan - 14.2%
Accton Technollogies, Inc. (JW) ............. 248,075 254
Asustek Computer * (JX) ..................... 76,750 135
Cathay Financial Hampshire (JR) ............. 190,000 202
China Trust Finance (JP) .................... 629,027 514
CTCI Corp. (BJ) ............................. 90,000 48
Eva Airways (BQ) ............................ 490,095 207
Formosa Chemical & Fibre (BC) ............... 92,173 98
Formosa Plastic * (BC) ...................... 163,000 214
Hon Hai Precision Insustry Co., Ltd.
Cl. G * (JY) ............................... 114,900 398
Largan Precision Co. (BL) ................... 19,500 109
Lite on Technology (JX) ..................... 59,000 67
Novatek Microelect (J0) ..................... 52,800 100
Phoenixtec Power (J3) ....................... 147,000 112
Polaris Securities (JQ) ..................... 268,000 94
Premier Image Technology (BX) ............... 133,000 205
Quanta Computer, Inc. (JX) .................. 166,050 273
Quanta Storage (BO) ......................... 11,000 $ 74
Siliconware Precision (J0) .................. 296,790 145
Sinopac Holding (JP) ........................ 642,093 270
Taishin Financial (JP) ...................... 578,000 297
Taiwan Semiconductor * (J0) ................. 788,180 969
United Microelectronics Corp. * (J0) ........ 202,537 123
----------
4,908
Thailand - 2.6%
Advanced Information Services (J2) .......... 95,400 79
Bangkok Bank Co., Ltd. * (JP) ............... 218,600 304
BEC World Public Co., Ltd. (JA) ............. 13,400 66
Land & House Co., Ltd. * (JS) ............... 44,000 82
SIAM Cement Co. (BI) ........................ 9,300 253
Thai Farmers Bank Public Co., Ltd. * (JP) ... 184,900 129
----------
913
Turkey - 2.5%
Akbank TAS * (JP) ........................... 41,524,832 137
Akcansa Cimento SA (BD) ..................... 11,387,000 66
Arcelik AS (BW) ............................. 10,767,000 84
Enka Insaat (BL) ............................ 2,433,424 60
Hurriyet Gazete * (JA) ...................... 38,523,790 101
Koc Holding AS * (JQ) ....................... 10,761,000 111
Turkcell Iletisim Hizmetleri AS (J2) ........ 29,114,000 169
Turkiye Garanti Bankasi AS * (JP) ........... 73,478,000 95
Turkiye Is Bankasi - Cl. C * (JP) ........... 18,639,000 49
----------
872
United Kingdom - 2.6%
Anglo American plc (BF) ..................... 33,711 501
Bank Pekao - GDR (JP) ....................... 1,592 39
Old Mutual plc * (BB) ....................... 245,729 348
----------
888
United States - 19.0%
America Movil SA de CV - ADR - Ser. L (J2) .. 37,943 545
Ase Test, Ltd. * (J0) ....................... 9,800 39
Banco Bradesco - ADR (JP) ................... 4,739 71
Banco Itau SA - ADR *(JP) ................... 6,894 164
Check Point Software Technologies, Ltd.
* (JT) ..................................... 13,112 170
Companhia De Bebidas ADR (JG) ............... 14,823 231
Companhia Vale do Rio Doce - ADR (BF) ....... 16,047 446
Compania Anonima Nacional Telefonos
De Venezuela - ADR (J1) .................... 8,756 110
ECI Telecommunications, Ltd. * (JW) 33,773 69
Embraer - Empresa Brasileira de
Aeronautica SA * (BH) ...................... 8,768 139
Fomento Economico Mexicano SA de
CV - ADR * (JG) ............................ 5,474 199
66
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
EMERGING MARKETS EQUITY FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
United States - Continued
Goldfields, Ltd. - ADR * (BF) ............... 1,400 $ 20
Grupo Aeroportuario Sur - ADR * (BT) ........ 5,820 68
Grupo Financiero BBVA Bancomer, SA
de CV * (JP) ............................... 8,500 128
JSC Norilsk Nickel - ADR (BF) ............... 6,000 121
Komereni Banka * (JP) ....................... 2,900 67
Lukoil Holding - ADR * (BB) ................. 8,254 507
Magyar Tavkozlesi - ADR * (J1) ............. 2,634 47
Marvell Technology Group, Ltd. * (J0) ....... 1
Mobile Systems - ADR * (J2) ................. 7,400 275
Mol Magyar Olaj es Gazipari Right (BB) ...... 4,278 99
OAO Gazprom - ADR * (BL) .................... 4,200 50
Petroleo Brasileiro SA * (BB) ............... 15,341 229
Petroleo Brasileiro SA ADR - ADR (BB) ....... 13,428 176
Polski Koncern Naftowy * (BB) ............... 6,100 56
Sappi, Ltd. ADr * (BG) ...................... 2,460 33
Surgutneftegaz (BB) ......................... 4,485 104
Surgutneftegaz - ADR (BB) ................... 14,011 223
Telefonos de Mexico SA - ADR (J1) ........... 27,950 894
Telekomunikacja Polska - GDR (J1) ........... 41,265 135
Teva Pharmaceutical Industries, Ltd. -
ADR * (JO) ................................. 15,538 600
Vimpel- Communications - ADR * (J2) ......... 3,500 112
Votorantim Celulose e Papel SA - ADR (BG) ... 3,900 64
Wal-Mart de Mexico SA de CV - ADR (JD) ...... 3,016 69
Wipro, Ltd. * (JL) .......................... 1,050 35
Yukos Corp. - ADR * (BB) .................... 1,820 254
----------
6,549
----------
TOTAL COMMON STOCK - 97.3% 33,559
----------
PREFERRED STOCK
South Korea - 1.5%
Hyundai Motor Co. (BV) ...................... 8,960 105
Samsung Electronics (JY) .................... 3,360 425
----------
TOTAL PREFERRED STOCK - 1.5% 530
---------- ----------
TOTAL INVESTMENTS - 98.8% 34,089
Cash and Receivables, less payables- 1.2% 417
---------- ----------
NET ASSETS- 100.0% $ 34,506
========== ==========
* Non-income producing security.
ADR-American Depository Receipt.
GDR-Global Depository Receipt.
See notes to financial statements
SUMMARY OF LONG-TERM SECURITIES BY INDUSTRY
Market % of
Industry Value Long-Term
Industry Abbreviation (000s) Investments
Banks .................................. JP $ 5,288 15.5%
Electronic Equipment &
Instruments ........................... JY 3,771 11.1%
Metals & Mining ........................ BF 3,755 11.0%
Oil & Gas .............................. BB 3,382 9.9%
Wireless Telecommunications
Services .............................. J2 2,995 8.8%
Diversified Telecommunication
Services .............................. J1 1,717 5.0%
Semiconductor Equipment &
Products .............................. J0 1,457 4.3%
Diversified Financials ................. JQ 1,070 3.1%
Multiline Retail ....................... JD 844 2.5%
Pharmaceuticals ........................ JO 818 2.4%
Automobiles ............................ BV 740 2.2%
Chemicals .............................. BC 699 2.1%
Computers & Peripherals ................ JX 657 1.9%
Beverages .............................. JG 604 1.8%
Communications Equipment ............... JW 445 1.3%
Industrial Conglomerates ............... BL 419 1.2%
Airlines ............................... BQ 403 1.2%
Building Products ...................... BI 379 1.1%
Construction & Engineering ............. BJ 370 1.1%
Insurance .............................. JR 362 1.1%
IT Consulting & Services ............... JU 319 0.9%
Household Durables ..................... BW 296 0.8%
Paper & Forest Products ................ BG 284 0.8%
Construction Materials ................. BD 276 0.8%
Machinery .............................. BM 267 0.8%
Hotels Restaurants & Leisure ........... BZ 256 0.8%
Electric Utilities ..................... J3 250 0.7%
Real Estate Investment Trust ........... JS 216 0.6%
Leisure Equipment & Products ........... BX 205 0.6%
Commercial Services & Supplies ......... BO 171 0.5%
Internet Software & Services ........... JT 170 0.5%
Media .................................. JA 167 0.5%
Tobacco ................................ JI 160 0.5%
Finance ................................ JQ 139 0.4%
Aerospace & Defense .................... BH 139 0.4%
Household Products ..................... JJ 122 0.4%
Electrical Equipment ................... BK 93 0.3%
Textiles & Apparel ..................... BY 91 0.3%
Transportation Infrastructure .......... BT 88 0.3%
Auto Components ........................ BU 83 0.2%
Marine ................................. BR 74 0.2%
Personal Products ...................... JK 48 0.1%
---------- -----------
$ 34,089 100.0%
========== ===========
67
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY INDEX FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Argentina - 0.0%
Siderca SAIC * (BF) ......................... 3 $ 0
Australia - 2.7%
AMP Diversified Property Trust (JS) ......... 106,700 157
AMP, Ltd. (JR) .............................. 9,100 57
Aristocrat Leisure Limited (BZ) ............. 13,100 34
BHP Steel * (BF) ............................ 8,757 16
Broken Hill Proprietary Co., Ltd. * (BF) .... 43,785 250
Coles Myer, Ltd. * (JF) ..................... 36,200 128
Commonwealth Bank of Australia (JP) ......... 13,500 205
CSL, Ltd * (JO) ............................. 2,600 32
CSR, Ltd. (BD) .............................. 31,200 111
Foster's Brewing Group, Ltd. * (JG) ......... 39,000 99
General Property Trust (JS) ................. 53,300 89
Lend Lease Corp. (JS) ....................... 5,100 28
National Australia Bank, Ltd. (JP) .......... 20,100 359
News Corp., Ltd. (JA) ....................... 12,600 81
Onesteel. Ltd. (BF) ......................... 8,775 9
Orica, Ltd. (BC) ............................ 8,400 50
Pacific Dunlop, Ltd. (BL) ................... 11,800 50
QBE Insurance Group, Ltd. * (JR) ............ 9,400 43
Rio Tinto, Ltd. (BF) ........................ 5,600 107
Santos, Ltd. * (BB) ......................... 18,500 63
Tabcorp Holdings, Ltd. (BZ) ................. 16,400 98
Telstra Corp., Ltd. * (J1) .................. 43,000 107
Westfield Trust (JS) ........................ 54,000 105
Westpac Banking Corp., Ltd. (JP) ............ 19,900 154
WMC Resources. Ltd. * (BB) .................. 38,600 99
Woolworth's, Ltd. * (JF) .................... 13,800 89
----------
2,620
Austria - 1.7%
Bohler-Uddeholm AG (BF) ..................... 1,600 74
BWT AG (BO) ................................. 2,000 20
Erste Bank * (JP) ........................... 4,800 323
Flughafen Wien AG (BT) ...................... 4,000 134
Mayr-Melnhof Karton AG (BE) ................. 1,800 133
Oesterreichische
Elektrizitaetswirtschafts AG (J3) .......... 1,500 128
OMV AG (BB) ................................. 3,000 295
RHI AG (BD) ................................. 5,100 39
Telecom Austria * (J1) ...................... 30,240 306
VA Technologie AG (BM) ...................... 2,100 34
Voest Alpine AG (BF) ........................ 3,600 87
Wienerberger Baustoffindustrie AG (BI) ...... 7,200 128
----------
1,701
Belgium - 1.6%
Bekaert NV (BK) ............................. 890 40
Colruyt NV (JF) ............................. 970 53
Compagnie Maritime Belge SA (BR) ............ 521 28
D'Ieteren SA (JB) ........................... 190 26
Delhaize SA (JF) ............................ 2,855 53
DEXIA * (JP) ................................ 14,647 182
Electrabel SA (J3) .......................... 836 $ 203
Fortis * (JR) ............................... 23,736 418
GPE Bruxelles LAM (JQ) ...................... 2,388 98
Heidelberger Zement AG (BL) ................. 1,048 0
Interbew (JG) ............................... 5,301 125
KBC Bancassurance Holding NV (JP) ........... 2,540 81
NV Union Miniere SA (BF) .................... 1,461 63
Solvay SA (BC) .............................. 1,215 84
UCB SA * (JO) ............................... 3,900 123
----------
1,577
Brazil - 0.0%
Aracruz Celulose SA - ADR * (BG) ............ 1,500 29
Czech Republic - 0.1%
Ceske Energeticke Zavody AS (J3) ............ 21,600 65
Komercni Banka AS * (JP) .................... 900 63
----------
128
Denmark - 1.0%
AS Dampskibsselskabet Svendborg -
Cl. B (BR) ................................. 8 81
Dampskibsselskabet AF - Cl. B (BR) .......... 15 105
Danisco AS (JH) ............................. 3,050 104
Danske Bank (JP) ............................ 13,900 230
ISS AS (BO) ................................. 1,650 59
Novo Nordisk AS (JO) ........................ 7,350 212
Novozymes AS - Ser. B (BC) .................. 1,450 30
Tele Danmark AS (J1) ........................ 4,150 101
Vestas Wind Systems AS (BK) ................. 2,500 25
----------
947
Finland - 0.8%
Nokia Oyj * (JW) ............................ 39,600 629
Sampo Insurance Co. plc (JR) ................ 4,700 36
Stora Enso Oyj * (BG) ....................... 5,259 56
Tietoenator Oyj (JU) ........................ 1,338 18
UPM-Kymmene Corp. * (BG) .................... 2,100 67
----------
806
France - 8.5%
Accor SA (BZ) ............................... 4,483 136
Air Liquide * (BC) .......................... 1,765 233
Alcatel * (JW) .............................. 17,339 76
Alstom (BM) ................................. 6,948 35
Altran Technologies SA * (JU) ............... 862 4
ARCELOR (BF) ................................ 5,742 71
AXA * (JR) .................................. 23,551 316
BNP Paribas * (JP) .......................... 13,550 552
Bouygues SA * (J2) .......................... 2,568 72
Business Objects (JV) ....................... 1,259 19
Cap Gemini SA * (JU) ........................ 1,622 37
Carrefour SA * (JF) ......................... 9,842 438
Casino Guichard-Perrachon SA (JF) ........... 1,045 78
CIE De St. Gobain * (BI) .................... 4,960 145
68
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY INDEX FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
France - Continued
Club Mediterranee SA (BZ) ................... 838 $ 20
Dassault Systemes SA * (JV) ................. 1,995 43
EADS, Inc. (BH) ............................. 3,116 32
Essilor International (JL) .................. 1,880 77
France Telecom * (JI) ....................... 7,154 125
Groupe Danone * (JH) ........................ 2,237 301
L'Oreal SA * (JK) ........................... 5,471 416
Lafarge SA * (BD) ........................... 2,299 173
Lagardere SCA (JA) .......................... 2,436 99
LVMH * (Louis Vuitton Moet Hennessy) (BY) ... 3,640 149
Michelin (BU) ............................... 3,462 119
Pechiney SA (BF) ............................ 1,779 62
Pernord Richard (JG) ........................ 836 81
Peugoet SA (BV) ............................. 3,425 140
Pinault-Printemps-Redoute SA * (JD) ......... 1,465 108
Publicis Groupe SA * (JA) ................... 1,391 29
Renault * (BV) .............................. 3,207 151
Rhone-Poulenc SA * (JO) ..................... 12,175 661
Sagem SA (JW) ............................... 627 42
Sanofi-Synthelabo SA * (JO) ................. 7,309 446
Schneider SA * (BK) ......................... 3,592 170
Societe BIC SA (BO) ......................... 1,234 42
Societe Generale - Cl. A * (JP) ............. 5,636 328
Societe Television Francaise (JA) ........... 4,028 108
STMicroelectronics * (J0) ................... 10,712 210
SUEZ (J5) ................................... 14,029 243
Thomson CFS (BH) ............................ 1,747 46
Thomson Multimedia * (JY) ................... 2,834 48
Total Fina SA - Cl. B * (BB) ................ 11,011 1,572
Unibail SA (JS) ............................. 932 66
Valeo SA (BU) ............................... 1,489 47
----------
8,366
Germany - 9.7%
Adidas-Salomon AG (BY) ...................... 1,220 105
AIXTRON (J0) ................................ 4,171 20
Allianz AG * (JR) ........................... 6,080 578
Altana AG (JO) .............................. 2,450 112
BASF AG (BC) ................................ 17,910 678
Bayer AG * (JL) ............................. 22,830 490
Bayerische Vereinsbank AG * (JP) ............ 9,472 151
Beiersdorf AG (JK) .......................... 970 108
DaimlerChrysler AG * (BV) ................... 28,513 878
Deutsche Bank AG * (JP) ..................... 17,850 822
Deutsche Post AG (BP) ....................... 12,695 133
Deutsche Telekom AG * (JI) .................. 70,240 902
E.On AG (J3) ................................ 20,148 812
Epcos AG * (JY) ............................. 2,944 31
Fresenius Medical Care AG (JM) .............. 2,350 97
Heidelberg Zement (BD) ...................... 1,128 42
Infineon Technologies AG * (J0) ............. 12,020 88
Karstadt AG (JD) ............................ 2,200 38
Linde AG (BM) ............................... 2,600 95
Lufthansa AG (BQ) ........................... 4,730 $ 44
MAN AG (BM) ................................. 5,550 77
Merck KGAA (JO) ............................. 1,360 36
Metro AG (JD) ............................... 3,900 93
Muenchener Rueckversicherungs-
Gesellschaft AG * (JR) ..................... 3,560 426
Preussag AG (BZ) ............................ 6,400 108
RWE AG (J5) ................................. 13,450 348
SAG AG * (JV) ............................... 6,480 513
Schering AG * (JO) .......................... 5,640 245
SGL Carbon AG (BF) .......................... 1,190 10
Siemens AG * (BL) ........................... 26,090 1,108
Thyssen Krupp AG * (BF) ..................... 10,711 120
Volkswagen AG (BV) .......................... 7,250 264
WCM Beteiligungs-und Grundbesitz AG (JQ) .... 8,076 21
----------
9,593
Greece - 0.7%
Alpha Credit Bank (JP) ...................... 7,418 90
Bank of Piraeus (JP) ........................ 8,434 53
Commercial Bank of Greece (JP) .............. 3,706 56
EFG Eurobank (JP) ........................... 5,596 66
Hellenic Bottling Co. SA (JG) ............... 5,160 71
Hellenic Telecommunication
Organization SA * (JI) ..................... 14,395 158
Intracom SA (JW) ............................ 5,252 24
National Bank of Greece SA (JP) ............. 5,791 82
Panafon Hellenic Telecom SA (J2) ............ 7,597 43
Titan Cement Co. SA (BD) .................... 1,400 54
----------
697
Hong Kong - 1.4%
Beijing Datang Power Generation Co.,
Ltd. (J3) .................................. 165,000 54
Cathay Pacific Airways (BQ) ................. 20,000 27
China Southern Airlines Co. Ltd * (BQ) ...... 207,000 56
China Telecom, Ltd. (J2) .................... 96,000 229
CLP Holdings, Ltd. (J3) ..................... 30,600 123
Guangshen Railway Co., Ltd. * (BS) .......... 329,000 56
Hang Seng Bank, Ltd. * (JP) ................. 12,600 134
Henderson Land Development Co.,
Ltd. * (JS) ................................ 22,000 66
HSBC Holdings plc (JP) ...................... 4,900 54
Hutchison Whampoa, Ltd. * (BL) .............. 28,500 178
Johnson Electric Holdings, Ltd. * (BK) ...... 7,000 8
Legend Holdings (JX) ........................ 122,000 40
Li & Fung, Ltd. * (BO) ...................... 36,000 34
New World Development Co., Ltd. (JS) ........ 48,000 24
Pacific Century Cyberworks, Ltd. (JI) ....... 159,380 25
Sun Hung Kai Properties, Ltd. * (JS) ........ 23,000 136
Swire Pacific, Ltd. - Cl.A * (JQ) ........... 23,500 90
Wharf Holdings, Ltd. (JQ) ................... 8,000 15
----------
1,349
69
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY INDEX FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Hungary - 0.2%
Gedeon Richter * (JO) ....................... 900 $ 60
MOL Magyar Olaj-es Gazipari Rt. (BB) ........ 2,200 51
OTP Bank (JP) ............................... 10,900 107
----------
218
Ireland - 0.6%
Allied Irish Banks plc * (JP) ............... 14,400 194
Bank of Ireland (JP) ........................ 17,060 174
CRH plc * (BD) .............................. 5,600 69
Elan Corp. (JO) ............................. 5,813 13
Irish Life & Permanent plc (JR) ............. 4,553 49
Kerry Group plc (JH) ........................ 5,800 78
Ryanair Holdings (BQ) ....................... 4,845 34
----------
611
Israel - 0.4%
Bank Hapoalim (JP) .......................... 43,700 63
Bezeq Israeli Telecommunication Corp.,
Ltd. (JI) .................................. 23,600 23
IDB Holdings Corp., Ltd. (JQ) ............... 5,100 77
Koor Industries, Ltd. * (JI) ................ 83 1
Makteshim-Agan Industries, Ltd. (BC) ........ 26,900 44
Teva pharmaceutical Industries, Ltd. * (JO) . 4,600 172
----------
380
Italy - 8.3%
Alitalia SpA (BQ) ........................... 50,000 13
Alleanza Assicurazioni * (JR) ............... 15,000 114
Assicurazioni Generali * (JR) ............... 38,132 784
Autogrill SpA (BZ) .......................... 5,723 44
Autostrade SPA (BT) ......................... 33,942 337
Banca Fideuram (JP) ......................... 10,000 47
Banca Intesa SpA (JP) ....................... 186,200 376
Banca Nazionale del Lavoro (JP) ............. 80,913 89
Banca Popolare di Milano (JP) ............... 18,100 66
BCA Di Roma * (JP) .......................... 78,071 100
Benetton Group SPA * (BY) ................... 3,095 28
Bipop-Carire SpA * (JQ) ..................... 47,041 22
Bulgari SpA (BY) ............................ 8,900 42
Enel SpA * (J3) ............................. 94,165 490
ENI * (BB) .................................. 109,900 1,746
Fiat SpA * (BV) ............................. 13,760 109
GR Education L Espresso (JA) ................ 6,014 20
Italcementi SpA (BD) ........................ 4,920 49
Italgas (J4) ................................ 7,650 104
Luxotica Group (JL) ......................... 5,176 68
Mediaset SpA * (JA) ......................... 23,200 177
Mediobanca SpA (JP) ......................... 26,289 195
Mondadori Editore SpA (JA) .................. 5,300 33
Monte Paschi Siena (JP) ..................... 26,767 63
Parmalat Finanziaria (JH) ................... 20,352 48
Pirelli SpA (BK) ............................ 71,100 66
Ruinione Adriatica di Sicorta SpA (JR) ...... 14,799 187
San Paolo-IMI SpA * (JP) .................... 31,221 $ 203
Seat Pagine Gialle SpA (JA) ................. 186,669 127
SNAM Retegas (J4) ........................... 35,397 121
Telecom Italia Mobile SpA (J2) .............. 149,360 678
Telecom Italia SpA (J1) ..................... 175,800 1,126
Tiscali SPA (JT) ............................ 6,719 30
UniCredito Italiano SpA * (JP) .............. 134,100 536
----------
8,238
Japan - 26.6%
77 Bank, Ltd. (JP) .......................... 18,000 74
Acom Co., Ltd. * (JQ) ....................... 2,300 76
Advantest (J0) .............................. 2,000 90
Aiful Corp. * (JQ) .......................... 1,000 38
Ajinomoto Co., Inc. (JH) .................... 12,000 125
Alps Electric Co. (JY) ...................... 6,000 66
Amada Co., Ltd (BM) ......................... 11,000 30
Asahi Breweries, Ltd. (JG) .................. 13,000 85
Asahi Chemical Industry Co., Ltd. (BC) ...... 39,000 97
Asahi Glass Co., Ltd. (BI) .................. 13,000 80
Bank of Yokohama, Ltd. * (JP) ............... 22,000 87
Benesse Corp. (BO) .......................... 2,600 29
Bridgestone Corp. (BU) ...................... 14,000 173
Canon, Inc. * (JZ) .......................... 19,000 715
Casio Computer Co. (BW) ..................... 9,000 50
Central Japan Railway Co. (BS) .............. 35 218
Chugai Pharmaceutical Co., Ltd. (JO) ........ 7,600 72
Citizen Watch Co., Ltd. (JY) ................ 10,000 45
Credit Saison Co., Ltd. (JQ) ................ 3,600 61
CSK Corp. * (JU) ............................ 2,100 44
Dai-Ichi Pharmaceutical Co., Ltd. * (JO) .... 7,000 100
Dai-Nippon Ink & Chemicals, Inc. (BC) ....... 24,000 38
Dai-Nippon Printing Co., Ltd. (BO) .......... 19,000 210
Daicel Chemical Industries, Ltd. (BC) ....... 10,000 28
Daiei, Inc. (JD) ............................ 4,500 5
Daikin Industries, Ltd. (BM) ................ 5,000 79
Dainippon Screen Manufacturing Co.,
Ltd. (JY) .................................. 7,000 24
Daito Trust Construction Co., Ltd. (BJ) ..... 1,600 35
Daiwa Bank Holdings (JP) .................... 119,000 65
Daiwa House Industry Co., Ltd. * (BW) ....... 9,000 51
Daiwa Securities Group, Inc. (JQ) ........... 17,000 75
Denki Kagaku Kogyo (BC) ..................... 3,000 7
Denso Corp. (BU) ............................ 12,300 202
East Japan Railway Co. (BS) ................. 79 392
Ebara Corp. (BM) ............................ 9,000 28
Eisai Co. Ltd. * (JO) ....................... 7,000 157
Fanuc, Ltd. * (BM) .......................... 3,000 133
Fuji Photo Film * (BX) ...................... 10,000 326
Fuji Soft ABC, Inc. (JV) .................... 1,000 16
Fuji Television Network, Inc. (JA) .......... 11 44
Fujikura (BK) ............................... 11,000 26
Fujisawa Pharmaceutical Co., Ltd. * (JO) .... 5,000 114
Fujitsu, Ltd * (JX) ......................... 34,000 97
70
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY INDEX FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Japan - Continued
Furukawa Electric Co. (BK) .................. 16,000 $ 34
Hirose Electric Co., Ltd. * (JY) ............ 400 31
Hitachi, Ltd. (JY) .......................... 68,000 261
Honda Motor Co. * (BV) ...................... 14,000 517
Hoya Corp. * (JY) ........................... 3,000 210
Isetan Co., Ltd. (JD) ....................... 7,000 48
Ishikawajima-Harima Heavy Industries
Co., Ltd. (BM) ............................. 28,000 25
Ito-Yokado Co., Ltd. * (JD) ................. 9,000 265
Itochu Corp. (BN) ........................... 34,000 74
Japan Airlines (BQ) ......................... 19,000 40
Japan Tobacco, Inc. (JI) .................... 21 140
JFE Holdings, Inc. * (BF) ................... 13,900 169
JGC Corp. (BJ) .............................. 5,000 28
Joyo Bank, Ltd. (JP) ........................ 29,000 81
Jusco Co., Ltd. * (JD) ...................... 6,000 142
Kajima Corp. (BJ) ........................... 25,000 56
Kamigumi Co., Ltd. (BR) ..................... 12,000 58
Kanebo (JK) ................................. 29,000 28
Kaneka Corp. (BC) ........................... 5,000 27
Kansai Electric Power Co., Inc. (J3) ........ 18,400 278
KAO Corp. (JJ) .............................. 14,000 307
Kawasaki Heavy Industry, Ltd. (BM) .......... 37,000 29
Kawasaki Kisen (BR) ......................... 23,000 39
Keihin Electric Express Railway Co.,
Ltd. (BS) .................................. 17,000 77
Keyence Corp. * (JY) ........................ 900 156
Kinden Corp. (BK) ........................... 12,000 44
Kinki Nippon Railway (BS) ................... 36,000 78
Kirin Brewery Co. * (JG) .................... 21,000 133
Kokuyo Co. (BO) ............................. 6,000 50
Komatsu, Ltd. (BM) .......................... 28,000 91
Komori Corp. (BM) ........................... 3,000 30
Konami Co., Ltd. (JV) ....................... 3,000 69
Konica Corp. (BX) ........................... 11,000 80
Kubota Corp. * (BM) ......................... 36,000 98
Kuraray Co., Ltd. (BC) ...................... 10,000 62
Kurita Water Industries, Ltd. (BJ) .......... 3,000 30
Kyocera Corp. * (JY) ........................ 4,100 239
Kyowa Hakko Kogyo Co., Ltd. (JO) ............ 9,000 37
Makita Corp. * (BW) ......................... 8,000 58
Marui Co., Ltd. * (JD) ...................... 10,000 98
Matsushita Electric Industrial Co. *
(BW) ....................................... 49,000 483
Meitic Corp. (JU) ........................... 1,000 24
Millea Holdings, Inc. * (JR) ................ 37 266
Mitsubishi Chemical Corp. (BC) .............. 28,000 56
Mitsubishi Corp. (BN) ....................... 26,000 159
Mitsubishi Electric Corp. (BK) .............. 43,000 99
Mitsubishi Estate Co., Ltd. * (JS) .......... 18,000 137
Mitsubishi Heavy Industries, Ltd. *
(BM) ....................................... 74,000 181
Mitsubishi Logistcs Corp. (BR) .............. 7,000 34
Mitsubishi Materials Corp. (BF) ............. 36,000 39
Mitsubishi Rayon Co., Ltd. (BC) ............. 23,000 $ 52
Mitsubishi Tokyo Finance (JP) ............... 75 407
Mitsui & Co., Ltd. (BN) ..................... 31,000 145
Mitsui Fudosan Co., Ltd. * (JS) ............. 16,000 104
Mitsui Marine & Fire Insurance Co.,
Ltd. * (JR) ................................ 30,000 138
Mitsui Mining & Smelting Co., Ltd.
(BF) ....................................... 17,000 39
Mitsui Petrochemical Co. (BC) ............... 18,000 80
Mitsui Trust Holdings (JP) .................. 17,000 28
Mitsukoshi, Ltd. (JD) ....................... 14,000 29
Mizuho Holdings, Inc. (JP) .................. 105 98
Mori Seiki Co., Ltd. (BM) ................... 5,000 25
Murata Manufacturing Co., Ltd. * (JY) ....... 5,900 231
NAMCO, Ltd. (BZ) ............................ 2,600 44
NEC Corp. * (JX) ............................ 34,000 127
NGK Insulators (BM) ......................... 11,000 60
NGK Spark Plug Co. (BU) ..................... 7,000 45
Nidec Corp. * (JY) .......................... 400 25
Nikko Securities Co., Ltd. * (JQ) ........... 30,000 101
Nikon Corp. (JO) ............................ 8,000 60
Nintendo Corp., Ltd. * (BW) ................. 2,600 243
Nippon Comsys Corp. (BJ) .................... 5,000 17
Nippon Express Co., Ltd. (BS) ............... 22,000 86
Nippon Mining & Holding * (BF) .............. 13,000 17
Nippon Mitsubishi Oil Co., Ltd. (BB) ........ 29,000 131
Nippon Sheet Glass Co., Ltd. (BI) ........... 11,000 20
Nippon Steel Co. (BF) ....................... 133,000 156
Nippon Telegraph & Telephone Corp. *
(J1) ....................................... 129 468
Nippon Unipac Holding, Co. (BG) ............. 27 117
Nippon Yusen Kabushiki Kaisha (BR) .......... 27,000 91
Nissan Motor Acceptance Corp. * (BV) ........ 57,000 444
Nitto Denko Corp. (BK) ...................... 4,000 114
Nomura Securities Co., Ltd. * (JQ) .......... 42,000 472
NSK, Ltd. (BM) .............................. 13,000 33
NTN Corp. (BM) .............................. 9,000 31
NTT Data Corp. (JU) ......................... 33 91
NTT Mobile Communications Network,
Inc. * (J2) ................................ 411 758
Obayashi Corp. (BJ) ......................... 16,000 36
Oji Paper Co. (BG) .......................... 27,000 116
Olympus Optical Co. * (JL) .................. 6,000 98
Omron Corp. (JY) ............................ 8,000 118
Onward Kashiyama Co., Ltd. (BY) ............. 7,000 55
Oracle Corp. (JV) ........................... 1,000 24
Oriental Land Co., Ltd. (BZ) ................ 900 54
Orix Corp. * (JQ) ........................... 2,100 135
Osaka Gas Co. (J4) .......................... 51,000 126
Pioneer Corp. * (BW) ........................ 5,000 94
Promise Co., Ltd. * (JQ) .................... 2,600 93
Ricoh Co., Ltd. (JZ) ........................ 15,000 246
Rohm Co., Ltd. * (J0) ....................... 2,400 305
Sankyo Co., Ltd. * (JO) ..................... 11,000 138
71
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY INDEX FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Japan - Continued
Sanrio Co., Ltd. (BW) ....................... 3,000 $ 15
Sanyo Electric Co. * (BW) ................... 42,000 109
Secom Co. * (BO) ............................ 4,500 154
Sega Enterprises (BW) ....................... 2,900 29
Sekisui Chemical Co. (BW) ................... 7,000 18
Sekisui House, Ltd. * (BW) .................. 10,000 71
Seven-Eleven Japan * (JF) ................... 9,000 274
Sharp Corp. (BW) ............................ 23,000 218
Shimamura Co., Ltd. (JE) .................... 800 51
Shimano, Inc. (BX) .......................... 2,000 30
Shimizu Corp. (BJ) .......................... 19,000 47
Shin-Etsu Chemical Co. * (BC) ............... 9,000 295
Shionogi & Co., Ltd. * (JO) ................. 8,000 113
Shiseido Co., Ltd. * (JK) ................... 6,000 78
Shizuoka Bank, Ltd. (JP) .................... 19,000 122
Showa Denko (BC) ............................ 23,000 29
Showa Shell Sekiyu KK (BB) .................. 5,000 35
Skylark Co., Ltd. (BZ) ...................... 3,000 40
SMC Corp. * (BM) ............................ 1,400 131
Softbank Corp. (JT) ......................... 5,200 59
Sony Corp. * (JY) ........................... 20,300 848
Sumitomo Chemical Co. (BC) .................. 18,000 71
Sumitomo Corp. * (BO) ....................... 20,000 86
Sumitomo Electric Industries (BK) ........... 15,000 97
Sumitomo Heavy Industry (BM) ................ 23,000 13
Sumitomo Metal Industries (BF) .............. 102,000 37
Sumitomo Metal Mining Co. (BF) .............. 17,000 71
Sumitomo Mitsui GR (JP) ..................... 88 275
Sumitomo Osaka Cement (BD) .................. 5,000 7
Sumitomo Trust & Banking (JQ) ............... 23,000 93
Taiheiyo Cement (BD) ........................ 17,000 21
Taisho Pharmaceutical Co., Ltd. * (JO) ...... 3,000 44
Taiyo Yuden Co., Ltd. * (JY) ................ 4,000 42
Takara Shuzo Co., Ltd. (JG) ................. 4,000 17
Takashimaya Co., (JD) ....................... 9,000 35
Takeda Chemical Industries * (BC) ........... 19,000 794
Takefuji Corp. * ( JQ) ...................... 1,630 94
TDK Corp. * (JY) ............................ 2,700 109
Teijin, Ltd. (BC) ........................... 25,000 60
Teikoku Oil Co., Ltd. (BB) .................. 15,000 60
Terumo Corp. * (JL) ......................... 4,000 55
The Bank of Fukuoka, Ltd. (JP) .............. 8,000 32
TIS, Inc. (JU) .............................. 1,000 15
Tobu Railway Co., Ltd. (BS) ................. 29,000 77
Toda Corp. (BJ) ............................. 3,000 5
Tohu Co., Ltd. (JA) ......................... 5,000 48
Tohoku Electric Power (J3) .................. 13,300 196
Tokyo Electric Power (J3) ................... 27,100 515
Tokyo Electron, Ltd. * (J0) ................. 3,800 172
Tokyo Gas Co. (J4) .......................... 72,000 226
Tokyu Corp. * (BS) .......................... 26,000 91
Toppan Printing Co. * (JA) .................. 16,000 120
Toray Industries, Inc. * (BC) ............... 33,000 70
Toshiba Corp. * (JX) ........................ 70,000 219
Tostem Corp. (BI) ........................... 8,000 121
Toto, Ltd. (BI) ............................. 13,000 $ 48
Toyo Seikan Kaisha, Ltd. (BE) ............... 5,000 60
Toyota Motor Corp. * (BV) ................... 54,800 1,472
Trend Micro, Inc. (JV) ...................... 2,000 34
Ube Industries (BL) ......................... 21,000 21
UFJ Holdings, Inc. (JP) ..................... 80 81
Uni-Charm Corp. (JJ) ........................ 1,400 56
UNY Co., Ltd. (JD) .......................... 7,000 68
Wacoal Corp. * (BY) ......................... 8,000 62
World Co., Ltd. (BY) ........................ 1,400 27
Yamaha Corp. (BX) ........................... 6,000 55
Yamanouchi Pharmaceutical Co., Ltd. * (JO) .. 8,000 232
Yamato Transport Co., Ltd. (BP) ............. 12,000 157
Yasuda F & M Insurance (JR) ................. 19,000 111
Yokogawa Electric (JY) ...................... 8,000 50
----------
26,355
Luxembourg - 0.1%
Reliance Industries * (BY) .................. 11,000 135
Malaysia - 0.7%
Berjaya Sports Toto Berhad (BZ) ............. 2,000 2
Commerce Asset Holdings * (JP) .............. 44,000 38
Gamuda Berhad (BJ) .......................... 22,000 32
IJM Corporation Berhad (BJ) ................. 19,000 25
Malayan Banking Berhad * (JP) ............... 53,000 103
Malaysia International Shipping Berhad (BR) . 52,000 94
Public Bank Berhad (JP) ..................... 73,000 50
Resorts World Berhad * (BZ) ................. 21,000 52
Sime Darby Berhad * (BL) .................... 68,000 89
Telekom Malaysia Berhad (J1) ................ 40,000 83
Tenaga Nasional Berhad (J3) ................. 28,000 70
YTL Corp., Berhad (J3) ...................... 23,460 19
----------
657
Mexico - 0.8%
America Movil SA de CV - Ser L * (J2) ....... 162,000 116
Cemex SA de CV * (BD) ....................... 24,000 103
Cifra SA de CV - Ser. V * (JD) .............. 17,000 39
Fomento Economico Mexicano SA de CV * (JG) .. 20,000 73
GF BBVA Bancomer - Ser. B (JP) .............. 70,000 53
Grupo Carso SA de CV - Ser. A1 * (BL) ....... 16,000 39
Grupo Modelo SA de CV - Ser. C * (JG) ....... 34,000 83
Grupo Televisa SA * (JA) .................... 33,000 46
Kimberly-Clark de Mexico SA de CV * (BG) .... 22,000 51
Nuevo Grupo Mexico (BF) ..................... 18,000 20
Telephonos de Mexico SA - Ser. L (J1) ....... 110,000 176
U.S. Commercial Corp. - Ser. B1 (BL) ....... 16,000 7
----------
806
Netherlands - 2.5%
ABN Amro Holding NV * (JP) .................. 12,500 204
72
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY INDEX FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Netherlands - Continued
Aegon NV * (JR) ............................. 10,900 $ 140
Akzo Nobel NV * (BC) ........................ 1,856 59
ASM Lithography Holding NV (JO) ............. 5,100 43
Elsevier NV * (JA) .......................... 9,300 114
Heineken NV * (JG) .......................... 2,968 116
ING Groep NV (JQ) ........................... 17,000 288
Koninklijke * (Royal) Philips
Electronics NV (JY) ........................ 22,176 262
Koninklijke Ahold NV * (JY) ................. 7,000 89
Royal Dutch Petroleum Co. * (BB) ............ 17,028 749
TNT Post Group NV (BP) ...................... 5,610 91
Unilever NV * (JH) .......................... 4,519 277
Wolters Kluwer NV * (JA) .................... 2,300 40
----------
2,472
New Zealand - 0.5%
Carter Holt Harvey, Ltd. (BG) ............... 4,900 4
Contact Energy Limited (J3) ................. 62,600 130
Fisher & Paykel AP (BW) ..................... 10,192 51
Fletcher Building (BD) ...................... 31,200 55
Telecom Corp. of New Zealand, Ltd. (J1) ..... 75,400 179
The Warehouse Group, Ltd. (JD) .............. 29,000 111
----------
530
Norway - 1.2%
Bergesen DY ASA - Cl. A (BR) ................ 4,300 82
Den Norske Bank (JP) ........................ 18,760 88
Elkem ASA (BF) .............................. 700 15
Kvaerner plc (BJ) ........................... 7,600 4
Merkantildata ASA (JU) ...................... 9,800 7
Norsk Hydro ASA (BL) ........................ 7,740 346
Norske Skogindustrier ASA - Cl.A * (BG) ..... 3,400 48
Opticom AS (JX) ............................. 160 1
Orkla ASA * (JH) ............................ 8,320 142
SMEDVIG * (BA) .............................. 3,600 17
Smedvig ASA * (BA) .......................... 4,600 19
Statoil ASA * (BB) .......................... 21,920 185
Storebrand ASA (JR) ......................... 16,140 60
Tanderg ASA (BJ) ............................ 3,920 23
Telenor AS * (JI) ........................... 22,160 85
Tomra Systems ASA (BM) ...................... 10,000 65
----------
1,187
Philippines - 0.1%
Ayala Land, Inc. * (JS) ..................... 36,460 3
Metro Bank & Trust (JP) ..................... 65,450 39
Philippine Long Distance Telephone Co. * (J1) 3,200 16
SM Prime Holdings, Inc. (JS) ................ 545,000 48
106
Portugal - 0.8%
Banco Comercial Portgues SA (JP) ............ 49,000 117
BPI-SGPS SA (JQ) ............................ 33,590 $ 77
Brisa-Auto Estradas de Portugal SA (BT) ..... 16,750 93
Electricidade de Portugal SA (J3) ........... 93,600 156
Part Multimedia SGPS (JA) ................... 4,557 48
Portugal Telecom SA * (J1) .................. 36,700 252
Sonae SGPS SA (BL) .......................... 87,600 37
----------
780
Singapore - 0.5%
Chartered Semiconductor Manufacturing (J0) .. 12,000 5
City Developments, Ltd. (JS) ................ 15,000 36
Cycle & Carriage, Ltd. (JE) ................. 8,766 17
DBS Group Holdings, Ltd. * (JP) ............. 17,000 108
Haw Par Value Corp., Ltd. (BL) .............. 876 2
Neptune Orient Lines, Ltd. (BR) ............. 14,000 7
Oversea-Chinese Banking Corp., Ltd. (JP) .... 16,000 89
Singapore Telecommunications, Ltd. * (J1) ... 101,000 72
United Overseas Bank, Ltd. * (JP) ........... 21,448 146
----------
482
South Africa - 1.4%
Anglo American Platinum Corp., Ltd. (BF) .... 1,600 59
Anglo American plc * (BF) ................... 27,100 400
Anglogold * (BF) ............................ 1,800 61
Barlow, Ltd. * (BL) ......................... 3,300 23
Dimension Data Holdings plc (JU) ............ 79,483 35
FirstRand, Ltd. (JP) ........................ 57,900 50
Foschini, Ltd. (JE) ......................... 37,100 49
Gold Fields Mining * (BF) ................... 5,200 73
Impala Platinum Holdings, Ltd. (BF) ......... 1,000 64
Imperial Holdings, Ltd. (JE) ................ 10,091 65
Investec Ltd. (JQ) .......................... 851 11
Liberty Life Association of Africa, Ltd. (JR) 3,300 21
M-Cell, Ltd. (J2) ........................... 40,200 57
Nampak, Ltd. (BE) ........................... 25,500 42
Nedcor, Ltd. * (JP) ......................... 2,100 27
Sappi, Ltd. * (BG) .......................... 5,700 76
Sasol, Ltd. * (BB) .......................... 11,800 145
South African Breweries plc (JG) ............ 1,600 11
Standard Bank Investment Corp., Ltd. (JP) ... 18,000 63
----------
1,332
South Korea - 1.8%
Hyundai Motor Co., Ltd. (BV) ................ 3,560 83
KIA Motors Corp. (BV) ....................... 3,310 25
Kookmin Bank * (JP) ......................... 4,279 151
Korea Electric Power Corp. * (J3) ........... 5,400 83
73
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY INDEX FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
South Korea - Continued
Korea Telecom Corp. (J1) .................... 1,040 $ 44
Korea Telecom Freetel (J1) .................. 2,980 71
LG Chemical (BC) ............................ 2,035 70
LG Electronics, Inc. (JY) ................... 2,330 71
LG Investment & Securities Co., Ltd. * (JQ) . 2,460 28
Pohang Iron & Steel Co., Ltd. (BF) .......... 1,790 178
Samsung Corp. (JY) .......................... 6,120 33
Samsung Display Devices Co. (JY) ............ 1,000 58
Samsung Electro-Mechanics Co. (JY) .......... 1,460 54
Samsung Electronics * (JY) .................. 2,250 596
Samsung Fire & Marine Insurance (JR) ........ 942 51
Samsung Securities Co., Ltd. (JQ) ........... 1,280 31
Shinhan Financial (JP) ...................... 4,090 43
SK Telecom Co., Ltd. * (J2) ................. 670 129
----------
1,799
Spain - 4.3%
ACS, Actividades de Construccion y
Servicios, SA (BJ) ......................... 2,419 78
Amadeus Global Travel - Ser. A (BO) ......... 5,240 22
Autopistas Concesionaria Espanola SA (BT) ... 13,503 153
Banco Bilbao Vizcaya SA * (JP) .............. 72,728 696
Banco Santander Central Hispano SA * (JP) ... 99,600 683
Endesa SA * (J3) ............................ 24,100 282
Fomento de Construcciones y Contratas
SA (BJ) .................................... 1,400 31
Gas Natural SDG SA * (J4) ................... 6,400 121
Grupo Dragados SA (BJ) ...................... 2,600 44
Iberdrola SA (J3) ........................... 19,900 279
Inditex (JE) ................................ 6,292 148
Repsol SA * (BB) ............................ 22,200 293
Sol Melia SA (BZ) ........................... 5,700 22
Tabacalera SA - Cl. A (JI) .................. 7,714 176
Telefonica SA * (J1) ........................ 107,079 958
Terra Networks SA (JT) ...................... 9,309 39
Union Electrica Fenosa SA (J3) .............. 8,400 111
Vallehermoso SA (JS) ........................ 8,700 90
----------
4,226
Sweden - 1.5%
Drott AB (JS) ............................... 5,400 60
Electrolux AB - Ser. B * (BW) ............... 3,800 60
Hennes & Mauritz AB * (JE) .................. 7,500 145
NetCom Systems, Inc. - Cl.B (J1) ............ 1,732 46
Nordic Baltic Holding AB (JP) ............... 34,928 154
SANDVIK AB * (BM) ........................... 4,350 98
Securitas AB * (BO) ......................... 4,700 56
Skand Enskilda Banken - Cl. A (JP) .......... 10,200 85
Skandia Forsakrings AB (JR) ................. 13,900 37
Skanska AB - Ser. B (BJ) .................... 11,000 65
Svenska Cellulosa AB - Cl. B (BG) ........... 3,100 105
Svenska Handelsbanken, Inc. (JP) ............ 9,300 $ 124
Telefonaktiebolaget LM Ericsson AB (JW) ..... 273,600 192
Telia AB (JI) ............................... 44,544 168
Volvo AB * (BM) ............................. 5,750 94
----------
1,489
Switzerland - 1.6%
Adecco SA * (BO) ............................ 600 24
Credit Suisse Group * (JP) .................. 6,280 136
Nestle SA * (JH) ............................ 1,460 309
Novartis AG (JO) ............................ 11,270 411
Roche Holdings AG (JO) ...................... 2312 172
Swiss Reinsurance Co. * (JR) ................ 600 40
Swisscom AG * (J1) .......................... 360 104
Syngenta AG (BC) ............................ 547 32
UBS AG * (JP) ............................... 5,928 288
Zurich Finance (JR) ......................... 537 50
----------
1,566
Taiwan - 0.9%
Acer Communication (JI) ..................... 59,754 58
Advanced Semiconductor Engineering,
Inc. (J0) .................................. 59,000 35
Arima Computer (JX) ......................... 49,500 16
Asustek Computer * (JX) ..................... 18,000 32
AU Optronics Corp. (JY) ..................... 53,000 31
China Dev Fin Holding (JP) .................. 61,342 23
China Trust Finance (JP) .................... 36,000 29
CMC Magnetics Corp. (JX) .................... 51,600 21
Compal Electronics, Inc. * (JX) ............. 38,400 40
Formosa Chemical & Fibre (BC) ............... 29,680 32
Formosa Plastic * (BC) ...................... 29,960 39
Hon Hai Precision Insustry Co., Ltd. -
Cl. G * (JY) ............................... 17,250 60
Kinpo Electronics (JZ) ...................... 63,280 33
Lite on Technology (JX) ..................... 41,428 47
Macronix International Co., Ltd. (JX) ....... 59,400 18
Micro Star International (JX) ............... 8,000 13
Nan Ya Plastic Corp. (BC) ................... 47,080 41
Quanta Computer, Inc. (JX) .................. 14,950 25
Realtek Semiconductor Corp. * (JO) .......... 9,100 24
Ritek Corp. (JX) ............................ 45,000 19
Siliconware Precision (J0) .................. 44,000 21
Taiwan Semiconductor * (J0) ................. 125,000 154
Tatung (BL) ................................. 100,000 20
United Microelectronics Corp. * (J0) ........ 81,250 49
Via Technologies Inc. * (JX) ................ 13,420 15
Winbond Electronic (JY) ..................... 69,000 30
----------
925
Thailand - 0.2%
Advanced Information Services (J2) .......... 65,700 54
74
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY INDEX FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Thailand - Continued
PTT Exploration & Production Public
Co., Ltd. (BB) ............................. 22,200 $ 71
Siam Cement Public Co., Ltd. (BD) ........... 2,400 70
----------
195
Turkey - 0.1%
Arcelik AS (BW) ............................. 2,360,200 18
Turkiye Is Bankasi - Cl. C * (JP) ........... 14,914,592 39
----------
57
United Kingdom - 9.8%
Amvescap plc * (JQ) ......................... 6,400 41
AstraZeneca Group plc * (JO) ................ 11,139 398
Barclays (JP) ............................... 50,100 310
Barratt Developments plc (BW) ............... 1,400 9
Bass plc (BZ) ............................... 4,300 35
BG Group plc * (BB) ......................... 33,066 143
Billiton plc (BF) ........................... 16,250 87
BOC Group plc * (BC) ........................ 6,300 90
Boots Co. plc (JF) .......................... 6,600 62
BP Amoco plc (BB) ........................... 147,300 1,012
Brambles Industries * (BO) .................. 7,600 19
British Aerospace plc (BH) .................. 24,663 49
British Airport Authority plc (BT) .......... 11,700 95
British American Tobacco plc * (JI) ......... 11,300 113
British Land Co. plc (JS) ................... 9,000 65
British Sky Broadcast plc (JA) .............. 12,100 124
BT Group (JI) ............................... 64,100 201
Cadbury Schweppes plc * (JH) ................ 17,900 112
Canary Wharf Group (JS) ..................... 8,900 34
Carlton Communications plc * (JA) ........... 13,900 30
Centrica plc * (J4) ......................... 37,600 103
CGU plc (JR) ................................ 20,600 147
Compass Group plc * (BZ) .................... 14,122 75
Diageo plc * (JG) ........................... 24,600 267
Dixons Group plc (JE) ....................... 23,200 54
EMI Group plc (JA) .......................... 9,000 20
GKN * (BU) .................................. 7,600 25
GlaxoSmithKline plc * (JO) .................. 41,292 792
Granada Compass plc * (JA) .................. 25,122 32
Hanson plc * (BD) ........................... 8,990 40
Hays plc * (BO) ............................. 14,400 21
HBOS * (JP) ................................. 21,800 230
Hilton Group plc * (BZ) ..................... 27,700 74
HSBC Holdings plc (JP) ...................... 58,900 651
Imperial Chemical Industries plc * (BC) ..... 7,100 26
Invensys plc (BM) ........................... 38,785 33
J Sainsbury plc * (JF) ...................... 18,100 81
Kingfisher plc * (JE) ....................... 13,454 48
Land Securities SGP (JQ) .................... 7,350 93
Legal & General Group plc (JR) .............. 58,600 91
Lloyds TSB Group plc (JP) ................... 42,300 304
Marks & Spencer * (JD) ...................... 17,566 89
National Grid Group * (JY) .................. 26,812 $ 197
National Power plc (J3) ..................... 14,200 22
Nycomed Amersham plc (JL) ................... 5,700 51
P&O Princess Cruises plc (BZ) ............... 1,900 13
Pearson plc * (JA) .......................... 8,100 75
Peninsular & Oriental Steam Navigation
Co. (BR) ................................... 6,800 18
Prudential Corp. (JR) ....................... 19,300 136
Rank Group plc * (BZ) ....................... 5,800 25
Reed International plc (JA) ................. 9,400 80
Rentokil Initial plc (BO) ................... 26,700 95
Reuters Group plc * (JA) .................... 12,500 36
Rio Tinto plc * (BF) ........................ 6,600 132
Royal Bank of Scotland Group * (JP) ......... 19,000 455
Schroders (JQ) .............................. 3,150 26
Scottish Power plc * (J3) ................... 17,100 100
Shell Transport & Trading Co. plc *
(BB) ....................................... 65,900 434
Slough Estates Finance plc (JS) ............. 8,000 44
Tesco plc * (JF) ............................ 55,900 175
The Great Universal Stores plc (JC) ......... 5,500 51
The Sage Group plc (JV) ..................... 15,700 34
Unilever plc * (JK) ......................... 20,503 195
United Utilities plc * (J5) ................. 10,400 104
Vodafone AirTouch plc (J2) .................. 446,521 814
WPP Group plc * (JA) ........................ 7,500 57
----------
9,694
United States - 1.8%
Bajaj Auto, Ltd. - GDR (BV) ................. 5,900 60
Banco Bradesco - ADR (JP) ................... 2,918 46
Banco Itau SA - ADR * (JP) .................. 2,760 67
Banco Santander Chile - ADR (JP) ............ 2,900 54
Brasil Telecom Participacoes SA (J1) ........ 1,326 34
Centrais Electricas Brasileirias SA -
ADR Cl.B * (J3) ............................ 12,874 43
Check Point Software Technologies, Ltd.
* (JT) ..................................... 4,200 54
Companhia De Bebidas ADR (JG) ............... 5,050 77
Companhia Energetica de Minas Gerias -
ADR (J3) ................................... 3,101 23
Companhia Vale do Rio Doce - ADR
(BF) ....................................... 5,600 154
Compania Cervecerias Unidas SA -
ADR * (JG) ................................. 3,900 57
Compania de Telecommunicaciones de
Chile SA * (J1) ............................ 2,500 24
EIH, Ltd. - GDR (BZ) ........................ 6,700 27
Embotelladora Andina SA - ADR * (JG) ........ 6,100 43
Empresa Nacional de Electricidad SA -
ADR * (J3) ................................. 10,100 78
Enersis SA - ADR * (J3) ..................... 3,700 15
Grasim Industries, Ltd. - GDR (BL) .......... 7,100 47
Great Eastern Shipping Co. - GDR (BL) ....... 9,020 31
Hindalco Industries, Ltd. - GDR (BF) ........ 4,900 58
75
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY INDEX FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
United States - Continued
Huaneng Power International, Inc. -
ADR * (J3) ................................. 1,800 $ 58
ITC, Ltd. - GDR (JI) ........................ 5,900 82
Lukoil Holding - ADR * (BB) ................. 2,700 166
Mahindra & Mahindra, Ltd. * (BL) ............ 16,500 37
Petroleo Brasileiro SA * (BB) ............... 5,500 82
Petroleo Brasileiro SA - ADR (BB) ........... 6,800 89
Ranbaxy Laboratories, Ltd. - GDR (JO) ....... 6,560 83
Surgutneftegaz - ADR (BB) ................... 6,800 108
Tatneft - ADR (BB) .......................... 2,400 36
United Energy Systems Russia - ADR
(J3) ....................................... 6,700 86
----------
1,819
----------
TOTAL COMMON STOCK- 94.9% 93,872
PREFERRED STOCK
Australia - 0.2%
News Corp., Ltd. (JA) ....................... 31,300 168
Germany - 0.4%
Henkel KGAA (BC) ............................ 2,500 158
Porsche AG (BV) ............................. 250 104
Prosiebebensati Medi (JA) ................... 4,091 28
Volkswagen AG (BV) .......................... 3,212 84
Wella AG (JK) ............................... 500 30
----------
404
South Korea - 0.1%
Samsung Electronics (JY) .................... 550 70
---------
TOTAL PREFERRED STOCK- 0.7% 642
WARRANTS
Mexico - 0.0%
Cemex SA (BJ)
expires 12/21/04 (Cost $1) ................. 2,000 1
----------
TOTAL WARRANTS- 0.0% 1
RIGHTS
Spain - 0.0%
Acesa Infraestructuras SA (BJ)
expires 12/27/02 (Cost $0) ................. 13,503 8
Thailand - 0.0%
TelecomAsia (JI)
expires 04/03/02 (Cost $0) ................. 35,747 $ 0
----------
TOTAL RIGHTS- 0.0% 8
Par Market
Name of Issuer Value Value
(000's) (000's)
INVESTMENT COMPANIES HELD
AS COLLATERAL ON LOANED
SECURITIES - 25.7%
State Street Navigator Securities
Lending Portfolio .......................... $ 25,433 $ 25,433
SHORT-TERM INVESTMENTS
Investment in joint trading account (Note B)
1.388% due 01/02/03 .................... 3,750 3,750
U.S. Treasury - Bills
1.175% due 03/20/03 .................... 450 448
----------
TOTAL SHORT-TERM INVESTMENTS- 4.2% 4,198
---------- ----------
TOTAL INVESTMENTS 125.5% 124,154
Cash and Receivables, less payables- (25.5)% (25,237)
---------- ----------
NET ASSETS- 100.0% $ 98,917
========== ==========
*Non-income producing security.
ADR-American Depository Receipt.
GDR-Global Depository Receipt.
See notes to financial statements.
76
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY INDEX FUND
SUMMARY OF LONG-TERM SECURITIES BY INDUSTRY
Market % of
Industry Industry Value Long-Term
Abbreviation (000s) Investments
Banks ............................................ JP $ 13,254 14.0%
Oil & Gas ........................................ BB 7,510 7.9%
Diversified Telecommunication Services ........... J1 5,877 6.2%
Pharmaceuticals .................................. JO 4,976 5.3%
Electric Utilities ............................... J3 4,417 4.7%
Automobiles ...................................... BV 4,331 4.6%
Insurance ........................................ JR 4,296 4.5%
Electronic Equipment & Instruments ............... JY 4,078 4.3%
Chemicals ........................................ BC 3,431 3.6%
Wireless Telecommunications Services.............. J2 2,952 3.1%
Metals & Mining .................................. BF 2,750 2.9%
Diversified Financials ........................... JQ 2,190 2.3%
Industrial Conglomerates ......................... BL 2,035 2.2%
Media ............................................ JA 1,785 1.9%
Machinery ........................................ BM 1,548 1.6%
Household Durables ............................... BW 1,539 1.6%
Food Products .................................... JH 1,495 1.6%
Food & Drug Retailing ............................ JF 1,431 1.5%
Beverages ........................................ JG 1,339 1.4%
Semiconductor Equipment & Products................ J0 1,275 1.4%
Real Estate Investment Trust ..................... JS 1,213 1.3%
Multiline Retail ................................. JD 1,169 1.2%
Road & Rail ...................................... BS 1,075 1.1%
Office Electronics ............................... JZ 994 1.1%
Communications Equipment ......................... JW 963 1.0%
Commercial Services & Supplies ................... BO 921 1.0%
Hotels Restaurants & Leisure ..................... BZ 904 1.0%
Health Care Equipment & Supplies ................ JL 881 0.9%
Personal Products ................................ JK 855 0.9%
Construction Materials ........................... BD 833 0.9%
Transportation Infrastructure .................... BT 812 0.9%
Gas Utilities .................................... J4 801 0.9%
Computers & Peripherals .......................... JX 768 0.8%
Software ......................................... JV 752 0.8%
Electrical Equipment ............................. BK 722 0.8%
Multi-Utilities .................................. J5 696 0.7%
Paper & Forest Products .......................... BG 669 0.7%
Marine ........................................... BR 638 0.7%
Auto Components .................................. BU 611 0.7%
Textiles & Apparel ............................... BY 603 0.6%
Specialty Retail ................................. JE 578 0.6%
Construction & Engineering ....................... BJ 564 0.6%
Building Products ................................ BI 543 0.6%
Tobacco .......................................... JI 511 0.5%
Leisure Equipment & Products ..................... BX 491 0.5%
Air Freight & Couriers ........................... BP 381 0.4%
Trading Companies & Distributors ................. BN 377 0.4%
Household Products ............................... JJ 363 0.4%
IT Consulting & Services ......................... JU 276 0.3%
Containers & Packaging ........................... BE $ 235 $ 0.3%
Airlines ......................................... BQ 214 0.2%
Internet Software & Services ..................... JT 183 0.2%
Aerospace & Defense .............................. BH 128 0.1%
Health Care Providers & Services ................. JM 97 0.1%
Real Estate Development .......................... JS 80 0.1%
Internet & Catalog Retail ........................ JC 51 0.1%
Energy Equipment & Services ...................... BA 36 0.0%
Distributors ..................................... JB 26 0.0%
------------ -----------
$ 94,523 100.0%
============ ===========
77
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SMALL CAP GROWTH FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Aerospace & Defense - 4.0%
Alliant Techsystems, Inc. * ................. 6,400 $ 399
DRS Technologies, Inc. * .................... 34,800 1,090
Engineered Support Systems, Inc. * .......... 33,600 1,232
Herley Industries, Inc. * ................... 81,650 1,421
MTC Technologies, Inc. ...................... 28,200 714
----------
4,856
Air Freight & Couriers - 0.5%
Forward Air Corp. * ......................... 31,450 611
Auto Components - 0.4%
Spartan Motors, Inc. ........................ 37,900 431
Automobiles - 0.8%
Borg-Warner Automotive, Inc. ................ 19,900 1,003
Banks - 5.6%
Dime Community Bancshares ................... 31,900 611
East West Bancorp, Inc. * ................... 33,400 1,205
Greater Bay Bancorp ......................... 40,850 706
New North Nova Corp. Pennsylvania * ......... 33,700 928
Southwest Bancorporation of Texas, Inc. * ... 40,600 1,170
Sterling Bancshares, Inc. ................... 107,875 1,318
Texas Regional Bancshares, Inc. ............. 23,800 846
----------
6,784
Biotechnology - 4.1%
Affymetrix, Inc. * .......................... 29,200 668
Alkermes, Inc. * ............................ 37,700 236
Charles River Laboratories * ................ 28,143 1,083
CV Therapeutics, Inc. * ..................... 29,600 539
Human Genome Sciences, Inc. * ............... 28,900 255
Neurocrine Biosciences, Inc. * .............. 15,300 699
Protein Design Labs, Inc. * ................. 76,000 646
Regeneron Pharmaceuticals * ................. 12,050 223
Sangstat Medium Corp. * ..................... 49,900 564
----------
4,913
Building Products - 0.7%
Griffon Corp. * ............................. 62,600 853
Chemicals - 1.6%
Airgas, Inc. * .............................. 70,600 1,218
Georgia Gulf Corp. * ........................ 28,800 666
----------
1,884
Commercial Services & Supplies - 8.3%
Angelica Corp. * ............................ 26,700 551
Checkfree Corp. * ........................... 45,750 732
Corporate Executive Board Co. * ............. 49,550 1,582
DeVry, Inc. * ............................... 42,700 709
Kroll, Inc. ................................. 76,200 1,454
Ligand Pharmaceuticals - Cl. B * ............ 72,000 387
On Assignment, Inc. * ....................... 93,200 794
Stericycle, Inc. * .......................... 32,600 1,055
Strayer Education, Inc. ..................... 21,300 1,225
University of Phoenix Online * .............. 18,900 $ 677
Waste Connections, Inc. * ................... 22,550 871
----------
10,037
Communications Equipment - 0.5%
McData Corp. * .............................. 84,100 597
Computers & Peripherals - 1.8%
M-Systems Flash Disk Pioneers, Ltd. * ....... 127,800 934
ScanSource, Inc. * .......................... 25,650 1,265
----------
2,199
Diversified Financials - 1.4%
Affiliated Managers Group, Inc. * ........... 22,550 1,134
Ameritrade Holding Corp. * .................. 90,300 511
----------
1,645
Diversified Telecommunication Services - 1.8%
Crown Castle International Corp. * .......... 190,100 713
Nextel Partners, Inc. - Cl. A * ............. 79,100 480
Triton PCS, Inc. - Cl. A .................... 250,700 985
----------
2,178
Electronic Equipment & Instruments - 0.8%
Rudolph Technologies, Inc. * ................ 50,150 961
Energy Equipment & Services - 2.0%
Hydril Co. * ................................ 45,000 1,060
Lone Star Technologies, Inc. * .............. 39,200 584
Oceaneering International, Inc. * ........... 33,500 829
----------
2,473
Finance - 0.5%
United Holdings Corp. ....................... 56,200 660
Food & Drug Retailing - 2.1%
Duane Reade, Inc. * ......................... 51,650 878
United Natural Foods, Inc. * ................ 64,900 1,645
----------
2,523
Food Products - 3.2%
American Italian Pasta Co. * ................ 39,950 1,437
Del Monte Foods Co. * ....................... 57,200 441
Horizon Organic Holding Corp. * ............. 62,200 1,007
Ralcorp Holdings, Inc. * .................... 37,200 935
----------
3,820
Health Care Equipment & Supplies - 4.8%
Alliance Imaging, Inc. * .................... 72,100 382
American Medical Systems Holdings * ......... 56,400 914
Diagnostic Products Corp. ................... 29,200 1,128
ICU Medical, Inc. * ......................... 19,600 731
Integra Lifesciences Corp. * ................ 60,500 1,068
KYPHON, Inc ................................. 31,900 272
Salix Pharmaceuticals, Ltd. * ............... 74,150 518
78
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SMALL CAP GROWTH FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Health Care Equipment & Supplies - Continued
Wilson Greatbatch Technologies, Inc. * ...... 28,000 $ 818
---------
5,831
Health Care Providers & Services - 9.2%
Accredo Health, Inc. * ...................... 15,674 553
Advisory Co. * .............................. 29,600 885
Centene Corp. * ............................. 36,000 1,209
Cobalt Corp. ................................ 59,500 821
Covance, Inc. * ............................. 64,650 1,590
Da Vita, Inc. * ............................. 27,400 676
Dianon Systems, Inc. * ...................... 16,500 787
LifePoint Hospitals, Inc. * ................. 43,500 1,302
Medical Staffing Network Holdings, Inc. * ... 59,510 952
Pharmaceutical Product Development,
Inc. * ..................................... 25,750 754
Province Healthcare Co. * ................... 46,300 450
Renal Care Group, Inc. * .................... 37,000 1,171
----------
11,150
Hotels Restaurants & Leisure - 3.3%
Applebee's International, Inc. .............. 23,225 539
Cumulus Media, Inc. - Cl. A * ............... 16,300 242
Panera Bread Co. - Cl. A * .................. 43,500 1,514
Rare Hospitality International, Inc. * ...... 52,900 1,461
Ryan's Family Steak Houses, Inc. * .......... 17,050 194
----------
3,950
Household Products - 1.1%
Church & Dwight Co., Inc. ................... 42,300 1,287
Industrial Conglomerates - 0.8%
Denbury Resources, Inc. ..................... 84,700 957
Insurance - 4.8%
ANFI, Inc. .................................. 40,000 590
HCC Insurance Holdings, Inc. ................ 48,250 1,187
Hilb, Rogal & Hamilton Co. .................. 34,002 1,391
Philadelphia Consolidated Holding Corp. ..... 34,250 1,213
Platinum Underwriters Holdings * ............ 15,500 408
Stancorp Financial Group, Inc. * ............ 20,150 984
----------
5,773
Internet Software & Services - 1.3%
Avocent Corp. * ............................. 31,146 692
Internet Security System, Inc. * ............ 31,800 583
WebMethods, Inc. * .......................... 29,400 242
----------
1,517
IT Consulting & Services - 0.7%
SRA International, Inc. - Cl. A ............. 29,400 797
Machinery - 1.9%
Clarcor, Inc. * ............................. 24,500 790
ESCO Technologies, Inc. * ................... 21,700 803
Graco, Inc. * ............................... 25,300 725
----------
2,318
Media - 4.7%
Entercom Communications Corp. * ............. 14,350 $ 673
Entravision Communications - Cl. A * ........ 68,200 681
Getty Images, Inc. * ........................ 35,800 1,094
Lin TV Corp. - Cl. A * ...................... 39,200 955
Macrovision Corp. * ......................... 36,300 582
Regent Communications, Inc. * ............... 70,150 415
Scholastic Corp. * .......................... 22,500 809
Sonic Solutions * ........................... 95,500 477
----------
5,686
Multiline Retail - 1.8%
99 Cents Only Stores * ...................... 29,576 794
Cost Plus, Inc. * ........................... 25,300 725
Freds, Inc. ................................. 23,950 616
----------
2,135
Oil & Gas - 3.9%
Evergreen Resources, Inc. * ................. 29,500 1,323
Remington Oil & Gas Corp. * ................. 79,150 1,299
Spinnaker Exploration Co. * ................. 38,000 838
Stone Energy Corp. * ........................ 38,950 1,299
----------
4,759
Pharmaceuticals - 2.4%
Amylin Pharmaceuticals, Inc. * .............. 42,100 680
Intermune, Inc. * ........................... 18,600 474
NPS Pharmaceuticals, Inc. * ................. 47,200 1,188
Scios, Inc. * ............................... 16,300 531
----------
2,873
Road & Rail - 0.6%
Yellow Corp. * .............................. 27,800 700
Semiconductor Equipment & Products - 6.8%
Aeroflex, Inc. * ............................ 93,900 648
Atmi, Inc. .................................. 35,550 658
Axcelis Technologies, Inc. * ................ 94,700 531
Brooks PRI Automation, Inc. * ............... 59,426 681
Cree, Inc. * ................................ 74,500 1,218
DuPont Photomasks, Inc. * ................... 31,300 728
LTX Corp. * ................................. 126,400 762
Photronics, Inc. * .......................... 51,900 711
PMC-Sierra, Inc. * .......................... 121,300 675
Semtech Corp. * ............................. 47,200 515
Silicon Storage Technology, Inc. * .......... 95,550 386
Skyworks Solutions, Inc. .................... 85,350 736
----------
8,249
Software - 3.1%
Borland Software Corp. * .................... 106,300 1,308
Lawson Software, Inc. * ..................... 61,100 351
Macromedia, Inc. * .......................... 59,200 631
Precise Software Solutions Ltd. * ........... 74,400 1,228
79
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SMALL CAP GROWTH FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Software - Continued
Verint Systems, Inc. * ...................... 11,400 $ 230
----------
3,748
Specialty Retail - 4.1%
AC Moore Arts & Crafts, Inc. * .............. 63,800 811
AnnTaylor Stores Corp. * .................... 37,600 768
Genesco, Inc. * ............................. 33,500 624
Hollywood Entertainment Corp. * ............. 58,600 885
Hot Topic, Inc. * ........................... 60,449 1,383
Movie Gallery, Inc. * ....................... 40,300 524
----------
4,995
Textiles & Apparel - 2.0%
Columbia Sportswear Co. * ................... 27,625 1,227
Kellwood Co. * .............................. 32,800 853
Mossimo, Inc. * ............................. 53,800 296
----------
2,376
Transportation Infrastructure - 0.1%
SCS Tranportation, Inc. * ................... 12,250 122
----------
TOTAL COMMON STOCK- 97.5% 117,651
Par
Value
(000's)
INVESTMENT COMPANIES HELD
AS COLLATERAL ON LOANED
SECURITIES - 25.7%
State Street Navigator Securities Lending
Portfolio .................................. $ 31,085 31,085
SHORT-TERM INVESTMENTS - 2.7%
Investment in joint trading account (Note B)
1.388% due 01/02/03 .................... 3,275 3,275
---------- ----------
TOTAL INVESTMENTS- 125.9% 152,011
Payables, less cash and receivables- (25.9)% (31,288)
---------- ----------
NET ASSETS- 100.0% $ 120,723
========== ==========
* Non-income producing security.
See notes to financial statements.
80
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
HEALTH SCIENCES FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Biotechnology - 8.2%
Amgen, Inc. * ............................... 20,567 $ 994
Biogen, Inc. ................................ 1,184 48
Cephalon, Inc. * ............................ 851 41
Charles River Laboratories * ................ 1,800 69
Chiron Corp. * .............................. 2,060 78
Genzyme Corp. * ............................. 1,768 52
Gilead Sciences, Inc. * ..................... 4,826 164
Idec Pharmaceuticals Corp. * ................ 1,764 59
IDEXX Laboratories, Inc. * .................. 1,600 53
ILEX Oncology, Inc. * ....................... 589 4
MedImmune, Inc. * ........................... 7,795 212
Nexia Biotechnologies, Inc. * ............... 81
Qiagen NV * ................................. 2,200 11
Serologicals Corp. * ........................ 1,943 21
Shire Pharmaceuticals Group Place - ADR * ... 2,912 55
Techne Corp. * .............................. 50 2
----------
1,863
Chemicals - 1.6%
Takeda Chemical Industries * ................ 8,500 355
Commercial Services & Supplies - 0.2%
Ono Pharmaceutical Co., Ltd. * .............. 1,000 30
Pediatrix Medium Group, Inc. * .............. 435 18
----------
48
Health Care Equipment & Supplies - 12.2%
Alcon, Inc. * ............................... 1,490 59
Amerisource Bergen Corp. * .................. 2,157 117
Applera Corporation - Applied Biosystems
Group ...................................... 2,200 39
Baxter International, Inc. .................. 10,817 303
Bayer AG * .................................. 40 1
Becton, Dickinson & Co. * ................... 1,000 31
Biomet, Inc. * .............................. 1,721 49
Boston Scientific Corp. * ................... 3,892 165
Cytyc Corp. * ............................... 2,021 21
Dentsply International, Inc. ................ 1,900 71
Diagnostic Products Corp. ................... 1,290 50
Edwards Lifesciences Corp. * ................ 1,600 41
Guidant Corp. * ............................. 2,213 68
Medtronic, Inc. * ........................... 19,252 878
Nobel Biocare * ............................. 100 6
Olympus Optical Co. * ....................... 4,000 65
ResMed, Inc. * .............................. 5
Respironics, Inc. * ......................... 2,512 76
Salix Pharmaceuticals, Ltd. * ............... 711 5
Serono SA ................................... 70 37
Smith & Nephew .............................. 4,683 29
St. Jude Medical, Inc. * .................... 2,900 115
Steris Corp. * .............................. 4,269 103
Stryker Corp. * ............................. 1,900 127
Synthes-Stratec, Inc. ....................... 51 31
Terumo Corp. * .............................. 2,600 36
Varian Medical Systems, Inc. * .............. 1,570 $ 78
Zimmer Holdings, Inc. * ..................... 4,157 173
----------
2,774
Health Care Providers & Services - 13.1%
Advance PCS * ............................... 3,485 77
Anthem, Inc. * .............................. 3,017 190
Cardinal Health, Inc. * ..................... 8,372 496
Caremark Rx, Inc. * ......................... 4,900 80
Centene Corp. * ............................. 174 6
Community Health Systems, Inc. * ............ 2,249 46
Covance, Inc. * ............................. 1,197 29
Cross-Country, Inc. * ....................... 447 6
DaVita, Inc. * .............................. 2,800 69
Express Scripts, Inc. - Cl. A * ............. 2,640 127
HCA-The Healthcare Corp. * .................. 13,442 558
Laboratory Corporation of America
Holdings * ................................. 340 8
LifePoint Hospitals, Inc. * ................. 1,800 54
McKesson HBOC, Inc. ......................... 100 3
Mid Atlantic Medical Services, Inc. * ....... 2,000 65
Omnicare, Inc. .............................. 2,118 50
Oxford Health Plans, Inc. * ................. 2,150 78
Pharmaceutical Product Development, Inc. * .. 2,200 64
Quest Diagnostics, Inc. * ................... 1,920 109
Renal Care Group, Inc. * .................... 457 14
Triad Hospitals, Inc. * ..................... 1,525 46
UnitedHealth Group, Inc. * .................. 5,864 490
Universal Health Services, Inc. - Cl. B * ... 1,334 60
Wellchoice, Inc. ............................ 286 7
Wellpoint Health Networks, Inc. * ........... 3,326 237
----------
2,969
Insurance - 0.5%
CIGNA Corp. * ............................... 2,776 114
Pharmaceuticals - 61.2%
Abbott Laboratories * ....................... 19,904 796
Allegran, Inc. * ............................ 2,616 151
Andrx Corp. * ............................... 486 7
AstraZeneca Group plc * ..................... 6,838 244
AstraZeneca Group plc - ADR ................. 4,334 503
Barr Laboratories, Inc. * ................... 398 26
Biovail Corp. * ............................. 441 12
Bristol-Myers Squibb Co.* ................... 9,100 211
Connetics Corp. * ........................... 1,872 23
Eisai Co. Ltd. * ............................ 2,600 58
Eli Lilly & Co. * ........................... 12,627 802
Forest Laboratories, Inc. * ................. 4,434 435
Glaxo Smithkline plc - ADR .................. 31,390 1,176
Hampshire Group * ........................... 300 8
Intermune, Inc. * ........................... 1,211 31
Ivax Corp. * ................................ 2,150 26
Johnson & Johnson * ......................... 32,243 1,732
King Pharmaceuticals, Inc. * ................ 8,980 154
81
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
HEALTH SCIENCES FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Pharmaceuticals - Continued
Medicis Pharmaceutical Corp. - Cl. A * ...... 300 $ 15
Merck & Co., Inc. * ......................... 21,100 1,194
Mylan Laboratories, Inc. .................... 2,400 84
Novartis AG ................................. 39,118 1,427
Novo Nordisk AS ............................. 3,303 95
NPS Pharmaceuticals, Inc. * ................. 75 2
Pfizer, Inc. * .............................. 47,356 1,448
Pharmacia Corp. * ........................... 27,772 1,161
Rhone-Poulenc SA * .......................... 2,934 159
Roche Holdings AG * ......................... 3,817 266
Sankyo Co., Ltd. * .......................... 6,200 78
Sanofi-Synthelabo SA * ...................... 6,557 401
Schering AG * ............................... 301 13
Schering-Plough Corp. * ..................... 9,250 205
Scios, Inc. * ............................... 194 6
Taisho Pharmaceutical Co., Ltd. * ........... 1,400 21
Teva Pharmaceutical Industries, Ltd. - ADR * 992 38
UCB SA * .................................... 265 8
Wyeth ....................................... 17,805 666
Yamanouchi Pharmaceutical Co., Ltd. * ....... 6,500 188
----------
13,870
----------
TOTAL COMMON STOCK- 97.0% 21,993
Par
Value
(000's)
INVESTMENT COMPANIES HELD
AS COLLATERAL ON LOANED
SECURITIES - 25.4%
State Street Navigator Securities Lending
Portfolio .................................. $ 5,759 5,759
SHORT-TERM INVESTMENTS - 2.7%
Investment in joint trading account (Note B)
1.388% due 01/02/03 ......................... 599 599
---------- ----------
TOTAL INVESTMENTS- 125.1% 28,351
Cash and Receivables, less payables- (25.1)% (5,681)
---------- ----------
NET ASSETS- 100.0% $ 22,670
========== ==========
* Non-income producing security.
ADR-American Depository Receipt
See notes to financial statements.
82
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
GLOBAL BALANCED FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Australia - 1.1%
Brambles Industries, Ltd. (BO) .............. 7,600 $ 20
Broken Hill Proprietary Co., Ltd. (BF) ...... 5,805 33
National Australia Bank, Ltd. (JP) .......... 2,500 45
News Corp., Ltd. (JA) ....................... 5,700 37
Qantas Airways, Ltd. (BQ) ................... 29,900 64
QBE Insurance Group, Ltd. (JR) .............. 8,000 37
Woolworth's, Ltd. (JF) ...................... 15,400 99
----------
335
Austria - 0.3%
Erste Bank (JP) ............................. 400 27
Telecom Austria (J1) ........................ 5,411 55
----------
82
Canada - 1.2%
Abitibi Consolidated, Inc. BG) .............. 11,300 87
BCE, Inc. (J1) .............................. 5,800 104
Investors Group, Inc. (JQ) .................. 2,500 42
Suncor Energy, Inc. (BB) .................... 1,800 28
TELUS Corp. (J1) ............................ 3,400 35
Thomson Corp. (BZ) .......................... 2,100 56
----------
352
Denmark - 0.2%
Novo Nordisk AS (JO) ........................ 1,600 46
Finland - 0.6%
Nokia Oyj (JW) .............................. 10,100 160
UPM-Kymmene Corp. (BG) ...................... 900 29
----------
189
France - 3.1%
Air Liquide BC) ............................. 300 40
BNP Paribas (JP) ............................ 900 37
Bouygues SA (J2) ............................ 3,600 100
Carrefour SA JF) ............................ 800 36
Essilor International (JL) .................. 1,500 62
Renault (BV) ................................ 2,200 103
Sanofi-Synthelabo SA (JO) ................... 6,300 385
Schneider SA (BK) ........................... 800 38
STMicroelectronics (J0) ..................... 1,500 29
Vivendi Universal SA (JA) ................... 5,600 90
----------
920
Germany - 0.9%
Allianz AG (JR) ............................. 400 38
Bayerische Motoren Werke AG (BV) ............ 1,300 39
Deutsche Telekom AG (J1) .................... 3,900 50
Muenchener Rueckversicherungs-
Gesellschaft AG (JR) ....................... 300 36
Siemens AG (BL) ............................. 1,600 68
Thyssen Krupp AG (BF) ....................... 3,000 34
----------
265
Hong Kong - 1.1%
Cheung Kong Holdings, Ltd. (JS) ............. 8,000 $ 52
Hang Lung Properties (JS) ................... 48,000 46
Hang Seng Bank, Ltd. (JP) ................... 6,200 66
Johnson Electric Holdings, Ltd. (BK) ........ 44,000 49
Li & Fung, Ltd. (BO) ........................ 48,000 46
Sun Hung Kai Properties, Ltd. (JS) .......... 11,000 65
----------
324
Ireland - 0.1%
CRH plc (BD) ................................ 2,500 31
Italy - 0.1%
ENI (BB) .................................... 2,200 35
Japan - 5.1%
Advantest (J0) .............................. 1,300 58
Aiful Corp. (JQ) ............................ 600 23
Canon, Inc. (JZ) ............................ 1,000 38
Daiwa House Industry Co., Ltd. (BW) ......... 7,000 39
Disco Corp. (BM) ............................ 700 28
Enplas Corp. (BK) ........................... 1,200 30
Fujitsu, Ltd. (JX) .......................... 6,000 17
Hitachi, Ltd. (JY) .......................... 6,000 23
Honda Motor Co. (BV) ........................ 1,000 37
Hoya Corp. (JY) ............................. 1,000 70
Japan Telecom Co. (J1) ...................... 8 25
Jusco Co., Ltd. (JD) ........................ 5,000 118
Mitsubishi Estate Co., Ltd. (JS) ............ 4,000 30
Mitsubishi Heavy Industries, Ltd. (BM) ...... 17,000 42
Mitsubishi Motor (BV) ....................... 18,000 39
Mitsui Marine & Fire Insurance Co., Ltd. (JR) 8,000 37
Nikko Securities Co., Ltd. (JQ) ............. 30,000 101
Nissan Motor Acceptance Corp. (BV) .......... 16,000 125
Nomura Securities Co., Ltd. (JQ) ............ 3,000 34
NTT Mobile Communications Network, Inc. (J2). 29 53
OBIC JX) .................................... 200 35
Orix Corp. (JQ) ............................. 900 58
Rohm Co., Ltd. (J0) ......................... 200 25
Secom Co. (BO) .............................. 1,000 34
Sekisui House, Ltd. BW) ..................... 5,000 35
Shionogi & Co., Ltd. (JO) ................... 5,000 71
Sony Corp. (JY) ............................. 700 29
Suzuki Motor Corp. (BV) ..................... 6,000 65
Taiyo Yuden Co., Ltd. (JY) .................. 3,000 32
TDK Corp. (JY) .............................. 1,000 40
Tokyo Electron, Ltd. (J0) ................... 1,500 68
Tokyu Corp. BS) ............................. 14,000 49
Toray Industries, Inc. (BC) ................. 14,000 30
----------
1,538
Netherlands - 3.1%
ABN Amro Holding NV (JP) .................... 2,500 41
Aegon NV (JR) ............................... 13,234 170
83
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
GLOBAL BALANCED FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Netherlands - Continued
ASM Lithography Holding NV (J0) ............. 8,500 $ 71
Heineken Holding JG) ........................ 900 26
Heineken NV (JG) ............................ 3,500 136
ING Groep NV (JQ) ........................... 2,100 36
Koninklijke Royal) Philips Electronics NV
(JY) ....................................... 8,800 76
Koninklijke Numica NV JY) ................... 2,900 36
Royal Dutch Petroleum Co. (BB) .............. 7,700 339
Vedior (BO) ................................. 2,100 12
----------
943
New Zealand - 0.1%
Telecom Corp. of New Zealand, Ltd. (J1) ..... 11,000 26
Norway - 0.8%
Norsk Hydro ASA (BL) ........................ 2,300 103
Norske Skogindustrier ASA - Cl. A BG) ....... 2,700 38
Statoil ASA (BB) ............................ 10,000 84
----------
225
Singapore - 0.6%
DBS Group Holdings, Ltd. (JP) ............... 4,000 25
Singapore Technology Engineering, Ltd. (BH) . 31,000 30
Singapore Telecommunications, Ltd. (J1) ..... 117,000 84
Venture Manufacturing, Ltd. (JY) ............ 5,000 40
----------
179
Spain - 0.5%
Banco Bilbao Vizcaya SA (JP) ................ 8,900 85
Inditex (JE) ................................ 2,800 66
----------
151
Sweden - 0.7%
Assa Abloy (BI) ............................. 2,700 31
AstraZeneca Group plc (BO) .................. 2,600 91
ForeningsSparbanken AB (JP) ................. 6,900 82
----------
204
Switzerland - 3.0%
Credit Suisse Group (JP) .................... 1,524 33
Holcim (BD) ................................. 631 115
Nestle SA (JH) .............................. 527 112
Nobel Biocare AG (JL) ....................... 634 41
Novartis AG (JO) ............................ 4,263 155
Richemont (JQ) .............................. 5,726 107
Swiss Reinsurance Co. (JR) .................. 2,614 171
Swisscom AG (JI) ............................ 471 136
Synthes-Stratec, Inc. (JL) .................. 70 43
----------
913
United Kingdom - 6.6%
Arm Holdings plc (J0) ....................... 14,000 11
AstraZeneca Group plc JO) ................... 11,100 397
Barclays (JP) ............................... 4,400 27
BG Group plc (BB) ........................... 8,000 $ 34
Billiton plc (BF) ........................... 15,155 81
BOC Group plc (BC) .......................... 5,400 77
British Aerospace plc (BH) .................. 13,900 28
Celltech Group plc (JN) ..................... 7,600 42
Compass Group plc BZ) ....................... 7,100 38
Corus Group (BF) ............................ 75,600 33
MMO2 (J2) ................................... 45,700 33
Pearson plc (JA) ............................ 8,100 75
Prudential Corp. (JR) ....................... 4,100 29
Reuters Group plc (JA) ...................... 11,000 31
Royal Bank of Scotland Group (JP) ........... 7,400 177
Samsung Electronics - GDR JY) ............... 710 95
Smiths Group plc (BL) ....................... 9,900 111
Standard Chartered plc (JP) ................. 3,300 37
Unilever plc (JK) ........................... 8,000 76
Vodafone AirTouch plc (J2) .................. 302,038 551
----------
1,983
United States - 30.8%
AES Corp. (J3) .............................. 8,000 24
Agilent Technologies, Inc. (JY) ............. 8,900 160
Air Products & Chemicals, Inc. (BC) ......... 1,300 56
Allergan, Inc. (JO) ......................... 3,800 219
Altera Corp. (J0) ........................... 10,800 133
Amazon.com, Inc. (JC) ....................... 2,000 38
America Movil SA de CV - ADR - Ser. L (J2) .. 2,400 34
American Standard Cos., Inc. (BJ) ........... 1,000 71
AmeriCredit Corp. (JQ) ...................... 5,200 40
Anheuser-Busch Cos., Inc. (JG) .............. 1,600 77
AOL Time Warner, Inc. (JA) .................. 15,300 200
Applera Corporation - Applied Biosystems
Group (JL) ................................. 3,500 61
Applied Materials, Inc. (J0) ................ 26,300 343
Applied Micro Circuits Corp. (J0) ........... 12,300 45
AstraZeneca Group plc - ADR (JO) ............ 3,000 105
AT&T Corp. (J1) ............................. 4,080 107
Avon Products, Inc. (JK) .................... 600 32
Baker Hughes, Inc. (BA) ..................... 4,600 148
Bank One Corp. (JP) ......................... 2,700 99
Berkshire Hathaway, Inc. - Cl. A (JR) ........ 2 146
Broadcom Corp. - Cl. A J0) .................. 3,200 48
Cablevision Systems Corp. - Cl. A (JA) ...... 10,861 182
Cadence Design Systems, Inc. (JV) ........... 2,900 34
Carnival Corp. (BZ) ......................... 3,100 77
Checkfree Corp. (BO) ........................ 2,600 42
ChevronTexaco Corp. (BB) .................... 1,400 93
Cisco Systems, Inc. (JW) .................... 19,800 259
Citigroup, Inc. (JQ) ........................ 2,900 102
Companhia Vale Do Rio Doce - ADR (BF) ....... 1,800 52
Concord EFS, Inc. (BO) ...................... 5,000 79
Cox Communications, Inc. - Cl. A (JA) ....... 1,900 54
DBS Group Holdings, Ltd. - ADR 144A(a) (JP) . 2,000 13
84
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
GLOBAL BALANCED FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
United States - Continued
Del Monte Foods Co. (JH) .................... 581 $ 4
Duke Energy Co. (J5) ........................ 1,600 31
eBay, Inc. (JC) ............................. 1,800 122
Eli Lilly & Co. (JO) ........................ 1,900 121
Emerson Electric Co. (BK) ................... 700 36
Estee Lauder Cos., Inc. - Cl. A (JK) ........ 1,700 45
Exxon Mobil Corp. (BB) ...................... 5,500 192
Federal National Mortgage Assoc. (FD) ....... 1,600 103
FleetBoston Financial Corp. (JP) ............ 4,200 102
Fluor Corp. (BJ) ............................ 2,800 78
Forest Laboratories, Inc. (JO) .............. 1,800 177
General Electric Co. BL) .................... 3,300 80
General Motors Corp. (BV) ................... 1,400 52
General Motors Corp. - Cl. H (BV) ........... 3,400 36
Golden West Financial Corp. (JP) ............ 400 29
Guidant Corp. (JL) .......................... 1,100 34
H.J. Heinz Co. (JH) ......................... 1,300 43
Hewlett-Packard Co. (JX) .................... 2,121 37
Household International, Inc. (JQ) .......... 2,100 58
Illinois Tool Works, Inc. (BM) .............. 500 32
Ingersoll-Rand Co. - Cl. A (BU) ............. 900 39
Intel Corp. (J0) ............................ 1,700 26
International Business Machines Corp. (JX) .. 700 54
Interpublic Group Cos., Inc. (JA) ........... 1,600 23
JDS Uniphase Corp. (JW) ..................... 11,500 28
JP Morgan Chase & Co. (JP) .................. 5,800 139
Kinder Morgan, Inc. (J4) .................... 800 34
KLA-Tencor Corp. (J0) ....................... 6,800 241
Lehman Brothers Holdings, Inc. (JQ) ......... 1,000 53
Liberty Media Corp. - Ser. A (JA) ........... 4,472 40
Linear Technology Corp. (J0) ................ 1,600 41
Lowe's Cos., Inc. (JE) ...................... 4,500 169
Lukoil Holding - ADR (BB) ................... 1,100 68
Macromedia, Inc. JV) ........................ 4,400 47
Medtronic, Inc. (JL) ........................ 1,200 55
Microsoft Corp. JV) ......................... 4,100 212
Motorola, Inc. (JW) ......................... 3,800 33
Navistar International Corp., Inc. - Cl. B
(BM) ....................................... 1,700 41
Newmont Mining Corp. ((BF) .................. 1,200 35
Novellus Systems, Inc. (J0) ................. 2,600 73
PartnerRe, Ltd. (JR) ........................ 600 31
PepsiCo, Inc. (JG) .......................... 1,600 68
Pfizer, Inc. (JO) ........................... 15,900 486
Philip Morris Cos., Inc. (JI) ............... 1,000 41
PMC-Sierra, Inc. (J0) ....................... 5,400 30
Polycom, Inc. (JW) .......................... 2,800 27
Qualcomm, Inc. (JW) ......................... 3,500 127
Robert Half International, Inc. (BO) ........ 1,800 29
Royal Dutch Petroleum Co. (BB) .............. 2,100 92
Ryanair Holdings plc - ADR (BQ) ............. 1,300 51
Schlumberger, Ltd. (BA) ..................... 1,700 72
SLM Corp. JQ) ............................... 1,700 177
Sprint Corp. (J1) ........................... 11,700 169
Sprint PCS (J1) ............................. 36,100 $ 158
Starwood Hotels & Resorts Worldwide, Inc. (BZ) 1,800 43
Taiwan Semiconductor Manufacturing Co.,
Ltd. - ADR (J0) ............................ 3,712 26
Telefonos de Mexico SA - ADR (J1) ........... 1,700 54
Teradyne, Inc. (J0) ......................... 5,100 66
The PMI Group, Inc. (JR) .................... 1,800 54
The Thomson Corp. (JA) ...................... 3,900 104
The Walt Disney Co. (JA) .................... 3,300 54
TMP Worldwide, Inc. (JA) .................... 4,200 48
Transocean Sedco Forex, Inc. (BA) ........... 1,600 37
United Technologies Corp. (BK) .............. 1,900 118
Unocal Corp. (BB) ........................... 4,000 122
USA Networks, Inc. (JA) ..................... 4,400 101
Veritas Software Corp. (JV) ................. 3,300 52
Vodafone Group plc (J1) ..................... 100 2
Wal-Mart Stores, Inc. (JD) .................. 1,800 91
Washington Mutual, Inc. (JQ) ................ 8,750 302
Weatherford Bermuda (BA) .................... 1,200 48
Wells Fargo & Co. (JQ) ...................... 1,100 52
Xilinx, Inc. (J0) ........................... 4,600 95
XL Capital, Ltd. - Cl. A. (JR) .............. 1,300 100
Yahoo, Inc. (JT) ............................ 3,200 52
----------
9,215
----------
TOTAL COMMON STOCK- 60.0% 17,956
PREFERRED STOCK
United States - 0.1%
Ford Motor Co. Capital Trust II (JQ) ........ 800 33
----------
TOTAL PREFERRED STOCK- 0.1% 33
Par
Value
(000's)
PUBLICLY-TRADED BONDS
Australia - 0.2%
Commonwealth of Australia - Bonds (FG)
7.5% due 07/15/05 ...................... $ 100 60
Canada - 0.4%
Government of Canada (FG)
7.25% due 06/01/07 .................... 150 108
Denmark - 0.6%
Kingdom of Denmark (FG)
8.0% due 03/15/06 ...................... 1,100 176
Finland - 1.0%
Republic of Finland - Bonds (FG)
5.75% due 02/23/11 .................... 250 292
France - 1.3%
Government of France - Debs. (FG)
4.0% due 10/25/09 ...................... 370 389
85
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
GLOBAL BALANCED FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Germany - 11.2%
Federal Republic of Germany - Bonds (FG)
5.25% due 01/04/08 ..................... $ 500 $ 567
6.75% due 04/22/03 ..................... 375 397
Federal Republic of Germany (FG)
5.25% due 01/04/11 ..................... 1,875 2,126
6.25% due 01/04/30 ..................... 125 159
Kredit Fuer Wiederaufbau (JP)
5.0% due 07/04/11 ...................... 100 111
----------
3,360
Japan - 2.7%
Government of Japan (FG)
1.8% due 03/22/10 ...................... 90,000 824
Netherlands - 1.9%
Netherlands Government - Bonds (FG)
6.0% due 01/15/06 ...................... 500 569
Supra National - 6.2%
Amazon.com (JC)
6.875% due 02/16/10 .................... 39 16
Bank of Ireland (JP)
6.45% due 02/10/10 ..................... 250 291
European Investment Bank - Notes (JP)
3.0% due 09/20/06 ...................... 40,000 372
Federal National Mortgage Assoc. - Bonds (FD)
2.125% due 10/09/07 .................... 40,000 365
Fixed Link Finance BV (JQ)
6.3% due 08/28/25 ...................... 100 161
International Bank of Reconstruction &
Development - Debs. (JP)
4.75% due 12/20/04 ..................... 20,000 184
International-American Development Bank-
Bonds (JP)
1.9% due 07/08/09 ...................... 40,000 369
Kingdom of Spain - Notes (FG)
3.1% due 09/20/06 ...................... 10,000 93
----------
1,851
Sweden - 1.1%
Swedish Government (FG)
5.0% due 01/28/09 ...................... 2,750 327
United Kingdom - 1.2%
British Telecom plc (J1)
7.125% due 02/15/11 .................... 125 147
U.K. Treasury - Bonds (FG)
5.75% due 12/07/09 ..................... 110 192
6.0% due 12/07/28 ...................... 15 30
----------
369
United States - 7.5%
Amazon.Com, Inc. (JC)
4.75% due 02/01/09 ..................... 122 90
Federal National Mortgage Assoc. (FD)
5.25% due 01/15/09 ..................... $ 340 $ 372
Telstra, Ltd. - Notes (J1)
6.375% due 04/01/12 .................... 125 138
U.S. Treasury - Notes (TN)
3.25% due 05/31/04 ..................... 975 1,001
U.S. Treasury - Bonds (TB)
5.25% due 02/15/29 ..................... 500 522
Washington Mutual, Inc. (JQ)
5.625% due 01/15/07 .................... 125 134
----------
2,257
----------
TOTAL PUBLICLY-TRADED BONDS- 35.3% 10,582
SHORT-TERM INVESTMENTS - 5.4%
Investment in joint trading account (Note B)
1.388% due 01/02/03 .................... 1,612 1,612
---------- ----------
TOTAL INVESTMENTS- 100.8% 30,183
Payables, less cash and receivables- (0.8)% (247)
---------- ----------
NET ASSETS- 100.0% $ 29,936
========== ==========
ADR-American Depository Receipts.
GDR-Global Depository Receipts.
(a) Pursuant to Rule 144A under the Securities Act of 1993, these securities
may be resold in transactions exempt from registration, normally to
qualified institutional buyers. At December 31, 2002, securities aggregated
$2,000 or 6.7% of net assets of the Portfolio.
See notes to financial statements.
86
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
GLOBAL BALANCED FUND
SUMMARY OF LONG-TERM SECURITIES BY INDUSTRIES
Market % of
Industry Industry Value Long-Term
Abbreviation (000s) Investments
Foreign Governmental ................... FG $ 6,309 22.1%
Banks .................................. JP 2,390 8.4%
Pharmaceuticals ........................ JO 2,162 7.6%
Diversified Financials ................. JQ 1,511 5.3%
Semiconductor Equipment & Products ..... J0 1,431 5.0%
Diversified Telecommunication Services.. J1 1,291 4.5%
Oil & Gas .............................. BB 1,088 3.8%
Media .................................. JA 1,039 3.6%
U.S. Treasury Notes .................... TN 1,001 3.5%
Insurance .............................. JR 849 3.0%
U.S. Government Agencies ............... FD 840 2.9%
Wireless Telecommunications Services ... J2 772 2.7%
Communications Equipment ............... JW 635 2.2%
Electronic Equipment & Instruments ..... JY 601 2.1%
U.S. Treasury Bonds .................... TB 522 1.8%
Automobiles ............................ BV 496 1.7%
Industrial Conglomerates ............... BL 362 1.3%
Commercial Services & Supplies ......... BO 353 1.2%
Software ............................... JV 345 1.2%
Beverages .............................. JG 308 1.1%
Energy Equipment & Services ............ BA 305 1.1%
Health Care Equipment & Supplies ....... JL 295 1.0%
Electrical Equipment ................... BK 269 1.0%
Metals & Mining ........................ BF 268 0.9%
Internet & Catalog Retail .............. JC 265 0.9%
Specialty Retail ....................... JE 235 0.8%
Hotels Restaurants & Leisure ........... BZ 214 0.8%
Multiline Retail ....................... JD 209 0.7%
Chemicals .............................. BC 202 0.7%
Real Estate Investment Trust ........... JS 194 0.7%
Food Products .......................... JH 159 0.6%
Paper & Forest Products ................ BG 154 0.5%
Personal Products ...................... JK 153 0.5%
Construction & Engineering ............. BJ 150 0.5%
Construction Materials ................. BD 145 0.5%
Computers & Peripherals ................ JX 144 0.5%
Machinery .............................. BM 143 0.5%
Food & Drug Retailing .................. JF 134 0.5%
Airlines ............................... BQ 115 0.4%
Household Durables ..................... BW 75 0.3%
Aerospace & Defense .................... BH 57 0.2%
Internet Software & Services ........... JT 52 0.2%
Road & Rail ............................ BS 49 0.2%
Biotechnology .......................... JN 42 0.2%
Tobacco ................................ JI 41 0.2%
Auto Components ........................ BU 39 0.1%
Office Electronics ..................... JZ $ 38 0.1%
Gas Utilities .......................... J4 34 0.1%
Multi-Utilities ........................ J5 31 0.1%
Building Products ...................... BI 31 0.1%
Electric Utilities ..................... J3 24 0.1%
-------- -----------
$ 28,571 100.0%
======== ===========
87
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
MULTI CAP GROWTH FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Aerospace & Defense - 5.6%
General Dynamics Corp. * .................... 20,830 $ 1,653
Lockheed Martin Corp. ....................... 49,795 2,876
Northrop Grumman Corp. * .................... 26,980 2,617
Raytheon Co. * .............................. 60,355 1,856
----------
9,002
Banks - 1.3%
Fifth Third Bancorp * ....................... 35,734 2,092
Biotechnology - 2.7%
Genetech, Inc. * ............................ 49,230 1,632
Genzyme Corp. * ............................. 29,380 869
MedImmune, Inc. * ........................... 63,510 1,726
----------
4,227
Commercial Services & Supplies - 0.9%
Cendant Corp. ............................... 140,455 1,472
Communications Equipment - 4.3%
Nokia Oyj * ................................. 44,240 703
Nokia Oyj - ADR ............................. 398,877 6,182
----------
6,885
Computers & Peripherals - 1.8%
Apple Computer, Inc. * ...................... 196,670 2,818
Diversified Financials - 3.7%
Citigroup, Inc. * ........................... 37,258 1,311
E*TRADE Group. Inc. * ....................... 169,965 826
Goldman Sachs Group, Inc. ................... 55,254 3,763
----------
5,900
Energy Equipment & Services - 2.1%
Patterson UTI Energy, Inc. * ................ 21,740 656
Smith International, Inc. * ................. 80,130 2,614
----------
3,270
Health Care Equipment & Supplies - 5.6%
Amerisource Bergen Corp. * .................. 60,405 3,280
Guidant Corp. * ............................. 67,930 2,096
Medtronic, Inc. * ........................... 77,505 3,534
----------
8,910
Health Care Providers & Services - 6.8%
Anthem, Inc. * .............................. 46,440 2,921
Cardinal Health, Inc. * ..................... 52,622 3,115
McKesson HBOC, Inc. ......................... 84,625 2,287
UnitedHealth Group, Inc. * .................. 31,140 2,600
----------
10,923
Hotels Restaurants & Leisure - 1.3%
Darden Restaurants, Inc. * .................. 19,565 400
Wendy's International, Inc. * ............... 14,595 395
Yum Brands, Inc. * .......................... 50,895 1,233
----------
2,028
Household Durables - 0.6%
Stanley Works * ............................. 27,412 $ 948
Insurance - 13.9%
AFLAC, Inc. * ............................... 136,360 4,107
Allstate Corp. .............................. 137,523 5,087
Berkshire Hathaway, Inc. - Cl. B * .......... 3,447 8,352
Platinum Underwriters Holdings * ............ 34,160 900
Willis Group Holdings, Ltd. * ............... 52,320 1,500
XL Capital, Ltd. - Cl. A * .................. 30,140 2,329
----------
22,275
Internet & Catalog Retail - 1.3%
Amazon.com, Inc. * .......................... 107,450 2,030
Internet Software & Services - 1.5%
Yahoo, Inc. * ............................... 148,910 2,435
Media - 17.9%
AOL Time Warner, Inc. * ..................... 229,651 3,008
Cablevision Systems Corp. - Cl. A * ......... 264,227 4,423
Comcast Corp. - Cl. A ....................... 78,506 1,774
Cox Communications, Inc. - Cl. A * .......... 71,240 2,023
EchoStar Communications Corp. - Cl. A * ..... 45,090 1,004
Liberty Media Corp. - Ser. A * .............. 1,178,734 10,538
TMP Worldwide, Inc. * ....................... 111,410 1,260
USA Networks, Inc. * ........................ 133,580 3,062
Viacom, Inc. - Cl. B * ...................... 37,595 1,532
----------
28,624
Multiline Retail - 1.0%
Dollar Tree Stores, Inc. * .................. 66,695 1,639
Oil & Gas - 4.0%
Anadarko Petroleum Corp. * .................. 43,880 2,102
BJ Services Co. * ........................... 59,160 1,911
Murphy Oil Corp. ............................ 54,320 2,328
----------
6,341
Personal Products - 1.0%
Avon Products, Inc. ......................... 29,745 1,602
Pharmaceuticals - 9.9%
Biovail Corp. * ............................. 21,115 557
Eli Lilly & Co. * ........................... 12,830 815
Forest Laboratories, Inc. * ................. 49,715 4,883
Novartis - ADR .............................. 41,610 1,528
Novartis AG ................................. 26,560 969
Pfizer, Inc. * .............................. 168,889 5,163
Wyeth ....................................... 51,894 1,941
----------
15,856
Road & Rail - 1.2%
Canadian National Railway Co. ............... 47,565 1,977
Semiconductor Equipment & Products - 0.9%
Analog Devices, Inc. * ...................... 18,055 431
Applied Materials, Inc. * ................... 22,325 291
88
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
MULTI CAP GROWTH FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Semiconductor Equipment & Products - Continued
KLA-Tencor Corp. * .......................... 9,510 $ 336
Novellus Systems Inc. * ..................... 10,645 299
----------
1,357
Software - 4.5%
Computer Associates International, Inc. * ... 94,185 1,272
Electronic Arts, Inc. * ..................... 26,410 1,314
Intuit, Inc. * .............................. 22,010 1,033
Microsoft Corp. * ........................... 62,090 3,210
Synopsys, Inc. * ............................ 9,260 427
----------
7,256
Specialty Retail - 1.1%
TJX Cos., Inc. * ............................ 91,945 1,795
U.S. Government Agencies - 1.5%
Federal National Mortgage Assoc. * .......... 36,904 2,374
----------
TOTAL COMMON STOCK- 96.4% 154,036
Par
Value
(000's)
INVESTMENT COMPANIES HELD AS COLLATERAL ON LOANED
SECURITIES - 6.3%
State Street Navigator Securities
Lending Portfolio .......................... $ 10,176 10,176
SHORT-TERM INVESTMENTS - 4.1%
Investment in joint trading account (Note B)
1.388% due 01/02/03 .................... 6,593 6,593
---------- ----------
TOTAL INVESTMENTS- 106.8% 170,805
Payables, less cash and receivables- (6.8)% (10,946)
---------- ----------
NET ASSETS- 100.0% $ 159,859
========== ==========
* Non-income producing security.
See notes to financial statements.
89
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
LARGE CAP VALUE FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Aerospace & Defense - 2.2%
Lockheed Martin Corp. ....................... 29,000 $ 1,675
Raytheon Co. * .............................. 52,200 1,605
Rockwell Collins, Inc. * .................... 100,900 2,347
----------
5,627
Automobiles - 0.3%
Ford Motor Co. .............................. 93,000 865
Banks - 7.0%
Bank of America Corp. * ..................... 39,600 2,755
Bank One Corp. * ............................ 106,200 3,882
FleetBoston Financial Corp. ................. 129,772 3,153
JP Morgan Chase & Co. ....................... 93,530 2,245
Mellon Financial Corp. * .................... 107,600 2,809
Mercantile Bankshares Corp. ................. 35,900 1,385
National City Corp. * ....................... 51,300 1,402
Northern Trust Corp. ........................ 15,900 557
----------
18,188
Beverages - 0.8%
Brown-Forman Corp. - Cl.B * ................. 33,700 2,203
Chemicals - 3.9%
Dow Chemical Co. * .......................... 92,200 2,738
E.I. du Pont de Nemours & Co. * ............. 76,700 3,252
Great Lakes Chemical Corp. .................. 58,400 1,395
Hercules, Inc. * ............................ 98,800 869
International Flavors & Fragrances, Inc. * .. 54,100 1,899
----------
10,153
Commercial Services & Supplies - 3.6%
Dun & Bradstreet Corp. ...................... 27,500 948
Honeywell International, Inc. ............... 184,300 4,423
R.R. Donnelley & Sons Co. * ................. 51,800 1,128
Waste Management, Inc. * .................... 121,190 2,778
----------
9,277
Communications Equipment - 1.1%
Cisco Systems, Inc. * ....................... 87,800 1,150
Lucent Technologies, Inc. * ................. 224,200 282
Motorola, Inc. .............................. 166,300 1,439
----------
2,871
Computers & Peripherals - 1.2%
Hewlett-Packard Co. * ....................... 183,488 3,185
Diversified Financials - 3.2%
American Express Co. * ...................... 85,000 3,005
Citigroup, Inc. * ........................... 60,166 2,117
Moody's Corporation ......................... 35,400 1,461
Wells Fargo & Co. * ......................... 36,500 1,711
----------
8,294
Diversified Telecommunication Services - 7.1%
Alltel Corp. * .............................. 61,100 3,116
AT&T Corp. * ................................ 63,420 $ 1,656
Qwest Communications International, Inc. .... 515,700 2,579
SBC Communications, Inc. * .................. 129,455 3,510
Sprint Corp. * .............................. 139,600 2,021
Verizon Communications * .................... 145,116 5,623
----------
18,505
Electric Utilities - 2.9%
Constellation Energy Group * ................ 105,200 2,927
Exelon Corp. * .............................. 25,875 1,365
Firstenergy Corp. * ......................... 48,200 1,589
TXU Corp. ................................... 95,600 1,786
----------
7,667
Electric/Gas - 0.9%
NiSource, Inc. * ............................ 117,000 2,340
Electrical Equipment - 3.0%
Cooper Industries, Ltd. - Cl. A * ........... 92,100 3,357
Emerson Electric Co. ........................ 29,400 1,495
Hubbell, Inc. - Cl. B ....................... 51,400 1,806
Rockwell International Corp. * .............. 60,000 1,243
----------
7,901
Energy Equipment & Services - 0.4%
Baker Hughes, Inc. * ........................ 28,800 927
Food Products - 3.0%
Campbell Soup Co. * ......................... 96,300 2,260
General Mills, Inc. * ....................... 48,100 2,258
Hershey Foods Corp. * ....................... 25,100 1,693
Kellogg Co. * ............................... 28,500 977
McCormick & Co., Inc. ....................... 26,800 622
----------
7,810
Gas Utilities - 0.3%
E1 Paso Corp. ............................... 95,600 665
Health Care Equipment & Supplies - 1.0%
Baxter International, Inc. .................. 39,700 1,112
Becton, Dickinson & Co. * ................... 49,600 1,522
----------
2,634
Hotels Restaurants & Leisure - 2.3%
Hilton Hotels Corp. * ....................... 131,300 1,669
McDonald's Corp. * .......................... 130,600 2,100
Starwood Hotels & Resorts Worldwide, Inc. * . 88,900 2,110
----------
5,879
Household Durables - 1.3%
Black & Decker Corp. * ...................... 19,500 836
Fortune Brands, Inc. * ...................... 52,000 2,419
----------
3,255
90
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
LARGE CAP VALUE FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Household Products - 1.7%
Clorox Co. * ................................ 47,100 $ 1,943
Kimberly-Clark Corp. * ...................... 54,200 2,573
----------
4,516
Industrial Conglomerates - 2.8%
3M Co. ...................................... 16,400 2,022
General Electric Co. * ...................... 173,700 4,229
Tyco International, Ltd. * .................. 64,500 1,102
----------
7,353
Insurance - 6.4%
American International Group, Inc. * ........ 37,246 2,155
Aon Corp. * ................................. 34,800 657
Chubb Corp. * ............................... 42,700 2,229
CIGNA Corp. * ............................... 52,000 2,138
Lincoln National Corp. * .................... 40,500 1,279
Prudential Financial, Inc. * ................ 28,900 917
Safeco Corp. * .............................. 95,200 3,301
St. Paul Cos., Inc. ......................... 50,752 1,728
UnumProvident Corp. * ....................... 124,400 2,182
----------
16,586
Leisure Equipment & Products - 1.6%
Eastman Kodak Co. * ......................... 86,600 3,035
Hasbro, Inc. * .............................. 107,300 1,239
----------
4,274
Machinery - 1.1%
Eaton Corp. * ............................... 15,700 1,226
Pall Corp. * ................................ 106,000 1,768
----------
2,994
Media - 6.1%
AOL Time Warner, Inc. * ..................... 239,200 3,134
Comcast Corp. - Cl.A ........................ 102,581 2,418
Dow Jones & Co., Inc. * ..................... 73,800 3,190
Knight-Ridder, Inc. * ....................... 47,800 3,023
Readers Digest Association, Inc.-Cl. A * .... 69,700 1,053
The Walt Disney Co. * ....................... 191,600 3,125
----------
15,943
Multi-Utilities - 0.9%
Duke Energy Co. ............................. 113,600 2,220
Multiline Retail - 0.9%
J.C. Penney Co., Inc. * ..................... 24,000 552
May Department Stores Co. * ................. 76,250 1,752
----------
2,304
Office Electronics - 0.2%
Xerox Corp. * ............................... 56,800 457
Oil & Gas - 9.7%
Amerada Hess Corp. * ........................ 52,000 2,863
BP Amoco plc - ADR .......................... 77,732 3,160
ChevronTexaco Corp. * ....................... 78,613 $ 5,226
Exxon Mobil Corp. * ......................... 184,434 6,444
Marathon Oil Corp. * ........................ 49,100 1,045
Royal Dutch Petroleum Co. * ................. 85,900 3,781
Unocal Corp. * .............................. 85,100 2,603
----------
25,122
Paper & Forest Products - 1.7%
International Paper Co. * ................... 107,870 3,772
MeadWestvaco Corp. * ........................ 21,500 532
----------
4,304
Personal Products - 1.0%
Gillette Co. ................................ 82,500 2,505
Pharmaceuticals - 7.7%
Abbott Laboratories * ....................... 40,200 1,608
Bristol-Myers Squibb Co. * .................. 172,000 3,982
Merck & Co., Inc. * ......................... 128,500 7,274
Schering-Plough Corp. * ..................... 168,400 3,739
Wyeth ....................................... 91,200 3,411
----------
20,014
Real Estate Development - 0.1%
Rouse Co. ................................... 5,300 168
Real Estate Investment Trust - 0.8%
Simon Property Group, Inc. .................. 62,400 2,126
Road & Rail - 2.5%
Norfolk Southern Corp. * .................... 113,600 2,271
Union Pacific Corp. * ....................... 69,500 4,161
----------
6,432
Semiconductor Equipment & Products - 0.5%
Agere Systems, Inc. - Cl. A * ............... 115,616 166
Texas Instruments, Inc. * ................... 76,200 1,144
----------
1,310
Software - 0.7%
Microsoft Corp. * ........................... 35,800 1,851
Specialty Retail - 1.0%
Home Depot, Inc. * .......................... 65,400 1,567
Toys "R" Us, Inc. * ......................... 115,700 1,157
----------
2,724
Tobacco - 1.4%
Philip Morris Cos., Inc. * .................. 35,400 1,435
UST, Inc. * ................................. 67,100 2,243
----------
3,678
Trading Companies & Distributors - 0.6%
Genuine Parts Co. * ......................... 53,200 1,639
U.S. Government Agencies - 0.9%
Federal National Mortgage Assoc. * .......... 37,000 2,380
----------
TOTAL COMMON STOCK- 95.8% 249,146
91
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
LARGE CAP VALUE FUND
Market
Name of Issuer Shares Value
(000's)
PREFERRED STOCK
Communications Equipment - 0.3%
Lucent Technologies, Inc. - 144A (a) ........ 0 $ 66
Lucent Technologies, Inc. ................... 1 690
Diversified Financials - 0.2%
Ford Motor Co. Capital Trust II ............. 14 592
----------
TOTAL PREFERRED STOCK- 0.5% 1,348
----------
Par
Value
(000's)
INVESTMENT COMPANIES HELD
AS COLLATERAL ON LOANED
SECURITIES - 1.9%
State Street Navigator Securities
Lending Portfolio .......................... $ 5,152 5,152
SHORT-TERM INVESTMENTS - 3.9%
Investment in joint trading account (Note B)
1.388% due 01/02/03 .................... 10,033 10,033
---------- ----------
TOTAL INVESTMENTS- 102.1% 265,679
Payables, less cash and receivables- (2.1)% (5,538)
---------- ----------
NET ASSETS- 100.0% $ 260,141
========== ==========
* Non-income producing security.
(a) Pursuant to Rule 144A under the Securities Act of 1993, these securities
may be resold in transactions exempt from registration, normally to
qualified institutional buyers. At December 31, 2002, securities aggregated
$66 or 0.01% of net assets of the Portfolio.
ADR - American Depository Receipt
See notes to financial statements.
92
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
LARGE CAP VALUE CORE FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Aerospace & Defense - 0.4%
Raytheon Co. * .............................. 1,300 $ 40
Rockwell Collins, Inc. * .................... 4,600 107
----------
147
Air Freight & Couriers - 0.6%
Airborne, Inc. .............................. 9,300 138
Fedex Corp. ................................. 1,800 97
----------
235
Airlines - 0.3%
AMR Corp. * ................................. 4,700 31
Delta Air Lines, Inc. * ..................... 6,100 74
----------
105
Auto Components - 1.6%
Goodyear Tire & Rubber Co. * ................ 6,300 43
Johnson Controls, Inc. ...................... 6,000 481
Visteon Corp. * ............................. 20,200 140
----------
664
Automobiles - 1.6%
General Motors Corp. * ...................... 16,700 616
General Motors Corp. Cl. H * ................ 4,600 49
----------
665
Banks - 13.3%
Bank of America Corp. * ..................... 21,110 1,469
Bank One Corp. * ............................ 7,000 256
BB&T Corporation * .......................... 3,800 141
Hudson City Bancorp, Inc. ................... 3,800 71
JP Morgan Chase & Co. ....................... 15,100 362
M & T Bank Corp. * .......................... 1,500 119
National City Corp. * ....................... 15,200 415
Regions Financial Corp. ..................... 12,200 407
South Trust Corp. * ......................... 11,300 281
Suntrust Banks, Inc. * ...................... 8,300 472
Union Planters Corp. * ...................... 15,850 446
US Bancorp * ................................ 3,900 83
Wachovia Corp. * ............................ 24,900 907
----------
5,429
Beverages - 0.1%
Brown-Forman Corp. - Cl. B * ................ 600 39
Biotechnology - 1.1%
Amgen, Inc. * ............................... 1,000 48
Charles River Laboratories * ................ 3,600 139
Chiron Corp. * .............................. 2,300 87
Gilead Sciences, Inc. * ..................... 4,000 136
Invitrogen Corp. * .......................... 1,100 34
----------
444
Chemicals - 1.1%
A. Schulman, Inc. ........................... 2,800 52
Dow Chemical Co. * .......................... 5,800 172
E.I. du Pont de Nemours & Co. * ............. 1,000 $ 43
Great Lakes Chemical Corp. .................. 4,300 103
The Scotts Co. - Cl. A * .................... 1,700 83
----------
453
Commercial Services & Supplies - 2.2%
Avery Dennison Corp. * ...................... 3,300 202
Deluxe Corp. * .............................. 3,600 152
Honeywell International, Inc. ............... 6,500 156
Manpower, Inc.* ............................. 3,400 108
Republic Services, Inc. - Cl. A * ........... 9,700 203
Waste Management, Inc. * .................... 3,000 69
----------
890
Communications Equipment - 0.1%
Motorola, Inc. .............................. 6,300 54
Computers & Peripherals - 3.3%
Dell Computer Corp. * ....................... 14,100 377
Hewlett-Packard Co. * ....................... 32,942 572
International Business Machines Corp. ....... 5,300 411
----------
1,360
Construction Materials - 0.7%
Carlisle Cos., Inc. ......................... 3,100 128
United States Steel Corp. * ................. 10,800 142
----------
270
Containers & Packaging - 0.7%
Ball Corp. .................................. 3,600 184
Ownes-Illinois, Inc. * ...................... 7,900 115
----------
299
Diversified Financials - 12.0%
American Express Co. * ...................... 7,300 258
Bear Stearns Cos., Inc. * ................... 7,300 434
Citigroup, Inc. * ........................... 47,500 1,672
John Nuveen Co. - Cl. A ..................... 3,800 96
Lehman Brothers Holdings, Inc. .............. 7,300 389
Merrill Lynch & Co., Inc. * ................. 12,100 459
Morgan Stanley, Dean Witter, Discover & Co. . 4,400 176
Nationwide Financial Services - Cl. A ....... 10,500 301
The Dun & Bradstreet Corp. * ................ 9,500 392
Washington Mutual, Inc. * ................... 7,300 252
Wells Fargo & Co. * ......................... 9,500 445
----------
4,874
Diversified Telecommunication Services - 7.2%
Alltel Corp. * .............................. 5,800 296
AT&T Corp. * ................................ 7,620 199
BCE, Inc. ................................... 3,000 54
BellSouth Corp. * ........................... 16,500 427
SBC Communications, Inc. * .................. 23,700 643
Sprint Corp. * .............................. 24,600 356
93
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
LARGE CAP VALUE CORE FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Diversified Telecommunication Services - Continued
Verizon Communications * .................... 24,600 $ 953
----------
2,928
Electric Utilities - 4.5%
Allegheny Energy, Inc. * .................... 6,300 48
American Electric Power Co. * ............... 14,000 383
Constellation Energy Group * ................ 4,500 125
Edison International * ...................... 13,000 154
Entergy Corp. * ............................. 7,700 351
Firstenergy Corp. * ......................... 600 20
PG & E Corp. * .............................. 14,400 200
Progress Energy, Inc. * ..................... 11,200 485
TXU Corp. ................................... 2,700 50
----------
1,816
Electrical Equipment - 0.7%
American Power Conversion * ................. 2,900 44
Rockwell International Corp. * .............. 8,500 176
Tecumseh Products Co. - Cl. A ............... 900 40
United Technologies Corp. * ................. 700 43
----------
303
Electronic Equipment & Instruments - 1.6%
Arrow Electronics, Inc. * ................... 8,600 110
Avnet, Inc. ................................. 13,600 147
Ingram Micro, Inc. - Cl. A * ................ 27,900 345
Tech Data Corp. * ........................... 2,610 70
----------
672
Energy Equipment & Services - 1.0%
Transocean Sedco Forex, Inc. * .............. 17,200 399
Food & Drug Retailing - 1.1%
CVS Corp. ................................... 2,000 50
SuperValu, Inc. * ........................... 8,000 132
Sysco Corp. * ............................... 8,800 262
----------
444
Food Products - 2.0%
Archer Daniels Midland Co. * ................ 12,200 151
Kraft Foods, Cl. - A ........................ 12,300 479
Tyson Foods, Inc. - Cl. A ................... 18,000 202
----------
832
Health Care Equipment & Supplies - 0.5%
Applera Corporation - Applied Biosystems
Group ...................................... 8,900 156
Henry Schein, Inc. * ........................ 1,000 45
----------
201
Health Care Providers & Services - 2.7%
Aetna US Healthcare, Inc. * ................. 6,700 276
Cardinal Health, Inc. * ..................... 3,400 201
Healthnet, Inc. * ........................... 4,000 106
McKesson HBOC, Inc. ......................... 14,200 384
PacifiCare Health Systems, Inc. * ........... 1,900 53
UnitedHealth Group, Inc. * .................. 1,200 $ 100
----------
1,120
Household Products - 3.0%
Clorox Co. * ................................ 9,500 392
Procter & Gamble Co. * ...................... 9,700 833
----------
1,225
Industrial Conglomerates - 0.4%
Aramark Corp. - Cl. B * ..................... 6,200 146
Insurance - 6.0%
Allstate Corp. .............................. 1,200 44
American Financial Group, Inc. .............. 2,000 46
American International Group, Inc. * ........ 5,815 336
American National Insurance Co. ............. 1,100 90
CNA Financial Corp. * ....................... 12,400 317
Loews Corp. * ............................... 10,200 454
Metlife, Inc. * ............................. 18,400 498
Principal Financial Group. * ................ 4,000 121
Prudential Financial, Inc. * ................ 11,400 362
The MONY Group, Inc. ........................ 1,400 34
Travelers Property Casualty Corp. - Cl. B * . 9,628 141
----------
2,443
Leisure Equipment & Products - 1.2%
Eastman Kodak Co. * ......................... 7,400 259
Polaris Industries Inc. ..................... 3,600 211
----------
470
Machinery - 0.5%
ITT Industries, Inc. * ...................... 2,500 152
Timken Co. .................................. 2,900 55
----------
207
Media - 7.1%
AOL Time Warner, Inc. * ..................... 53,300 698
Comcast Corp. - Cl. A ....................... 20,663 487
Cox Radio, Inc. - Cl. A * ................... 4,100 93
Entravision Communications - Cl. A * ........ 4,300 43
Fox Entertainment Group, Inc. - Cl. A * ..... 17,300 449
Hearst-Argyle Television, Inc. * ............ 6,000 145
McClatchy Newspapers, Inc. - Cl. A .......... 3,300 187
McGraw-Hill Cos., Inc. ...................... 1,700 103
Media General, Inc. - Cl. A ................. 1,200 72
Panamsat Corp. * ............................ 5,700 83
The Walt Disney Co. * ....................... 13,000 212
Viacom, Inc. - Cl. B * ...................... 7,900 322
----------
2,894
Multiline Retail - 1.6%
Big Lots, Inc. * ............................ 4,600 61
Dillard's Inc. - Cl. A * .................... 4,100 65
Saks, Inc. * ................................ 15,700 184
94
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
LARGE CAP VALUE CORE FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Multiline Retail - Continued
Wal-Mart Stores, Inc. * ..................... 7,000 $ 354
----------
664
Oil & Gas - 10.8%
Chevron Texaco Corp. * ...................... 4,535 302
Conoco Phillips ............................. 9,559 463
Exxon Mobil Corp. * ......................... 69,900 2,442
Marathon Oil Corp. * ........................ 4,100 87
Occidental Petroleum Corp. * ................ 17,800 506
Oneok, Inc. ................................. 13,800 265
Valero Energy Corp. ......................... 9,300 344
----------
4,409
Paper & Forest Products - 0.1%
International Paper Co. * ................... 1,200 42
Personal Products - 0.7%
Colgate-Palmolive Co. ....................... 5,600 294
Pharmaceuticals - 0.9%
Johnson & Johnson * ......................... 700 38
Merck & Co., Inc. * ......................... 5,800 328
----------
366
Real Estate Investment Trust - 1.8%
Avalonbay Communities, Inc. ................. 1,000 39
Equity Office Properties Trust * ............ 16,200 405
Mack-Cali Realty LP * ....................... 2,000 61
Prologis Trust .............................. 8,000 201
Simon Property Group, Inc. .................. 600 20
----------
726
Real Estate Operations - 0.3%
AMB Property Corp. .......................... 3,900 107
Road & Rail - 0.7%
Union Pacific Corp. * ....................... 4,900 293
Software - 0.1%
Imation Corp. * ............................. 1,100 39
Specialty Retail - 2.6%
AutoNation, Inc. * .......................... 20,100 252
Limited, Inc. * ............................. 8,100 113
PetsMart, Inc.* ............................. 5,700 98
Sherwin-Williams Co. * ...................... 10,700 302
Staples, Inc. * ............................. 16,500 302
----------
1,067
Tobacco - 0.8%
R.J. Reynolds Tobacco Holdings, Inc. ........ 7,900 333
Trading Companies & Distributors - 0.2%
W.W. Grainger, Inc. * ....................... 1,500 77
Wireless Telecommunications Services - 0.5%
AT&T Wireless Group * ....................... 11,500 65
United States Cellular Corp. * .............. 5,300 $ 133
----------
198
----------
TOTAL COMMON STOCK- 99.7% 40,643
Cash and Receivables, less payables- 0.3% 122
---------- ----------
NET ASSETS- 100.0% $ 40,765
========== ==========
* Non-income producing security.
See notes to financial statements.
95
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
FUNDAMENTAL VALUE FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Aerospace & Defense - 1.3%
Boeing Co. * ................................ 6,400 $ 211
Lockheed Martin Corp. ....................... 16,400 947
Northrop Grumman Corp. * .................... 3,800 369
----------
1,527
Air Freight & Couriers - 0.6%
Fedex Corp. ................................. 13,500 732
Airlines - 0.1%
Continental Airlines, Inc. - Cl. B * ........ 22,300 162
Auto Components - 1.3%
American Axle & Manufacturing
Holdings, Inc. * ........................... 15,700 367
Johnson Controls, Inc. ...................... 4,400 353
Lear Corp. * ................................ 26,500 882
----------
1,602
Banks - 12.4%
Bank of America Corp. * ..................... 42,700 2,971
Bank of New York Co., Inc. * ................ 15,000 359
Bank One Corp. * ............................ 33,100 1,210
Commerce Bancshares, Inc. ................... 9,657 379
Golden West Financial Corp. * ............... 29,600 2,126
Hibernia Corp. - Cl. A ...................... 33,800 651
KeyCorp * ................................... 60,600 1,524
PNC Bank Corp. * ............................ 44,400 1,860
UnionBanCal Corp. ........................... 54,200 2,128
Wachovia Corp. * ............................ 49,800 1,815
----------
15,023
Beverages - 1.3%
Constellation Brands, Inc. - Cl. A * ........ 26,200 621
PepsiCo, Inc. * ............................. 22,700 959
----------
1,580
Building Products - 1.1%
Masco Corp. * ............................... 63,400 1,335
Chemicals - 2.8%
Dow Chemical Co. * .......................... 33,100 983
E.I. du Pont de Nemours & Co. * ............. 29,900 1,268
Monsanto Co. ................................ 1,458 28
Rohm & Haas Co. ............................. 33,800 1,098
----------
3,377
Commercial Services & Supplies - 1.4%
Cendant Corp. ............................... 94,200 987
Waste Management, Inc. * .................... 30,200 692
----------
1,679
Communications Equipment - 0.4%
Lucent Technologies, Inc. * ................. 418,600 527
Computers & Peripherals - 3.6%
EMC Corp. * ................................. 53,200 327
Hewlett-Packard Co. * ....................... 116,857 2,029
International Business Machines Corp. ....... 25,400 $ 1,968
----------
4,324
Diversified Financials - 12.1%
Capital One Financial Corp. ................. 14,400 428
Citigroup, Inc. * ........................... 169,566 5,967
Household International, Inc. ............... 36,200 1,007
Legg Mason, Inc. * .......................... 8,300 403
Lehman Brothers Holdings, Inc. .............. 4,300 229
Merrill Lynch & Co., Inc. * ................. 89,300 3,389
Morgan Stanley, Dean Witter, Discover & Co. . 42,600 1,700
Wells Fargo & Co. * ......................... 31,700 1,486
----------
14,609
Diversified Telecommunications Services - 7.3%
AT&T Corp. * ................................ 30,700 802
BellSouth Corp. * ........................... 59,700 1,544
Citizens Communications Co. * ............... 28,700 303
Qwest Communications International, Inc. .... 379,700 1,898
SBC Communications, Inc. * .................. 93,795 2,543
Verizon Communications * .................... 45,100 1,748
----------
8,838
Electric Utilities - 6.5%
Cinergy Corp. * ............................. 35,500 1,197
Exelon Corp. * .............................. 43,412 2,291
Firstenergy Corp. * ......................... 32,000 1,055
FPL Group, Inc. ............................. 32,700 1,966
Pinnacle West Capital Corp. * ............... 23,000 784
PPL Corp. ................................... 16,500 572
----------
7,865
Electrical Equipment - 0.5%
United Technologies Corp. * ................. 10,400 644
Electronic Equipment & Instruments - 0.5%
Thermo Electron Corp. * ..................... 29,000 583
Energy Equipment & Services - 0.4%
Halliburton Co. * ........................... 28,500 533
Food Products - 1.9%
General Mills, Inc. * ....................... 50,400 2,366
Health Care Equipment & Supplies - 0.2%
Becton, Dickinson & Co. * ................... 9,400 288
Health Care Providers & Services - 1.1%
HCA-The Healthcare Corp. * .................. 6,000 249
McKesson HBOC, Inc. ......................... 38,500 1,041
----------
1,290
Hotels Restaurants & Leisure - 1.4%
McDonald's Corp. * .......................... 59,500 957
MGM Grand, Inc. ............................. 21,100 695
----------
1,652
96
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
FUNDAMENTAL VALUE FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Household Products - 1.5%
Kimberly-Clark Corp. * ...................... 3,500 $ 166
Procter & Gamble Co. * ...................... 18,700 1,607
----------
1,773
Industrial Conglomerates - 0.7%
Aramark Corp. - Cl. B * ..................... 34,000 799
Insurance - 6.8%
American International Group, Inc. * ........ 35,950 2,080
Marsh & McLennan Cos., Inc. * ............... 27,000 1,248
MBIA, Inc. * ................................ 56,250 2,467
St. Paul Cos., Inc. ......................... 44,400 1,512
XL Capital, Ltd. - Cl.A* .................... 12,200 942
----------
8,249
Leisure Equipment & Products - 0.6%
Eastman Kodak Co. * ......................... 14,600 512
Mattel, Inc. * .............................. 12,600 241
----------
753
Machinery - 1.8%
Caterpillar, Inc. * ......................... 16,000 731
ITT Industries, Inc. * ...................... 24,100 1,463
----------
2,194
Media - 6.2%
AOL Time Warner, Inc. * ..................... 97,500 1,277
Comcast Corp. - Cl. A ....................... 49,657 1,170
Comcast Corp. - Cl. A ....................... 43,100 974
E.W. Scripps Co. - Cl. A .................... 4,900 377
Gannett Co., Inc. * ......................... 13,900 998
Lamar Advertising Co. * ..................... 7,000 236
Liberty Media Corp. - Ser. A * .............. 192,200 1,718
USA Networks, Inc. * ........................ 33,600 770
----------
7,520
Metals & Mining - 0.9%
Alcoa, Inc. * ............................... 45,700 1,041
Multiline Retail - 0.9%
Dillard's Inc. - C.A * ...................... 45,000 714
Ross Stores, Inc. ........................... 10,100 428
----------
1,142
Office Electronics - 0.2%
Xerox Corp. * ............................... 33,500 270
Oil & Gas - 10.3%
Amerada Hess Corp. * ........................ 6,500 358
Chevron Texaco Corp. * ...................... 22,200 1,476
Conoco Phillips ............................. 19,685 952
Exxon Mobil Corp. * ......................... 115,100 4,022
Royal Dutch Petroleum Co. * ................. 59,100 2,602
Sunoco, Inc. * .............................. 28,000 929
Total Fina SA - ADR ......................... 29,500 2,109
----------
12,448
Paper & Forest Products - 1.7%
Bowater, Inc. ............................... 35,100 $ 1,473
Weyerhaeuser Co. ............................ 12,300 605
----------
2,078
Personal Products - 0.4%
Alberto-Culver Co. - Cl. B * ................ 9,800 494
Pharmaceuticals - 3.3%
Abbott Laboratories * ....................... 21,500 860
Eli Lilly & Co. * ........................... 22,900 1,454
Schering-Plough Corp. * ..................... 76,200 1,692
----------
4,006
Real Estate Investment Trust - 2.2%
General Growth Properties ................... 18,200 947
Kimco Realty Corp. .......................... 34,050 1,043
Public Storage, Inc. ........................ 22,100 714
----------
2,704
Road & Rail - 0.5%
Canadian National Railway Co. ............... 15,200 632
Semiconductor Equipment & Products - 0.3%
Agere Systems, Inc. - Cl. A * ............... 29,300 42
National Semiconductor Corp. * .............. 17,700 266
----------
308
Specialty Retail - 0.2%
CarMax, Inc. ................................ 13,369 239
Textiles & Apparel - 0.6%
Nike, Inc. - Cl. B .......................... 15,100 671
Tobacco - 0.8%
Philip Morris Cos., Inc. * .................. 23,300 944
----------
TOTAL COMMON STOCK- 98.1% 118,801
97
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
FUNDAMENTAL VALUE FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
INVESTMENT COMPAINES HELD AS COLLATERAL ON
LOANED SECURITIES - 2.5%
State Street Navigator Securities
Lending Portfolio ...................... $ 3,002 $ 3,002
SHORT-TERM INVESTMENTS
Investment in joint trading account
(Note B) - 1.9%
1.388% due 01/02/03 ......................... 2,321 2,321
U.S. Treasury - Bills - 0.1%
1.598% due 01/02/03 ......................... 45 45
1.618% due 01/09/03 ......................... 35 35
1.67% due 01/16/03 .......................... 45 45
----------
TOTAL SHORT-TERM INVESTMENTS- 2.0% 2,446
---------- ----------
TOTAL INVESTMENTS- 102.6% 124,249
Payables, less cash and receivables- (2.6)% (3,147)
---------- ----------
NET ASSETS- 100.0% $ 121,102
========== ==========
* Non-income producing security.
ADR-American Depository Receipt.
See notes to financial statements.
98
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
MONEY MARKET FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS
Diversified Financials - 0.8%
General Electric Capital Corp.- Disc.
Notes
1.44% due 03/10/17 .......................... $ 7,000 $ 7,000
Finance - 2.1%
HBOS Treasury Services plc - Disc. Notes
1.37% due 03/05/03 .......................... 15,000 15,000
Holmes Finance - Disc. Notes
1.42% due 10/15/03 .......................... 4,000 4,000
----------
19,000
U.S. Government Agencies - 21.9%
Federal Farm Credit Bank - Disc. Notes
1.54% due 01/23/03 .......................... 19,000 18,905
Federal Home Loan Bank - Disc. Notes
1.26% due 02/28/03 .......................... 25,000 24,949
1.28% due 01/22/03 .......................... 20,000 19,985
1.75% due 12/02/03 .......................... 10,000 10,000
1.8% due 10/20/03 ........................... 10,000 9,854
1.875% due 07/30/03 ......................... 8,000 8,003
5.125% due 01/06/03 ......................... 2,500 2,560
Federal Home Loan Mortgage Corp. - Disc.
Notes
1.87% due 04/24/03 .......................... 20,000 19,883
Federal National Mortgage Assoc. - Disc.
Notes
1.28% due 02/18/03 .......................... 25,000 24,957
1.545% due 11/14/03 ......................... 10,000 9,864
1.55% due 09/19/03 .......................... 4,000 3,955
1.61% due 02/05/03 .......................... 48,440 48,372
----------
201,287
----------
TOTAL PUBLICLY-TRADED BONDS- 24.8% 227,287
COMMERCIAL PAPER
Auto Loan - 1.3%
Toyota Motor Credit Corp.
1.33% due 02/13/03 .......................... 11,859 11,840
Banks - 14.9%
Abbey National
1.32% due 03/18/03 .......................... 18,000 18,000
Canadian Imperial Bank Commerce NY
1.31% due 02/28/03 .......................... 20,000 20,000
Danske Bank
1.57% due 11/06/03 .......................... 9,000 9,000
Dexia Bank
1.32% due 03/10/03 .......................... 20,000 20,000
State Street Bank & Trust Co.
1.34% due 01/31/03 .......................... 25,000 25,000
Svenska Handlsbanken
1.77% due 01/07/03 .......................... 25,000 24,980
Westdeutsche Landesbank
1.76% due 09/23/03 .......................... 20,000 $ 20,000
----------
136,980
Beverages - 2.0%
Coca Cola Enterprises, Inc.
1.3% due 03/05/03 ........................... 18,000 17,959
Commercial Services & Supplies - 1.3%
Archer Daniels Midland Co.
1.71% due 02/11/03 .......................... 12,000 11,977
Diversified Financials - 8.8%
Allstate Financial Global
1.476% due 03/17/03 ......................... 20,000 20,000
Apreco, Inc.
1.34% due 02/05/03 .......................... 18,000 17,977
Ciesco LP
1.52% due 01/06/03 .......................... 18,000 17,996
General Electric Capital Corp.
2.2% due 02/25/03 ........................... 5,000 4,983
Goldman Sachs Group
2.915% due 04/01/03 ......................... 10,000 9,927
Societe Generale New York
1.31% due 02/10/03 .......................... 10,000 10,000
----------
80,883
Finance - 30.1%
Clipper Receivables Corp. - Disc. Notes
1.25% due 01/02/03 .......................... 10,000 10,000
1.34% due 01/17/03 .......................... 8,000 7,995
Corporate Receivables Corp.
1.6% due 01/06/03 ........................... 10,000 9,998
Delaware Funding Corp.
1.33% due 02/04/03 .......................... 18,000 17,977
Eureka Securitization, Inc.
1.34% due 02/21/03 .......................... 20,000 19,962
Falcon Asset Securitization Corp.
1.57% due 01/06/03 .......................... 18,000 17,996
Galaxy Funding, Inc.
1.35% due 01/23/03 .......................... 18,000 17,985
GlaxoSmithKline Finance plc
1.32% due 01/13/03 .......................... 20,000 19,991
KFW International Finance, Inc.
1.53% due 01/02/03 .......................... 18,000 17,999
Montana Blanc Capital Corp.
1.32% due 01/07/03 .......................... 18,000 17,996
Park Avenue Reconstruction Corp.
1.35% due 01/27/03 .......................... 18,000 17,982
Preferred Receivables Funding
1.54% due 01/09/03 .......................... 7,000 6,998
99
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
MONEY MARKET FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
COMMERCIAL PAPER - Continued
Finance - Continued
President & Fellows Harvard Co.
1.26% due 01/09/03 .......................... $ 12,000 $ 11,997
1.29% due 01/15/03 .......................... 13,000 12,993
Societe Generale
1.33% due 02/05/03 .......................... 12,700 12,684
Toronto Dominion
2.57% due 05/09/03 .......................... 10,000 10,036
UBS Finance, Inc.
1.22% due 01/02/03 .......................... 10,178 10,178
Variable Funding Capital
1.35% due 01/17/03 .......................... 18,000 17,989
Windmill Funding Corp.
1.33% due 10/15/03 .......................... 18,000 17,969
----------
276,725
Health Care Equipment & Supplies - 2.2%
Pfizer, Inc.
1.29% due 01/31/03 .......................... 20,000 19,979
Health Care Providers & Services - 1.1%
Abbott Labs
1.3% due 01/23/03 ........................... 9,850 9,842
Insurance - 7.6%
Metlife, Inc.
1.49% due 05/01/03 .......................... 20,000 20,000
1.78% due 01/16/03 .......................... 12,000 11,991
New York Life Capital Corp.
1.76% due 01/24/03 .......................... 18,000 17,980
Travelers Insurance Co.
1.48% due 05/30/03 .......................... 20,000 20,000
----------
69,971
Metals & Mining - 2.7%
ALCOA, Inc.
1.32% due 01/06/03 .......................... 25,000 24,995
Personal Products - 1.1%
Colgate Palmolive Co.
1.3% due 02/07/03 ........................... 376 375
Gillette Co.
1.67% due 02/07/03 .......................... 10,000 9,983
----------
10,358
----------
TOTAL COMMERCIAL PAPER- 73.1% 671,509
JOINT REPURCHASE AGREEMENT - 2.0%
Investment in joint repurchase agreement
with BNP Paribas, 1.1% due 01/02/03
(Secured by U.S. Treasury obligations) 18,754 18,754
---------- ----------
TOTAL INVESTMENTS- 99.9% 917,550
Cash and Receivables, less payables- 0.1% 566
---------- ----------
NET ASSETS- 100.0% $ 918,116
========== ==========
See notes to financial statements.
100
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SMALL/MID CAP GROWTH FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Air Freight & Couriers - 1.2%
EGL, Inc. * ................................. 117,400 $ 1,673
Airlines - 1.2%
CNF Transportation, Inc. * .................. 50,300 1,672
Banks - 4.1%
Banknorth Group, Inc. * ..................... 127,600 2,884
Sovereign Bancorp, Inc. * ................... 208,400 2,928
----------
5,812
Beverages - 2.2%
Constellation Brands, Inc. - Cl. A * ........ 132,600 3,144
Biotechnology - 5.4%
Cambrex Corp. * ............................. 102,900 3,109
Cephalon, Inc. * ............................ 8,000 389
CV Therapeutics, Inc. * ..................... 21,000 383
Gene Logic, Inc. * .......................... 56,000 352
Genzyme Corp. * ............................. 36,200 1,070
Genzyme Corp. ............................... 90,000 229
Human Genome Sciences, Inc. * ............... 55,000 485
Incyte Pharmacuticals, Inc. ............... 77,000 351
Millennium Pharmaceuticals, Inc. * .......... 60,000 476
Regeneron Pharmaceuticals * ................. 17,500 324
Ribapharm, Inc. ............................. 72,000 472
----------
7,640
Commercial Services & Supplies - 1.2%
Catalina Marketing Corp. .................... 40,600 751
The Bisys Group, Inc. * ..................... 59,900 953
----------
1,704
Communications Equipment - 3.4%
Ciena Corp. * ............................... 80,000 411
Comverse Technology, Inc. ................... 196,700 1,971
Emulex Corp. * .............................. 19,000 352
Tekelec, Inc. * ............................. 192,400 2,011
----------
4,745
Containers & Packaging - 2.6%
Pactiv Corp. * .............................. 167,900 3,670
Diversified Financials - 3.3%
Federated Investments, Inc. - Cl. B ......... 25,300 642
Investment Technology Group, Inc. * ......... 40,400 903
Legg Mason, Inc. * .......................... 63,000 3,058
----------
4,603
Diversified Telecommunication Services - 0.5%
Nextel Communications, Inc.- Cl. A * ........ 60,000 693
Electric Utilities - 0.8%
Pinnacle West Capital Corp. * ............... 33,600 1,145
Electronic Equipment & Instruments - 6.2%
Asyst Technologies, Inc. * .................. 40,000 294
Cypress Semiconductor Corp. * ............... 86,000 $ 492
Jabil Circuit, Inc. * ....................... 89,400 1,602
Sanmina Corp. * ............................. 456,400 2,049
Symbol Technologies, Inc. * ................. 227,650 1,871
Waters Corp. * .............................. 108,600 2,366
----------
8,674
Health Care Equipemnt & Supplies - 5.9%
Celgene Corp. * ............................. 19,900 408
Edwards Lifesciencs Corp. * ................. 139,600 3,556
Henry Schein, Inc. * ........................ 79,100 3,559
Vertex Pharmaceuticals, Inc. * .............. 49,000 777
----------
8,300
Health Care Providers & Services - 11.6%
Albany Molecular Research, Inc. * ........... 195,900 2,898
Anthem, Inc. * .............................. 26,000 1,635
Caremark Rx, Inc. * ......................... 146,700 2,384
Healthnet, Inc. * ........................... 73,000 1,927
Laboratory Corporation of America Holdings * 67,500 1,569
Pharmaceutical Product Development, Inc. * .. 72,900 2,134
Triad Hospitals, Inc. * ..................... 126,600 3,776
----------
16,323
Hotels Restaurants & Leisure - 2.0%
CEC Entertainment, Inc. * ................... 42,400 1,302
Darden Restaurants, Inc. * .................. 76,950 1,573
----------
2,875
Household Durables - 5.1%
D.R. Horton, Inc. * ......................... 177,000 3,071
FreeMarkets, Inc. * ......................... 42,000 270
Mohawk Industries, Inc. * ................... 36,500 2,079
Yankee Candle, Inc. * ....................... 106,600 1,706
----------
7,126
Insurance - 3.2%
Arthur J. Gallagher & Co. ................... 103,500 3,041
Providian Financial Corp. * ................. 236,200 1,533
----------
4,574
Internet Software & Services - 0.6%
VeriSign, Inc. * ............................ 102,500 822
IT Consulting & Services - 0.2%
Trizetto Group, Inc. ........................ 50,000 307
Leisure Equipment & Products - 1.6%
Polaris Industries Inc. ..................... 39,000 2,285
Machinery - 0.7%
SPX Corp. * ................................. 24,600 921
101
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SMALL/MID CAP GROWTH FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Media - 0.5%
Cox Radio, Inc. - Cl. A * ................... 30,000 $ 684
Oil & Gas - 3.9%
Chesapeake Energy Corp. ..................... 238,800 1,848
Swift Energy Co. * .......................... 222,900 2,156
Tidewater, Inc. * ........................... 49,000 1,524
----------
5,528
Pharmaceuticals - 3.3%
Abgenix, Inc. * ............................. 65,500 483
NPS Pharmaceuticals, Inc. * ................. 21,000 528
OSI Pharmaceuticals, Inc. * ................. 14,000 230
Watson Pharmaceuticals, Inc. * .............. 121,700 3,440
----------
4,681
Road & Rail - 1.3%
Werner Enterprises, Inc. * .................. 87,733 1,889
Semiconductor Equipment & Products - 5.9%
Cabot Microelectronics Corp. ................ 44,000 2,077
Exar Corp. * ................................ 40,000 496
Fairchild Semiconductor Corp. - Cl. A * ..... 233,000 2,496
Lattice Semiconductor Corp. * ............... 128,400 1,126
Novellus Systems, Inc. * .................... 38,000 1,067
RF Micro Devices, Inc. * .................... 30,000 220
Teradyne, Inc. * ............................ 36,000 468
Varian Semiconductor Equipment Associates,
Inc. ....................................... 15,500 368
----------
8,318
Software - 6.4%
Agile Software Corp. ........................ 43,700 338
Cadence Design Systems, Inc. * .............. 256,100 3,019
Manhattan Associates, Inc. * ................ 100,900 2,387
Mercury Interactive Corp. * ................. 21,000 623
Siebel Systems, Inc. * ...................... 60,000 449
Synopsys, Inc. * ............................ 6,300 291
Verity, Inc. * .............................. 146,100 1,957
----------
9,064
Specialty Retail - 8.4%
Chicos Fas, Inc. * .......................... 145,600 2,753
Linens 'n Things, Inc. ...................... 79,900 1,806
Michaels Stores, Inc. * ..................... 91,300 2,858
O'Reilly Automotive, Inc. * ................. 113,700 2,876
Too, Inc. * ................................. 62,900 1,479
----------
11,772
Textiles & Apparel - 4.1%
Columbia Sportswear Co. * ................... 53,000 2,354
Liz Claiborne, Inc. * ....................... 116,200 3,446
----------
5,800
Trading Companies & Distributors - 1.4%
Fastenal Co. * .............................. 53,600 $ 2,004
----------
TOTAL COMMON STOCK- 98.2% 138,448
Par
Value
(000's)
INVESTMENT COMPANIES HELD AS COLLATERAL ON LOANED
SECURITIES - 11.3%
State Street Navigator Securities
Lending Portfolio .......................... $ 15,946 15,946
SHORT-TERM INVESTMENTS - 1.5%
Investment in joint trading account (Note B)
1.388% due 01/02/03 .................... 2,115 2,115
---------- ----------
TOTAL INVESTMENTS- 111.0% 156,509
Cash and Receivables, less payables- (11.0)% (15,551)
---------- ----------
NET ASSETS- 100.0% $ 140,958
========== ==========
* Non-income producing security.
See notes to financial statements.
102
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
BOND INDEX FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS
Aerospace & Defense - 0.7%
Boeing Cap. Corp. - Sr. Notes
7.1% due 09/27/05 ........................... $ 500 $ 542
Lockheed Martin Corp.
8.2% due 12/01/09 ........................... 200 247
Northrop-Grumman Corp. - Debs.
7.75% due 03/01/16 .......................... 75 91
Raytheon Co. - Notes
6.75% due 08/15/07 .......................... 200 222
United Technologies Corp. - Debs.
8.875% due 11/15/19 ......................... 50 67
United Technology Corp.
6.625% due 11/15/04 ......................... 200 216
----------
1,385
Airlines - 0.0%
Union Pacific Corp. - Debs.
6.625% due 02/01/29 ......................... 85 93
Auto Components - 0.2%
TRW, Inc.
7.125% due 06/01/09 ......................... 150 168
Visteon Corp.
7.95% due 08/01/05 .......................... 250 265
----------
433
Auto Loan - 1.9%
Aristar, Inc. - Sr. Notes
6.5% due 11/15/03 ........................... 200 208
Ford Motor Credit Co.
6.125% due 01/09/06 ......................... 800 796
Ford Motor Credit Co. - Bonds
7.375% due 02/01/11 ......................... 250 243
General Motors Acceptance Corp.
5.85% due 01/14/09 .......................... 500 481
General Motors Acceptance Corp. - Notes
6.125% due 09/15/06 ......................... 400 407
GMAC Commercial Mortgaged Securities,
Inc. - CTF - Ser. 1998-Cl Cl. A2
6.7% due 05/15/30 ........................... 900 985
Household Finance Corp. - Notes
8.0% due 07/15/10 ........................... 350 396
Household Finance Corp. - Sr. Unsub. Notes
5.875% due 02/01/09 ......................... 280 287
Toyota Motor Credit Corp. - Notes
5.5% due 12/15/08 ........................... 60 65
----------
3,868
Automobiles - 1.1%
Daimler Chrysler Auto Trust - Notes
6.7% due 03/08/06 ........................... 400 425
DaimlerChrysler NA Holding Co.
7.2% due 09/01/09 ........................... 650 723
Delphi Automotive Systems Corp. - Debs.
7.125% due 05/01/29 ......................... 50 48
Delphi Automotive Systems Corp. - Notes
6.5% due 05/01/09 ........................... $ 200 $ 206
Ford Motor Co. - Bonds
6.625% due 02/15/28 ......................... 350 280
General Motors Corp. - Sr. Notes
7.2% due 01/15/11 ........................... 500 502
----------
2,184
Bank - 4.4%
African Development Bank - Sub. Notes
6.875% due 10/15/15 ......................... 35 41
Asian Development Bank - Bonds
5.5% due 04/23/04 ........................... 270 283
Bank of America Corp. - Sub. Notes
7.8% due 02/15/10 ........................... 350 416
Bank One Corp.
7.875% due 08/01/06 ......................... 300 360
Bank One Corp. - Notes
6.875% due 08/01/10 ......................... 1,000 1,124
Bank One Corp. - Sr. Notes
5.625% due 02/17/04 ......................... 150 156
BankAmercia Corp. - Sub. Notes
6.5% due 03/15/06 ........................... 150 166
Chase Manhattan Corp. - Sub. Notes
7.125% due 02/01/07 ......................... 225 251
Credit Suisse First Boston, Inc. - Notes
5.875% due 08/01/06 ......................... 500 536
Fleet Boston Corp. - Sub. Notes
7.375% due 12/01/09 ......................... 100 114
Fleet Financial Group, Inc. - Sub. Debs.
6.7% due 07/15/28 ........................... 75 78
HSBC Holdings plc
7.5% due 07/15/09 ........................... 150 178
InterAmerican Development Bank - Debs.
8.5% due 03/15/11 ........................... 200 258
Intermediate American Development Bank -
Bonds
6.125% due 03/08/06 ......................... 1,300 1,448
International Bank of Reconstruction &
Development - Notes
5.0% due 03/28/06 ........................... 750 810
JP Morgan Chase & Co. - Notes
5.25% due 05/30/07 .......................... 1,000 1,057
Korea Development Bank - Bonds
7.375% due 09/17/04 ......................... 120 130
National City Bank of Pennsylvania - Sub.
Notes
7.25% due 10/21/11 .......................... 50 58
NationsBank Corp. - Sub. Notes
7.75% due 08/15/15 .......................... 400 492
Royal Bank of Scotland plc - Sub. Notes
6.4% due 04/01/09 ........................... 150 166
103
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
BOND INDEX FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Banks - Continued
United Bank National Assoc. of Minneapolis
6.375% due 08/01/11 ......................... $ 325 $ 365
Wachovia Corp. - Notes
4.95% due 11/01/06 .......................... 500 534
Wachovia Corp. - Sub. Notes
5.625% due 12/15/08 ......................... 75 80
----------
9,101
Beverages - 0.6%
Anheuser Busch Cos., Inc.
9.0% due 12/01/09 ........................... 470 608
Coca-Cola Enterprises, Inc. - Debs.
8.5% due 02/01/22 ........................... 100 129
Fortune Brands, Inc. - Debs.
7.875% due 01/15/23 ......................... 100 119
Kellogg Co. - Debs. - Ser. B
7.45% due 04/01/31 .......................... 100 122
Pepsi Bottling Group, Inc. - Sr. Notes -
Ser. B
7.0% due 03/01/29 ........................... 100 116
----------
1,094
Chemicals - 0.2%
E.I. Du Pont De Nemours
6.5% due 01/15/28 ........................... 150 168
Eastman Chemical - Debs.
7.6% due 02/01/27 ........................... 50 57
Morton International, Inc. - Debs.
9.25% due 06/01/20 .......................... 40 51
Rohm & Haas Co. - Notes
7.4% due 07/15/09 ........................... 80 92
----------
368
Commercial Services & Suppliers - 0.3%
Electronic Data Systems Corp.
7.125% due 10/15/09 ......................... 100 103
First Data Corp. - Sr. Notes
5.625% due 11/01/11 ......................... 400 423
Honeywell International, Inc. - Notes
7.5% due 03/01/10 ........................... 75 88
John Deere Capital Corp. - Notes
6.0% due 02/15/09 ........................... 60 65
----------
679
Communications Equipment - 0.4%
Deutsche Telekom International Finance
8.5% due 06/15/30 ........................... 300 347
GTE Corp. - Debs.
6.94% due 04/15/28 .......................... 100 105
Motorola, Inc. - Notes
6.75% due 02/01/06 .......................... 300 310
----------
762
Computers & Peripherals - 0.5%
Hewlett - Packard Co. - Notes
7.15% due 06/15/05 .......................... $ 200 $ 220
International Business Machines Corp. -
Debs.
7.0% due 10/30/25 ........................... 100 113
International Business Machines Corp. -
Notes
4.25% due 09/15/09 .......................... 600 613
----------
946
Credit Card - 1.0%
CitiFinancial Credit Co. - Notes
5.9% due 09/01/03 ........................... 150 154
MBNA Credit Card Master Note Trust - Ser.
2002-1 Notes Cl. A
4.95% due 06/15/09 .......................... 1,000 1,077
MBNA Master Credit Card Trust II - Notes
6.5% due 04/15/10 ........................... 400 446
Standard Credit Card Master Trust
8.25% due 01/07/07 .......................... 400 447
----------
2,124
Diversified Financials - 5.6%
Associates Corp. of North America
5.5% due 02/15/04 ........................... 675 704
Chase Commercial Mortgage Securities Corp.
- Ser. 200-2 CTF Cl. A2
7.631% due 07/15/32 ......................... 300 357
Citicorp Capital II
8.015% due 02/15/27 ......................... 100 112
Citigroup, Inc.
7.25% due 10/01/10 .......................... 400 464
Citigroup, Inc. - Notes
6.625% due 01/15/28 ......................... 100 109
Devon Financing Corp. United LC - Notes
6.875% due 09/30/11 ......................... 400 446
General Electric Capital Corp.
6.0% due 06/15/12 ........................... 550 594
6.125% due 02/22/11 ......................... 150 162
7.5% due 06/05/03 ........................... 700 718
Goldman Sachs Group, Inc. - Notes
7.35% due 10/01/09 .......................... 500 573
Hartford Financial Services Group, Inc. - Sr.
Notes
7.75% due 06/15/05 .......................... 150 166
KFW International Finance, Inc. - Sr. Notes
5.25% due 06/28/06 .......................... 300 327
Lehman Brothers Holdings, Inc. - Notes
6.25% due 05/15/06 .......................... 500 547
Merrill Lynch & Co., Inc. - Notes
8.0% due 06/01/07 ........................... 200 233
Morgan Stanley Capital, Inc. - CTF 1998-
WFI Cl. A1
6.25% due 03/15/30 .......................... 798 849
104
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
BOND INDEX FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Diversified Financials - Continued
Morgan Stanley Capital, Inc. - Pass Thru
Certs. - Ser. 1999-RMI
6.37% due 12/15/31 .......................... $ 1,021 $ 1,111
Morgan Stanley Group, Inc.
6.1% due 04/15/06 ........................... 1,065 1,160
6.75% due 04/15/11 .......................... 250 278
Newcourt Credit Group, Inc. - Ser. B
6.875% due 02/16/05 ......................... 100 105
Salomon Brothers Mortgage Securities Inc. -
Pass Thru Certs - Ser. 2000-Cl Cl. A2
7.52% due 12/18/09 .......................... 300 354
Sumitomo Bank International Finance NV -
Notes
8.5% due 06/15/09 ........................... 100 116
Washington Mutual Capital I
8.375% due 06/01/27 ......................... 60 66
Washington Mutual Finance Corp. - Sr. Notes
6.25% due 05/15/06 .......................... 300 325
Wells Fargo & Co. - Notes
6.625% due 07/15/04 ......................... 175 187
Wells Fargo & Co. - Sub. Notes
6.875% due 04/01/06 ......................... 1,100 1,233
Wells Fargo Financial, Inc. - Sr. Notes
4.875% due 06/12/07 ......................... 350 372
----------
11,668
Diversified Telecommunication Services - 1.2%
AT&T Corp. - Notes
6.5% due 03/15/13 ........................... 340 341
Bell Canada
7.75% due 04/01/06 .......................... 125 137
Bellsouth Corp. - Notes
6.875% due 10/15/31 ......................... 350 392
Bellsouth Telecommunications, Inc. - Debs.
7.0% due 10/01/25 ........................... 100 113
British Telecommunication plc - Notes
8.375% due 12/15/10 ......................... 200 240
France Telecom SA - Notes
8.7% due 03/01/06 ........................... 350 383
Sprint Capital Corp.
6.875% due 11/15/28 ......................... 150 121
7.625% due 01/30/11 ......................... 300 285
Telefonica Europe BV - Notes
8.25% due 09/15/30 .......................... 100 123
Verizon Global Funding Corp. - Notes
7.25% due 12/01/10 .......................... 230 262
Vodafone Group plc
7.75% due 02/15/10 .......................... 100 118
----------
2,515
Electric Utilities - 0.2%
CalEnergy Co., Inc. - Bonds
8.48% due 09/15/28 .......................... 60 71
Cincinnati Gas & Electric Co. - Debs
5.7% due 09/15/12 ........................... $ 300 $ 307
FirstEnergy Corp. - Notes - Ser. C
7.375% due 11/15/31 ......................... 70 68
----------
446
Electric/Gas - 0.4%
Dominion Resources, Inc.
8.125% due 06/15/10 ......................... 200 233
Niagara Mohawk Power Corp.
7.75% due 10/01/08 .......................... 200 231
Ontario Hydro
6.1% due 01/30/08 ........................... 100 112
Tennessee Valley Authority
6.75% due 11/01/25 .......................... 100 117
Virginia Electric Power Co.
7.625% due 07/01/07 ......................... 150 174
----------
867
Finance - 0.9%
Ameritech Capital Fund Corp.
6.875% due 10/15/27 ......................... 60 67
Anardarko Finance Co. - Sr. Notes
6.75% due 05/01/11 .......................... 200 226
Bear Stearns Co., Inc.
7.625% due 02/01/05 ......................... 250 276
Countrywide Funding Corp.
5.5% due 02/01/07 ........................... 200 212
Financing Corp.
8.6% due 09/26/19 ........................... 150 207
Massachusetts Special Purpose Trust - Ser.
BEC-1 Cl. A5
7.03% due 03/15/12 .......................... 150 176
National Rural Utilities Cooperative
Finance - Notes
5.75% due 08/28/09 .......................... 700 747
----------
1,911
Food & Drug Retailing - 0.7%
Albertson's, Inc. - Notes
6.625% due 06/01/28 ......................... 50 50
Albertson's, Inc. - Sr. Notes
7.5% due 02/15/11 ........................... 345 397
Safeway, Inc.
7.25% due 09/15/04 .......................... 150 161
Safeway, Inc. - Notes
5.8% due 08/15/12 ........................... 150 157
The Kroger Co.
8.05% due 02/01/10 .......................... 500 588
SuperValu, Inc. - Notes
7.625% due 09/15/04 ......................... 150 157
----------
1,510
105
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
BOND INDEX FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Food Products - 0.5%
Conagra Foods, Inc. - Notes
7.875% due 09/15/10 ......................... $ 250 $ 302
Conagra, Inc. - Debs.
9.75% due 03/01/21 .......................... 75 106
General Mills, Inc. - Notes
6.0% due 02/15/12 ........................... 250 272
Kraft Foods, Inc. - Notes
4.625% due 11/01/06 ......................... 300 315
Sara Lee Corp. - Notes
6.25% due 09/15/11 .......................... 100 112
----------
1,107
Foreign Governmental - 2.4%
Government of Canada
5.25% due 11/05/08 .......................... 125 138
Government of New Zealand - Debs.
8.75% due 12/15/06 .......................... 120 144
Hydro-Quebec
8.4% due 01/15/22 ........................... 100 132
Kingdom of Sweden - Debs.
12.0% due 02/01/10 .......................... 75 107
Malaysia - Bonds
8.75% due 06/01/09 .......................... 50 61
Manitoba Province Canada - Ser. BU
9.625% due 12/01/18 ......................... 300 452
Province of Newfoundland - Debs.
9.0% due 10/15/21 ........................... 60 85
Province of Ontario - Bonds
6.0% due 02/21/06 ........................... 300 329
Province of Quebec - Debs.
7.5% due 07/15/23 ........................... 100 122
Republic of Greece - Notes
6.95% due 03/04/08 .......................... 405 468
Republic of Italy - Debs.
6.875% due 04/15/03 ......................... 460 549
Republic of Korea - Unsub.
8.875% due 04/15/08 ......................... 600 745
Republic of Korea - Unsub. Notes
8.75% due 04/15/03 .......................... 85 87
Spain Kingdom
7.0% due 07/19/05 ........................... 250 279
United Mexican States - Notes
9.875% due 02/01/10 ......................... 970 1,191
----------
4,889
Gas Utilities - 0.1%
Keyspan Corp.
7.25% due 11/15/05 .......................... 100 112
Health Care Equipment & Supplies - 0.3%
Abbott Laboratories - Notes
5.625% due 07/01/06 ......................... 250 273
Bristol Myers Squibb Co. - Notes
5.75% due 10/01/11 .......................... 300 320
Eli Lilly & Co. - Notes
7.125% due 06/01/25 ......................... 80 $ 94
----------
687
Home Equity Loan - 0.1%
Countrywide Home Loan Corp.
6.25% due 04/15/09 .......................... 250 272
Hotels Restaurants & Leisure - 0.0%
McDonald's Corp. - Sub. Debs.
7.31% due 09/15/27 .......................... 60 67
Insurance - 0.2%
Aetna Inc.
7.625% due 08/15/26 ......................... 100 116
Allstate Corp.
7.2% due 12/01/09 ........................... 150 174
Hartford Life, Inc. - Debs.
7.65% due 06/15/27 .......................... 50 57
Torchmark, Inc. - Debs.
8.25% due 08/15/09 .......................... 100 116
Travelers Property Casualty Corp. - Sr. Notes
7.75% due 04/15/26 .......................... 50 55
----------
518
Machinery - 0.0%
Caterpillar, Inc.- Debs.
8.0% due 02/15/23 ........................... 50 62
Media - 1.7%
Comcast Cable Communications - Notes
8.875% due 05/01/17 ......................... 75 88
News America Holdings, Inc.
8.5% due 02/15/05 ........................... 825 892
News America Holdings, Inc. - Debs.
7.7% due 10/30/25 ........................... 100 103
TCI Communications, Inc. - Sr. Notes
7.125% due 02/15/28 ......................... 70 65
The Walt Disney Co. - Sr. Notes
6.75% due 03/30/06 .......................... 1,000 1,092
Time Warner Entertainment, Inc. - Sr. Notes
8.375% due 07/15/33 ......................... 200 227
Time Warner, Inc. - Notes
7.75% due 06/15/05 .......................... 600 639
Viacom, Inc.
7.875% due 07/30/30 ......................... 50 62
Viacom, Inc. - Sr. Notes
7.75% due 06/01/05 .......................... 350 392
----------
3,560
Metals & Mining - 0.2%
ALCOA, Inc. - Notes
7.375% due 08/01/10 ......................... 200 237
Noranda, Inc. - Debs.
7.0% due 07/15/05 ........................... 200 206
----------
443
106
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
BOND INDEX FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Multi-Utilities - 0.1%
Alabama Power Co. - Sr. Notes
5.5% due 10/15/17 ........................... $ 100 $ 104
Duke Energy Co.
6.75% due 08/01/25 .......................... 100 99
United Utilities plc - Notes
6.875% due 08/15/28 ......................... 100 96
----------
299
Multiline Retail - 0.6%
Dayton Hudson Corp. - Debs.
6.75% due 01/01/28 .......................... 25 28
Federated Department Stores, Inc.
6.625% due 04/01/11 ......................... 200 218
May Department Stores Co. - Notes
7.625% due 08/15/13 ......................... 300 348
Sears Roebuck Acceptance Corp. - Debs.
6.875% due 10/15/17 ......................... 230 205
Target Corp. - Notes
7.5% due 08/15/10 ........................... 100 119
Wal Mart Stores, Inc.
7.55% due 02/15/30 .......................... 230 291
Wal-Mart Stores, Inc. - Debs.
6.75% due 10/15/23 .......................... 100 114
----------
1,323
Oil & Gas - 0.9%
Burlington Resources, Inc. - Debs.
9.125% due 10/01/21 ......................... 90 120
Chevron Texaco Capital Co. - Notes
3.5% due 09/17/07 ........................... 600 611
Conoco, Inc. - Sr. Notes
6.95% due 04/15/29 .......................... 390 442
Norsk Hydro A/S
7.25% due 09/23/27 .......................... 75 87
Occidental Petroleum Corp. - Debs.
7.2% due 04/01/28 ........................... 40 45
Philips Petroleum Co. - Debs.
6.65% due 07/15/18 .......................... 50 55
Sempra Energy - Sr. Notes
6.8% due 07/01/04 ........................... 100 104
Tosco Corp. - Debs.
7.8% due 01/01/27 ........................... 100 122
Tosco Corp. - Notes
7.625% due 05/15/06 ......................... 115 130
Trans-Canada Pipelines
7.7% due 06/15/29 ........................... 100 116
Union Oil Co. of California
7.5% due 02/15/29 ........................... 60 68
----------
1,900
Other Mortgage - 0.6%
LB Commercial Conduit Mortgage Trust -
Ser. 1999-C2 Pass Thru Cert. Cl. A2
7.325% due 09/15/09 400 469
LU UBS Commercial Mortgage Trust - Ser.
2000-C5 Pass Thru Cert. Cl. A1
6.41% due 01/15/10 .......................... $ 633 $ 695
----------
1,164
Paper & Forest Products - 0.5%
Champion International Corp. - Debs.
7.35% due 11/01/25 .......................... 50 55
International Paper Co. - Notes
6.75% due 09/01/11 .......................... 250 278
Westvaco Corp. - Notes
7.1% due 11/15/09 ........................... 35 38
Weyerhaeuser Co.
7.125% due 07/15/23 ......................... 130 139
Weyerhaeuser Co. - Notes
6.125% due 03/15/07 ......................... 450 482
----------
992
Personal Products - 0.4%
Gillette Co. - Notes
4.0% due 06/30/05 ........................... 500 524
Procter & Gamble Co. - Debs.
6.45% due 01/15/26 .......................... 100 111
Unilever Capital
7.125% due 11/01/10 ......................... 200 236
----------
871
Real Estate Investment Trust - 0.2%
EOP Operating LP - Notes
6.8% due 01/15/09 ........................... 150 163
EOP Operating, Ltd. Partnership - Notes
7.0% due 07/15/11 ........................... 250 272
Spieker Properties, Inc. - Debs.
7.5% due 10/01/27 ........................... 40 41
----------
476
Road & Rail - 0.8%
Burlington Northern Railroad Company
6.125% due 03/15/09 ......................... 150 167
Canadian National Railway Co. - Notes
6.375% due 10/15/11 ......................... 300 334
CSX Corp. - Debs.
7.45% due 05/01/07 .......................... 125 144
Norfolk Southern Corp. - Notes
7.35% due 05/15/07 .......................... 855 982
----------
1,627
Telephone - 0.2%
Alltel Corp. - Sr. Notes
7.6% due 04/01/09 ........................... 100 116
New York Telephone Co. - Debs.
7.25% due 02/15/24 .......................... 100 103
107
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
BOND INDEX FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Telephone - Continued
South Carolina Electric & Gas
7.5% due 06/15/23 ........................... $ 100 $ 105
----------
324
Tobacco - 0.0%
Philip Morris Cos., Inc. - Debs.
8.25% due 10/15/03 .......................... 100 104
U.S. Government Agencies - 46.4%
Federal Home Loan Bank - Disc. Notes
5.125% due 03/06/06 ......................... 1,400 1,521
Federal Home Loan Bank - Sr. Notes
5.8% due 09/02/08 ........................... 225 253
Federal Home Loan Mortgage Corp. - Bonds
5.0% due 05/25/17 ........................... 1,300 1,333
5.5% due 06/01/16 ........................... 436 452
5.5% due 03/01/17 ........................... 449 466
5.5% due 06/01/17 ........................... 463 480
5.5% due 04/01/32 ........................... 291 297
5.5% due 05/25/32 ........................... 1,100 1,123
6.0% due 08/01/14 ........................... 488 513
6.0% due 10/01/14 ........................... 389 408
6.0% due 07/01/16 ........................... 435 455
6.0% due 11/01/16 ........................... 202 212
6.0% due 02/01/17 ........................... 410 429
6.0% due 02/01/17 ........................... 422 442
6.0% due 06/01/22 ........................... 476 496
6.0% due 05/01/29 ........................... 634 657
6.0% due 08/01/29 ........................... 661 686
6.0% due 07/01/31 ........................... 409 424
6.0% due 01/01/32 ........................... 475 492
6.0% due 01/01/32 ........................... 901 933
6.0% due 02/01/32 ........................... 898 930
6.5% due 11/01/15 ........................... 281 298
6.5% due 07/01/16 ........................... 267 283
6.5% due 11/01/16 ........................... 395 418
6.5% due 05/01/17 ........................... 177 187
6.5% due 01/01/21 ........................... 173 182
6.5% due 06/01/21 ........................... 450 472
6.5% due 09/01/28 ........................... 263 274
6.5% due 06/01/29 ........................... 49 51
6.5% due 07/01/29 ........................... 82 86
6.5% due 07/01/29 ........................... 565 589
6.5% due 11/01/30 ........................... 184 192
6.5% due 12/01/30 ........................... 143 149
6.5% due 03/01/31 ........................... 727 758
6.5% due 05/01/31 ........................... 1,005 1,048
6.5% due 05/01/31 ........................... 867 903
6.5% due 07/01/31 ........................... 127 132
6.5% due 11/01/31 ........................... 548 572
6.5% due 11/01/31 ........................... 340 355
6.5% due 12/01/31 ........................... 1,146 1,194
6.5% due 04/01/32 ........................... 425 442
6.5% due 05/01/32 ........................... 448 467
6.5% due 08/01/32 ........................... $ 844 $ 879
7.0% due 02/01/16 ........................... 143 152
7.0% due 04/01/17 ........................... 484 514
7.0% due 04/01/29 ........................... 511 538
7.0% due 02/01/30 ........................... 545 573
7.0% due 04/01/31 ........................... 379 398
7.0% due 05/01/31 ........................... 99 104
7.0% due 05/01/31 ........................... 98 103
7.0% due 07/01/31 ........................... 150 158
7.0% due 08/01/31 ........................... 375 395
7.0% due 04/01/32 ........................... 720 757
7.1% due 04/10/07 ........................... 500 587
7.5% due 02/01/16 ........................... 71 76
7.5% due 09/01/30 ........................... 65 69
7.5% due 11/01/30 ........................... 279 297
7.5% due 03/01/32 ........................... 360 382
8.0% due 02/01/30 ........................... 113 121
8.0% due 09/01/30 ........................... 97 104
8.5% due 10/01/31 ........................... 138 148
Federal Home Loan Mortgage Corp. - Debs.
4.5% due 08/15/04 ........................... 1,600 1,673
5.0% due 01/05/04 ........................... 1,600 1,661
5.75% due 04/15/08 .......................... 2,500 2,806
6.0% due 06/15/11 ........................... 1,000 1,133
6.875% due 01/15/05 ......................... 1,400 1,541
7.0% due 07/15/05 ........................... 4,855 5,446
Federal Home Loan Mortgage Corp. - Notes
6.0% due 01/01/09 ........................... 336 349
Federal National Mortgage Assoc. - Bonds
5.0% due 12/01/17 ........................... 747 767
5.5% due 03/01/16 ........................... 142 147
5.5% due 04/01/16 ........................... 84 87
5.5% due 02/01/17 ........................... 670 696
5.5% due 04/01/17 ........................... 359 373
5.5% due 09/01/17 ........................... 500 519
5.5% due 09/01/17 ........................... 495 514
5.5% due 01/01/32 ........................... 234 239
5.5% due 12/01/32 ........................... 749 765
5.5% due 12/25/32 ........................... 1,400 1,428
6.0% due 05/01/14 ........................... 119 125
6.0% due 02/01/16 ........................... 306 320
6.0% due 03/01/17 ........................... 258 270
6.0% due 03/01/17 ........................... 885 927
6.0% due 08/01/17 ........................... 444 465
6.0% due 01/01/29 ........................... 602 625
6.0% due 03/01/29 ........................... 635 659
6.0% due 08/01/30 ........................... 559 580
6.0% due 06/01/31 ........................... 545 564
6.0% due 07/01/31 ........................... 261 273
6.0% due 11/01/31 ........................... 895 927
6.0% due 01/01/32 ........................... 971 1,005
6.0% due 02/01/32 ........................... 317 328
6.0% due 03/01/32 ........................... 357 577
6.0% due 03/01/32 ........................... 449 465
108
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
BOND INDEX FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
U.S. Government Agencies - Continued
6.0% due 04/01/32 ........................... $ 511 $ 529
6.125% due 03/15/12 ......................... 1,000 1,140
6.5% due 02/01/15 ........................... 143 152
6.5% due 07/01/16 ........................... 145 153
6.5% due 07/01/16 ........................... 484 511
6.5% due 03/01/22 ........................... 459 481
6.5% due 11/01/29 ........................... 410 428
6.5% due 12/01/30 ........................... 191 199
6.5% due 01/01/31 ........................... 55 58
6.5% due 02/01/31 ........................... 94 98
6.5% due 02/01/31 ........................... 183 191
6.5% due 02/01/31 ........................... 200 209
6.5% due 02/01/31 ........................... 275 287
6.5% due 02/01/31 ........................... 325 338
6.5% due 05/01/31 ........................... 163 170
6.5% due 07/01/31 ........................... 260 271
6.5% due 08/01/31 ........................... 348 362
6.5% due 10/01/31 ........................... 689 718
6.5% due 12/01/31 ........................... 701 730
6.5% due 02/01/32 ........................... 618 644
6.5% due 04/01/32 ........................... 973 1,014
6.5% due 04/01/32 ........................... 180 187
6.5% due 04/01/32 ........................... 406 422
6.5% due 04/01/32 ........................... 433 451
6.5% due 05/01/32 ........................... 375 391
6.5% due 05/01/32 ........................... 1,122 1,168
6.0% due 05/25/32 ........................... 1,000 1,035
6.5% due 07/01/32 ........................... 874 910
6.5% due 07/01/32 ........................... 900 938
7.0% due 12/01/15 ........................... 248 264
7.0% due 03/01/16 ........................... 116 124
7.0% due 01/01/30 ........................... 522 550
7.0% due 02/01/31 ........................... 441 464
7.0% due 04/01/31 ........................... 107 112
7.0% due 05/01/31 ........................... 429 451
7.0% due 08/01/31 ........................... 713 750
7.0% due 12/01/31 ........................... 571 600
7.0% due 02/01/32 ........................... 466 490
7.0% due 05/01/32 ........................... 290 305
7.125% due 01/15/30 ......................... 709 875
7.25% due 05/15/30 .......................... 150 189
7.5% due 10/01/15 ........................... 133 142
7.5% due 09/01/30 ........................... 326 346
7.5% due 09/01/30 ........................... 229 243
7.5% due 11/01/30 ........................... 65 69
7.5% due 06/01/31 ........................... 338 360
7.5% due 06/01/31 ........................... 103 109
7.5% due 08/01/31 ........................... 310 330
8.0% due 08/01/30 ........................... 117 126
8.0% due 09/01/31 ........................... 460 495
8.5% due 09/01/30 ........................... 89 95
Federal National Mortgage Assoc. - Debs.
6.25% due 05/15/29 .......................... 1,165 1,296
6.375% due 06/15/09 ......................... 800 926
Federal National Mortgage Assoc. - Notes
4.75% due 11/14/03 .......................... $ 175 $ 180
5.0% due 01/15/07 ........................... 2,400 2,602
6.0% due 10/01/12 ........................... 441 462
Government National Mortgage Assoc. - Bonds
6.0% due 07/15/29 ........................... 291 303
6.0% due 05/15/31 ........................... 342 356
6.0% due 02/15/32 ........................... 456 475
6.0% due 04/15/32 ........................... 483 504
6.5% due 01/15/16 ........................... 76 80
6.5% due 05/15/28 ........................... 619 652
6.5% due 05/15/29 ........................... 693 728
6.5% due 04/15/31 ........................... 376 395
6.5% due 05/15/31 ........................... 276 289
6.5% due 05/15/31 ........................... 235 246
6.5% due 08/15/31 ........................... 411 432
6.5% due 01/15/32 ........................... 886 930
6.5% due 05/15/32 ........................... 532 559
6.5% due 05/15/32 ........................... 373 392
7.0% due 08/15/29 ........................... 356 378
7.0% due 12/15/30 ........................... 715 759
7.0% due 03/15/31 ........................... 915 970
7.0% due 06/15/31 ........................... 195 207
7.0% due 08/15/31 ........................... 346 367
7.0% due 05/15/32 ........................... 425 450
7.5% due 08/15/29 ........................... 491 524
7.5% due 02/15/30 ........................... 40 43
7.5% due 09/15/30 ........................... 368 392
7.5% due 01/15/31 ........................... 63 68
7.5% due 06/15/32 ........................... 707 754
8.0% due 02/15/31 ........................... 259 280
8.0% due 04/15/31 ........................... 509 549
8.0% due 07/15/31 ........................... 47 51
8.0% due 11/15/31 ........................... 282 305
8.5% due 09/15/30 ........................... 48 53
9.0% due 01/15/31 ........................... 147 160
----------
96,454
U.S. Governmental - 21.9%
U.S. Treasury - Bonds
5.375% due 02/15/31 ......................... 295 322
5.5% due 08/15/28 ........................... 2,450 2,647
6.125% due 11/15/27 ......................... 520 608
6.125% due 08/15/29 ......................... 300 352
6.25% due 05/15/30 .......................... 350 419
6.5% due 11/15/26 ........................... 1,300 1,582
6.625% due 02/15/27 ......................... 1,300 1,606
6.75% due 08/15/26 .......................... 1,075 1,345
7.5% due 11/15/16 ........................... 500 654
8.125% due 08/15/21 ......................... 810 1,140
8.75% due 08/15/20 .......................... 1,400 2,067
8.875% due 08/15/17 ......................... 1,200 1,754
9.125% due 05/15/09 ......................... 750 826
109
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
BOND INDEX FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
U.S. Governmental - Continued
10.375% due 11/15/12 ........................ $ 3,600 $ 4,812
10.75% due 08/15/05 ......................... 600 735
11.25% due 02/15/15 ......................... 260 433
11.75% due 02/15/10 ......................... 250 301
11.75% due 11/15/14 ......................... 465 699
U.S. Treasury - Notes
3.625% due 03/31/04 ......................... 2,000 2,058
4.0% due 11/15/12 ........................... 135 137
4.625% due 05/15/06 ......................... 300 324
4.75% due 11/15/08 .......................... 1,000 1,092
5.0% due 02/15/11 ........................... 2,000 2,197
5.0% due 08/15/11 ........................... 645 707
5.25% due 05/15/04 .......................... 1,000 1,053
5.5% due 02/15/08 ........................... 500 564
5.625% due 05/15/08 ......................... 1,580 1,793
6.5% due 10/15/06 ........................... 1,550 1,780
6.75% due 05/15/05 .......................... 3,300 3,679
7.25% due 05/15/04 .......................... 5,000 5,402
7.5% due 02/15/05 ........................... 1,000 1,121
7.875% due 11/15/04 ......................... 1,150 1,284
----------
45,493
Wireless Telecommunications Services - 0.1%
AT&T Wireless, Inc. - Sr. Notes
7.875% due 03/01/11 ......................... 300 302
----------
TOTAL PUBLICLY-TRADED BONDS- 98.5% 205,000
INVESTMENT COMPANIES HELD
AS COLLATERAL ON LOANED
SECURITIES - 25.6%
State Street Navigator Securities Lending
Portfolio .................................. 53,245 53,245
SHORT-TERM INVESTMENTS - 3.1%
Investment in joint trading account (Note B)
1.388% due 01/02/03 ......................... 6,516 6,516
---------- ----------
TOTAL INVESTMENTS- 127.2% 264,761
Payables, less cash and receivables- (27.2)% (56,666)
---------- ----------
NET ASSETS- 100.0% $ 208,095
========== ==========
See notes to financial statements.
110
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
LARGE CAP AGGRESSIVE GROWTH FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Aerospace & Defense - 1.1%
Lockheed Martin Corp. ....................... 4,400 $ 254
Automobiles - 0.9%
Harley-Davidson, Inc. * ..................... 4,700 217
Beverages - 1.1%
Anheuser-Busch Cos., Inc. ................... 5,400 261
Biotechnology - 3.0%
Amgen, Inc. * ............................... 14,900 720
Commercial Services & Supplies - 0.5%
First Data Corp. * .......................... 3,500 124
Communications Equipment - 4.7%
Cisco Systems, Inc. * ....................... 21,900 287
Nokia Oyj - ADR ............................. 54,200 840
----------
1,127
Computers & Peripherals - 0.8%
Dell Computer Corp. * ....................... 7,100 190
Credit Card - 5.0%
MBNA Corp. * ................................ 63,410 1,206
Diversified Financials - 7.7%
Capital One Financial Corp. ................. 2,400 71
Citigroup, Inc. * ........................... 25,608 901
Lehman Brothers Holdings, Inc. .............. 2,800 149
Merrill Lynch & Co., Inc. * ................. 12,800 486
Morgan Stanley, Dean Witter, Discover & Co. . 6,600 264
----------
1,871
Food & Drug Retailing - 2.5%
Walgreen Co. * .............................. 20,500 598
Food Products - 0.6%
WM Wrigley Jr. Co. .......................... 2,600 143
Health Care Equipment & Supplies - 4.2%
Boston Scientific Corp. * ................... 1,800 76
Medtronic, Inc. * ........................... 19,400 885
St. Jude Medical, Inc. * .................... 1,500 60
----------
1,021
Health Care Providers & Services - 5.8%
Cardinal Health, Inc. * ..................... 6,900 408
UnitedHealth Group, Inc. * .................. 7,800 651
Wellpoint Health Networks, Inc. * ........... 4,900 349
----------
1,408
Household Products - 1.9%
Procter & Gamble Co. * ...................... 5,300 456
Industrial Conglomerates - 3.8%
General Electric Co. * ...................... 38,200 930
Insurance - 8.1%
Ace, Ltd. ................................... 8,100 238
American International Group, Inc. * ........ 22,300 1,290
Progressive Corp. * ......................... 3,600 $ 179
Travelers Property Casualty Corp. - Cl. A * . 17,860 261
----------
1,968
Media - 6.6%
Comcast Corp. - Cl. A ....................... 17,000 384
EchoStar Communications Corp. - Cl. A * ..... 5,400 120
Viacom, Inc. - Cl. B * ...................... 27,100 1,105
----------
1,609
Multiline Retail - 6.7%
Kohl's Corp. * .............................. 14,300 800
Wal-Mart Stores, Inc. * ..................... 16,400 828
----------
1,628
Personal Products - 2.4%
Avon Products, Inc. ......................... 6,100 329
Colgate-Palmolive Co. ....................... 5,000 262
----------
591
Pharmaceuticals - 11.6%
Forest Laboratories, Inc. * ................. 700 69
Johnson & Johnson * ......................... 19,000 1,020
Pfizer, Inc. * .............................. 50,600 1,547
Wyeth ....................................... 4,700 176
----------
2,812
Semiconductor Equipment & Products - 3.1%
Intel Corp. ................................. 13,900 216
Maxim Integrated Products, Inc. * ........... 8,100 268
Taiwan Semiconductor Manufacturing Co., Ltd.
- ADR * .................................... 20,400 144
Texas Instruments, Inc. * ................... 8,800 132
----------
760
Software - 6.9%
Microsoft Corp. * ........................... 25,000 1,292
Peoplesoft, Inc. * .......................... 15,400 282
Veritas Software Corp. * .................... 5,900 92
----------
1,666
Specialty Retail - 2.3%
Bed Bath & Beyond, Inc. * ................... 4,300 149
Home Depot, Inc. * .......................... 17,500 419
----------
568
Tobacco - 1.5%
Philip Morris Cos., Inc. * .................. 9,100 369
U.S. Government Agencies - 5.9%
Federal Home Loan Mortgage Corp. ............ 24,400 1,441
----------
TOTAL COMMON STOCK- 98.7% 23,938
111
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
LARGE CAP AGGRESSIVE GROWTH FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
SHORT-TERM INVESTMENTS - 1.2%
Investment in joint trading account (Note B)
1.388% due 01/02/03 ......................... $ 280 $ 280
---------- ----------
TOTAL INVESTMENTS- 99.9% 24,218
Cash and Receivables, less payables- 0.1% 31
---------- ----------
NET ASSETS- 100.0% $ 24,249
========== ==========
* Non-income producing security.
ADR-American Depository Receipt.
See notes to financial statements.
112
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SMALL/MID CAP CORE FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Aerospace & Defense - 0.8%
Aviall, Inc. * .............................. 7,200 $ 58
Curtiss Wright Corp. ........................ 1,800 115
DRS Technologies, Inc. * .................... 1,600 50
Kaman Corp. - Cl. A ......................... 4,000 44
Moog, Inc. - Cl. A .......................... 1,750 54
Sequa Corp. - Cl. A ......................... 1,800 71
----------
392
Air Freight & Couriers - 0.5%
Airborne, Inc. .............................. 9,700 144
EGL, Inc. * ................................. 5,400 77
----------
221
Airlines - 0.7%
Alaska Air Group, Inc. * .................... 3,100 67
AMR Corp. * ................................. 7,700 51
Continental Airlines, Inc. - Cl. B * ........ 6,500 47
Delta Air Lines, Inc. * ..................... 7,300 89
SkyWest, Inc. * ............................. 2,000 26
USFreightways Corp. ......................... 1,500 43
----------
323
Auto Components - 1.1%
American Axle & Manufacturing Holdings,
Inc. * ..................................... 1,900 44
Autoliv, Inc. ............................... 4,600 96
Dana Corp. .................................. 4,000 47
Dura Automotive Systems, Inc. * ............. 6,500 65
Lear Corp. * ................................ 2,000 67
Pep Boys - Manny, Moe & Jack ................ 3,500 41
Visteon Corp. * ............................. 24,000 170
----------
530
Automobiles - 0.1%
Lithia Motors, Inc. - Cl. A * ............... 1,600 25
United Auto Group, Inc. * ................... 3,500 44
----------
69
Banks - 7.5%
Associated Banc-Corp. ....................... 6,050 205
Astoria Financial Corp. ..................... 5,300 144
BancorpSouth, Inc. .......................... 3,175 62
Bank Hawaii Corp. ........................... 5,700 173
Capitol Federal Financial ................... 2,100 60
Cathay Bancorp, Inc. ........................ 1,900 72
City National Corp. ......................... 4,200 185
Commerce Bancorp, Inc. ...................... 3,800 164
Commerce Bancshares, Inc. ................... 2,403 94
Commercial Federal Corp. .................... 10,000 234
Community Bank Systems, Inc. * .............. 1,900 60
Corus Bankshares, Inc. ...................... 2,300 100
East West Bancorp, Inc. * ................... 3,700 134
First Citizens BancShares, Inc. - Cl. A ..... 1,200 116
First Sentinel Bancorp, Inc. ................ 1,400 20
First Virginia Banks, Inc. .................. 2,500 $ 93
Greater Bay Bancorp ......................... 3,200 55
Hancock Holding Co. ......................... 3,450 154
Hibernia Corp. - Cl. A ...................... 14,700 283
Independence Community Bank Corp. ........... 7,600 193
Investors Financial Services Corp. .......... 2,700 74
MAF Bancorp, Inc. ........................... 1,300 44
Mercantile Bankshares Corp. ................. 4,200 162
New York Community Bancorp, Inc. ............ 1,600 46
OceanFirst Financial Corp. .................. 2,400 54
Omega Financial Corp. ....................... 600 22
PFF Bancorp, Inc. * ......................... 3,700 116
Provident Financial Group * ................. 1,800 47
Silicon Valley Bancshares * ................. 3,100 57
Trustmark Corp. ............................. 2,200 52
United Community Financial Corp. ............ 1,900 16
Washington Federal, Inc. .................... 1,800 45
West Holding Co., Inc. ...................... 5,200 85
Wilmington Trust Corp. ...................... 6,600 209
----------
3,630
Beverages - 0.1%
Boston Beer, Inc. - Cl. A ................... 5,000 71
Biotechnology - 3.1%
Affymetrix, Inc. * .......................... 3,300 76
Applera Corporation - Celera Genomics
Group * .................................... 5,600 54
Cephalon, Inc. * ............................ 6,500 316
Charles River Laboratories * ................ 6,300 242
Gene Logic, Inc. * .......................... 7,300 46
IDEXX Laboratories, Inc. * .................. 8,400 280
Invitrogen Corp. * .......................... 5,600 175
Techne Corp. * .............................. 9,800 280
----------
1,469
Building Products - 0.9%
American Woodmark Corp. ..................... 900 43
Griffon Corp. * ............................. 3,700 50
Lennox International, Inc. .................. 11,300 142
Simpson Manufacturing, Inc. * ............... 2,000 66
Universal Forest Products, Inc. ............. 5,300 113
York International Corp. .................... 1,100 28
----------
442
Chemicals - 2.2%
A. Schulman, Inc. ........................... 2,400 45
Airgas, Inc. * .............................. 2,700 46
Albemarle Corp. * ........................... 2,600 74
Arch Chemicals, Inc. ........................ 7,200 131
Central Garden & Pet Co. .................... 4,700 87
Crompton Corp. .............................. 5,900 35
Cytec Industries, Inc. * .................... 2,700 74
Great Lakes Chemical Corp. .................. 11,500 275
H.B. Fuller Co. ............................. 3,200 83
113
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SMALL/MID CAP CORE FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Chemicals - Continued
Lubrizol Corp. .............................. 2,300 $ 70
PolyOne Corp. ............................... 8,600 34
The Scotts Co. - Cl. A * .................... 1,900 93
----------
1,047
Commercial Services & Supplies - 7.3%
Arbitron, Inc. * ............................ 4,700 157
Banta Corp. ................................. 1,400 44
CDI Corp. * ................................. 2,800 76
Checkfree Corp. * ........................... 3,200 51
Coinstar, Inc. * ........................... 2,000 45
Corinthian Colleges, Inc. ................... 4,700 178
Deluxe Corp. * .............................. 8,000 337
Dun & Bradstreet Corp. ...................... 1,700 59
Factset Research Systems, Inc. .............. 4,700 133
FTI Consulting, Inc. * ...................... 3,200 128
Gabelli Asset Management, Inc. - Cl. A * .... 3,100 93
Global Payments, Inc. ....................... 2,480 79
Ikon Office Solutions, Inc. * ............... 9,000 64
Invacare Corp. .............................. 1,300 43
ITT Educational Services, Inc. * ............ 4,100 97
Lancaster Colony Corp. ...................... 1,300 51
LendingTree, Inc. * ......................... 6,800 88
Manpower, Inc. * ............................ 3,400 108
MPS Group, Inc. * ........................... 12,900 71
NCO Group, Inc. * ........................... 2,800 45
Ocular Sciences, Inc. * ..................... 2,000 31
Pittston Brink's Group ...................... 6,400 118
Pre-Paid Legal Services, Inc. * ............. 4,000 105
PRG-Shultz International, Inc. * ............ 4,700 42
Rent A Car * ................................ 3,400 170
Republic Services, Inc. - Cl. A * ........... 14,000 294
Sl Corp. * .................................. 7,900 35
Standard Register Co. ....................... 3,000 54
StarTek, Inc. * ............................. 1,800 50
Steelcase, Inc. - Cl. A ..................... 11,300 124
Stewart Enterprises, Inc. - Cl. A * ......... 9,300 52
TeleTech Holdings, Inc. * ................... 5,700 41
Unifirst Corp. .............................. 4,200 85
United Stationers, Inc. * ................... 5,600 161
Valassis Communications, Inc. * ............. 1,700 50
Viad Corp. .................................. 3,700 83
Watson Wyatt & Co. Holdings - Cl. A * ....... 3,800 83
----------
3,525
Communications Equipment - 1.5%
3Com Corp. .................................. 9,000 42
Allen Telecom, Inc. * ....................... 9,300 88
Anaren Micro Circuits, Inc. ................. 5,000 44
Andrew Corp. * .............................. 6,500 64
Arris Group, Inc. ........................... 16,100 57
Audiovox Corp. - Cl. A * .................... 14,700 152
Emulex Corp. * .............................. 2,500 46
Inrange Technologies Corp. - Cl. B * ........ 3,500 $ 8
Inter-Tel, Inc. * ........................... 5,100 107
Plantronics, Inc. * ......................... 2,800 42
Somera Communications, Inc. * ............... 2,400 6
Tekelec, Inc. * ............................. 1,400 15
Utstarcom, Inc. *............................ 2,600 52
----------
723
Computers & Peripherals - 2.8%
Anteon International Corp. .................. 1,500 36
Gateway, Inc. * ............................. 14,900 47
InFocus Corp. * ............................. 5,700 35
Intergraph Corp. * .......................... 12,700 225
Iomega Corp. * .............................. 5,200 41
Maxtor Corp. * .............................. 27,300 138
Micros Systems, Inc. * ...................... 2,000 45
Safeguard Scientifics, Inc. * ............... 38,800 53
SanDisk Corp. * ............................. 8,000 162
ScanSource, Inc. * .......................... 1,600 79
Storage Technology Corp. * .................. 8,500 182
Wallace Computer Services, Inc. ............. 3,100 67
Western Digital Corp. * ..................... 34,600 221
----------
1,331
Construction & Engineering - 0.8%
Beazer Homes USA, Inc. * .................... 700 42
CCC Information Services Group * ............ 5,400 96
EMCOR Group, Inc. * ......................... 1,500 80
Fluor Corp. * ............................... 1,900 53
Maximus, Inc. * ............................. 2,000 52
Spherion Corp. * ............................ 9,000 60
----------
383
Construction Materials - 0.9%
Butler Manufacturing Co. .................... 1,600 31
Carlisle Cos., Inc. ......................... 3,800 157
Teledyne Technologies, Inc. * ............... 4,500 71
United States Steel Corp. * ................. 11,900 156
USEC, Inc. .................................. 1,900 11
----------
426
Containers & Packaging - 1.0%
Ball Corp. .................................. 1,100 56
Bemis Co., Inc. * ........................... 3,500 174
Chesapeake Corp. ............................ 3,500 63
Crown Cork & Seal Co., Inc. * ............... 6,800 54
Greif Bros. Corp. - Cl. A * ................. 1,000 24
Owens-Illinois, Inc. * ...................... 5,300 77
Temple-Inland, Inc. * ....................... 1,100 49
----------
497
Distributors - 0.1%
Handleman Co. * ............................. 4,700 54
114
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SMALL/MID CAP CORE FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Diversified Financials - 2.6%
AmeriCredit Corp. * ......................... 6,600 51
Ameritrade Holding Corp. * .................. 1,300 7
BlackRock, Inc. * ........................... 6,100 240
E*TRADE Group, Inc. * ....................... 16,800 82
Eaton Vance Corp. * ......................... 1,600 45
John Nuveen Co. - Cl. A ..................... 6,200 157
LaBranche & Co., Inc. * ..................... 10,800 288
New Century Financial Corp. ................. 9,000 229
Novastar Financial, Inc. .................... 4,500 140
SWS Group, Inc. ............................. 300 4
----------
1,243
Diversified Telecommunication Services - 1.0%
Citizens Communications Co. * ............... 5,200 55
Commonwealth Telephone Enterprises, Inc. * .. 1,200 43
Crown Castle International Corp. * .......... 13,100 49
IDT Corp. * ................................. 15,700 272
Level 3 Communications, Inc. * .............. 8,400 41
----------
460
Electric Utilities - 1.4%
AES Corp. * ................................. 15,900 48
Alliant Energy Corp. ........................ 1,800 30
Aquila, Inc. Delaware * ..................... 11,600 20
Avista Corp. ................................ 10,300 119
Pinnacle West Capital Corp. * ............... 4,800 164
PNM Resources, Inc. ......................... 1,600 38
Puget Energy, Inc. .......................... 11,800 260
----------
679
Electric/Gas - 0.5%
MDU Resources Group, Inc. ................... 3,800 98
Northeast Utilities ......................... 10,500 159
----------
257
Electrical Equipment - 1.9%
A.O. Smith Corp. ............................ 8,000 216
American Power Conversion * ................. 9,200 139
Benchmark Electronics, Inc. * ............... 8,900 255
Energizer Holdings, Inc. * .................. 1,700 48
FLIR Systems, Inc. * ........................ 1,400 68
Littelfuse, Inc. * .......................... 1,000 17
Tecumseh Products Co. - Cl. A ............... 1,900 84
The Genlyte Corp. * ......................... 2,200 69
----------
896
Electronic Equipment & Instruments - 5.3%
Adaptec, Inc. * ............................. 8,600 49
Anixter International, Inc. * ............... 11,600 270
Arrow Electronics, Inc. * ................... 14,400 184
Artesyn Technologies, Inc. .................. 8,500 33
Avid Technology, Inc. * ..................... 5,000 115
Avnet, Inc. ................................. 26,944 292
BEI Technologies, Inc. ...................... 3,200 36
Belden, Inc. * .............................. 3,200 49
C&D Technologies, Inc. ...................... 2,700 48
C-COR.net Corp. * ........................... 9,000 30
CoorsTek, Inc. * ............................ 1,600 41
CUBIC Corp. * ............................... 2,200 41
Fisher Scientific International, Inc. ....... 2,600 78
Franklin Electric Co., Inc. ................. 1,800 86
Ingram Micro, Inc. - Cl. A * ................ 23,000 284
Methode Electronics, Inc. - Cl. A ........... 5,700 62
Pioneer Standard Electronics, Inc. .......... 21,400 196
Plexus Corp. * .............................. 4,600 40
Powell Industries, Inc. * ................... 5,100 36
Rogers Corp. * .............................. 2,400 53
Symbol Technologies, Inc. * ................. 10,300 85
Tech Data Corp. * ........................... 5,100 137
Thermo Electron Corp. * ..................... 8,800 177
Varian, Inc. * .............................. 2,100 60
Veeco Instruments, Inc. * ................... 3,200 37
Woodhead Industries, Inc. ................... 1,300 15
Woodward Governor Co. ....................... 900 39
----------
2,573
Energy Equipment & Services - 1.3%
Atwood Oceanics, Inc. * ..................... 2,200 66
C.H. Energy Group, Inc. ..................... 1,000 47
Cooper Cameron Corp. * ...................... 1,900 95
Hydril Co. * ................................ 1,600 38
Pride International, Inc. * ................. 6,600 98
Universal Compression Holdings, Inc. * ...... 2,600 50
Varco International, Inc. * ................. 8,700 151
Veritas DGC, Inc. * ......................... 10,000 79
----------
624
Finance - 0.3%
A.G. Edwards, Inc. * ........................ 5,000 165
Food & Drug Retailing - 1.5%
Casey's General Stores, Inc. * .............. 3,900 47
Charming Shoppes, Inc. * .................... 33,500 140
CKE Restaurants, Inc. ....................... 6,400 27
Fleming Cos., Inc. .......................... 7,300 48
Longs Drug Stores Corp. ..................... 2,200 46
Nash Finch Co. .............................. 6,400 49
Outback Steakhouse, Inc. * .................. 1,500 52
Pathmark Stores, Inc. * ..................... 4,700 24
Performance Food Group Co. * ................ 1,200 41
The Great Atlantic & Pacific Tea Co., Inc. * 10,900 88
Whole Foods Market, Inc. * .................. 1,800 95
Winn-Dixie Stores, Inc. * ................... 3,200 49
----------
706
Food Products - 2.0%
Chiquita Brands International, Inc. * ....... 6,100 81
115
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SMALL/MID CAP CORE FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Food Products - Continued
Corn Products International, Inc. ........... 1,600 $ 48
Dean Foods Co. * ............................ 4,300 160
Dole Food Co. ............................... 2,100 68
Dreyer's Grand Ice Cream, Inc. .............. 900 64
Flowers Foods, Inc. * ....................... 2,000 39
International Multifoods Corp. * ............ 2,400 51
Interstate Bakeries ......................... 5,700 87
J & J Snack Foods Corp. * ................... 1,600 57
J.M. Smucker Co. * .......................... 1,423 57
Pilgrims Pride Corp. - Cl. B ................ 6,000 49
Ralcorp Holdings, Inc. * .................... 3,500 88
Smithfield Foods, Inc. * .................... 5,600 111
----------
960
Gas Utilities - 0.5%
Nicor, Inc. ................................. 1,500 51
NStar * ..................................... 1,100 49
Southwest Gas Corp. ......................... 2,600 61
Wisconsin Energy Corp. * .................... 4,100 103
----------
264
Health Care Equipment & Supplies - 3.2%
Alpharma, Inc. - Cl. A * .................... 5,800 69
Bausch & Lomb, Inc. * ....................... 1,300 47
Beckman Coulter, Inc. ....................... 1,000 29
Biosite Diagnostics, Inc. * ................. 1,500 51
Celgene Corp. * ............................. 9,300 200
Cima Labs Inc. * ............................ 1,800 44
Conmed Corp. * .............................. 1,800 35
Datascope Corp. * ........................... 1,000 25
Edwards Lifesciences Corp. * ................ 2,600 66
Gentiva Health Services, Inc. ............... 9,400 83
Henry Schein, Inc. * ........................ 5,300 238
Immucor Corp. ............................... 4,150 84
Mentor Corp. Minnesota ...................... 1,800 69
Owens & Minor, Inc. ......................... 4,200 69
Respironics, Inc. * ......................... 3,900 119
Steris Corp. * .............................. 4,600 112
Varian Medical Systems, Inc. * .............. 1,900 94
Vertex Pharmaceuticals, Inc. * .............. 5,100 81
Viasys Healthcare, Inc. * ................... 2,800 42
----------
1,557
Health Care Providers & Services - 3.1%
Advance PCS * ............................... 3,300 73
Advisory Co. * .............................. 1,700 51
Albany Molecular Research, Inc. * ........... 6,300 93
Amerigroup Corp. * .......................... 1,600 48
Apria Healthcare Group, Inc. * .............. 2,600 58
Cobalt Corp. ................................ 2,700 37
D & K Healthcare Resources, Inc. ............ 3,600 37
Humana, Inc. * .............................. 14,900 149
IDX Systems Corp. * ......................... 4,700 80
Kindred Healthcare, Inc. .................... 3,300 60
Mid Atlantic Medical Services, Inc. * ....... 6,200 $ 201
PacifiCare Health Systems, Inc. * ........... 5,900 166
Patterson Dental Co. * ...................... 2,000 87
Pharmaceutical Product Development, Inc. * .. 1,900 56
PSS World Medical, Inc. - Cl. A * ........... 15,800 108
Quintiles Transnational Corp. * ............. 5,700 69
U.S. Oncology, Inc. * ....................... 10,600 92
Vitalworks, Inc. ............................ 5,600 22
----------
1,487
Hotels Restaurants & Leisure - 2.5%
Bob Evansfarms, Inc. ........................ 4,000 93
California Pizza Kitchen, Inc. * ............ 3,400 86
CBRL Group, Inc. * .......................... 4,300 129
Coachmen Indsutries, Inc. ................... 2,900 46
Cumulus Media, Inc. - Cl. A * ............... 2,600 39
Dave & Busters, Inc. ........................ 5,700 49
Hotels.com - Cl. A * ........................ 2,400 131
Landry's Seafood Restaurants, Inc. * ........ 8,600 183
Lone Star Steakhouse & Saloon ............... 6,300 122
O Charleys, Inc. * .......................... 2,400 49
Park Place Entertainment Corp. * ............ 12,400 104
Pegasus Systems, Inc. * ..................... 3,100 31
Rare Hospitality International, Inc. * ...... 1,450 40
Ryan's Family Steak Houses, Inc. * .......... 4,300 49
The Steak and Shake Co. * ................... 4,600 46
----------
1,197
Household Durables - 1.9%
Herman Miller, Inc. * ....................... 3,400 63
Hovnanian Enterprises, Inc. - Cl. A * ....... 6,100 193
Interface, Inc. ............................. 2,200 7
La-Z-Boy, Inc. .............................. 2,800 67
M/I Schottenstein Homes, Inc. ............... 4,500 125
NVR, Inc. ................................... 800 261
Ryland Group, Inc. .......................... 1,300 43
Toro Co. .................................... 2,100 134
----------
893
Household Products - 0.3%
Dial Corp. .................................. 6,100 124
Industrial Conglomerates - 0.1%
Regal Entertainment Group - Cl. A ........... 2,200 47
Insurance - 4.4%
American Financial Group, Inc. .............. 7,400 171
American Medical Security Group, Inc. * ..... 3,000 42
American National Insurance Co. ............. 1,000 82
Amerus Group Co. * .......................... 4,600 130
Delphi Financial Group, Inc. - Cl. A * ...... 1,200 46
Fidelity National Financial, Inc. * ......... 7,536 247
First American Financial Corp. .............. 18,600 413
116
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SMALL/MID CAP CORE FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Insurance - Continued
Fremont General Corp. * ..................... 17,300 $ 78
Hilb, Rogal & Hamilton Co. .................. 1,600 65
LandAmerica Financial Group, Inc. ........... 6,300 223
National Western Life Insurance Co. * ....... 900 86
Phoenix Cos, Inc. * ......................... 6,700 51
Protective Life Corp. ....................... 3,400 94
Providian Financial Corp. * ................. 13,200 86
Stancorp Financial Group, Inc. * ............ 1,300 64
The Midland Co. ............................. 1,800 34
The MONY Group, Inc. ........................ 6,100 146
Wesco Financial Corp. ....................... 150 46
----------
2,104
Internet Software & Services - 1.1%
Cognizant Technology Solutions Corp. * ...... 1,200 87
EarthLink, Inc. * ........................... 10,961 60
eSpeed, Inc. * .............................. 5,000 85
Fidelity National Info Solutions * .......... 3,100 53
J2 Global Communications, Inc. * ............ 1,900 36
Ticketmaster Online-CitySearch, Inc. - Cl. B * 4,200 89
United Online, Inc. * ....................... 4,400 70
VeriSign, Inc. * ............................ 5,300 43
----------
523
IT Consulting & Services - 1.0%
Aexiom Corp. * .............................. 6,900 106
American Management Systems, Inc. * ......... 2,500 30
BearingPoint, Inc. * ........................ 16,500 114
Bell Microproducts, Inc. .................... 16,100 89
ManTech International Corp. - Cl. A * ....... 2,600 49
The Titan Corp. * ........................... 4,000 42
Trizetto Group, Inc. ........................ 5,800 36
----------
466
Leisure Equipment & Products - 0.5%
Arctic Cat, Inc. ............................ 3,000 48
Brunswick Corp. * ........................... 2,000 40
Polaris Industries Inc. ..................... 2,600 152
----------
240
Machinery - 1.8%
AGCO Corp. .................................. 2,200 48
Applied Industrial Technologies, Inc. ....... 8,400 159
Cummins Engine Company, Inc. * .............. 1,800 51
Flowserve Corp. * ........................... 4,000 59
Grant Prideco, Inc. * ....................... 7,000 81
NACCO Industries, Inc. - Cl. A .............. 2,300 101
Oshkosh Truck Corp. ......................... 2,900 178
Stewart & Stevenson Services, Inc. .......... 1,200 17
Timken Co. .................................. 5,900 113
Trinity Industries, Inc. .................... 3,200 61
----------
868
Media - 3.1%
ADVO, Inc. * ................................ 2,400 79
Belo Corp. .................................. 9,400 200
Cox Radio, Inc. - Cl. A * ................... 4,700 107
Emmis Communications Corp. * ................ 2,000 42
Entravision Communications - Cl. A * ........ 4,700 47
Getty Images, Inc. * ........................ 1,600 49
Grey Global Group, Inc. ..................... 70 43
Hearst-Argyle Television, Inc. * ............ 8,700 210
Hispanic Broadcasting Corp. * ............... 4,800 99
Interactive Data Corp. * .................... 1,200 16
McClatchy Newspapers, Inc. - Cl. A .......... 3,500 198
Pulitzer, Inc. .............................. 4,700 211
Sinclair Broadcast Group, Inc. * ............ 6,300 73
Spanish Broadcasting Systems, Inc. * ........ 6,200 45
World Wrestling Federation
Entertainment, Inc. * ...................... 9,100 73
----------
1,492
Metals & Mining - 1.3%
AK Steel Corp. .............................. 12,100 97
Allegheny Technologies, Inc. * .............. 14,600 91
Cleveland Cliffs, Inc. ...................... 2,500 50
Commercial Metals Co. ....................... 3,500 57
Reliance Steel & Aluminum Co. * ............. 1,600 33
Royal Gold, Inc. ............................ 2,100 52
Ryerson Tull, Inc. .......................... 15,200 93
Shaw Group, Inc. * .......................... 6,200 102
Steel Dynamics, Inc. * ...................... 4,500 54
----------
629
Multi-Utilities - 1.0%
Energy East Corp. ........................... 14,400 318
Vectren Corp. * ............................. 7,200 166
----------
484
Multiline Retail - 1.8%
American Eagle Outfitters, Inc. * ........... 3,200 44
Big Lots, Inc. * ............................ 10,100 134
Burlington Coat Factory Warehouse Corp. ..... 2,100 38
Dillard's, Inc. - Cl. A * ................... 3,100 49
Jo-Ann Stores, Inc. * ....................... 1,900 44
MSC Industrial Direct Co., Inc. - Cl. A ..... 2,600 46
OfficeMax, Inc. * ........................... 17,700 88
Ross Stores, Inc. ........................... 2,000 85
Saks, Inc. * ................................ 16,800 197
Shopko Stores, Inc. * ....................... 13,200 164
----------
889
Oil & Gas - 3.8%
Ashland, Inc. ............................... 4,400 126
Cimarex Energy Co. * ........................ 1,647 29
Equitable Resources, Inc. * ................. 1,300 46
Houston Exploration Co. * ................... 1,600 49
117
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SMALL/MID CAP CORE FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Oil & Gas - Continued
National-Oilwell, Inc. * .................... 7,200 $ 157
Newfield Exploration Co. * .................. 2,000 72
Oneok, Inc. ................................. 16,400 315
Parker Drilling Co. * ....................... 9,400 21
Patina Oil & Gas Corp. ...................... 5,800 184
Pogo Producing Co. .......................... 8,500 317
Sunoco, Inc. * .............................. 1,300 43
Swift Energy Co. * .......................... 5,800 56
Tesoro Petroleum Corp. * .................... 13,600 61
Tidewater, Inc. * ........................... 3,700 115
Western Gas Resources, Inc. ................. 3,100 114
Westport Resources Corp. * .................. 6,700 139
----------
1,844
Paper & Forest Products - 0.6%
Boise Cascade Corp. * ....................... 6,900 174
Louisiana-Pacific Corp. * ................... 9,600 77
Potlatch Corp. .............................. 1,700 41
----------
292
Personal Products - 1.0%
Alberto-Culver Co. - Cl. B * ................ 5,300 267
Nu Skin Enterprises, Inc. - Cl. A * ......... 12,700 152
Perrigo Co. * ............................... 4,600 56
----------
475
Pharmaceuticals - 1.2%
Connetics Corp. * ........................... 5,100 61
ICN Pharmaceuticals, Inc. .................. 4,400 48
ISIS Pharmaceuticals * ...................... 7,400 49
Kos Pharmaceuticals, Inc. * ................. 3,900 74
Lannett Co., Inc. * ......................... 2,600 43
Priority Healthcare Corp. - Cl. B * ......... 2,100 49
SICOR, Inc. * ............................... 7,800 124
Watson Pharmaceuticals, Inc. * .............. 4,300 121
----------
569
Real Estate Investment Trust - 5.5%
AMLI Residential Properties Trust ........... 2,100 45
Annaly Mortgage Management, Inc. ............ 10,600 199
Anthracite Capital, Inc. * .................. 12,300 134
Anworth Mortgage Asset Corp. ................ 3,700 47
Avalonbay Communities, Inc. ................. 5,200 204
Capstead Mortgage Corp. ..................... 2,400 59
CarrAmerica Realty Corp. .................... 3,100 78
FBR Asset Investment Corp. .................. 2,900 98
FelCor Lodging Trust, Inc. .................. 24,600 281
General Growth Properties ................... 1,700 88
Glenborough Realty Trust, Inc. .............. 10,800 192
Health Care Property Investments, Inc. ...... 3,900 149
Host Marriott Corp. * ....................... 3,800 34
HRPT Properties Trust ....................... 23,700 195
IndyMac Mortgage Holdings, Inc. ............. 2,200 41
Mack-Cali Realty LP * ....................... 4,000 121
MeriStar Hospitality Corp. .................. 8,100 $ 54
National Health, Inc. ....................... 5,000 80
RAIT Investment Trust ....................... 3,600 78
Regency Centers Corp. ....................... 1,500 49
Senior Housing Trust ........................ 12,100 128
Thornburg Mortgage, Inc. .................... 9,500 191
Trizec Properties, Inc. ..................... 9,000 85
----------
2,630
Real Estate Operations - 1.5%
AMB Property Corp. .......................... 2,800 77
iStar Financial, Inc. ....................... 5,000 140
JDN Realty Corp. * .......................... 3,800 42
La Quinta Corp. - CTF ....................... 13,700 60
LNR Property Corp. .......................... 3,900 138
New Plan Excel Realty Trust, Inc. ........... 6,700 128
Redwood Trust, Inc. ......................... 4,800 133
----------
718
Road & Rail - 0.9%
Dollar Thrifty Automotive Group, Inc. * ..... 2,500 53
Florida East Coast Industries, Inc. ......... 2,000 46
Hunt Jersey Transport Services, Inc. ........ 4,100 120
Roadway Express, Inc. * ..................... 3,300 121
Ryder System, Inc. .......................... 2,400 54
Yellow Corp. * .............................. 1,500 38
----------
432
Semiconductor Equipment & Products - 0.8%
Axcelis Technologies, Inc. * ................ 1,800 10
Cree, Inc. * ................................ 4,500 74
DuPont Photomasks, Inc. * ................... 4,700 109
Integrated Circuit Systems, Inc. * .......... 5,000 91
International Rectifier Corp. * ............. 1,900 35
PLX Technology, Inc. * ...................... 5,000 20
Silicon Storage Technology, Inc. * .......... 4,800 19
Standard Microsystems Corp. * ............... 1,800 35
----------
393
Software - 2.8%
Activision, Inc. * .......................... 3,250 48
Autodesk, Inc. * ............................ 3,500 50
Compuware Corp. * ........................... 13,500 65
Fair Issac & Co., Inc. ...................... 2,900 124
FileNet Corp. * ............................. 3,300 40
Gtech Holdings Corp. * ...................... 2,600 73
Hyperion Solutions Corp. * .................. 3,500 90
Imation Corp. * ............................. 4,600 161
J.D. Edwards & Co. * ........................ 7,500 85
JDA Software Group, Inc. .................... 3,200 31
Manhattan Associates, Inc. * ................ 2,800 66
Mentor Graphics Corp. * ..................... 7,100 56
MicroStrategy, Inc. - Cl. A * ............... 14 0
MSC Software Corp. * ........................ 7,300 56
118
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SMALL/MID CAP CORE FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Software - Continued
National Instruments Corp. * ................ 2,100 $ 68
NetlQ Corp. * ............................... 3,400 42
Network Associates, Inc. * .................. 4,500 72
Novell, Inc. * .............................. 24,300 81
Radiant Systems, Inc. * ..................... 5,300 51
Roxio, Inc. * ............................... 3,200 15
Scansoft, Inc. .............................. 6,600 34
Serena Software, Inc. * ..................... 2,900 46
----------
1,354
Specialty Retail - 1.9%
Cato Corp. - Cl. A .......................... 1,300 28
GameStop Corp. - Cl. A * .................... 7,900 77
Gart Sports Co. * ........................... 2,100 41
Hollywood Entertainment Corp. * ............. 2,500 38
Hughes Supply, Inc. ......................... 5,500 150
Michaels Stores, Inc. * ..................... 1,400 44
Payless ShoeSource, Inc. * .................. 3,600 185
PetsMart, Inc. * ............................ 11,400 195
Rent-Way, Inc. * ............................ 4,500 16
Sonic Automotive, Inc. - Cl. A * ............ 2,800 42
The Finish Line - Cl. A * ................... 5,100 54
Tractor Supply Co. .......................... 1,100 41
Tweeter Home Entertainment Group, Inc. * .... 4,700 27
----------
938
Textiles & Apparel - 1.3%
Brown Shoe Co., Inc. * ...................... 7,800 186
Kellwood Co. * .............................. 5,500 143
Oakley, Inc. * .............................. 4,600 47
Phillips Van Heusen Corp. * ................. 3,200 37
Russell Corp. ............................... 2,800 47
Skechers USA, Inc. .......................... 21,800 185
----------
645
Tobacco - 0.1%
Universal Corp. * ........................... 1,300 48
Wireless Telecommunications Services - 0.3%
United States Cellular Corp. * .............. 4,900 123
----------
TOTAL COMMON STOCK- 98.5% 47,421
WARRANTS
Software - 0.0%
MicroStrategy, Inc.
expires 06/24/07 (Cost $0) .................. 89 0
INVESTMENT COMPANIES HELD
AS COLLATERAL ON LOANED
SECURITIES - 26.4%
State Street Navigator Securities
Lending Portfolio .......................... $ 12,721 $ 12,721
SHORT-TERM INVESTMENTS - 0.6%
Investment in joint repurchase agreement
with Goldman Sachs & Co., 1.25%
due 01/02/03 ............................... 300 300
---------- ----------
TOTAL INVESTMENTS- 125.5% 60,442
Cash and Receivables, less payables- (25.5)% 12,299
---------- ----------
NET ASSETS- 100.0% $ 48,143
========== ==========
* Non-income producing security.
See notes to financial statements.
119
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SMALL CAP VALUE FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Aerospace & Defense - 0.9%
Curtiss Wright Corp. - Cl. B ................ 6,800 $ 424
EDO Corp. ................................... 30,300 629
----------
1,053
Air Freight & Couriers - 0.9%
United Technologies Worldwide, Inc. ......... 40,500 1,063
Airlines - 0.5%
Midwest Express Holdings, Inc. * ............ 27,600 148
USFreightways Corp. ......................... 14,700 422
----------
570
Auto Components - 0.0%
Spartan Motors, Inc. ........................ 3,800 43
Banks - 7.4%
Bank Hawaii Corp. ........................... 7,300 222
Bank of Bermuda, Ltd. ....................... 24,400 779
Century Bancorp, Inc. - Cl. A ............... 12,000 318
Community First Bankshares, Inc. ............ 58,700 1,553
East West Bancorp, Inc. * ................... 35,400 1,277
Financial Federal Corp. ..................... 12,500 314
First Republic Bank * ....................... 47,600 952
New North Nova Corp. Pennsylvania * ......... 10,000 275
Silicon Valley Bancshares * ................. 55,300 1,009
Texas Regional Bancshares, Inc. ............. 60,700 2,157
----------
8,856
Beverages - 0.3%
Symyx Technologies, Inc. * .................. 29,900 377
Biotechnology - 0.0%
Lexicon Genetics, Inc. * .................... 10,400 49
Building Products - 1.4%
Ameron International Corp. .................. 10,000 551
Simpson Manufacturing, Inc. * ............... 15,400 507
Trex, Inc. * ................................ 5,000 177
WCI Communities, Inc. * ..................... 41,000 418
----------
1,653
Chemicals - 2.0%
Airgas, Inc. * .............................. 70,800 1,221
Arch Chemicals, Inc. ........................ 40,400 737
MacDermid, Inc. ............................. 20,200 462
----------
2,420
Commercial Services & Supplies - 4.9%
Casella Waste Systems, Inc. - Cl. A * ....... 86,000 764
CSS Industries, Inc. * ...................... 23,500 778
G & K Services, Inc. - Cl. A ................ 30,300 1,073
Lancaster Colony Corp. ...................... 7,000 274
McGrath Rent Corp. .......................... 26,100 607
MPS Group, Inc * ............................ 110,900 614
Right Management Consultants, Inc. * ........ 39,900 529
United Stationers, Inc. * ................... 27,100 780
Waste Connections, Inc. * ................... 10,200 $ 394
----------
5,813
Communications Equipment - 0.8%
Cable Design Technologies Corp. * ........... 158,300 934
Construction & Engineering - 1.5%
Insituform Technologies, Inc. - Cl. A * .... 65,700 1,120
Maximus, Inc. * ............................. 25,100 655
----------
1,775
Construction Materials - 1.9%
Carlisle Cos., Inc. ......................... 12,500 517
Florida Rock Industries, Inc. ............... 31,300 1,191
Granite Construction, Inc. .................. 34,700 538
----------
2,246
Containers & Packaging - 1.4%
AptarGroup, Inc. ............................ 36,300 1,134
Myers Industries, Inc. ...................... 50,375 539
----------
1,673
Diversified Financials - 4.2%
Allied Capital Corp. ........................ 66,860 1,460
American Capital Strategies, Ltd. ........... 41,100 887
First Financial Fund, Inc. * ................ 67,600 897
Gladstone Capital Corp. ..................... 8,200 135
Investment Technology Group, Inc. * ......... 16,000 358
Triad Guaranty, Inc. * ...................... 34,900 1,286
----------
5,023
Electric Utilities - 2.3%
Black Hills Corp. ........................... 30,300 803
Cleco Corp. ................................. 45,500 637
Otter Tail Power Co. ........................ 23,200 624
PNM Resources, Inc. ......................... 28,700 684
----------
2,748
Electrical Equipment - 0.9%
Deswell Industries, Inc. .................... 32,800 476
Littelfuse, Inc. * .......................... 38,400 647
----------
1,123
Electronic Equipment & Instruments - 4.7%
Analogic Corp. .............................. 18,200 915
C&D Technologies, Inc. ...................... 40,400 714
Electro Rent Corp. * ........................ 95,300 1,155
Franklin Electric Co., Inc. ................. 26,300 1,263
Methode Electronics, Inc. - Cl. A ........... 34,700 380
Technitrol, Inc. ............................ 18,400 297
Ultimate Electronics, Inc. * ................ 25,200 256
Woodward Governor Co. ....................... 15,700 683
----------
5,663
Energy Equipment & Services - 3.2%
Atwood Oceanics, Inc. * ..................... 19,700 593
120
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SMALL CAP VALUE FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Energy Equipment & Services - Continued
Carbo Ceramics, Inc. ........................ 32,600 $ 1,099
Layne Christensen Co. * ..................... 29,100 239
Lone Star Technologies, Inc. * .............. 24,100 359
Tetra Technologies, Inc. * .................. 50,000 1,068
West Hampshire Energy Services, Inc. * ...... 34,500 503
----------
3,861
Finance - 0.2%
Sky Financial Group, Inc. ................... 14,200 283
Food & Drug Retailing - 1.5%
Casey's General Stores, Inc. * .............. 70,800 865
Sonic Corp. * ............................... 25,200 516
Wild Oats Markets, Inc. * ................... 38,600 398
----------
1,779
Food Products - 1.4%
American Italian Pasta Co. * ................ 22,200 799
NBTY Inc. * ................................. 6,600 116
Riviana Foods, Inc. Delaware ................ 16,300 441
Sensient Technologies Corp. ................. 14,300 321
----------
1,677
Gas Utilities - 1.1%
Peoples Energy Corp. * ...................... 11,200 433
Questar Corp. ............................... 13,800 384
WGL Holdings, Inc. .......................... 19,400 464
----------
1,281
Health Care Equipment & Supplies - 3.1%
Amerigroup Corp. * .......................... 22,300 676
Arrow International, Inc. ................... 10,200 415
Landauer, Inc ............................... 18,100 629
Orthofix International * .................... 10,700 300
Owens & Minor, Inc. ......................... 70,800 1,162
PolyMedica Corporation * .................... 19,000 586
----------
3,768
Health Care Providers & Services - 0.8%
Corvel Corp. ................................ 9,900 354
Orthodontic Centers of America, Inc. * ...... 49,700 542
----------
896
Hotels Restaurants & Leisure - 3.4%
CEC Entertainment, Inc. * ................... 16,800 516
Rare Hospitality International, Inc. * ...... 60,700 1,676
Ruby Tuesday, Inc. .......................... 109,200 1,888
----------
4,080
Household Durables - 1.7%
Meritage Corp. * ............................ 9,700 326
Skyline Corp. ............................... 30,300 894
Stanley Furniture Co., Inc. * ............... 35,400 823
----------
2,043
Household Products - 1.2%
Mathews International Corp. * ............... 65,400 $ 1,461
Insurance - 6.8%
Annuity & Life Holdings, Ltd. ............... 45,500 106
Brown & Brown, Inc. ......................... 67,900 2,194
Delphi Financial Group, Inc. - Cl. A * ...... 8,300 315
IPC Holdings, Ltd. .......................... 22,600 713
Markel Corp. * .............................. 5,000 1,027
Ohio Casualty Corp. ......................... 25,600 331
Platinum Underwriters Holdings * ............ 14,900 393
Proassurance Corp. * ........................ 60,700 1,275
Reinsurance Group of America ................ 23,300 631
RLI Corp. ................................... 13,000 363
Scottish Annuity & Life ..................... 23,200 405
Universal American Financial Corp. * ........ 78,000 454
----------
8,207
Internet & Catalog Retail - 0.3%
Jersey Jill Group, Inc. * ................... 28,500 399
Internet Software & Services - 0.7%
Netegrity, Inc. * ........................... 61,200 199
Packeteer, Inc. * ........................... 80,700 554
Stellent, Inc. * ............................ 20,300 90
----------
843
Leisure Equipment & Products - 1.1%
SCP Pool Corp. * ............................ 44,700 1,305
Machinery - 2.8%
Albany International Corp. - Cl. A .......... 13,200 273
IDEX Corp. .................................. 28,600 935
Kadant, Inc. * .............................. 22,300 335
Nordson Corp. ............................... 30,300 752
Thomas Industries, Inc. ..................... 41,500 1,081
----------
3,376
Marine - 0.2%
Kirby Corp. * ............................... 7,100 195
Media - 1.8%
Journal Register Co. * ...................... 27,100 482
Paxson Communications Corp. * ............... 7,800 16
Saga Communications, Inc. - Cl. A * ......... 69,500 1,320
Sinclair Broadcast Group, Inc. * ............ 27,600 321
----------
2,139
Metals & Mining - 2.1%
Carpenter Technology Corp. * ................ 25,200 314
Freeport-McMoRan Copper & Gold, Inc. -
Cl. B * .................................... 33,000 554
Gibraltar Steel Corp. ....................... 40,500 771
Penn Virginia Corp. ......................... 25,400 923
----------
2,562
Multi-Utilities - 0.6%
Vectren Corp. * ............................. 30,900 711
121
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SMALL CAP VALUE FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Multiline Retail - 2.0%
Freds, Inc. ................................. 63,700 $ 1,637
Stein Mart, Inc. * .......................... 122,400 747
----------
2,384
Oil & Gas -2.6%
Cimarex Energy Co. * ........................ 5,500 98
Forest Oil Corp. * .......................... 30,300 838
Patina Oil & Gas Corp. ...................... 9,900 313
St. Mary Land & Exploration Co. * ........... 14,300 358
XTO Energy, Inc. ............................ 62,700 1,549
----------
3,156
Paper & Forest Products - 1.4%
Deltic Timber Corp. ......................... 30,300 809
Wausau-Mosinee Paper Corp. .................. 80,900 908
----------
1,717
Pharmaceuticals - 1.3%
Bone Care International, Inc. * ............. 55,600 541
Diversa Corp. * ............................. 81,400 737
Guilford Pharmaceuticals, Inc. * ............ 81,800 325
----------
1,603
Real Esate Development - 0.9%
Kilroy Realty Corp. ......................... 45,200 1,042
Real Estate Investment Trust - 6.4%
Arden Realty Group, Inc. .................... 16,500 365
Bedford Property Investors, Inc. ............ 30,300 778
Camden Property Trust ....................... 10,500 346
Chelsea Property Group, Inc. ................ 10,000 333
Getty Realty Corp. .......................... 13,800 262
Glenborough Realty Trust, Inc. .............. 53,500 953
Innkeepers USA Trust ........................ 70,500 540
LaSalle Hotel Properties .................... 39,700 556
Mid Atlantic Realty Trust ................... 24,600 428
RAIT Investment Trust ....................... 15,400 333
Reckson Associates Realty Corp. ............. 16,200 341
Sun Communities, Inc. ....................... 45,000 1,646
Washington Real Estate Investment Trust ..... 30,300 773
----------
7,654
Road & Rail - 2.5%
Genesee & Wyo., Inc. -Cl. A ................. 23,200 472
Hub Group Inc. * ............................ 15,000 72
Landstar Systems, Inc. * .................... 36,400 2,124
Werner Enterprises, Inc. * .................. 15,600 336
----------
3,004
Semiconductor Equipment & Products - 1.9%
Atmi, Inc. * ................................ 32,700 606
ESS Technology, Inc. * ...................... 48,800 307
Exar Corp. * ................................ 52,000 645
Mykrolis Corp. * ............................ 60,600 442
Pericom Semiconductor Corp. * ............... 37,100 $ 308
----------
2,308
Software - 2.0%
Ansys, Inc. ................................. 25,500 515
Black Box Corp. ............................. 9,500 426
Progress Software Corp. * ................... 55,500 719
SPSS, Inc. .................................. 49,700 695
----------
2,355
Specialty Retail - 5.2%
Aaron Rents, Inc. ........................... 54,300 1,188
Guitar Center, Inc. ......................... 23,300 386
Hancock Fabrics, Inc. ....................... 45,400 692
Haverty Furniture Co., Inc. ................. 80,900 1,125
Hibbett Sporting Goods, Inc. ................ 35,000 837
Hughes Supply, Inc. ......................... 8,800 240
O'Reilly Automotive, Inc. * ................. 41,000 1,037
TBC Corp. * ................................. 62,500 751
----------
6,256
Textiles & Apparel - 0.7%
Culp, Inc. * ................................ 33,300 283
Unifi, Inc. * ............................... 104,600 549
----------
832
Tobacco - 0.6%
Universal Corp. * ........................... 20,800 769
----------
TOTAL COMMON STOCK- 97.5% 117,028
Par
Value
(000's)
INVESTMENT COMPANIES HELD
AS COLLATERAL ON LOANED
SECURITIES - 25.6%
State Street Navigator Securities Lending
Portfolio .................................. $ 30,729 30,729
SHORT-TERM INVESTMENTS - 3.6%
Investment in joint trading account
(Note B)
1.388% due 01/02/03 ........................ 4,314 4,314
---------- ----------
TOTAL INVESTMENTS- 126.7% 152,071
Payables, less cash and receivables- (26.7)% (32,001)
---------- ----------
NET ASSETS- 100.0% $ 120,070
========== ==========
* Non-income producing security.
See notes to financial statements.
122
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
REAL ESTATE EQUITY FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Real Estate Development - 6.1%
Catellus Development Corp. * ................ 119,100 $ 2,364
Colonial Property Trust ..................... 12,600 428
Kilroy Realty Corp. ......................... 45,200 1,042
Rouse Co. ................................... 162,100 5,138
The Macerich Co. ............................ 61,000 1,876
----------
10,848
Real Estate Investment Trust - 77.7%
Alexandria Real Estate ...................... 29,000 1,235
AMLI Residential Properties Trust ........... 34,300 730
Apartment Investment & Management Co. ....... 96,300 3,609
Archstone Communities Trust ................. 280,510 6,603
Arden Realty Group, Inc. .................... 137,400 3,043
Avalonbay Communities, Inc. ................. 202,545 7,928
Boston Properties, Inc. ..................... 207,750 7,658
BRE Properties, Inc. ........................ 43,500 1,357
Camden Property Trust ....................... 62,000 2,046
CarrAmerica Realty Corp. .................... 80,050 2,005
Centerpoint Properties Corp. ................ 12,550 717
Chateau Communities, Inc. ................... 61,850 1,423
Chelsea Property Group, Inc. ................ 800 27
Cousins Properties, Inc. .................... 48,600 1,200
Duke Realty Investments, Inc. ............... 82,139 2,090
Equity Office Properties Trust * ............ 464,943 11,614
Equity Residential Properties Trust * ....... 309,700 7,612
Essex Property Trust, Inc. .................. 54,200 2,756
Federal Realty Investment Trust ............. 140,000 3,937
FelCor Lodging Trust, Inc. .................. 57,000 652
Gables Residential Trust .................... 8,400 209
General Growth Properties ................... 125,900 6,547
Health Care Property Investments, Inc. ...... 4,900 188
Home Properties of New York, Inc. ........... 18,300 630
Hospitality Properties Trust ................ 45,100 1,588
Host Marriott Corp. * ....................... 571,200 5,055
Innkeepers USA Trust ........................ 39,500 303
Kimco Realty Corp. .......................... 64,600 1,979
Liberty Property Trust ...................... 81,200 2,594
Mack-Cali Realty LP * ....................... 28,000 848
MeriStar Hospitality Corp. .................. 47,450 313
PAN Pacific Retail Properties, Inc. ......... 47,700 1,742
Post Properties, Inc. ....................... 28,100 672
Prentiss Properties Trust ................... 51,350 1,452
Prologis Trust .............................. 320,500 8,061
Public Storage, Inc. ........................ 176,000 5,687
Realty Income Corp. ......................... 40,200 1,407
Reckson Associates Realty Corp. ............. 40,400 850
Regency Centers Corp. ....................... 72,350 2,344
Shurgard Storage Centers, Inc. .............. 48,900 1,533
Simon Property Group, Inc. .................. 364,000 12,402
SL Green Realty Corp. ....................... 69,400 2,193
Summit Properties, Inc. ..................... 1,500 27
Sun Communities, Inc. ....................... 27,400 1,002
Taubman Centers, Inc. ....................... 35,000 $ 568
Trizec Properties, Inc. ..................... 147,100 1,381
Ventas, Inc. ................................ 44,500 510
Vornado Realty Trust ........................ 139,000 5,171
Washington Real Estate Investment Trust ..... 19,600 500
Weingarten Realty Investors ................. 60,750 2,239
----------
138,237
Real Estate Operations - 15.3%
AMB Property Corp. .......................... 233,100 6,378
Brookfield Properties Corporation ........... 345,700 6,983
CBL & Associates Properties, Inc. ........... 29,400 1,178
Forest City Enterprises, Inc. ............... 15,900 530
Frontline Capital Group * ................... 121,500
Hilton Hotels Corp. * ....................... 230,500 2,930
JDN Realty Corp. * .......................... 458 5
Manufactured Home Communities, Inc. ......... 62,300 1,846
Starwood Hotels & Resorts Worldwide,
Inc. * ..................................... 311,300 7,390
Wyndham International, Inc. ................. 179,800 41
----------
27,281
----------
TOTAL COMMON STOCK- 99.1% 176,366
Par
Value
(000's)
SHORT-TERM INVESTMENTS - 0.6%
Investment in joint trading account
(Note B)
1.388% due 01/02/03 ........................ $ 1,114 1,114
---------- ----------
TOTAL INVESTMENTS- 99.7% 177,480
Cash and Receivables, less payables- 0.3% 446
---------- ----------
NET ASSETS- 100.0% $ 177,926
========== ==========
* Non-income producting security.
See notes to financial statements.
123
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
GROWTH & INCOME FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Aerospace & Defense - 0.7%
Boeing Co. * ................................ 252,700 $ 8,336
Lockheed Martin Corp. ....................... 50,800 2,934
Precision Castparts Corp. ................... 47,500 1,152
----------
12,422
Air Freight & Couriers - 0.4%
United Parcel Service, Inc. - Cl. B ......... 100,000 6,308
Auto Components - 0.5%
Ingersoll-Rand Co. - Cl. A * ................ 123,200 5,305
Lear Corp. * ................................ 42,600 1,418
Magna International, Inc. - Cl. A ........... 40,000 2,246
----------
8,969
Automobiles - 1.2%
Borg-Warner Automotive, Inc. ................ 32,300 1,629
Ford Motor Co. .............................. 500,400 4,654
General Motors Corp. * ...................... 284,900 10,501
Harley-Davidson, Inc. * ..................... 100,000 4,620
----------
21,404
Banks - 6.0%
Bank of America Corp. * ..................... 488,800 34,006
Charter One Financial, Inc. ................. 490,035 14,079
Comerica, Inc. * ............................ 15,800 683
Fifth Third Bancorp * ....................... 38,100 2,231
First Tennessee National Corp. .............. 47,400 1,703
FleetBoston Financial Corp. ................. 395,500 9,611
M & T Bank Corp. * .......................... 138,200 10,966
National Commerce Financial Corp. ........... 50,600 1,207
North Fork Bancorporation, Inc. * ........... 175,500 5,921
TCF Financial Corp. ......................... 233,200 10,188
US Bancorp * ................................ 549,800 11,667
Wachovia Corp. * ............................ 100,000 3,644
----------
105,906
Beverages - 2.3%
Anheuser-Busch Cos., Inc. ................... 237,400 11,490
Pepsi Bottling Group, Inc. * ................ 480,000 12,336
PepsiCo, Inc. * ............................. 335,400 14,161
Starbucks Corp. * ........................... 80,800 1,647
----------
39,634
Biotechnology - 1.4%
Amgen, Inc. * ............................... 448,900 21,700
Biogen, Inc. ................................ 31,000 1,242
MedImmune, Inc. * ........................... 69,400 1,885
----------
24,827
Chemicals - 1.9%
Air Products & Chemicals, Inc. * ............ 100,000 4,275
Dow Chemical Co. * .......................... 524,300 15,572
Eastman Chemical Co. * ...................... 196,900 7,240
Praxair, Inc. * ............................. 103,000 5,950
Rohm & Hass Co. ............................. 19,800 $ 643
----------
33,680
Commercial Services & Supplies - 0.8%
Avery Dennison Corp. * ...................... 28,400 1,735
Honeywell International, Inc. ............... 273,700 6,569
Paychex, Inc. ............................... 122,200 3,409
Pitney Bowes, Inc. * ........................ 54,600 1,783
----------
13,496
Communications Equipment - 0.9%
Cisco Systems, Inc. * ....................... 966,400 12,660
Qualcomm, Inc. * ............................ 98,900 3,599
----------
16,259
Computers & Peripherals - 4.1%
Dell Computer Corp. * ....................... 1,096,500 29,321
EMC Corp. * ................................. 1,467,800 9,012
International Business Machines Corp. ....... 378,300 29,318
Lexmark International Group, Inc. -
Cl. A * .................................... 76,200 4,610
----------
72,261
Containers & Packaging - 0.4%
Bell Corp. .................................. 91,000 4,658
Smurfit-Stone Container Corp. * ............. 145,900 2,246
----------
6,904
Credit Card - 0.1%
MBNA Corp. * ................................ 137,500 2,615
Diversified Financials - 7.5%
American Express Co. * ...................... 254,600 9,000
Capital One Financial Corp. ................. 102,200 3,037
Citigroup, Inc. * ........................... 1,303,789 45,880
Merrill Lynch & Co., Inc. * ................. 389,700 14,789
Morgan Stanley, Dean Witter, Discover
& Co. ...................................... 453,900 18,120
State Street Corp. .......................... 39,000 1,521
Washington Mutual, Inc. * ................... 323,800 11,181
Wells Fargo & Co. * ......................... 616,000 28,872
----------
132,400
Diversified Telecommunication Services - 2.8%
AT&T Corp. * ................................ 159,240 4,158
BellSouth Corp. * ........................... 425,700 11,013
CenturyTel, Inc. ............................ 50,500 1,483
SBC Communications, Inc. * .................. 287,100 7,783
Verizon Communications * .................... 650,600 25,211
----------
49,648
Electric Utilities - 1.9%
Cinergy Corp. * ............................. 29,100 981
Entergy Corp. * ............................. 312,200 14,233
FPL Group, Inc. ............................. 160,000 9,621
124
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
GROWTH & INCOME FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Electric Utilities - Continued
Southern Co. ................................ 320,500 $ 9,099
----------
33,934
Electric/Gas - 0.3%
Dominion Resources, Inc. .................... 88,400 4,853
Electrical Equipment - 0.7%
United Technologies Corp. * ................. 201,300 12,469
Electronic Equipment & Instruments - 0.1%
Tech Data Corp. * ........................... 56,700 1,529
Energy Equipment & Services - 0.7%
Global Santa Fe Corp. ....................... 47,800 1,163
Halliburton Co. * ........................... 295,000 5,519
Noble Corp. * ............................... 148,600 5,223
----------
11,905
Food & Drug Retailing - 0.2%
Walgreen Co. * .............................. 63,400 1,850
Williams-Sonoma, Inc. * ..................... 77,300 2,099
----------
3,949
Food Products - 2.0%
Kellogg Co. * ............................... 332,300 11,388
Kraft Foods, Inc. - Cl. A ................... 439,400 17,106
Unilever NV * ............................... 106,100 6,547
----------
35,041
Health Care Equipment & Supplies - 1.4%
Amerisource Bergen Corp. * .................. 50,400 2,737
Boston Scientific Corp. * ................... 120,000 5,102
Medtronic, Inc. * ........................... 248,400 11,327
St. Jude Medical, Inc. * .................... 133,200 5,291
----------
24,457
Health Care Providers & Services - 2.6%
Anthem, Inc. * .............................. 194,563 12,238
Cardinal Health, Inc. * ..................... 60,600 3,587
DaVita, Inc. * .............................. 300,000 7,401
HCA-The Healthcare Corp. * .................. 332,200 13,786
Health Management Assoc., Inc. -
Cl. A * .................................... 49,200 881
UnitedHealth Group, Inc. * .................. 22,300 1,862
Universal Health Services, Inc. -
Cl. B * .................................... 40,200 1,813
Wellpoint Health Networks, Inc. * ........... 64,800 4,611
----------
46,179
Hotels Restaurants & Leisure - 0.3%
Darden Restaurants, Inc. * .................. 65,000 1,329
Hilton Hotels Corp. * ....................... 114,100 1,450
International Game Technology * ............. 18,000 1,367
Marriott International, Inc. - Cl. A * ...... 55,000 1,808
----------
5,954
Household Durables - 0.5%
Black & Decker Corp. * ...................... 193,400 $ 8,295
Household Products - 1.5%
Procter & Gamble Co. * ...................... 315,400 27,106
Industrial Conglomerates - 3.1%
3M Co. ...................................... 52,800 6,510
General Electric Co. * ...................... 1,544,300 37,604
Textron, Inc. * ............................. 250,900 10,786
----------
54,900
Insurance - 7.5%
AFLAC, Inc. * ............................... 235,000 7,078
Allstate Corp. .............................. 160,100 5,922
American International Group, Inc. * ........ 499,200 28,879
Everest Re Group, Ltd. ...................... 49,600 2,743
Fidelity National Financial, Inc. * ......... 198,100 6,504
Hartford Financial Services Group, Inc. * ... 395,450 17,965
Metlife, Inc. * ............................. 618,200 16,716
Old Republic International Corp. ............ 67,400 1,887
Prudential Financial, Inc. * ................ 461,800 14,658
Radian Group, Inc. .......................... 240,400 8,931
St. Paul Cos., Inc. ......................... 110,900 3,776
The PMI Group, Inc. ......................... 283,700 8,522
Torchmark, Inc. * ........................... 56,800 2,075
Travelers Property Casualty Corp. -
Cl. A * .................................... 158,800 2,326
Travelers Property Casualty Corp. -
Cl. B * .................................... 236,006 3,458
----------
131,440
Internet Software & Services - 0.2%
Yahoo, Inc. * ............................... 250,000 4,088
IT Consulting & Services - 0.6%
Computer Sciences Corp. * ................... 223,800 7,710
SunGard Data Systems, Inc. * ................ 100,100 2,358
----------
10,068
Machinery - 0.8%
Danaher Corp. * ............................. 200,850 13,196
Media - 3.0%
AOL Time Warner, Inc. * ..................... 192,900 2,527
Clear Channel Communications, Inc. * ........ 200,300 7,469
Comcast Corp. - Cl. A ....................... 321,175 7,570
Fox Entertainment Group, Inc. -
Cl. A * .................................... 55,700 1,444
Gannett Co., Inc. * ......................... 40,500 2,908
McGraw-Hill Cos., Inc. ...................... 70,000 4,231
The Walt Disney Co. * ....................... 493,400 8,047
Viacom, Inc. - Cl. B * ...................... 441,550 17,998
----------
52,194
125
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
GROWTH & INCOME FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Metals & Mining - 0.2%
Alcan Aluminium, Ltd. * ..................... 138,700 $ 4,095
Multi-Utilities - 0.4%
Energy East Corp. ........................... 349,000 7,709
Multiline Retail - 4.4%
J.C. Penney Co., Inc. * ..................... 594,700 13,684
Kohl's Corp. * .............................. 311,600 17,434
Ross Stores, Inc. ........................... 92,600 3,925
Target Corp. * .............................. 374,450 11,234
Wal-Mart Stores, Inc. * ..................... 624,000 31,518
----------
77,795
Oil & Gas - 6.5%
Apache Corp. ................................ 100,000 5,699
BP Amoco plc - ADR .......................... 294,800 11,984
Chevron Texaco Corp. * ...................... 296,700 19,725
Conoco Phillips ............................. 81,900 3,963
Devon Energy Corp. * ........................ 240,800 11,053
Ensco International, Inc. ................... 150,000 4,417
Exxon Mobil Corp. * ......................... 1,440,712 50,338
Ocean Energy, Inc. .......................... 73,000 1,458
Royal Dutch Petroleum Co. * ................. 139,200 6,128
----------
114,765
Paper & Forest Products - 0.6%
International Paper Co. * ................... 280,700 9,816
Personal Products - 0.4%
Estee Lauder Cos., Inc. - Cl. A ............. 100,000 2,640
Gillette Co. ................................ 145,000 4,402
----------
7,042
Pharmaceuticals - 10.3%
Abbott Laboratories * ....................... 273,400 10,936
Allergan, Inc. * ............................ 39,200 2,259
Barr Laboratories, Inc. * ................... 27,200 1,770
Eli Lilly & Co. * ........................... 67,500 4,286
Forest Laboratories, Inc. * ................. 86,600 8,506
Johnson & Johnson * ......................... 714,700 38,387
King Pharmaceuticals, Inc. * ................ 315,500 5,423
Merck & Co., Inc. * ......................... 301,600 17,074
Pfizer, Inc. * .............................. 1,615,200 49,377
Pharmacia Corp. * ........................... 591,000 24,704
Wyeth ....................................... 489,900 18,322
----------
181,044
Road & Rail - 0.6%
Burlington Northern Santa Fe Corp. * ........ 90,900 2,364
CSX Corp. * ................................. 65,000 1,840
Norfolk Southern Corp. * .................... 328,900 6,575
----------
10,779
Semiconductor Equipment & Products - 4.5%
Altera Corp. * .............................. 300,000 3,702
Analog Devices, Inc. * ...................... 194,000 4,631
Applied Materials, Inc. * ................... 767,100 $ 9,995
Intel Corp. ................................. 2,023,400 31,504
KLA-Tencor Corp. * .......................... 137,600 4,867
Maxim Integrated Products, Inc. * ........... 43,600 1,441
Microchip Technology, Inc. * ................ 97,700 2,389
Novellus Systems, Inc. * .................... 223,600 6,279
Qlogic Corp. * .............................. 87,100 3,006
Teradyne, Inc. * ............................ 52,900 688
Texas Instruments, Inc. * ................... 711,600 10,681
----------
79,183
Software - 6.0%
Adobe Systems, Inc. ......................... 94,100 2,334
BMC Software, Inc. * ........................ 930,300 15,917
Electronic Arts, Inc. * ..................... 14,100 702
Intuit, Inc. * .............................. 170,000 7,976
Microsoft Corp. * ........................... 1,191,500 61,601
Network Associates, Inc. * .................. 476,100 7,660
Oracle Corp. * .............................. 824,600 8,906
----------
105,096
Specialty Retail - 3.4%
AutoZone, Inc. * ............................ 32,700 2,310
Bed Bath & Beyond, Inc. * ................... 222,600 7,686
Best Buy Co., Inc. * ........................ 33,800 816
Home Depot, Inc. * .......................... 318,200 7,624
Lowe's Cos., Inc. * ......................... 581,700 21,814
Office Depot, Inc. * ........................ 152,700 2,254
Staples, Inc. * ............................. 180,500 3,303
TJX Cos., Inc. * ............................ 757,000 14,777
----------
60,584
Textiles & Apparel - 0.1%
Nike, Inc. - Cl. B .......................... 38,500 1,712
Tobacco - 1.3%
Philip Morris Cos., Inc. * .................. 551,000 22,332
UST, Inc. * ................................. 33,000 1,103
----------
23,435
U.S. Government Agencies - 2.2%
Federal Home Loan Mortgage Corp. ............ 291,800 17,231
Federal National Mortgage Assoc. * .......... 334,200 21,499
----------
38,730
----------
TOTAL COMMON STOCK- 99.3% 1,750,075
126
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
GROWTH & INCOME FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
INVESTMENT COMPANIES HELD
AS COLLATERAL ON LOANED
SECURITIES - 0.7%
State Street Navigator Securities
Lending Portfolio .......................... $ 11,578 $ 11,578
SHORT-TERM INVESTMENTS - 0.6%
Investment in joint trading account (Note B)
1.388% due 01/02/03 .................... 10,586 10,586
---------- ----------
TOTAL INVESTMENTS- 100.6% 1,772,239
Cash and Receivables, less payables- (0.6)% (10,036)
---------- ----------
NET ASSETS- 100.0% $1,762,203
========== ==========
* Non-income producing security.
ADR-American Depository Receipt.
See notes to financial statements.
127
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
MANAGED FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Aerospace & Defense - 0.4%
Boeing Co. (US) ............................. 246,500 $ 8,132
Raytheon Co. (US) ........................... 11,500 354
----------
8,486
Auto Components - 0.2%
Ingersoll-Rand Co. - Cl. A (US) ............. 47,200 2,033
Lear Corp. (US) ............................. 36,400 1,211
----------
3,244
Automobiles - 0.9%
Ford Motor Co. (US) ......................... 793,400 7,379
General Motors Corp. (US) ................... 209,300 7,715
General Motors Corp. - Cl. H (US) ........... 182,300 1,950
----------
17,044
Banks - 2.9%
Bank of America Corp. (US) .................. 307,000 21,358
Bank One Corp. (US) ......................... 211,000 7,712
Charter One Financial, Inc. (US) ............ 289,500 8,317
JP Morgan Chase & Co. (US) .................. 185,500 4,452
TCF Financial Corp. (US) .................... 104,400 4,561
US Bancorp (US) ............................. 239,800 5,089
Wachovia Corp. (US) ......................... 125,000 4,555
----------
56,044
Beverages - 1.3%
Anheuser-Busch Cos., Inc. (US) .............. 174,700 8,456
Pepsi Bottling Group, Inc. (US) ............. 140,000 3,598
PepsiCo, Inc. (US) .......................... 310,000 13,088
----------
25,142
Biotechnology - 0.7%
Amgen, Inc. (US) ............................ 263,600 12,743
Genetech, Inc. (US) ......................... 26,000 862
----------
13,605
Chemicals - 1.3%
Air Products & Chemicals, Inc. (US) ......... 215,100 9,195
Dow Chemical Co. (US) ....................... 240,500 7,143
E.I. du Pont de Nemours & Co. (US) .......... 45,700 1,938
Eastman Chemical Co. (US) ................... 70,900 2,607
NOVA Chemicals Corp. (US) ................... 42,200 772
Praxair, Inc. (US) .......................... 49,900 2,883
----------
24,538
Commercial Services & Supplies - 0.9%
Avery Dennison Corp. (US) ................... 90,000 5,497
Checkfree Corp. (US) ........................ 58,900 942
Concord EFS, Inc. (US) ...................... 70,500 1,110
Honeywell International, Inc. (US) .......... 196,000 4,704
Reynolds & Reynolds Co. - Cl. A (US) ........ 143,300 $ 3,650
Robert Half International, Inc. (US) ........ 61,000 983
Sabre Group Holdings, Inc. (US) ............. 56,000 1,014
----------
17,900
Communications Equipment - 0.5%
Cisco Systems, Inc. (US) .................... 639,800 8,382
JDS Uniphase Corp. (US) ..................... 294,000 726
Polycom, Inc. (US) .......................... 51,900 494
Qualcomm, Inc. (US) ......................... 27,700 1,008
----------
10,610
Computers & Peripherals - 1.9%
Dell Computer Corp. (US) .................... 707,200 18,911
EMC Corp. (US) .............................. 532,700 3,271
International Business Machines Corp. (US) .. 183,800 14,244
Seagate Technology (US) ..................... 19,200 206
----------
36,632
Construction & Engineering - 0.2%
American Standard Cos., Inc. (US) ........... 23,300 1,658
Fluor Corp. (US) ............................ 81,300 2,276
----------
3,934
Containers & Packaging - 0.2%
Ball Corp. (US) ............................. 60,000 3,071
Diversified Financials - 5.4%
AmeriCredit Corp. (US) ...................... 92,200 714
Citigroup, Inc. (US) ........................ 750,000 26,392
Household International, Inc. (US) .......... 67,000 1,863
Merrill Lynch & Co., Inc. (US) .............. 153,500 5,825
Morgan Stanley, Dean Witter,
Discover & Co. (US) ........................ 174,900 6,982
SLM Corp. (US) .............................. 171,700 17,833
Standard and Poor's Depositary
Receipts (US) .............................. 115,215 10,165
The Dun & Bradstreet Corp. (US) ............. 50,000 2,065
Washington Mutual, Inc. (US) ................ 428,500 14,796
Wells Fargo & Co. (US) ...................... 378,000 17,717
----------
104,352
Diversified Telecommunication Services - 2.8%
AT&T Corp. (US) ............................. 265,340 6,928
BellSouth Corp. (US) ........................ 241,700 6,253
CenturyTel, Inc. (US) ....................... 157,500 4,627
SBC Communications, Inc. (US) ............... 388,500 10,532
Sprint Corp. (US) ........................... 274,300 3,972
Sprint PCS (US) ............................. 744,200 3,260
Verizon Communications (US) ................. 476,800 18,476
----------
54,048
128
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
MANAGED FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Electric Utilities - 1.4%
AES Corp. (US) .............................. 371,100 $ 1,121
Entergy Corp. (US) .......................... 294,100 13,408
FPL Group, Inc. (US) ........................ 75,000 4,510
Pinnacle West Capital Corp. (US) ............ 41,200 1,404
Southern Co. (US) ........................... 210,000 5,962
----------
26,405
Electric/Gas - 0.1%
NiSource, Inc. (US) ......................... 61,400 1,228
Electrical Equipment - 0.5%
Emerson Electric Co. (US) ................... 17,400 885
United Technologies Corp. (US) .............. 135,900 8,417
----------
9,302
Electronic Equipment & Instruments - 0.2%
Agilent Technologies, Inc. (US) ............. 33,000 593
Tech Data Corp. (US) ........................ 128,600 3,467
----------
4,060
Energy Equipment & Services - 0.8%
Baker Hughes, Inc. (US) ..................... 222,500 7,162
Halliburton Co. (US) ........................ 210,500 3,939
Schlumberger, Ltd. (US) ..................... 60,300 2,538
Weatherford Bermuda (US) .................... 52,300 2,088
----------
15,727
Food & Drug Retailing - 0.0%
Williams-Sonoma, Inc. (US) .................. 28,200 766
Food Products - 1.7%
Archer Daniels Midland Co. (US) ............. 310,000 3,844
Campbell Soup Co. (US) ...................... 159,300 3,739
Kellogg Co. (US) ............................ 207,000 7,094
Kraft Foods, Inc. - Cl. A (US) .............. 310,000 12,068
Unilever NV (US) ............................ 97,200 5,998
----------
32,743
Gas Utilities - 0.5%
El Paso Corp. (US) .......................... 179,200 1,247
Kinder Morgan Management LLC (US) ........... 50,130 1,583
Sempra Energy (US) .......................... 238,000 5,629
Williams Cos., Inc. (US) .................... 477,700 1,290
----------
9,749
Health Care Equipment & Supplies - 1.2%
Applera Corporation - Applied
Biosystems Group (US) ...................... 192,300 3,373
Becton, Dickinson & Co. (US) ................ 52,900 1,623
Boston Scientific Corp. (US) ................ 122,500 5,209
Guidant Corp. (US) .......................... 100,900 3,113
Medtronic, Inc. (US) ........................ 116,500 5,312
St. Jude Medical, Inc. (US) ................. 99,600 3,956
----------
22,586
Health Care Providers & Services - 2.0%
Anthem, Inc. (US) ........................... 100,000 $ 6,290
Da Vita, Inc. (US) .......................... 100,900 2,489
HCA-The Healthcare Corp. (US) ............... 167,700 6,959
Lincare Holdings, Inc. (US) ................. 90,500 2,862
McKesson HBOC, Inc. (US) .................... 146,600 3,963
UnitedHealth Group, Inc. (US) ............... 65,600 5,478
Universal Health Services, Inc. - Cl. B (US). 60,000 2,706
Wellpoint Health Networks, Inc. (US) ........ 108,600 7,728
----------
38,475
Hotels Restaurants & Leisure - 0.1%
Carnival Corp. (US) ......................... 60,100 1,499
McDonald's Corp. (US) ....................... 38,300 616
Starwood Hotels & Resorts
Worldwide, Inc. (US) ........................ 30,200 717
----------
2,832
Household Durables - 0.4%
Black & Decker Corp. (US) ................... 189,600 8,132
Household Products - 0.7%
Procter & Gamble Co. (US) ................... 169,700 14,584
Industrial Conglomerates - 2.1%
General Electric Co. (US) ................... 1,261,700 30,723
Textron, Inc. (US) .......................... 185,700 7,983
Tyco International, Ltd. (US) ............... 118,500 2,024
----------
40,730
Insurance - 4.6%
American International Group, Inc. (US) ..... 403,400 23,337
Cincinnati Financial Corp. (US) ............. 67,500 2,535
Everest Re Group, Ltd. (US) ................. 123,700 6,841
Hartford Financial Services Group, Inc. (US) 317,500 14,424
Metlife, Inc. (US) .......................... 369,300 9,986
Prudential Financial, Inc. (US) ............. 293,500 9,316
Radian Group, Inc. (US) ..................... 77,500 2,879
St. Paul Cos., Inc. (US) .................... 67,000 2,281
The PMI Group, Inc. (US) .................... 187,100 5,620
Torchmark, Inc. (US) ........................ 139,100 5,081
Travelers Property Casualty Corp. - Cl. B (US) 318,700 4,669
XL Capital, Ltd. - Cl. A (US) ............... 34,500 2,665
----------
89,634
Internet & Catalog Retail - 0.1%
Amazon.com, Inc. (US) ....................... 157,400 2,973
Internet Software & Services - 0.1%
VeriSign, Inc. (US) ......................... 130,000 1,043
129
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
MANAGED FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
IT Consulting & Services - 0.9%
Computer Sciences Corp. (US) ................ 303,500 $ 10,455
SunGard Data Systems, Inc. (US) ............. 325,200 7,662
----------
18,117
Machinery - 0.4%
Danaher Corp. (US) .......................... 109,600 7,201
Navistar International Corp., Inc. - Cl. B
(US) ....................................... 28,000 680
----------
7,881
Media - 2.5%
AOL Time Warner, Inc. (US) .................. 239,050 3,132
Cablevision Systems Corp. - Cl. A (US) ...... 297,361 4,978
Clear Channel Communications, Inc. (US) ..... 76,000 2,834
Comcast Corp. - Cl. A (US) .................. 190,234 4,484
Cox Communications, Inc. - Cl. A (US) ....... 44,000 1,250
Entercom Communications Corp. (US) .......... 5,200 244
Fox Entertainment Group, Inc. - Cl. A (US) .. 55,000 1,426
Interpublic Group Cos., Inc. (US) ........... 59,200 834
Knight-Ridder, Inc. (US) .................... 13,600 860
Liberty Media Corp. - Ser. A (US) ........... 294,008 2,628
Radio One, Inc. - Cl. D (US) ................ 54,500 786
The Walt Disney Co. (US) .................... 396,900 6,473
TMP Worldwide, Inc. (US) .................... 47,200 534
USA Networks, Inc. (US) ..................... 200,100 4,586
Viacom, Inc. - Cl. B (US) ................... 325,000 13,247
Vivendi Universal - ADR (US) ................ 49,700 799
----------
49,095
Metals & Mining - 0.4%
Alcan Aluminum Ltd. (US) .................... 150,000 4,428
Alcoa, Inc. (US) ............................ 123,700 2,818
Newmont Mining Corp. (US) ................... 24,100 699
----------
7,945
Multiline Retail - 2.7%
Costco Wholesale Corp. (US) ................. 85,700 2,405
J.C. Penney Co., Inc. (US) .................. 136,200 3,134
Kohl's Corp. (US) ........................... 334,200 18,698
Target Corp. (US) ........................... 64,700 1,941
Wal-Mart Stores, Inc. (US) .................. 509,600 25,740
----------
51,918
Oil & Gas - 3.7%
BJ Services Co. (US) ........................ 55,300 1,787
BP Amoco plc - ADR (US) ..................... 170,400 6,927
ChevronTexaco Corp. (US) .................... 196,200 13,043
Conoco Phillips (US) ........................ 70,637 3,418
Exxon Mobil Corp. (US) ...................... 978,700 34,196
Kinder Morgan, Inc. (US) .................... 70 $ 3
Royal Dutch Petroleum Co. (US) .............. 197,900 8,712
Unocal Corp. (US) ........................... 99,000 3,027
----------
71,113
Paper & Forest Products - 0.6%
Bowater, Inc. (US) .......................... 34,800 1,460
International Paper Co. (US) ................ 290,500 10,159
----------
11,619
Personal Products - 0.1%
Estee Lauder Cos., Inc. - Cl. A (US) ........ 100,000 2,640
Pharmaceuticals - 7.3%
Abbott Laboratories (US) .................... 95,300 3,812
Allergan, Inc. (US) ......................... 129,400 7,456
AstraZeneca Group plc - ADR (US) ............ 226,800 7,958
Forest Laboratories, Inc. (US) .............. 188,600 18,524
Johnson & Johnson (US) ...................... 303,700 16,312
King Pharmaceuticals, Inc. (US) ............. 337,000 5,793
Merck & Co., Inc. (US) ...................... 142,300 8,056
Pfizer, Inc. (US) ........................... 1,576,800 48,203
Pharmacia Corp. (US) ........................ 344,700 14,408
Wyeth (US) .................................. 277,500 10,379
----------
140,901
Real Estate Investment Trust - 0.0%
General Growth Properties (US) .............. 18,300 952
Road & Rail - 0.5%
Canadian National Railway Co. (US) .......... 8,400 349
Norfolk Southern Corp. (US) ................. 200,000 3,998
Union Pacific Corp. (US) .................... 76,032 4,552
----------
8,899
Semiconductor Equipment & Products - 2.5%
Altera Corp. (US) ........................... 290,000 3,579
Analog Devices, Inc. (US) ................... 57,500 1,372
Applied Materials, Inc. (US) ................ 777,100 10,126
Applied Micro Circuits Corp. (US) ........... 110,000 406
Broadcom Corp. - Cl. A (US) ................. 40,000 602
Intel Corp. (US) ............................ 1,139,000 17,734
KLA-Tencor Corp. (US) ....................... 86,900 3,074
Lam Research Corp. (US) ..................... 69,000 745
Teradyne, Inc. (US) ......................... 279,500 3,636
Texas Instruments, Inc. (US) ................ 538,100 8,077
----------
49,351
Software - 3.7%
Amdocs, Ltd. (US) ........................... 112,500 1,105
BMC Software, Inc. (US) ..................... 423,900 7,253
Cadence Design Systems, Inc. (US) ........... 86,300 1,017
130
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
MANAGED FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Software - Continued
Intuit, Inc. (US) ........................... 185,200 $ 8,690
Macromedia, Inc. (US) ....................... 64,900 691
Microsoft Corp. (US) ........................ 816,400 42,208
Network Associates, Inc. (US) ............... 293,300 4,719
Oracle Corp. (US) ........................... 465,000 5,022
Veritas Software Corp. (US) ................. 46,100 720
----------
71,425
Specialty Retail - 2.1%
AutoNation, Inc. (US) ....................... 107,000 1,344
AutoZone, Inc. (US) ......................... 72,000 5,087
Home Depot, Inc. (US) ....................... 298,000 7,140
Lowe's Cos., Inc. (US) ...................... 444,000 16,650
RadioShack Corp. (US) ....................... 73,600 1,379
Staples, Inc. (US) .......................... 207,400 3,795
TJX Cos., Inc. (US) ......................... 232,100 4,531
----------
39,926
Textiles & Apparel - 0.3%
Nike, Inc. - Cl. B (US) ..................... 118,800 5,283
Tobacco - 0.8%
Philip Morris Cos., Inc. (US) ............... 312,300 12,657
UST, Inc. (US) .............................. 97,600 3,263
----------
15,920
U.S. Government Agencies - 1.0%
Federal Home Loan Mortgage Corp. (US) ....... 100,000 5,905
Federal National Mortgage Assoc. (US) ....... 202,600 13,033
----------
18,938
----------
TOTAL COMMON STOCK- 65.6% 1,271,542
Par
Value
(000's)
PUBLICLY-TRADED BONDS
Aerospace & Defense - 0.0%
Raytheon Co. - Debs. (US)
6.0% due 12/15/10 ...................... $ 125 131
Raytheon Co. - Notes (US)
8.3% due 03/01/10 ...................... 133 158
----------
289
Airlines - 0.2%
Popular North America, Inc. (US)
6.125% due 10/15/06 .................... 3,660 3,960
Auto Components - 0.0%
Arvinmeritor, Inc. - Notes (US)
8.75% due 03/01/12 ..................... 30 32
TRW, Inc. - Debs. (US)
7.75% due 06/01/29 ..................... 70 82
----------
114
Auto Loan - 0.4%
Ford Motor Credit Co. - Notes (US)
6.875% due 02/01/06 .................... $ 953 $ 955
Ford Motor Credit Co. (US)
7.25% due 10/25/11 ..................... 1,760 1,710
7.875% due 06/15/10 .................... 250 251
General Motors Acceptance Corp. - Notes (US)
6.125% due 09/15/06 .................... 130 132
6.875% due 09/15/11 .................... 500 499
8.0% due 11/01/31 ...................... 390 392
General Motors Acceptance Corp. (US)
6.875% due 08/28/12 .................... 1,643 1,620
7.5% due 07/15/05 ...................... 1,743 1,835
General Motors Acceptance Corp. -
Sr. Notes (US)
7.0% due 02/01/12 ...................... 900 904
----------
8,298
Automobiles - 0.1%
First Invs Auto Owner Trust -
Notes Cl. A (US)
3.46% due 12/15/08 ..................... 66 67
Ford Motor Co. - Bonds (US)
6.625% due 10/01/28 .................... 1,634 1,303
Hertz Corp. (US)
7.625% due 08/15/07 .................... 100 100
----------
1,470
Banks - 2.4%
Bank Americorp. - Sr. Notes (US)
5.125% due 11/15/14 .................... 70 71
Bank of America Corp. - Sr. Notes (US)
7.125% due 09/15/06 .................... 125 142
Bank of America Corp. (US)
7.4% due 01/15/11 ...................... 2,098 2,471
Bank One Corp. - Notes (US)
6.5% due 02/01/06 ...................... 1,238 1,367
Barclays Bank plc - 144A(a) (US)
6.86% due 06/15/32 ..................... 30 31
BNP Paribus Capital Trust - Sub
144A(a) (US)
9.003% due 12/29/49 .................... 60 73
Corporacion Andina De Fomento - Notes (US)
6.875% due 03/15/12 .................... 160 168
Credit Suisse First Boston - Sr. Notes (US)
4.625% due 01/15/08 .................... 1,290 1,308
131
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
MANAGED FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Banks - Continued
Credit Suisse First Boston - Notes (US)
5.75% due 04/15/07 ..................... $ 739 $ 791
Credit Suisse First Boston (US)
6.5% due 01/15/12 ...................... 1,305 1,395
7.29% due 09/15/09 ..................... 4,062 4,740
Credit Suisse First Boston
Mortgage - Cl. A2 (US)
5.935% due 01/15/06 .................... 1,250 1,355
Credit Suisse First Boston
Mortgage Securities Corp. - Cl. A1 (US)
3.801% due 06/15/06 .................... 2,396 2,462
Credit Suisse First Boston
Mortgage Securities Corp. (US)
7.545% due 04/15/10 .................... 2,533 3,008
CS First Boston Mortgage
Securities Corp. -Cl A1 (US)
6.91% due 01/15/08 ..................... 5,059 5,598
First Union National Bank
Commercial & Mortgage Trust -
CTF Cl A1 (US)
5.585% due 08/12/10 .................... 455 488
7.739% due 07/15/09 .................... 4,754 5,375
FleetBoston Financial Corp. - Sr.
Notes (US)
7.25% due 09/15/05 ..................... 1,248 1,382
J.P. Morgan & Co., Inc. - Sr. Notes
(US)
5.75% due 02/25/04 ..................... 1,000 1,043
JP Morgan Chase & Co. - Notes
(US)
5.25% due 05/30/07 ..................... 2,739 2,895
5.35% due 03/01/07 ..................... 2,340 2,475
JP Morgan Chase & Co. - Sub.
Notes (US)
6.75% due 02/01/11 ..................... 3,000 3,262
Korea Development Bank - Notes
(US)
7.125% due 04/22/04 .................... 2,358 2,507
MBNA National (US)
7.125% due 11/15/12 .................... 1,410 1,475
Washington Mutual Bank
Chatsworth (US)
5.5% due 01/15/13 ...................... 40 41
----------
45,923
Beverages - 0.1%
Anheuser Busch Cos., Inc. - Debs.
(US)
6.5% due 02/01/43 ...................... 1,232 1,385
Chemicals - 0.1%
E.I. Du Pont de Nemours & Co. -
Notes (US)
3.375% due 11/15/07 .................... $ 1,410 $ 1,425
Commercial Services & Supplies - 0.0%
Cendant Corp. - Notes (US)
6.785% due 08/15/06 .................... 150 156
HCA, Inc. - Notes (US)
6.95% due 05/01/12 ..................... 150 158
John Deere Capital Corp. (US)
3.125% due 12/15/05 .................... 140 141
Tyco International Group SA -
Notes (US)
5.875% due 11/01/04 .................... 70 68
USA Education, Inc. (US)
5.625% due 04/10/07 .................... 125 136
Waste Management, Inc. - Sr.
Notes (US)
6.5% due 11/15/08 ...................... 80 86
Waste Management, Inc. Delaware
- Sr. Notes 144A(a) (US)
6.375% due 11/15/12 .................... 15 15
WMX Technologies, Inc. - Notes
(US)
7.0% due 10/15/06 ...................... 40 43
----------
803
Communications Equipment - 0.1%
American Tower Corp. - Sr. Notes (US)
9.375% due 02/01/09 .................... 900 706
Deutsche Telekom International
Finance BV - Notes (US)
9.25% due 06/01/32 ..................... 30 38
Spectrasite Holdings, Inc. - Sr.
Notes Ser. B (US)
10.75% due 03/15/10 .................... 500 188
----------
932
Credit Card - 0.2%
Citibank Credit Card Issuance
Trust - Cl. A1 Notes (US)
4.95% due 02/09/09 ..................... 2,000 2,146
MBNA Credit Card Master Note
Trust - Notes Cl. C (US)
6.8% due 07/15/14 ...................... 500 531
Nordstrom Credit Card Master
Note Trust - Notes Cl. B 144A(a) (US)
2.12% due 10/13/10 ..................... 150 151
Pass Through Amortizing Credit
Card Trust - CTF Cl. A3
144A(a) (US)
6.298% due 06/18/12 .................... 208 218
132
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
MANAGED FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Credit Card - Continued
Structured Assets Securities Corp.
(US)
8.517% due 07/15/27 .................... $ 117 $ 127
Sears Credit Account Master Trust
- Ser. 1998-2 Cl A (US)
5.25% due 10/16/08 ..................... 802 829
----------
4,002
Diversified Financials - 3.1%
AIG Sunamerica Global Finance
Co. - Sr. Notes 144A(a) (US)
5.85% due 08/01/08 ..................... 250 277
Associates Corp. of North America
- Sr. Notes (US)
6.25% due 11/01/08 ..................... 250 276
Bear Stearns Commercial
Mortgage Securities, Inc. - CTF
Cl. A1 (US)
6.08% due 09/15/10 ..................... 1,893 2,059
Capital One Financial Corp. -
Notes (US)
7.25% due 12/01/03 ..................... 250 249
Chase Commercial Mortgage
Securities Corp. - Ser. 1997-1 Cl.
A2 (US)
7.37% due 02/19/07 ..................... 5,460 6,172
Chase Commercial Mortgage
Securities Corp. - Cl. C (US)
7.928% due 07/15/32 .................... 1,000 1,188
Chase Funding Loan Acquisition
Trust - Cl. 1A3 (US)
4.541% due 02/25/23 .................... 4,000 4,069
Chase Funding Loan Acquisition
Trust - CTF Cl. IA 3 (US)
5.353% due 09/25/26 .................... 9,000 9,337
CIT Group, Inc. - Sr. Notes (US)
5.5% due 11/30/07 ...................... 705 721
7.75% due 04/02/12 ..................... 705 792
Citigroup, Inc. - Sr. Notes (US)
5.0% due 03/06/07 ...................... 3,000 3,202
Citigroup, Inc. - Notes (US)
5.5% due 08/09/06 ...................... 2,000 2,160
Citigroup, Inc. - Sub. Notes (US)
5.625% due 08/27/12 .................... 1,340 1,409
Citigroup, Inc. (US)
6.5% due 01/18/01 ...................... 3,000 3,366
Citigroup, Inc. - Sub. Notes (US)
6.625% due 06/15/32 .................... 1,910 2,085
Devon Financing Corp. - Notes
(US)
6.875% due 09/30/11 .................... 225 251
Gemstone Investor, Ltd. - Sr. Notes
(US)
7.71% due 10/31/04 ..................... 400 307
General Electric Capital Corp.
(US)
4.25% due 01/15/08 ..................... $ 140 $ 143
4.625% due 09/15/09 .................... 50 51
5.875% due 02/15/12 .................... 2,950 3,154
6.0% due 06/15/12 ...................... 70 75
Goldman Sachs Group, Inc. (US)
6.875% due 01/15/11 .................... 3,405 3,801
Greater Connecticut Consumer
Loan Trust - Notes Cl. A 144A(a)(US)
6.25% due 02/15/20 ..................... 750 758
Green Tree Financial Corp. - Ser.
1996-8 Cl. A6 (US)
7.6% due 10/15/27 ...................... 4,508 4,680
Monumental Global Funding - Sr.
Seed. Notes Ser. A 144A(a)(US)
5.2% due 01/30/07 ...................... 250 262
Morgan Stanley Group, Inc. (US)
6.75% due 04/15/11 ..................... 2,880 3,200
Nationwide Financial Services, Inc.
- Sr. Notes (US)
6.25% due 11/15/11 ..................... 1,373 1,432
Nationwide Life Global Funding
(US)
5.35% due 02/15/07 ..................... 60 63
Pemex Project Funding Master
Trust - Notes (US)
8.5% due 02/15/08 ...................... 51 57
Residential Asset Securities Corp.
(US)
7.18% due 01/25/25 ..................... 491 494
Salomon Brothers Commercial and
Mortgage Trust - CTF 2001-Cl Cl. A3 (US)
6.428% due 12/18/35 .................... 925 1,038
SLM Corp. (US)
5.375% due 01/15/13 .................... 90 93
USAA Capital Corp. - 144A(a)
(US)
4.0% due 12/10/07 ...................... 150 152
Washington Mutual, Inc. (US)
5.625% due 01/15/07 .................... 3,050 3,264
Washington Mutual, Inc. - Sr.
Notes (US)
7.5% due 08/15/06 ...................... 60 67
Wells Fargo & Co. - Sub. Notes
(US)
5.0% due 11/15/14 ...................... 80 81
----------
60,785
Diversified Telecommunication Services - 1.4%
AT&T Corp. - Notes (US)
6.5% due 03/15/13 ...................... 1,053 1,056
133
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
MANAGED FUND
Market
Name of Issuer Shares Value
(000's)
PUBLICLY-TRADED BONDS - Continued
Diversified Telecommunication Services - Continued
AT&T Corp. - Sr. Notes (US)
8.0% due 11/15/31 ...................... $ 125 $ 138
BellSouth Corp. - Notes (US)
5.0% due 10/15/06 ...................... 1,500 1,602
Cox Communications, Inc. (US)
7.125% due 10/01/12 .................... 1,103 1,225
Cox Communications, Inc.- Notes (US)
7.75% due 11/01/10 ..................... 50 57
Crown Castle International Corp. - Sr. Notes
(US)
10.75% due 08/01/11 .................... 250 219
Deutsche Telekom International (US)
8.5% due 06/15/10 ...................... 1,436 1,654
France Telecom SA - Notes (US)
9.25% due 03/01/11 ..................... 895 1,035
10.0% due 03/01/31 ..................... 3,315 4,035
Nextel Communications, Inc. - Sr Ser. Notes
(US)
12.0% due 11/01/08 ..................... 500 497
SBC Communications, Inc. - Notes (US)
5.875% due 08/15/12 .................... 250 270
Sprint Capital Corp. - Notes (US)
6.0% due 01/15/07 ...................... 275 260
6.125% due 11/15/08 .................... 3,123 2,842
7.125% due 01/30/06 .................... 200 198
8.375% due 03/15/12 .................... 1,800 1,791
8.75% due 03/15/32 ..................... 3,250 3,087
Telstra, Ltd. - Notes (US)
6.375% due 04/01/12 .................... 125 138
Verizon Global Funding Corp. - Notes (US)
6.75% due 12/01/05 ..................... 2,169 2,397
Verizon Global Funding Corp. - Global Notes
(US)
7.375% due 09/01/12 .................... 1,765 2,031
Verizon New England, Inc. - Debs. (US)
6.5% due 09/15/11 ...................... 1,021 1,127
Verizon New York, Inc. - Debs. Ser. A (US)
6.875% due 04/01/12 .................... 1,213 1,363
Verizon Pennsylvania, Inc. - Debs. Ser. A (US)
5.65% due 11/15/11 ..................... 680 713
Vodafone Group plc - Notes (US)
3.95% due 01/30/08 ..................... 30 30
Vodafone Group plc - Debs. (US)
6.25% due 11/30/32 ..................... 80 80
Voicestream Wireless Corp. Sr Notes (US)
10.375% due 11/15/09 ................... $ 138 $ 145
----------
27,990
Electric Utilities - 0.1%
Cilcorp, Inc. - Sr. Notes (US)
8.7% due 10/15/09 ...................... 185 198
Constellation Energy Group, Inc. - Sr. Notes
(US)
6.125% due 09/01/09 .................... 200 205
Oncor Electric Delivery Co. - Sr.
Secd. Notes 144A(a)(US)
6.375% due 01/15/15 .................... 1,221 1,246
Progress Energy, Inc. - Sr. Notes (US)
7.1% due 03/01/11 ...................... 250 276
----------
1,925
Electric/Gas - 0.0%
Cilcorp, Inc. - Sr. Bond (US)
9.375% due 10/15/29 .................... 25 31
Dominion Resources, Inc. - Sr. Notes Ser. D
(US)
5.125% due 12/15/09 .................... 45 45
Dominion Resources, Inc. - Notes (US)
5.7% due 09/17/12 ...................... 300 311
Oncor Electric - 144A(a)(US)
7.0% due 05/01/32 ...................... 125 125
----------
512
Electronic Equipment & Instruments - 0.0%
Royal KPNNV - Notes 144A(a) (US)
8.0% due 10/01/10 ...................... 10 12
Solectron Corp. - Sr. Notes (US)
9.625% due 02/15/09 .................... 500 487
----------
499
Finance - 0.8%
ABN Amro North America Holding - Secs.
144A(a)(US)
6.473% due 12/31/49 .................... 30 31
American General Finance Corp. (US)
4.5% due 11/15/07 ...................... 70 72
Bear Stearns & Co., Inc. - Notes (US)
5.7% due 11/15/14 ...................... 2,468 2,524
California Infras & Ecomomic - Ser.
1997-I CTF Cl. A6 (US)
6.38% due 09/25/08 ..................... 500 546
134
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
MANAGED FUND
Market
Name of Issuer Shares Value
(000's)
PUBLICLY-TRADED BONDS-Continued
Finance - Continued
California Infrastructure
Development - Ser. 1997-1 CTF Cl. A7 (US)
6.42% due 09/25/08 ..................... $ 500 $ 544
H.J. Heinz Finance - Notes 144A(a)(US)
6.0% due 03/15/12 ...................... 1,363 1,480
Household Financial Corp. (US)
5.75% due 01/30/07 ..................... 500 523
Household Financial Corp. - Notes (US)
6.0% due 05/01/04 ...................... 125 129
6.375% due 11/27/12 .................... 2,968 3,099
7.0% due 05/15/12 ...................... 3,400 3,724
7.35% due 11/27/32 ..................... 2,463 2,655
8.0% due 05/09/05 ...................... 250 270
Lincoln National Corp. - Notes (US)
6.2% due 12/15/11 ...................... 60 64
PDVSA FIN, Ltd. - Notes (US)
6.45% due 02/15/04 ..................... 19 18
Vanderbilt Acquisition Loan Trust -
Sr./Sub. Cl. A3(US)
5.7% due 09/07/23 ...................... 250 259
----------
15,938
Food & Drug Retailing - 0.0%
Delhaize America, Inc. - Notes (US)
8.125% due 04/15/11 .................... 130 126
The Kroger Co. - Notes (US)
7.5% due 04/01/31 ...................... 60 67
----------
193
Food Products - 0.3%
Conagra Foods, Inc. - Notes (US)
7.875% due 09/15/10 .................... 125 151
Kellogg Co. - Notes Ser. B(US)
6.6% due 04/01/11 ...................... 200 225
Kraft Foods, Inc. - Notes (US)
5.25% due 06/01/07 ..................... 3,334 3,601
Nabisco, Inc. - Debs. (US)
7.55% due 06/15/15 ..................... 500 621
Sara Lee Corp. - Notes(US)
6.125% due 11/01/32 .................... 1,594 1,679
----------
6,277
Foreign Governmental - 0.2%
Quebec Province Canada (US)
5.5% due 04/11/06 ...................... 2,790 2,975
United Mexican States - Notes (US)
8.625% due 03/12/08 .................... 70 81
9.875% due 02/01/10 .................... $ 125 $ 151
----------
3,207
Gas Utilities - 0.2%
Consolidated Natural Gas Co. - Sr.
Notes Ser. C(US)
6.25% due 11/01/11 ..................... 1,298 1,405
Kinder Morgan Energy Partners - Sr. Notes (US)
6.5% due 09/01/12 ...................... 1,480 1,547
7.3% due 08/15/33 ...................... 1,480 1,586
Southern California Gas Co. - Ser. GG(US)
4.8% due 10/01/12 ...................... 50 50
----------
4,588
Health Care Providers & Services - 0.6%
Columbia/HCA Healthcare Corp. (US)
6.91% due 06/15/05 ..................... 4,030 4,252
HCA-The Healthcare Co. - Sr. Notes (US)
7.875% due 02/01/11 .................... 3,850 4,289
HCA-The Healthcare Corp. - Notes (US)
7.125% due 06/01/06 .................... 140 149
Humana, Inc. - Sr. Notes (US)
7.25% due 08/01/06 ..................... 135 145
Tenet Healthcare Corp. - Sr. Notes (US)
5.0% due 07/01/07 ...................... 30 27
6.5% due 06/01/12 ...................... 1,000 905
6.875% due 11/15/31 .................... 2,455 2,099
----------
11,866
Home Equity Loan - 1.2%
Centex Home Eqity Loan Trust - CTF Cl. A5(US)
6.83% due 07/25/32 ..................... 2,635 2,825
Countrywide Home Loan Corp. (US)
5.5% due 08/01/06 ...................... 2,821 2,999
Pulte Homes, Inc. - Sr. Notes (US)
7.875% due 06/15/32 .................... 1,500 1,541
Residential Funding and Mortgage
Securities - Ser. 2002-HI2 (US)
5.64% due 10/25/14 ..................... 5,000 5,269
Residential Funding and Mortgage
Securities - Notes Cl. A7 (US)
6.9% due 01/25/33 ...................... 9,000 9,794
135
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
MANAGED FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS-Continued
Home Equity Loan - Continued
Residential Funding and Mortgage
Securities Trust II - Ser.2001-
HSC Cl. A4(US)
6.43% due 04/25/16 ..................... $ 250 $ 260
----------
22,688
Hotels Restaurants & Leisure - 0.1%
Boyd Gaming Corp. - Sr. Notes
(US)
9.25% due 08/01/09 ..................... 250 270
Six Flags, Inc. - Sr. Notes (US)
8.875% due 02/01/10 .................... 375 351
9.5% due 02/01/09 ...................... 400 385
----------
1,006
Household Durables - 0.1%
Mohawk Industries, Inc. - Notes
(US)
6.5% due 04/15/07 ...................... 1,580 1,723
Insurance - 0.1%
Aetna Inc. - Sr. Notes (US)
7.375% due 03/01/06 .................... 350 379
CIGNA Corp. (US)
6.375% due 10/15/11 .................... 1,962 1,968
Prudential Insurance Co. - Sr
Notes 144A(a) (US)
6.375% due 07/23/06 .................... 350 375
----------
2,722
Machinery - 0.1%
Caterpillar, Inc. - Sr. Debs. (US)
7.25% due 09/15/09 ..................... 1,050 1,230
Media - 1.1%
AOL Time Warner, Inc. (US)
6.15% due 05/01/07 ..................... 1,894 1,968
AOL Time Warner, Inc. - Notes
(US)
6.875% due 05/01/12 .................... 1,061 1,120
AOL Time Warner, Inc. - Debs.
(US)
7.7% due 05/01/32 ...................... 4,955 5,157
Belo Corp. - Sr. Notes (US)
7.125% due 06/01/07 .................... 66 72
CBS Corp. - Sr. Notes (US)
7.15% due 05/20/05 ..................... 3,525 3,852
Chancellor Media Corp. (US)
8.0% due 11/01/08 ...................... 750 814
Clear Channel Communications,
Inc. (US)
7.65% due 09/15/10 ..................... 125 142
Clear Channel Communications,
Inc. - Sr. Notes (US)
7.875% due 06/15/05 .................... 140 153
Comcast Cable Communications
(US)
6.75% due 01/30/11 ..................... $ 2,100 $ 2,185
Cox Radio, Inc. - Sr. Notes (US)
6.625% due 02/15/06 .................... 750 774
Liberty Media Corp. - Bonds (US)
7.875% due 07/15/09 .................... 375 407
TCI Communications, Inc. - Notes
(US)
6.875% due 02/15/06 .................... 140 148
Time Warner, Inc. - Debs. (US)
7.57% due 02/01/24 ..................... 250 251
Time Warner, Inc. - Notes (US)
8.18% due 08/15/07 ..................... 750 823
Univision Communications, Inc. -
Sr. Notes (US)
7.85% due 07/15/11 ..................... 1,015 1,152
Viacom, Inc. - Sr. Notes (US)
5.625% due 05/01/07 .................... 120 131
Viacom, Inc. (US)
7.7% due 07/30/10 ...................... 125 148
7.875% due 07/30/30 .................... 1,054 1,312
Young Broadcasting, Inc. (US)
8.75% due 06/15/07 ..................... 85 82
Young Broadcasting, Inc. - Sr. Sub.
Notes (US)
10.0% due 03/01/11 ..................... 153 153
----------
20,844
Metals & Mining - 0.0%
Inco, Ltd. - Debs. (US)
7.2% due 09/15/32 ...................... 30 30
Multi-Utilities - 0.0%
Alabama Power Co. - Sr. Notes
(US)
4.7% due 12/01/10 ...................... 70 71
Duke Energy Co. - Sr. Notes
6.45% due 10/15/32 ..................... 110 107
Florida Power & Light Co. (US)
4.85% due 02/01/13 ..................... 60 61
----------
239
Multiline Retail - 0.1%
J.C. Penney, Inc. - Debs. (US)
7.95% due 04/01/17 ..................... 200 176
Wal Mart Stores, Inc. (US)
7.55% due 02/15/30 ..................... 1,505 1,902
----------
2,078
Oil & Gas - 0.8%
Amerada Hess Corp. - Notes (US)
6.65% due 08/15/11 ..................... 1,380 1,507
136
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
MANAGED FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Oil & Gas - Continued
Anadarko Petroleum Corp. - Sr.
Notes (US)
5.375% due 03/01/07 .................... $ 2,195 $ 2,346
Conoco Funding Co. - Notes (US)
5.45% due 10/15/06 ..................... 2,460 2,655
Conoco Phillips - Notes 144A(a)
(US)
5.9% due 10/15/32 ...................... 50 50
Devon Energy Corp. - Sr. Debs.
(US)
7.95% due 04/15/32 ..................... 1,480 1,779
Kerr-McGee Corp. - Notes (US)
6.875% due 09/15/11 .................... 1,767 1,997
Marathon Oil Corp. - Notes (US)
6.8% due 03/15/32 ...................... 1,494 1,550
MidAmerican Energy Holdings Co.
- Sr. Notes 144A(a) (US)
5.875% due 10/01/12 .................... 30 30
Occidental Petroleum Corp. - Notes
(US)
6.75% due 10/15/12 ..................... 1,913 2,179
Peco Energy Co. (US)
4.75% due 10/01/12 ..................... 30 30
5.95% due 11/01/11 ..................... 50 55
Pogo Producing Co. - Sr. Sub.
Notes(US)
10.375% due 02/15/09 ................... 250 271
Suncor Energy, Inc. - Notes (US)
7.15% due 02/01/32 ..................... 80 92
Union Pacific Resources Group,
Inc. - Ser. 2002-1 (US)
6.061% due 01/17/23 .................... 50 54
----------
14,595
Other Mortgage - 0.5%
LB Commercial Conduit Mortgage
Trust (US)
5.87% due 08/15/06 ..................... 2,512 2,661
LB-UBS Commercial Mortgage
Trust - Ser. 2000-C4 Cl. A2 (US)
7.37% due 06/15/10 ..................... 5,318 6,273
----------
8,934
Paper & Forest Products - 0.2%
International Paper Co. - Notes
(US)
6.75% due 09/01/11 ..................... 1,490 1,658
Weyerhaeuser Co. - Debs. (US)
6.875% due 12/15/33 .................... 1,974 1,983
----------
3,641
Personal Products - 0.0%
Lauder Estee Cos., Inc. - Sr. Notes
(US)
6.0% due 01/15/12 ...................... $ 50 $ 55
Pharmaceuticals - 0.1%
Wyeth - Notes 144A(a) (US)
6.7% due 03/15/11 ...................... 1,053 1,174
Real Estate Development - 0.0%
Rouse Co. - Notes (US)
7.2% due 09/15/12 ...................... 70 72
Real Estate Investment Trust - 0.2%
Boston Properties, Ltd. - Sr. Notes
144A(a) (US)
6.25% due 01/15/13 ..................... 1,763 1,785
EOP Operating LP (US)
7.75% due 11/15/07 ..................... 200 227
EOP Operations LP - Notes (US)
6.75% due 02/15/12 ..................... 80 86
Health Care Property Investments,
Inc. - Sr. Notes (US)
6.45% due 06/25/12 ..................... 973 980
Kimco Realty Corp. (US)
6.0% due 11/30/12 ...................... 50 51
Simon Property Group LP - Notes
144A(a) (US)
6.35% due 08/28/12 ..................... 1,000 1,043
Socgen Real Estate Co. LLC - Ser.
A 144A(a) (US)
7.64% due 12/29/49 ..................... 110 121
----------
4,293
Semiconductor Equipment & Products - 0.0%
Analog Devices, Inc. - Sub. Notes
(US)
4.75% due 10/01/05 ..................... 250 248
Software - 0.0%
Systems 2001 LLC - CTF Cl. B
144A(a) (US)
7.156% due 12/15/11 .................... 98 105
Specialty Retail - 0.0%
Staples, Inc. - Sr. Notes 144A(a)
(US)
7.375% due 10/01/12 .................... 220 241
Toys "R" Us, Inc. - Notes (US)
7.625% due 08/01/11 .................... 5 5
----------
246
Tobacco - 0.1%
Philip Morris Cos., Inc. - Debs.
(US)
8.25% Due 10/15/03 ..................... 2,075 2,150
137
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
MANAGED FUND
Par Market
Name of issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Tobacco - Continued
R.J. Reynolds Tobacco Holdings,
Inc. - Notes (US)
6.5% due 06/01/07 ...................... $ 80 $ 84
----------
2,234
Treasury Note - 0.1%
U.S. Treasury - Notes (US)
2.0% due 11/03/04 ...................... 2,000 2,017
U.S. Government Agencies - 14.9%
Federal Home Loan Bank - Disc.
Notes (US)
5.25% due 02/13/04 ..................... 2,000 2,085
Federal Home Loan Bank - Sr.
Notes (US)
5.8% due 09/02/08 ...................... 1,000 1,126
Federal Home Loan Mortgage
Corp. - Debts. (US)
5.5% due 07/15/06 ...................... 630 692
Federal Home Loan Mortgage
Corp. - Bonds (US)
5.0% due 1/25/32 ....................... 1,050 1,047
5.5% due 1/25/32 ....................... 2,400 2,446
6.0% due 08/01/16 ...................... 1,061 1,111
6.0% due 01/25/32 ...................... 500 517
6.5% due 03/01/17 ...................... 471 497
Federal National Mortgage Assoc.-
Bonds (US)
3.426% due 09/25/26 .................... 2,350 2,367
5.0% due 1/25/17 ....................... 2,500 2,560
5.5% due 09/01/17 ...................... 559 581
5.5% due 1/25/17 ....................... 5,000 5,180
6.0% due 07/01/16 ...................... 854 894
6.0% due 1/25/17 ....................... 17,500 18,287
6.0% due 01/25/32 ...................... 31,287 32,333
6.0% due 02/01/32 ...................... 1,297 1,343
6.0% due 03/01/32 ...................... 466 483
6.125% due 03/15/12 .................... 6,000 6,840
6.5% due 08/01/13 ...................... 950 1,006
6.5% due 01/25/17 ...................... 12,244 12,910
6.5% due 01/25/32 ...................... 59,343 61,772
6.5% due 04/01/32 ...................... 1,868 1,946
6.5% due 06/01/32 ...................... 2,286 2,382
6.5% due 07/01/32 ...................... 166 173
7.0% due 09/01/16 ...................... 684 728
7.0% due 11/01/30 ...................... 327 344
7.0% due 09/01/31 ...................... 586 617
7.0% due 12/01/31 ...................... 1,194 1,256
7.0% due 01/01/32 ...................... 172 181
7.0% due 1/25/32 ....................... 31,688 33,322
7.0% due 03/01/32 ...................... 540 568
7.0% due 04/01/32 ...................... 384 403
7.25% due 05/15/30 ..................... 5,200 6,541
7.5% due 01/25/28 ...................... 200 214
7.5% due 11/01/30 ...................... $ 284 $ 302
7.5 due 06/01/31 ....................... 787 836
7.5 due 1/25/32 ........................ 16,730 17,760
8.0% due 12/01/29 ...................... 523 564
8.0% due 1/25/32 ....................... 5,054 5,431
Federal National Mortgage Assoc.-
Notes (US)
3.625% due 04/15/04 .................... 6,000 6,167
4.25% due 07/15/07 ..................... 5,000 5,272
6.0% due 12/15/05 ...................... 555 615
6.0% due 05/15/08 ...................... 775 878
6.625% due 11/15/10 .................... 4,700 5,518
7.0% due 07/15/05 ...................... 4,670 5,236
Federal National Mortgage Assoc.-
Debs. (US)
6.625% due 11/15/30 .................... 3,962 4,648
Federal National Mortgage Assoc.-
Bonds - Ser.2001-50 Cl. BA (US)
7.0% due 10/25/41 ...................... 232 251
Government National Mortgage
Assoc.- Bonds (US)
6.0% due 12/15/32 ...................... 2,085 2,168
6.5% due 1/25/32 ....................... 15,000 15,731
7.0% due 1/25/32 ....................... 10,000 10,594
8.0% due 11/15/30 ...................... 455 492
----------
287,215
U.S. Governmental - 3.3%
U.S. Teasury - Notes (US)
2.125% due 10/31/04 .................... 600 607
2.25% due 07/31/04 ..................... 2,900 2,938
3.0% due 02/29/04 ...................... 2,646 2,699
3.0% due 11/15/07 ...................... 7,629 7,721
3.25% due 05/31/04 ..................... 4,750 4,877
3.375% due 04/30/04 .................... 2,450 2,516
3.5% due 11/15/06 ...................... 775 806
4.0% due 11/15/12 ...................... 5,522 5,600
5.25% due 05/15/04 ..................... 3,780 3,982
5.5% due 05/15/09 ...................... 2,363 2,681
5.625% due 02/15/06 .................... 1,755 1,943
5.75% due 08/15/10 ..................... 2,450 2,817
6.75% due 05/15/05 ..................... 900 1,003
U.S. Treasury - Bonds (US)
5.25% due 02/15/29 ..................... 1,570 1,641
5.375% due 02/15/31 .................... 5,814 6,338
6.5% due 11/15/26 ...................... 250 304
6.75% due 08/15/26 ..................... 3,825 4,786
7.25% due 05/15/16 ..................... 635 813
7.875% due 02/15/21 .................... 900 1,235
8.0% due 11/15/21 ...................... 235 327
8.875% due 08/15/17 .................... 5,390 7,878
----------
63,512
138
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
MANAGED FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Wireless Telecommunications Services - 0.1%
AT & T Wireless Services, Inc. - Sr.
Notes (US)
7.35% due 03/01/06 ..................... $ 475 $ 489
AT&T Wireless Group - Notes
(US)
8.125% due 05/01/12 .................... 2,035 2,045
Cingular Wireless LLC - Sr. Notes
(US)
7.125% due 12/15/31 .................... 125 133
----------
2,667
----------
TOTAL PUBLICLY-TRADED BONDS- 33.4% 645,949
INVESTMENT COMPANIES HELD
AS COLLATERAL ON LOANED
SECURITIES - 5.3%
States Street Navigator Securities
Lending Portfolio .......................... 101,925 101,925
SHORT-TERM INVESTMENTS - 11.9%
Investment in joint trading
account (Note B)
1.388% due 01/02/03 .................... 230,373 230,373
---------- ----------
TOTAL INVESTMENTS- 116.2% 2,249,789
Payable, less cash and receivables- (16.2)% (312,925)
---------- ----------
NET ASSETS- 100.0% $1,936,864
========== ==========
ADR-American Depository Receipts.
(a) Pursuant to Rule 144A under the Securities Act of 1993, these securities
may be resold in transactions exempt from registration, normally to
qualified institutional buyers. At December 31, 2002, securities aggregated
$9,755 or .5% of net assets of the Portfolio.
See notes to financial statements.
139
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SHORT-TERM BOND FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS
Airlines - 0.4%
Popular North America, Inc.
6.125% due 10/15/06 .................... $ 855 $ 925
Auto Loan - 2.4%
Ford Motor Credit Co.
6.7% due 07/16/04 ...................... 1,000 1,019
Ford Motor Credit Co. - Notes
6.875% due 02/01/06 .................... 1,000 1,002
Ford Motor Credit Co. - Sr. Notes
6.125% due 03/20/04 .................... 1,500 1,522
General Motors Acceptance Corp. -
Notes
5.75% due 11/10/03 ..................... 1,000 1,017
General Motors Acceptance Corp. - Notes
7.48% due 02/28/03 ..................... 1,200 1,208
----------
5,768
Automobiles - 0.2%
Premier Auto Trust
5.82% due 10/08/03 ..................... 457 457
Banks - 10.2%
Bank of America Corp. - Notes
4.75% due 10/15/06 ..................... 1,400 1,482
Bank of New York, Inc.
3.9% due 09/01/07 ...................... 1,000 1,021
Bank One Corp. - Notes
6.875 due 08/01/06 ..................... 1,800 2,023
Credit Suisse First Boston - Notes
5.75% due 04/15/07 ..................... 1,095 1,172
Credit Suisse First Boston Mortgage
Securities - CTF 144A(a)
2.02% due 12/15/11 ..................... 5,000 5,000
Credit Suisse First Boston Mortgage
Securities Corp. - Cl. A1
3.801% due 06/15/06 .................... 1,598 1,641
CWMBS, Inc. - Ser. 1994-C Cl. A6
6.5% due 03/25/24 ...................... 757 761
First Union Corp. - Notes
6.95% due 11/01/04 ..................... 500 543
7.55% due 08/18/05 ..................... 2,500 2,817
First Union National Bank Commerical &
Mortgage Trust - CTF Cl. A1
7.739% due 07/15/09 .................... 5,368 6,069
FleetBoston Financial Corp. - Sr. Notes
4.875% due 12/01/06 .................... 525 546
J.P. Morgan Chase & Co., Inc. - Sr. Notes
5.75% due 02/25/04 ..................... 1,000 1,043
J.P. Morgan Chase & Co., Inc. - Notes
5.25% due 05/30/07 ..................... 495 523
----------
24,641
Beverages - 0.9%
Coca Cola Co. - Sr. Notes
4.0% due 06/01/05 ...................... 1,000 1,047
Pepsi Bottling Holdings, Inc. - Notes
144A(a)
5.375% due 02/17/04 .................... $ 1,000 $ 1,041
----------
2,088
Construction Materials - 0.9%
ERP Operating CTD Partnership - Notes
7.1% due 06/23/04 ...................... 2,000 2,116
Credit Card - 1.7%
Citibank Credit Card Issuance Trust -
Notes
4.1% due 12/07/06 ...................... 2,591 2,697
Structured Assets Securities Corp. - Ser.
2001-6 Cl. I-A7
6.75% due 05/25/31 ..................... 1,421 1,423
----------
4,120
Diversified Financials - 16.2%
Asset Backed Securities Corp. - Ser.
2000-LB1 Cl. AF2
7.57% due 03/21/24 ..................... 1 1
Associates Corp. of North America - Sr.
Notes
5.75% due 11/01/03 ..................... 1,450 1,501
BP Capital Markets plc - Notes
4.0% due 04/29/05 ...................... 1,000 1,045
Chase Commerical Mortgage Securities
Corp. - Cl. A1
7.656% due 06/15/08 .................... 1,764 1,975
Chase Funding Loan Acquisition Trust -
Cl. IA3
4.541% due 02/25/23 .................... 2,500 2,543
Chase Funding Loan Acquisition Trust -
CTF Cl. A2
1.66% due 04/25/23 ..................... 1,374 1,372
Chase Funding Loan Acquisition Trust -
CTF Cl. IA3
5.053% due 02/25/23 .................... 2,000 2,086
Citigroup. Inc. - Notes
6.75% due 12/01/05 ..................... 4,000 4,448
GE Capital Commerical Mortgage Corp. -
CTF Cl. A1
5.033% due 12/10/35 .................... 945 998
General Electric Capital Corp.
7.5% due 05/15/05 ...................... 3,150 3,518
Goldman Sachs Group, Inc. - Notes
7.625% due 08/17/05 .................... 1,000 1,128
Green Tree Financial Corp. - Ser. 1996-8
Cl. A6
7.6% due 10/15/27 ...................... 394 409
Lehman Brothers Holdings, Inc. - Notes
6.625% due 02/05/06 .................... 2,600 2,833
140
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SHORT-TERM BOND FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Diversified Financials - Continued
Morgan Stanley Capital, Inc. - CTF 1998-
WFI Cl. A1
6.25% due 03/15/30 ..................... $ 3,710 $ 3,948
Morgan Stanley Group, Inc.
6.1% due 04/15/06 ...................... 800 871
PNC Mortgage Securities Corp. - CTF
Ser. 1998-14
6.25% due 01/25/14 ..................... 1,473 1,513
Salomon, Inc. - Sr. Notes
7.2% due 02/01/04 ...................... 500 528
Saxon Asset Securities Trust - CTF Cl.
AF2
3.985% due 03/04/17 .................... 2,000 2,033
Vanderbilt & Mortgage, Inc. - Sr. Sub.
CTF Cl. A2
4.235% due 08/07/14..................... 1,000 1,020
Wells Fargo & Co. - Notes
6.625% due 07/15/04 .................... 2,000 2,140
Wells Fargo & Co. - Ser. 2002-E CTF
Cl. M
5.063% due 09/25/32 .................... 2,991 3,077
----------
38,987
Diversified Telecommunication Services - 3.0%
Bellsouth Corp. - Notes
5.0% due 10/15/06 ...................... 500 534
France Telecom SA - Notes
8.7% due 03/01/06 ...................... 2,000 2,190
Sprint Capital Corp. - Note
7.9% due 03/15/05 ...................... 2,000 2,020
Verizon Global Funding Corp. - Notes
6.75% due 12/01/05 ..................... 2,303 2,544
----------
7,288
Finance - 3.7%
Chase Manhattan Corp.
6.0% due 11/01/05 ...................... 2,000 2,134
Countrywide Funding Corp.
5.25% due 05/22/03 ..................... 1,000 1,013
5.25% due 06/15/04 ..................... 500 520
Household Financial Corp.
6.5% due 01/24/06 ...................... 2,000 2,130
Marsh & Mclennan Cos, Inc. - Sr. Notes
6.625% due 06/15/04 .................... 2,000 2,136
PNC Funding Corp. - Sr. Notes
5.75% due 08/01/06 ..................... 875 937
----------
8,870
Food Products - 1.1%
Kraft Foods, Inc. - Notes
4.625% due 11/01/06 .................... 2,500 2,628
Health Care Equipment & Supplies - 0.8%
Pfizer, Inc. - Notes
3.625% due 11/01/04 .................... 2,000 2,062
Health Care Providers & Services - 0.6%
Columbia/HCA Healthcare Corp.
6.91% due 06/15/05 ..................... $ 500 $ 528
Tenet Healthcare Corp. - Sr. Notes
5.375% due 11/15/06 .................... 1,000 915
----------
1,443
Home Equity Loan - 3.0%
Money Store Home Equity Trust - CTF
Cl. A8
7.91% due 05/15/24 ..................... 1,276 1,305
Residential Funding and Mortgage
Securities - Ser. 2001-S17 CTF Cl. A2
6.45% due 08/25/31 ..................... 6,000 6,011
----------
7,316
Media - 0.8%
AOL Time Warner, Inc.
6.15 due 05/01/07 ...................... 280 291
AOL Time Warner, Inc. - Notes
5.625% due 05/01/05 .................... 1,500 1,534
----------
1,825
Metals & Mining - 0.4%
Minnesota Ming & Manufacturing Co.
4.15% due 06/30/05 ..................... 1,000 1,057
Oil & Gas - 1.7%
Amerada Hess Corp. - Notes
5.3% due 08/15/04 ...................... 1,500 1,562
Conoco, Inc. - Notes
5.9% due 04/15/04 ...................... 2,550 2,670
----------
4,232
Other Mortgage - 0.9%
LB UBS Commercial Mortgage Trust-
CTF Cl. A1
7.95% due 07/15/09 ..................... 1,873 2,124
Personal Products - 1.1%
Colgate Palmolive Co.
3.98% due 04/29/05 ..................... 1,500 1,567
Unilever Corp. - Notes
6.75% due 11/01/03 ..................... 1,000 1,043
----------
2,610
Real Estate Investment Trust - 1.8%
CarrAmerica Realty Corp. - Notes
6.625% due 03/01/05 .................... 1,167 1,227
Mack-Cali Realty - Notes
7.0% due 03/15/04 ...................... 1,500 1,572
Simon Property Group, Inc. - Notes
6.75% due 02/09/04 ..................... 1,500 1,560
----------
4,359
141
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SHORT-TERM BOND FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS-Continued
Tobacco - 0.3%
Philip Morris Cos., Inc. - Debs.
8.25% due 10/15/03 ..................... $ 640 $ 663
U.S. Government Agencies - 30.8%
Federal Home Loan Mortgage Corp. -
Bonds
5.75% due 11/15/24 ..................... 5,000 5,153
5.75% due 07/15/26 ..................... 4,000 4,065
7.0% due 08/01/12 ...................... 1,416 1,508
7.0% due 02/01/14 ...................... 2,753 2,936
8.5% due 05/01/15 ...................... 2,264 2,477
Federal Home Loan Mortgage Corp. -
Notes
6.5% due 12/01/09 ...................... 2,169 2,298
7.0% due 12/01/10 ...................... 1,107 1,179
7.5% due 11/01/09 ...................... 2,058 2,174
8.0% due 06/01/10 ...................... 484 523
Federal National Mortgage Assoc. -
Bonds
3.426% due 09/25/26 .................... 1,500 1,511
5.25% due 02/28/17 ..................... 5,000 5,068
6.5% due 01/25/17 ...................... 5,000 5,272
7.0% due 10/01/15 ...................... 2,719 2,899
7.0% due 01/15/17 ...................... 10,000 10,628
8.0% due 07/01/14 ...................... 2,711 2,944
8.0% due 09/25/16 ...................... 1,774 1,907
Federal National Mortgage Assoc. -
Notes
3.625% due 04/15/04 .................... 6,500 6,681
3.875% due 03/15/05 .................... 2,000 2,089
4.25% due 07/15/07 ..................... 3,000 3,163
4.375% due 10/15/06 .................... 1,800 1,910
5.25% due 06/15/06 ..................... 1,400 1,526
6.0% due 01/01/11 ...................... 1,479 1,564
7.0% due 01/01/03 ...................... 14 14
7.0% due 12/01/10 ...................... 818 873
7.5% due 08/01/09 ...................... 1,749 1,867
Government National Mortgage Assoc. -
Notes
7.0% due 12/15/08 ...................... 2,011 2,159
----------
74,388
U.S. Governmental - 9.0%
U.S. Treasury - Notes
2.875% due 06/30/04 .................... 1,570 1,605
3.25% due 05/31/04 ..................... 2,320 2,382
3.375% due 04/30/04 .................... 4,000 4,108
3.625% due 03/31/04 .................... 7,020 7,222
5.25% due 05/15/04 ..................... 2,355 2,481
5.875% due 02/15/04 .................... 3,810 4,006
----------
21,804
Whole Loan CMOs - 2.0%
WAMU Mortgage Pass Thru Certs - Ser.
2001 Cl. A12
6.5% due 12/25/31 ...................... $ 2,735 $ 2,754
Whole Loan CMOs - Continued
Washington Mutual - Ser. 2001 Cl. A
6.75% due 05/25/31 ..................... 2,000 2,059
----------
4,813
Wireless Telecommunications Services - 0.1%
Verizon Wireless Capital LLC - Notes
5.375% due 12/15/06 .................... 187 195
----------
TOTAL PUBLICLY-TRADED BONDS- ................ 94.0% 226,779
INVESTMENT COMPANIES HELD
AS COLLATERAL ON LOANED SECURITIES - 12.8%
State Street Navigator Securities Lending
Portfolio .................................. 30,727 30,727
SHORT-TERM INVESTMENTS - 11.6%
Investment in joint trading account (Note B)
1.388% due 01/02/03 .................... 27,917 27,918
---------- ----------
TOTAL INVESTMENTS- 118.4% 285,424
Payables, less cash and receivables- (18.4)% (44,307)
---------- ----------
NET ASSETS- 100.0% $ 241,117
========== ==========
(a) Pursuant to Rule 144A under the Securities Act of 1993, these securities
may be resold in transactions exempt from registration, normally to
qualified institutional buyers. At December 31, 2002, securities aggregated
$6,041 or 2.5% of net assets of the Portfolio.
See notes to financial statements.
142
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SMALL CAP EQUITY FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Airlines - 1.1%
ExpressJet Holdings, Inc. * ................. 51,700 $ 530
Automobiles - 0.6%
Lithia Motors, Inc. - Cl. A * ............... 19,300 303
Banks - 6.4%
BOK Financial Corp. * ....................... 10,300 334
Citizens Banking Corp. * .................... 23,000 570
First Community Bancorp ..................... 2,600 86
First Midwest Bancorp, Inc. ................. 17,750 474
Fulton Financial Corp. ...................... 20,737 366
NetBank, Inc. * ............................. 30,900 299
Southern Financial Bancorp .................. 8,800 265
Sterling Bancshares, Inc. ................... 61,500 751
Umpqua Holdings Corp. ....................... 4,500 82
----------
3,227
Biotechnology - 2.3%
Aclara Biosciences Inc. * ................... 40,200 84
ILEX Oncology, Inc. * ....................... 23,100 163
Illumina, Inc. * ............................ 63,500 214
Kendle International, Inc. * ................ 24,200 213
Lexicon Genetics, Inc. * .................... 32,500 154
Protein Design Labs, Inc. * ................. 12,500 106
Transkaryotic Therapies, Inc. * ............. 23,900 237
----------
1,171
Building Products - 0.7%
York International Corp. .................... 13,800 353
Chemicals - 5.4%
Ferro Corp. ................................. 57,200 1,397
NOVA Chemicals Corp. ........................ 9,100 167
Spartech Corp. .............................. 22,900 472
The Scotts Co. - Cl. A * .................... 13,800 677
----------
2,713
Commercial Services & Supplies - 4.1%
Arbitron, Inc. * ............................ 11,600 389
Costar Group, Inc. * ........................ 19,000 350
DeVry, Inc. * ............................... 8,000 133
LendingTree, Inc. * ......................... 33,700 434
Resources Connection, Inc. * ................ 17,000 395
Steiner Leisure, Ltd. * ..................... 18,500 258
West Corp. * ................................ 6,700 111
----------
2,070
Communications Equipment - 2.0%
Advanced Fibre Communications, Inc. * ....... 8,200 137
Alliance Fiber Optic Products, Inc. * ....... 34,700 20
Aspect Communications Corp. * ............... 98,400 279
Avanex Corp. * .............................. 9,800 10
Cable Design Technologies Corp. * ........... 36,000 212
Carrier Access Corp. * ...................... 31,500 13
Polycom, Inc. * ............................. 36,200 $ 345
----------
1,016
Computers & Peripherals - 1.1%
Gateway, Inc. * ............................. 121,900 383
Intergraph Corp. * .......................... 9,800 174
----------
557
Construction & Engineering - 0.5%
Beazer Homes USA, Inc. * .................... 2,300 139
Quanta Services, Inc. * ..................... 35,000 123
----------
262
Containers & Packaging - 1.4%
AptarGroup, Inc. ............................ 22,800 712
Diversified Financials - 4.1%
American Capital Strategies, Ltd. ........... 36,600 790
AmeriCredit Corp. * ......................... 99,300 769
Jefferies Group, Inc. ....................... 6,500 273
Medallion Financial Corp. ................... 39,000 152
Saxon Capital, Inc. * ....................... 5,000 62
----------
2,046
Diversified Telecommunication Services - 0.4%
Commonwealth Telephone Enterprises, Inc. * .. 6,000 215
Electrical Equipment - 3.0%
Electro Scientific Industries, Inc. * ....... 28,000 560
Power Integrations, Inc. * .................. 17,200 292
Power One, Inc. * ........................... 47,000 267
Rayovac Corp. * ............................. 19,600 261
Wesco International, Inc. * ................. 23,600 130
----------
1,510
Electronic Equipment & Instruments - 3.9%
Advanced Energy Industries, Inc. * .......... 38,200 486
Credence Systems Corp. * .................... 49,500 462
Ixia * ...................................... 37,400 136
Nanometrics, Inc. * ......................... 23,800 100
Newport Corp. ............................... 19,000 238
Rudolph Technologies, Inc. * ................ 6,300 121
Vecco Instruments, Inc. * ................... 35,900 415
----------
1,958
Energy Equipment & Services - 3.7%
Hydril Co. * ................................ 20,500 483
Newpark Resources, Inc. * ................... 45,000 196
San Juan Basin Royalty Trust ................ 44,800 614
Seacor Smit, Inc. * ......................... 13,000 578
----------
1,871
Food Products - 1.4%
Corn Products International, Inc. ........... 14,100 425
International Multifoods Corp. * ............ 8,200 173
143
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SMALL CAP EQUITY FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Food Products - Continued
Tootsie Roll Industries, Inc. ............... 2,830 $ 87
----------
685
Gas Utilities - 3.6%
Energen Corp. ............................... 30,600 890
Southwest Gas Corp. ......................... 38,200 896
----------
1,786
Health Care Equipment & Supplies - 3.5%
ChromaVision Medical Systems, Inc. * ........ 35,600 47
Concept US, Inc. ............................ 14,500 174
CTI Molecular Imaging, Inc. ................. 9,400 232
MedSourceTechnologies, Inc. * ............... 12,000 78
Wilson Greatbatch Technologies, Inc. * ...... 25,100 733
Wright Medium Group, Inc. * ................. 28,900 504
----------
1,768
Health Care Providers & Services - 0.3%
American Healthcare Services, Inc. * ........ 8,700 147
Hotels Restaurants & Leisure - 4.9%
California Pizza Kitchen, Inc. * ............ 24,900 627
CEC Entertainment, Inc, * ................... 12,700 390
Four Seasons Hotels, Inc. ................... 5,600 158
International Speedway Corp. - Cl.A ......... 8,200 306
Landry's Seafood Restaurants, Inc. * ........ 10,500 223
Ruby Tuesday, Inc. .......................... 33,700 583
Speedway Motorsports, Inc. * ................ 7,600 196
----------
2,483
Household Durables - 1.0%
Libbey, Inc. ................................ 19,600 510
Insurance - 3.5%
First American Financial Corp. .............. 24,100 535
Max Re Capital, Ltd. ........................ 24,000 265
Philadelphia Consolidated Holding Corp. ..... 900 32
W.R. Berkley Corp. ......................... 15,600 618
Zenith National Insurance Corp. ............. 14,000 329
----------
1,779
Internet & Catalog Retail - 1.3%
Gaiam, Inc. - Cl.A * ........................ 30,200 313
Jersey Jill Group, Inc. * ................... 6,700 94
School Specialty, Inc. * .................... 12,300 246
----------
653
Internet Software & Services - 1.3%
Click Commerce, Inc. * ...................... 18,760 38
Digital Insight Corp. * ..................... 23,000 200
EarthLink, Inc. * ........................... 40,000 218
MatrixOne, Inc. * ........................... 20,300 87
NIC, Inc. ................................... 61,800 89
----------
632
IT Consulting & Services - 1.7%
PROQUEST Co. ................................ 11,000 $ 216
UNOVA, Inc. * ............................... 106,900 641
----------
857
Leisure Equipment & Products - 0.3%
Pinnacle Systems, Inc. * .................... 9,000 123
Machinery - 1.3%
Actuant Corp. - Cl.A ........................ 2,500 116
Briggs & Stratton Corp. ..................... 7,600 323
Columbus McKinnon Corp. ..................... 25,200 96
Cummins Engine Company, Inc. * .............. 5,000 141
----------
676
Marine - 0.6%
CP Ships, Ltd. .............................. 23,600 320
Media - 8.3%
ADVO, Inc. * ................................ 10,900 358
Charter Communications, Inc. - Cl.A * ....... 41,500 49
Emmis Communications Corp. * ................ 4,900 102
Entravision Communications - Cl.A * ......... 28,500 284
GrayTelevision, Inc. ........................ 11,200 109
Insight Communications Company, Inc. * ...... 69,400 859
Martha Stewart Living Omnimedia, Inc. -
Cl.A* 17,000 168
Media General, Inc. - Cl.A .................. 2,400 144
Mediacom Communications Corp. * ............. 86,000 758
NetRatings, Inc. * .......................... 25,900 186
Radio One, Inc. * ........................... 14,000 205
Radio One, Inc.- Cl.D * ..................... 34,900 504
World Wrestling Federation Entertainment,
Inc. * 33,100 266
Young Broadcasting, Inc. - Cl.A * ........... 15,000 198
----------
4,190
Metals & Mining - 0.6%
GraftTech International, Ltd. * ............. 51,700 308
Multiline Retail - 0.3%
American Eagle Outfitters, Inc. * ........... 12,000 165
Oil & Gas - 1.3%
Cabot Oil & Gas Corp. - Cl.A ................ 18,800 466
Spinnaker Exploration Co. * ................. 8,100 178
----------
644
Pharmaceuticals - 3.0%
3 Dimensional Pharmaceuticals, Inc. * ....... 14,200 45
American Pharmaceutical Partners, Inc. * .... 12,300 219
Antigenics, Inc. * .......................... 27,800 285
Diversa Corp. * ............................. 28,200 255
Durect Corp. * .............................. 17,100 34
Scios, Inc. * ............................... 11,100 362
SICOR, Inc. * ............................... 6,100 97
144
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
SMALL CAP EQUITY FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Pharmaceuticals - Continued
Tanox, Inc. * ............................... 21,900 $ 198
----------
1,495
Real Estate Development - 0.6%
Trammell Crow Co. * ........................ 32,400 292
Real Estate Investment Trust - 4.6%
ANC Rental Corp. * .......................... 58,400 3
Annaly Mortgage Management, Inc. ............ 41,500 780
Anthracite Capital, Inc. * .................. 24,900 271
Insignia Financial Group, Inc. * ............ 26,700 194
MeriStar Hospitality Corp. .................. 28,400 187
Reckson Associates Realty Corp. ............. 8,500 179
SL Green Realty Corp. ....................... 22,800 721
----------
2,335
Real Estate Operations - 0.8%
Homestore.com, Inc. * ....................... 159,800 136
JDN Realty Corp. * .......................... 208 2
MFA Mortgage Investments, Inc. .............. 32,000 269
----------
407
Road & Rail - 0.3%
Werner Enterprises, Inc. * .................. 6,266 135
Semiconductor Equipment & Products - 8.2%
ASM International NV ........................ 22,500 290
Cymer, Inc. * ............................... 15,700 506
EMCORE Corp. * .............................. 40,400 88
ExarCorp. * ................................. 27,700 344
FEI Co. * ................................... 43,000 658
Helix Technology Corp. ...................... 30,200 338
Kulicke and Soffa Industries * .............. 116,500 666
LTX Corp. * ................................. 74,600 450
MKS Instruments, Inc. * ..................... 15,600 256
Monolithic Systems Technology, Inc. * ....... 17,200 208
Photon Dynamics, Inc. * ..................... 13,500 308
----------
4,112
Software - 2.3%
Acclaim Entertainment, Inc. * ............... 41,200 27
Click2learn.com, Inc. * ..................... 31,900 24
Fair Issac & Co., Inc. ...................... 4,411 188
Moldflow Corp. * ............................ 15,300 115
National Instruments Corp. * ................ 3,000 97
Novell, Inc. * .............................. 55,000 184
THQ, Inc. * ................................. 31,600 419
Witness Systems, Inc. * ..................... 26,100 90
----------
1,144
Specialty Retail - 0.7%
Charlotte Russe Holding, Inc. * ............. 19,800 210
Genesco, Inc. * ............................. 6,200 116
----------
326
Textiles & Apparel - 0.5%
Galyans Trading, Inc. * ..................... 3,100 $ 31
Novel Denim Holdings, Ltd. *................. 2,500 8
Vans, Inc.* ................................. 38,000 216
----------
255
Transportation Infrastructure - 0.0%
SCS Transportation, Inc.* ................... 900 9
----------
TOTAL COMMON STOCK- 96.9% 48,750
Par
Value
(000's)
PUBLICLY-TRADED BONDS
Wireless Telecommunications Services - 0.1%
American Tower Corp. - Notes
6.25% due 10/15/09 .......................... $ 100 67
----------
TOTAL PUBLICLY-TRADED BONDS- 0.1% 67
INVESTMENT COMPANIES HELD
AS COLLATERAL ON LOANED
SECURITIES - 26.3%
State Street Navigator Securities Lending
Portfolio ............................... 13,237 13,237
SHORT-TERM INVESTMENTS - 2.4%
Investment in joint trading account (Note B)
1.388% due 01/02/03 ..................... 1,184 1,184
---------- ----------
TOTAL INVESTMENTS- 125.7% 63,238
Cash and Receivables, less payables- (25.7)% (12,911)
---------- ----------
NET ASSETS- 100.0% $ 50,327
========== ==========
* Non-income producing security.
See notes to financial statements.
145
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
INTERNATIONAL OPPORTUNITIES FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Australia - 0.6%
Brambles Industries, Ltd. *(BO) ............. 21,646 $ 58
Broken Hill Proprietary Co., Ltd. *(BF) ..... 79,000 451
----------
509
Belgium - 0.7%
DEXIA *(JP) ................................. 24,050 298
Fortis *(JR) ................................ 8,910 157
UCB SA *(JO) ................................ 3,627 114
----------
569
Canada - 2.6%
Alcan Aluminum, Ltd. (BF) ................... 16,842 494
Bank Nova Scotia Halifax - Disc. Notes*
(JP) ....................................... 9,500 317
Inco, Ltd. *(BF) ............................ 35,900 758
Royal Bank of Canada (JP) ................... 20,280 743
----------
2,312
Denmark - 0.3%
Novo Nordisk AS (JO) ........................ 10,200 294
Finland - 1.3%
Nokia Oyj * (JW) ............................ 73,722 1,171
France - 11.8%
AXA *(JR) ................................... 31,100 417
BNP Paribas *(JP) ........................... 26,902 1,095
Cap Gemini SA *(JU) ......................... 1,327 30
Carrefour SA *(JF) .......................... 2,540 113
CIE De St. Gobain *(BI) ..................... 13,072 383
Equant *(J1) ................................ 1,905 8
Groupe Danone *(JH) ......................... 950 128
Hermes International *(BY) .................. 3,120 431
L'Oreal SA *(JK) ............................ 1,181 90
Lafarge SA *(BD) ............................ 786 59
LVMH *(Louis Vuitton Moet Hennessy) (BY) .... 5,688 234
Orange SA *(J2) ............................. 22,490 155
Pinault-Printemps-Redoute SA *(JD) .......... 1,690 124
Rhone-Poulenc SA *(JO) ...................... 20,630 1,121
Sanofi-Synthelabo SA *(JO) .................. 19,187 1,172
Schneider SA *(BK) .......................... 10,145 480
Societe Generale - Cl. A *(JP) .............. 4,272 249
Societe Television Francaise (JA) ........... 22,114 590
Sodexho Alliance SA *(BZ) ................... 24,634 568
STMicroelectronics *(J0) .................... 10,673 209
Thomson Multimedia *(JY) .................... 10,500 179
Total Fina SA - Cl. B *(BB) ................. 16,088 2,296
Vivendi Universal SA *(JA) .................. 7,913 128
----------
10,259
Germany - 1.9%
Allianz AG *(JR) ............................ 2,118 201
Bayer AG *(JL) .............................. 3,915 84
Bayerishce Vereinsbank AG *(JP) ............. 2,577 41
Deutsche Bank AG *(JP) ...................... 7,704 $ 355
Deutsche Telekom AG *(J1) ................... 4,000 51
E.On AG (J3) ................................ 5,955 240
Gehe AG *(JM) ............................... 8,080 314
Rhoen-Klinikum AG *(JM) ..................... 2,759 90
SAP AG *(JV) ................................ 2,460 195
Siemens AG *(BL) ............................ 1,952 83
----------
1,654
Greece - 0.1%
Hellenic Telecommunication
Organization SA *(J1) ....................... 7,160 79
Hong Kong - 0.7%
Cheung Kong Holdings, Ltd. *(JS) ............ 43,000 280
HSBC Holdings plc (JP) ...................... 16,000 175
Hutchison Whampoa, Ltd. *(BL) ............... 31,900 199
----------
654
Hungary - 0.4%
Gedeon Richter *(JO) ........................ 5,090 336
India - 1.0%
HDFC Bank Ltd. *(JP) ........................ 67,000 306
Hindustan Lever Ltd. (JJ) ................... 146,210 554
----------
860
Italy - 4.8%
Alleanza Assicurazioni *(JR) ................ 53,070 402
Assicurazioni Generali *(JR) ................ 6,814 140
Banca Intesa SpA (JP) ....................... 125,013 264
ENI *(BB) ................................... 67,872 1,078
Mediaset SpA *(JA) .......................... 10,781 82
Mediolanum SpA *(JQ) ........................ 24,785 128
Olivetti SpA *(J1) .......................... 89,218 91
Telecom Italia Mobile SpA *(J2) ............. 143,230 653
Telecom Italia SpA (J1) ..................... 100,130 630
UniCredito Italiano SpA *(JP) ............... 174,403 697
----------
4,165
Japan - 14.0%
Canon, Inc. *(JZ) ............................ 25,000 941
Credit Saison Co., Ltd. (JQ) ................. 13,800 235
Dai-Ichi Pharmaceutical Co., Ltd. *(JO) ...... 9,300 133
DDI Corp. (J2) ............................... 160 519
Fanuc, Ltd. *(BM) ............................ 3,500 155
Fuji Television Network, Inc. (JA) ........... 42 169
Fujisawa Pharmeceutical Co., Ltd. *(JO) ...... 23,000 526
Hitachi Chemical *(JY) ....................... 16,600 142
Honda Motor Co. *(BV) ........................ 19,000 702
Ito-Yokado Co., Ltd. *(JD) ................... 8,000 236
Japan Telecom Co. *(J1) ...................... 29 90
Keyence Corp. *(JY) .......................... 1,000 174
Kyocera Corp. *(JY) .......................... 2,900 169
Marui Co., Ltd. *(JD) ........................ 28,000 274
Mitsubishi Estate Co., Ltd. *(JS) ............ 49,000 373
146
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
INTERNATIONAL OPPORTUNITIES FUND
Market
Name of Issuer Shares Value
(000's)
Japan - Continued
Mitsui Fudosan Co., Ltd. * (JS) ............. 80,000 $ 519
Murata Manufacturing Co., Ltd * (JY) ........ 3,200 125
Nomura Securities Co., Ltd. * (JQ) .......... 31,000 348
NTT Mobile Communications Network,
Inc. * (J2) ................................ 355 655
Rohm Co., Ltd. * (J0) ....................... 2,300 293
Secom Co. * (BO) ............................ 25,000 857
Seven-Eleven Japan * (JF) ................... 18,000 549
Shin-Etsu Chemical Co. * (BC) ............... 6,600 216
Shiseido Co., Ltd. * (JK) ................... 39,000 507
SMC Corp. * (BM) ............................ 2,500 234
Sony Corp. * (JY) ........................... 22,500 940
Sumitomo Corp. * (BO) ....................... 19,000 81
Suzuki Motor Corp. * (BV) ................... 23,000 250
Takeda Chemical Industries * (BC) ........... 8,000 334
Takefuji Corp. * (JQ) ....................... 3,410 197
Toppan Printing Co. * (JA) .................. 11,000 83
Toyota Motor Corp. * (BV) ................... 26,000 698
Yamanouchi Pharmaceutical Co., Ltd. * (JO) .. 16,000 463
----------
12,187
Luxembourg - 0.1%
Society Europeenne des Satellites (JA) ...... 7,670 52
Malaysia - 1.7%
Magnum Corp. Berhad * (BZ) .................. 539,000 325
Malayan Banking Berhad * (JP) ............... 162,000 316
Resorts World Berhad * (BZ) ................. 144,000 354
Sime Darby Berhad * (BL) .................... 350,000 457
----------
1,452
Mexico - 1.3%
Cifra SA de CV - Ser. V * (JD) .............. 144,700 331
Fomento Economico Mexicano SA de CV * (JG) .. 89,000 324
GF BBVA Bancomer - Ser. B (JP) .............. 662,800 503
----------
1,158
Netherlands - 4.4%
Akzo Nobel NV * (BC) ........................ 1,250 40
ASM Lithography Holding NV (J0) ............. 29,710 248
Elsevier NV * (JA) .......................... 22,520 275
Fortis * (JR) ............................... 17,510 306
ING Groep NV (JQ) ........................... 49,670 841
Koninklijke * (Royal) Philips Electronics
NV (JY) .................................... 86,446 1,002
Koninklijke Ahold NV * (JY) ................. 9,500 120
Royal Dutch Petroleum Co. * (BB) ............ 8,460 372
VNU NV * (JA) ............................... 15,308 399
Wolters Kluwer NV * (JA) .................... 15,295 266
----------
3,869
Norway - 0.4%
Orkla ASA * (JH) ............................ 15,750 268
Statoil ASA * (BB) .......................... 6,450 $ 54
----------
322
Portugal - 0.0%
Jeronimo Martins SGPS SA * (JF) ............. 5,383 39
Singapore - 0.9%
Haw Par Value Corp., Ltd. (BL) .............. 3,845 7
Mobile One * (J1) ........................... 204,000 144
United Overseas Bank, Ltd. * (JP) ........... 94,072 640
----------
791
South Africa - 1.3%
Gold Fields Mining * (BF) ................... 23,900 334
Impala Platinum Holdings, Ltd. (BF) ......... 2,840 180
Nedcor, Ltd. * (JP) ......................... 49,159 637
----------
1,151
South Korea - 2.4%
Kookmin Bank * (JP) ......................... 7,900 280
Samsung Electronics * (JY) .................. 3,770 998
Shinhan Financial (JP) ...................... 18,000 188
SK Telecom Co., Ltd. * (J2) ................. 3,200 618
----------
2,084
Spain - 3.0%
Banco Bilbao Vizcaya SA * (JP) .............. 64,820 620
Banco Santander Central Hispano SA * (JP) ... 68,970 473
Endesa SA * (J3) ............................ 20,894 244
Gas Natural SDG SA * (J4) ................... 17,200 326
Inditex (JE) ................................ 15,800 373
Repsol SA * (BB) ............................ 11,771 156
Telefonica SA * (J1) ........................ 46,004 411
----------
2,603
Sweden - 2.5%
Electrolux AB - Ser. B * (BW) ............... 14,910 236
Hennes & Mauritz AB * (JE) .................. 24,590 475
Nordic Baltic Holding AB (JP) ............... 42,620 188
SANDVIK AB * (BM) ........................... 3,220 72
Securitas AB * (BO) ......................... 92,328 1,105
Telefonaktiebolaget LM Ericsson AB (JW) ...... 105,835 74
----------
2,150
Switzerland - 4.6%
Adecco SA * (BO) ............................ 23,000 901
Credit Suisse Group * (JP) .................. 5,500 119
Nestle SA * (JH) ............................ 7,428 1,574
Roche Holdings AG * (JO) .................... 6,300 439
UBS AG * (JP) ............................... 21,066 1,024
----------
4,057
Taiwan - 1.1%
China Trust Finance (JP) .................... 586,000 479
147
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
INTERNATIONAL OPPORTUNITIES FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Taiwan - Continued
Taiwan Semiconductor * (JO) ................. 359,500 $ 442
----------
921
Thailand - 1.0%
Bangkok Bank * (JP) ......................... 390,400 448
Siam Commercial Bank * (JP) ................. 30,000 19
Siam Commercial Bank Public Co. * (JP) ...... 672,000 448
----------
915
United Kingdom - 22.8%
Abbey National First Capital BV (JP) ........ 18,025 150
AstraZeneca Group plc * (JO) ................ 25,283 903
Autonomy Corp. plc * (JV) ................... 7,832 22
BG Group plc * (BB) ......................... 42,645 184
BP Amoco plc (BB) ........................... 88,000 605
Brambles Industries * (BO) .................. 150,940 369
Cable & Wireless plc * (JI) ................. 56,050 40
Cadbury Schweppes plc * (JH) ................ 59,903 373
Celltech Group plc * (JN) ................... 25,581 142
Centrica plc * (J4) ......................... 60,900 168
Compass Group plc * (BZ) .................... 187,930 998
David S. Smith Holdings plc (BE) ............ 20,240 48
Diageo plc * (JG) ........................... 56,004 608
Electrocomponents plc * (JY) ................ 75,680 350
Friends Provident plc * (BL) ................ 29,780 58
GKN * (BU) .................................. 6,800 22
GlaxoSmithKline plc * (JO) .................. 139,581 2,678
Granada Compass plc * (JA) .................. 64,508 83
Hays plc * (BO) ............................. 160,915 240
Hilton Group plc * (BZ) ..................... 31,000 83
Kingfisher plc * (JE) ....................... 162,332 581
P&O Princess Cruises plc (BZ) ............... 10,800 75
Reckitt Benckiser plc * (JJ) ................ 8,772 170
Reed International plc (JA) ................. 196,587 1,683
Rio Tinto plc * (BF) ........................ 52,253 1,043
Royal Bank of Scotland Group * (JP) ......... 77,860 1,865
Shell Transport & Trading Co. plc * (BB) .... 196,961 1,297
Standard Chartered plc * (JP) ............... 17,600 200
Tesco plc * (JF) ............................ 245,430 766
Tomkins plc (BL) ............................ 107,556 329
Unilever plc * (JK) ......................... 73,488 699
United Business Media (JA) .................. 16,593 78
Vodafone Air Touch plc(J2) .................. 1,106,264 2,017
Woolworths Group * (BL) ..................... 73,328 43
WPP Group plc * (JA) ........................ 120,380 919
----------
19,889
United States - 5.7%
America Movil SA de CV - ADR - Ser. L
(J2) .................................... 28,300 406
Celestica, Inc. * (JY) ...................... 15,764 222
Check Point Software Technologies, Ltd.
*(JT) ................................... 11,675 151
Coca-Cola Co. - ADR (JG) .................... 13,000 233
Companhia Vale do Rio Doce - ADR (BF) ....... 9,969 $ 274
Compania Brasileira de Distribuicao
Grupo Pao de Acucar - ADR (JF) .......... 20,600 315
Embraer - Empresa Brasileira de
Aeronautica SA * (BH) ................... 10,394 165
Icici Bank, Ltd. - ADR (JP) ................. 47,642 310
KT Corp. - ADR * (JI) ....................... 24,931 537
Lukoil Holding - ADR * (BB) ................. 7,810 480
Mobile Systems - ADR * (J2) ................. 8,400 312
Petroleo Brasileiro SA ADR - ADR (BB) ....... 20,492 269
POSCO - ADR (BF) ............................ 22,901 566
Skillsoftpub Co., Ltd. - ADR * (JV) ......... 5,076 14
Telefonica SA * (J1) ........................ 5,603 149
Telefonos de Mexico SA - ADR (J1) ........... 7,394 237
Teva Pharmaceutical Industries, Ltd. -
ADR * (JO) .............................. 9,260 358
----------
4,998
----------
TOTAL COMMON STOCK- 93.4% 81,500
PREFERRED STOCK
Australia - 0.5%
News Corp., Ltd. (JA) ....................... 85,671 460
----------
TOTAL PREFERRED STOCK- 0.5% 460
Par
Value
(000's)
INVESTMENT COMPANIES HELD
AS COLLATERAL ON LOANED
SECURITIES - 13.0%
State Street Navigator Securities Lending
Portfolio ............................... $ 11,364 11,364
SHORT-TERM INVESTMENTS
Investment in joint trading account
(Note B) - 1.7%
1.388% due 01/02/03 ..................... 1,443 1,443
Euro Time Deposit - 1.2%
2.5% due 01/02/03 ....................... 1,000 1,049
----------
TOTAL SHORT-TERM INVESTMENTS- 2.9% 2,492
---------- ----------
TOTAL INVESTMENTS- 109.8% 95,816
Cash and Receivables, less payables- (9.8)% (8,538)
---------- ----------
NET ASSETS- 100.0% $ 87,278
========== ==========
* Non-income producing security.
ADR-American Depository Receipt
See notes to financial statements.
148
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
INTERNATIONAL OPPORTUNITIES FUND
SUMMARY OF LONG-TERM SECURITIES BY INDUSTRY
Market % of
Industry Value Long-Term
INDUSTRY Abbreviation (000s) Investments
Banks .................................. JP $ 13,445 16.4%
Pharmaceuticals ........................ JO 8,538 10.4%
Oil & Gas .............................. BB 6,790 8.3%
Wireless Telecommunications Services ... J2 5,335 6.5%
Media .................................. JA 5,267 6.4%
Electronic Equipment & Instruments ..... JY 4,422 5.4%
Metals & Mining ........................ BF 4,102 5.0%
Commercial Services & Supplies ......... BO 3,611 4.4%
Diversified Telecommunication Services . J1 2,467 3.0%
Hotels Restaurants & Leisure ........... BZ 2,404 2.9%
Food Products .......................... JH 2,342 2.9%
Food & Drug Retailing .................. JF 1,782 2.2%
Diversified Financials ................. JQ 1,749 2.1%
Automobiles ............................ BV 1,651 2.0%
Insurance .............................. JR 1,623 2.0%
Specialty Retail ....................... JE 1,429 1.7%
Personal Products ...................... JK 1,296 1.6%
Communications Equipment ............... JW 1,246 1.5%
Semiconductor Equipment & Products ..... J0 1,192 1.5%
Industrial Conglomerates ............... BL 1,176 1.4%
Real Estate Investment Trust ........... JS 1,172 1.4%
Beverages .............................. JG 1,165 1.4%
Multiline Retail ....................... JD 964 1.2%
Office Electronics ..................... JZ 941 1.1%
Household Products ..................... JJ 724 0.9%
Textiles & Apparel ..................... BY 664 0.8%
Chemicals .............................. BC 590 0.7%
Gas Utilities .......................... J4 494 0.6%
Electric Utilities ..................... J3 484 0.6%
Electircal Equipment ................... BK 480 0.6%
Machinery .............................. BM 461 0.6%
Health Care Providers & Services ....... JM 404 0.5%
Building Products ...................... BI 383 0.5%
Household Durables ..................... BW 236 0.3%
Software ............................... JV 231 0.3%
Aerospace & Defense .................... BH 165 0.2%
Internet Software & Services ........... JT 151 0.2%
Biotechnology .......................... JN 142 0.2%
Health Care Equipment & Supplies ....... JL 84 0.1%
Construction Materials ................. BD 59 0.1%
Containers & Packaging ................. BE 47 0.1%
IT Consulting & Services ............... JU 30 0.0%
Auto Components ........................ BU 22 0.0%
-------- -----------
$ 81,960 100.0%
======== ===========
149
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
EQUITY INDEX FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK
Aerospace & Defense - 1.2%
Boeing Co. * ................................ 46,637 $ 1,539
General Dynamics Corp. * .................... 11,292 896
Lockheed Martin Corp. ....................... 25,332 1,463
Northrop Grumman Corp. * .................... 10,200 989
Raytheon Co. * .............................. 22,659 697
Rockwell Collins, Inc. * .................... 9,766 227
----------
5,811
Air Freight & Couriers - 1.0%
Fedex Corp. ................................. 16,614 901
United Parcel Service, Inc. -Cl.B ........... 62,100 3,917
----------
4,818
Airlines - 0.2%
AMR Corp. * ................................. 7,724 51
Delta Air Lines, Inc. * ..................... 6,679 81
Southwest Airlines Co. ...................... 42,358 589
----------
721
Auto Components - 0.3%
B.F. Goodrich Co. * ......................... 6,750 124
Cooper Tire & Rubber Co. * .................. 3,406 52
Dana Corp. .................................. 8,430 99
Delphi Automotive Systems Corp. * ........... 29,683 239
Goodyear Tire & Rubber Co. * ................ 8,931 61
Ingersoll-Rand Co. - Cl. A * ................ 9,245 398
Johnson Controls, Inc. ...................... 4,826 387
Visteon Corp. * ............................. 6,356 44
----------
1,404
Automobiles - 0.6%
Ford Motor Co. .............................. 101,597 945
General Motors Corp. * ...................... 31,398 1,157
Harley-Davidson. Inc. * ..................... 16,940 783
----------
2,885
Banks - 6.4%
AmSouth Bancorp. * .......................... 19,339 371
Bank of America Corp. * ..................... 83,699 5,823
Bank of New York Co., Inc. * ................ 40,670 975
Bank One Corp. * ............................ 64,945 2,374
BB&T Corp. * ................................ 26,937 996
Charter One Financial, Inc. ................. 12,429 357
Comerica, Inc. * ............................ 9,960 431
Fifth Third Bancorp * ....................... 32,191 1,885
First Tennessee National Corp. .............. 6,800 244
FleetBoston Financial Corp. ................. 58,195 1,414
Golden West Financial Corp. * ............... 8,710 626
Huntington Bancshares, Inc. * ............... 13,196 247
JP Morgan Chase & Co. ....................... 111,837 2,684
KeyCorp * ................................... 24,017 604
Marshall & Ilsley Corp. * ................... 12,600 345
Mellon Financial Corp. * .................... 24,394 637
National City Corp. * ....................... 34,274 936
North Fork Bancorp., Inc. * ................. 8,900 $ 300
Northern Trust Corp. ........................ 12,524 439
PNC Bank Corp. * ............................ 15,920 667
Regions Financial Corp. ..................... 12,731 425
South Trust Corp. * ......................... 19,133 476
Suntrust Banks, Inc. * ...................... 15,625 889
Synovus Financial Corp. * ................... 17,172 333
Union Planters Corp. * ...................... 11,098 312
US Bancorp * ............................... 107,390 2,279
Wachovia Corp. * ............................ 75,885 2,765
Zions Bancorp * ............................. 4,934 194
----------
30,028
Beverages - 3.0%
Adolph Coors Co. - Cl. B * .................. 2,054 126
Anheuser-Busch Cos., Inc. ................... 48,105 2,328
Brown-Forman Corp. - Cl. B * ................ 3,600 235
Coca-Cola Co. * ............................. 138,617 6,074
Coca-Cola Enterprises, Inc. * ............... 25,248 549
Pepsi Bottling Group, Inc. * ................ 15,418 396
PepsiCo, Inc. * ............................. 96,591 4,078
Starbucks Corp. * ........................... 21,153 431
----------
14,217
Biotechnology - 1.1%
Amgen, Inc. * ............................... 71,998 3,480
Biogen, Inc. ................................ 8,416 337
Chiron Corp. * .............................. 10,176 383
Genzyme Corp. * ............................. 11,900 352
MedImmune, Inc. * ........................... 13,609 370
----------
4,922
Building Products - 0.1%
Crane Co. * ................................. 3,037 61
Masco Corp. * ............................... 27,369 576
----------
637
Chemicals - 1.5%
Air Products & Chemicals, Inc. * ............ 12,832 549
Dow Chemical Co. * .......................... 50,548 1,501
E.I. du Pont de Nemours & Co. * ............. 55,699 2,362
Eastman Chemical Co. * ...................... 4,112 151
Engelhard Corp. * ........................... 7,190 161
Great Lakes Chemical Corp. .................. 2,373 57
Hercules, Inc. * ............................ 6,957 61
International Flavors & Fragrances, Inc. * .. 5,339 187
Monsanto Co. ................................ 15,036 289
PPG Industries, Inc. * ...................... 9,545 479
Praxair, Inc. * ............................. 9,107 526
Rohm & Haas Co. ............................. 12,247 398
Sigma-Aldrich Corp. * ....................... 3,810 185
----------
6,906
150
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
EQUITY INDEX FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Commercial Services & Supplies - 2.2%
Allied Waste Industries, Inc. ............... 9,711 $ 97
Apollo Group, Inc. - Cl. A * ................ 9,800 431
Automatic Data Processing, Inc. ............. 33,508 1,315
Avery Dennison Corp. * ...................... 6,260 382
Cendant Corp. ............................... 58,407 612
Cintas Corp. * .............................. 9,346 428
Concord EFS, Inc. * ......................... 29,001 456
Convergys Corp. * ........................... 8,949 136
Deluxe Corp. * .............................. 3,303 139
Ecolab, Inc. * .............................. 7,186 356
Equifax, Inc. * ............................. 7,408 171
First Data Corp. * .......................... 42,040 1,489
Fiserv, Inc. * .............................. 10,481 356
H & R Block, Inc. * ......................... 10,366 417
Honeywell International, Inc. ............... 45,939 1,103
IMS Health, Inc. * .......................... 15,829 253
Paychex, Inc. ............................... 21,093 588
Pitney Bowes, Inc. * ........................ 12,859 420
R.R. Donnelley & Sons Co. * ................. 6,071 132
Robert Half International, Inc. * ........... 9,055 146
Sabre Group Holdings, Inc. * ................ 7,767 141
Waste Management, Inc. * .................... 34,167 783
----------
10,351
Communications Equipment - 2.0%
ADC Telecommunications, Inc. ............... 44,937 94
Andrew Corp. * .............................. 4,668 48
Avaya, Inc. * ............................... 20,815 51
Ciena Corp. * ............................... 24,976 128
Cisco Systems, Inc. * ....................... 404,044 5,293
Comverse Technology, Inc. ................... 9,670 97
Corning, Inc. * ............................. 63,253 209
JDS Uniphase Corp. * ........................ 82,791 205
Lucent Technologies, Inc. * ................. 187,478 236
Motorola, Inc. .............................. 127,889 1,106
Qualcomm, Inc. * ............................ 43,801 1,594
Scientific-Atlanta, Inc. * .................. 7,837 93
Tellabs, Inc. ............................... 21,195 154
----------
9,308
Computers & Peripherals - 3.5%
Apple Computer, Inc. * ...................... 20,808 298
Dell Computer Corp. * ....................... 144,883 3,874
EMC Corp. * ................................. 123,222 757
Gateway, Inc. * ............................. 15,570 49
Hewlett-Packard Co. * ....................... 170,909 2,967
International Business Machines Corp. ....... 94,427 7,318
Lexmark International Group, Inc. -
Cl. A * .................................... 7,187 435
NCR Corp. * ................................. 4,940 117
Network Appliance, Inc. * ................... 18,073 181
Sun Microsystems, Inc. ...................... 182,037 566
----------
16,562
Construction & Engineering - 0.1%
American Standard Cos., Inc. * .............. 4,100 $ 292
Fluor Corp. * ............................... 4,515 126
McDermott International, Inc. * ............. 4,089 18
----------
436
Construction Materials - 0.1%
United States Steel Corp. * ................. 5,529 73
Vulcan Materials Co. * ...................... 5,547 208
----------
281
Containers & Packaging - 0.2%
Ball Corp. .................................. 3,380 173
Bemis Co., Inc. * ........................... 2,977 148
Pactiv Corp. * .............................. 8,431 184
Sealed Air Corp. * .......................... 4,718 176
Temple-Inland, Inc. * ....................... 2,772 124
----------
805
Credit Card - 0.3%
MBNA Corp. * ................................ 70,971 1,350
Diversified Financials - 6.7%
American Express Co. * ...................... 73,524 2,599
Bear Stearns Cos., Inc. * ................... 5,369 319
Capital One Financial Corp. ................. 12,303 366
Charles Schwab Corp. * ...................... 76,291 828
Citigroup, Inc. * ........................... 286,903 10,096
Countrywide Credit Industries, Inc. * ....... 6,972 360
Franklin Resources, Inc. * .................. 14,685 500
Goldman Sachs Group, Inc. ................... 26,700 1,818
Household International, Inc. ............... 26,641 741
Lehman Brothers Holdings, Inc. .............. 13,658 728
Merrill Lynch & Co., Inc.* .................. 48,021 1,822
Morgan Stanley, Dean Witter, Discover & Co. . 60,718 2,424
SLM Corp. * ................................. 8,437 876
State Street Corp. .......................... 18,117 707
Stillwell Financial, Inc. * ................. 12,519 164
T. Rowe Price Group, Inc. * ................. 6,979 190
The Dun & Bradstreet Corp. * ................ 8,629 356
Washington Mutual, Inc. * ................... 52,753 1,822
Wells Fargo & Co. * ......................... 94,596 4,434
----------
31,150
Diversified Telecommunication Services - 3.9%
Alltel Corp. * .............................. 17,355 885
AT&T Corp. * ................................ 42,885 1,120
BellSouth Corp. * ........................... 103,626 2,681
CenturyTel, Inc. ............................ 8,205 241
Citizens Communications Co. * ............... 14,815 156
Nextel Communications, Inc. - Cl. A * ....... 54,213 626
Qwest Communications International, Inc. .... 96,778 484
SBC Communications, Inc. * .................. 185,695 5,034
Sprint Corp. * .............................. 50,389 730
151
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
EQUITY INDEX FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Diversified Telecommunication Services - Continued
Sprint PCS * ................................ 53,963 $ 236
Verizon Communications * .................... 152,908 5,925
----------
18,118
Electric Utilities - 2.0%
AES Corp. * ................................. 27,892 84
Allegheny Energy, Inc. * .................... 6,781 51
Ameren Corp. * .............................. 8,800 366
American Electric Power Co. * ............... 19,129 523
Calpine Corp. ............................... 21,334 70
Cinergy Corp. * ............................. 9,331 315
CMS Energy Corp. * .......................... 6,892 65
Consolidated Edison, Inc. * ................. 11,808 506
Constellation Energy Group * ................ 9,638 268
DTE Energy Co. * ............................ 9,040 420
Edison International * ...................... 17,738 210
Entergy Corp. * ............................. 12,621 575
Exelon Corp. * .............................. 18,016 951
Firstenergy Corp. * ......................... 16,781 553
FPL, Group, Inc. ............................ 10,056 605
Mirant Corp. * .............................. 20,762 39
PG & E Corp. * .............................. 23,263 323
Pinnacle West Capital Corp. * ............... 4,723 161
PPL Corp. ................................... 8,912 309
Progress Energy, Inc. * ..................... 13,472 584
Public Services Enterprise Group, Inc. * .... 12,102 389
Southern Co. ................................ 39,520 1,122
Teco Energy, Inc. * ......................... 10,497 162
TXU Corp. ................................... 17,286 323
Xcel Energy, Inc. ........................... 21,849 240
----------
9,214
Electric/Gas - 0.3%
Dominion Resources, Inc. .................... 17,074 938
NiSource, Inc. * ............................ 13,566 271
----------
1,209
Electrical Equipment - 0.8%
American Power Conversion * ................. 10,284 156
Cooper Industries, Ltd. - Cl. A * ........... 5,436 198
Emerson Electric Co. ........................ 23,523 1,196
Molex, Inc. * ............................... 10,234 236
Power One, Inc. * ........................... 3,414 19
Rockwell International Corp. * .............. 9,866 204
Thomas & Betts Corp. * ...................... 2,585 44
United Technologies Corp. * ................. 26,585 1,647
----------
3,700
Electronic Equipment & Instruments - 0.3%
Agilent Technologies, Inc. * ................ 26,438 475
Jabil Circuit, Inc. * ....................... 10,278 184
Millipore Corp. * ........................... 2,568 87
PerkinElmer, Inc. * ......................... 6,478 53
Sanmina Corp. * ............................. 29,165 131
Solectron Corp. * ........................... 44,170 $ 157
Symbol Technologies, Inc. * ................. 12,129 100
Tektronix, Inc. * ........................... 5,036 92
Thermo Electron Corp. * ..................... 8,864 178
Waters Corp. * .............................. 7,400 161
----------
1,618
Energy Equipment & Services - 0.8%
Baker Hughes, Inc. * ........................ 18,988 611
Halliburton Co. * ........................... 24,624 461
Nabors Industries, Ltd. * ................... 8,114 286
Noble Corp. * ............................... 7,395 260
Rowan Cos., Inc. * .......................... 5,437 123
Schlumberger, Ltd. * ........................ 32,134 1,353
Transocean Sedco Forex, Inc. * .............. 18,098 420
----------
3,514
Food & Drug Retailing - 1.1%
Albertson's,Inc.* ........................... 21,566 480
CVS Corp. ................................... 22,372 559
Safeway, Inc. * ............................. 25,135 587
SuperValu,Inc. * ............................ 6,893 114
Sysco Corp. * ............................... 36,978 1,102
The Kroger Co................................ 44,179 682
Walgreen Co. * .............................. 56,880 1,660
Winn-Dixie Stores, Inc. * ................... 8,104 124
----------
5,308
Food Products - 1.4%
Archer Daniels Midland Co. * ................ 36,844 457
Campbell Soup Co. * ......................... 23,394 549
ConAgra, Inc. ............................... 30,081 752
General Mills, Inc. * ....................... 20,729 973
H.J.Heinz Co. ............................... 19,207 631
Hershey Foods Corp. * ....................... 7,699 519
Kellogg Co. * ............................... 22,490 771
Sara Lee Corp. * ............................ 44,044 992
WM Wrigley Jr. Co. .......................... 12,629 693
----------
6,337
Gas Utilities - 0.2%
El Paso Corp. ............................... 35,003 244
KeySpan Corp. * ............................. 8,100 285
Nicor, Inc. ................................. 2,666 91
Peoples Energy Corp. * ...................... 1,951 75
Sempra Energy * ............................. 11,204 265
Williams Cos., Inc. * ....................... 28,148 76
----------
1,036
Health Care Equipment & Supplies - 1.9%
Amerisource Bergen Corp. * .................. 5,755 313
Applera Corporation - Applied
Biosystems Group ........................... 12,307 216
Bausch & Lomb, Inc. * ....................... 2,878 104
Baxter International, Inc. .................. 32,962 923
152
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST 1
December 31, 2002
- --------------------------------------------------------------------------------
EQUITY INDEX FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Health Care Equipment & Supplies - Continued
Becton, Dickinson & Co. * ................... 14,575 $ 447
Biomet, Inc. * .............................. 14,115 405
Boston Scientific Corp. * ................... 22,884 973
C.R. Bard, Inc. * ........................... 3,074 178
Guidant Corp. * ............................. 17,246 532
Medtronic, Inc. * ........................... 67,858 3,094
St. Jude Medical, Inc. * .................... 10,150 403
Stryker Corp. * ............................. 11,085 744
Zimmer Holdings, Inc. * ..................... 10,573 439
----------
8,771
Health Care Providers & Services - 1.6%
Aetna US Healthcare, Inc. * ................. 8,207 337
Anthem, Inc. * .............................. 8,000 503
Cardinal Health, Inc. * ..................... 24,698 1,462
HCA-The Healthcare Corp. * .................. 28,932 1,201
Health Management Assoc., Inc. - Cl.A * ..... 12,756 228
Healthsouth Corp * .......................... 22,167 93
Humana, Inc. * .............................. 9,547 95
Manor Care, Inc. * .......................... 5,065 94
McKesson HBOC, Inc. ......................... 16,447 445
Quest Diagnostics, Inc. * ................... 5,300 302
Quintiles Transnational Corp. * ............. 6,670 81
Tenet Healthcare Corp. * .................... 27,958 459
UnitedHealth Group, Inc. * .................. 16,861 1,408
Wellpoint Health Networks, Inc. * ........... 8,184 582
----------
7,290
Hotels Restaurants & Leisure - 0.9%
Carnival Corp. * ............................ 33,150 827
Darden Restaurants, Inc. * .................. 9,258 189
Harrah's Entertainment, Inc. ................ 5,970 237
Hilton Hotels Corp. * ....................... 20,136 256
International Game Technology * ............. 5,008 380
Marriott International, Inc. - Cl. A * ...... 13,655 449
McDonald's Corp. * .......................... 70,981 1,141
Starwood Hotels & Resorts Worldwide, Inc. * . 11,489 273
Wendy's International, Inc. * ............... 6,165 167
Yum Brands, Inc. * .......................... 16,428 398
----------
4,317
Household Durables - 0.5%
American Greetings Corp. - Cl. A * .......... 3,992 63
Black & Decker Corp. * ...................... 4,500 193
Centex Corp. * .............................. 3,386 170
Fortune Brands, Inc. * ...................... 8,022 373
KB Home * ................................... 2,764 118
Leggett & Platt, Inc. * ..................... 10,285 231
Maytag Corp. * .............................. 4,311 123
Newell Rubbermaid, Inc. * ................... 15,104 458
Pulte Corp. * ............................... 3,186 153
Snap-On, Inc. * ............................. 3,084 87
Stanley Works * ............................. 4,524 $ 156
Tupperware Corp. * .......................... 2,584 39
Whirlpool Corp. * ........................... 3,597 188
----------
2,352
Household Products - 1.7%
Clorox Co. * ................................ 12,944 534
Kimberly-Clark Corp. * ...................... 28,674 1,361
Procter & Gamble Co. * ...................... 72,584 6,238
----------
8,133
Industrial Conglomerates - 4.0%
3M Co. ...................................... 21,876 2,697
General Electric Co. * ...................... 555,646 13,530
Textron, Inc. * ............................. 7,505 323
Tyco International, Ltd. * .................. 110,647 1,890
----------
18,440
Insurance - 4.9%
Ace, Ltd. ................................... 14,800 434
AFLAC, Inc. * ............................... 28,865 869
Allstate Corp. .............................. 39,154 1,448
Ambac Financial Group, Inc. * ............... 6,154 346
American International Group, Inc. * ........ 145,743 8,431
Aon Corp. * ................................. 16,881 319
Chubb Corp. * ............................... 9,755 509
CIGNA Corp. * ............................... 7,518 309
Cincinnati Financial Corp. * ................ 9,234 347
Hartford Fiancial Services Group, Inc. * .... 13,945 634
Jefferson-Pilot Corp. * ..................... 8,096 309
John Hancock Financial Services * ........... 15,648 437
Lincoln National Corp. * .................... 10,273 324
Loews Corp. * ............................... 10,587 471
Marsh & McLennan Cos., Inc. * ............... 29,802 1,377
MBIA, Inc. * ................................ 7,816 343
Metlife, Inc. * ............................. 39,190 1,060
MGIC Investment Corp. * ..................... 5,556 229
Principal Financial Group. * ................ 19,100 575
Progressive Corp. * ......................... 12,205 606
Providian Financial Corp. * ................. 14,115 92
Prudential Financial, Inc. * ................ 32,400 1,028
Safeco Corp. * .............................. 7,886 273
St. Paul Cos., Inc. ......................... 12,326 420
Torchmark, Inc. * ........................... 6,482 237
Travelers Property Casualty Corp. - Cl.B * .. 56,355 826
UnumProvident Corp. * ....................... 13,071 229
XL Capital, Ltd. - Cl.A * ................... 7,594 587
----------
23,069
Internet & Catalog Retail - 0.2%
eBay, Inc. * ................................ 17,300 1,173
153
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
EQUITY INDEX FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Internet Software & Services - 0.1%
Yahoo, Inc. * ............................... 32,424 $ 530
IT Consulting & Services - 0.3%
Computer Sciences Corp. * ................... 9,845 339
Electronic Data Systems Corp. * ............. 27,181 501
SunGard Data Systems, Inc. * ................ 16,100 379
Unisys Corp. * .............................. 18,861 187
----------
1,406
Leisure Equipment & Products - 0.3%
Brunswick Corp. * ........................... 5,027 100
Eastman Kodak Co. * ......................... 16,422 575
Hasbro, Inc. * .............................. 9,076 105
Mattel, Inc. * ............................. 24,627 472
----------
1,252
Machinery - 1.1%
Caterpillar, Inc. * ......................... 19,499 891
Cummins Engine Company, Inc. * .............. 2,460 69
Danaher Corp. * ............................. 8,507 559
Deere & Co. * .............................. 13,341 612
Dover Corp. ................................. 10,796 315
Eaton Corp. * ............................... 3,800 297
Illinois Tool Works, Inc. * ................. 17,142 1,112
ITT Industries, Inc. * ...................... 5,228 317
Navistar International Corp., Inc. - Cl.B * . 3,486 85
Paccar, Inc. * .............................. 6,166 284
Pall Corp. * ................................ 6,079 101
Parker-Hannifin Corp. ....................... 6,320 292
----------
4,934
Media - 3.9%
AOL Time Warner, Inc. * ..................... 248,894 3,260
Clear Channel Communications, Inc. * ........ 34,054 1,270
Comcast Corp. - Cl. A ....................... 128,367 3,026
Dow Jones & Co., Inc. * ..................... 4,626 200
Gannett Co., Inc. * ......................... 14,985 1,076
Interpublic Group Cos., Inc. * .............. 20,646 291
Knight-Ridder, Inc. * ....................... 4,406 279
McGraw-Hill Cos.,Inc. ....................... 10,884 658
Meredith Corp. * ............................ 2,872 118
New York Times Co. - Cl.A * ................. 8,132 372
Omnicom Group, Inc. * ....................... 10,569 683
The Walt Disney Co. * ....................... 113,140 1,845
TMP Worldwide, Inc. * ....................... 5,755 65
Tribune Co. * ............................... 17,099 777
Univision Communications, Inc. - Cl.A * ..... 12,303 301
Viacom, Inc. - Cl.B * ....................... 98,551 4,017
----------
18,238
Metals & Mining - 0.5%
Alcoa, Inc. * ............................... 47,043 1,072
Allegheny Technologies, Inc. * .............. 3,867 24
Freeport-McMoRan Copper & Gold, Inc.
- Cl.B * ................................... 8,309 $ 139
Newmont Mining Corp. ........................ 22,085 641
Nucor Corp. * ............................... 4,213 174
Phelps Dodge Corp. * ........................ 5,010 159
Worthington Industries, Inc. * .............. 5,124 78
----------
2,287
Multi-Utilities - 0.2%
CenterPoint Energy, Inc. .................... 16,057 136
Duke Energy Co. ............................. 50,011 977
Dynegy, Inc. -Cl.A * ........................ 19,274 23
----------
1,136
Multiline Retail - 3.9%
Big Lots, Inc. * ............................ 6,765 89
Costco Wholesale Corp. * .................... 25,454 714
Dillard's, Inc. - Cl.A * .................... 4,824 76
Dollar General Corp. ........................ 18,127 217
Family Dollar Stores, Inc. .................. 10,050 314
Federated Department Stores, Inc. * ......... 10,987 316
J.C. Penney Co., Inc. * ..................... 14,583 336
Kohl's Corp. * .............................. 18,784 1,051
May Department Stores Co. * ................. 16,385 377
Nordstrom, Inc. ............................. 7,195 136
Sears, Roebuck & Co. * ...................... 17,878 428
Target Corp. * .............................. 50,308 1,509
Wal-Mart Stores, Inc. * ..................... 246,502 12,451
----------
18,014
Office Electronics - 0.1%
Xerox Corp. * ............................... 41,710 336
Oil & Gas - 5.1%
Amerada Hess Corp. * ........................ 4,730 260
Anadarko Petroleum Corp. * .................. 13,937 668
Apache Corp. ................................ 7,910 451
Ashland, Inc. ............................... 3,601 103
BJ Services Co. * ........................... 9,100 294
Burlington Resources, Inc. * ................ 11,518 491
Chevron Texaco Corp. * ...................... 59,439 3,951
Conoco Phillips ............................. 37,548 1,817
Devon Energy Corp. * ........................ 8,888 408
EOG Resources, Inc. * ....................... 6,469 258
Exxon Mobil Corp. * ......................... 375,745 13,129
Kerr-McGee Corp. * .......................... 5,615 249
Kinder Morgan, Inc. * ....................... 6,766 286
Marathon Oil Corp. * ........................ 17,749 378
Occidental Petroleum Corp. * ................ 21,139 601
Sunoco, Inc. * .............................. 3,922 130
Unocal Corp. * .............................. 14,254 436
----------
23,910
154
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
EQUITY INDEX FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Paper & Forest Products - 0.5%
Boise Cascade Corp. * ....................... 3,284 $ 83
Georgia-Pacific Corp. * ..................... 14,455 233
International Paper Co. * ................... 26,869 940
Louisiana-Pacific Corp. * ................... 4,752 38
MeadWestvaco Corp. * ........................ 11,633 287
Plum Creek Timber Co., Inc. * ............... 10,200 241
Weyerhaeuser Co. ............................ 12,313 606
----------
2,428
Personal Products - 0.9%
Alberto-Culver Cc. - Cl.B * ................. 3,282 166
Avon Products, Inc. ......................... 12,945 697
Colgate-Palmolive Co. ....................... 30,116 1,579
Gillette Co. ................................ 58,734 1,783
----------
4,225
Pharmaceuticals - 9.8%
Abbott Laboratories * ....................... 87,453 3,498
Allergan, Inc. * ............................ 7,291 420
Bristol-Myers Squibb Co. * .................. 108,526 2,512
Eli Lilly & Co. * ........................... 62,835 3,990
Forest Laboratories, Inc. * ................. 10,056 988
Johnson & Johnson * ......................... 165,982 8,915
King Pharmaceuticals, Inc. * ................ 13,522 232
Merck & Co., Inc. * ......................... 125,535 7,107
Pfizer, Inc. * .............................. 344,156 10,521
Pharmacia Corp. * ........................... 71,997 3,010
Schering-Plough Corp. * ..................... 81,428 1,808
Watson Pharmaceuticals,Inc. * ............... 5,454 154
Wyeth ....................................... 74,312 2,779
----------
45,934
Real Estate Investment Trust - 0.3%
Equity Office Properties Trust * ............ 22,990 574
Equity Residential Properties Trust * ....... 14,686 361
Simon Property Group, Inc. .................. 10,700 365
----------
1,300
Road & Rail - 0.5%
Burlington Northern Santa Fe Corp. * ........ 21,470 558
CSX Corp. * ................................. 11,610 329
Norfolk Southern Corp. * .................... 22,059 441
Ryder System, Inc. .......................... 3,588 80
Union Pacific Corp. * ....................... 14,361 860
----------
2,268
Semiconductor Equipment & Products - 2.7%
Advanced Micro Devices, Inc. ................ 18,800 121
Altera Corp. * .............................. 20,462 253
Analog Devices, Inc. * ...................... 20,623 492
Applied Materials, Inc. * ................... 91,454 1,192
Applied Micro Circuits Corp. * .............. 14,537 54
Broadcom Corp. - Cl.A * ..................... 15,303 230
Intel Corp. ................................. 370,280 5,765
KLA-Tencor Corp. * .......................... 10,670 $ 377
Linear Technology Corp. * ................... 17,146 441
LSI Logic Corp. * ........................... 19,326 112
Maxim Integrated Products, Inc. * ........... 17,477 577
Micron Technology, Inc. ..................... 34,067 332
National Semiconductor Corp., * ............. 9,652 145
Novellus Systems, Inc. * .................... 8,007 225
PMC-Sierra, Inc. * .......................... 8,939 50
QLogic Corp. * .............................. 5,234 181
Teradyne, Inc. * ............................ 9,454 123
Texas Instruments, Inc. * ................... 96,225 1,444
Xilinx, Inc. * .............................. 19,184 395
----------
12,509
Software - 4.8%
Adobe Systems, Inc. ......................... 13,648 339
Autodesk, Inc. * ............................ 6,156 88
BMC Software, Inc. * ........................ 13,454 230
Citrix Systems, Inc. ........................ 10,569 130
Computer Associates International, Inc. * ... 31,163 421
Compuware Corp. * ........................... 20,235 97
Electronic Arts, Inc. * ..................... 7,700 383
Intuit, Inc. * .............................. 11,603 544
Mercury Interactive Corp. * ................. 4,320 128
Microsoft Corp. * ........................... 298,527 15,434
Novell, Inc. * .............................. 19,824 66
NVIDIA Corp. * .............................. 7,703 89
Oracle Corp. * .............................. 297,764 3,216
Parametric Technology Corp. ................. 12,184 31
Peoplesoft, Inc. * .......................... 17,828 326
Rational Software Corp. * ................... 9,700 101
Siebel Systems, Inc. * ...................... 25,159 188
Veritas Software Corp. * .................... 23,263 363
----------
22,174
Speciality Retail - 2.0%
AutoZone, Inc. * ............................ 5,563 393
Bed Bath & Beyond, Inc. * ................... 16,420 567
Best Buy Co., Inc. * ........................ 18,107 437
Circuit City Stores, Inc. ................... 10,903 81
Gap, Inc. * ................................. 48,625 755
Home Depot, Inc. * .......................... 129,344 3,099
Limited, Inc. * ............................. 29,972 417
Lowe's Cos., Inc. * ......................... 43,219 1,621
Office Depot, Inc. * ........................ 17,748 262
RadioShack Corp. * .......................... 9,170 172
Sherwin-Williams Co. * ...................... 8,028 227
Staples, Inc. * ............................. 26,361 482
Tiffany & Co. * ............................. 7,912 189
TJX Cos., Inc. * ............................ 29,216 570
Toys "R" Us, Inc. * ......................... 10,987 110
----------
9,382
155
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
EQUITY INDEX FUND
Market
Name of Issuer Shares Value
(000's)
COMMON STOCK - Continued
Textiles & Apparel - 0.3%
Jones Apparel Group, Inc. ................... 7,200 $ 255
Liz Claiborne, Inc. * ....................... 5,752 170
Nike, Inc. - Cl. B .......................... 14,994 667
Reebok International, Ltd. * ................ 3,485 102
V.F. Corp. * ................................ 6,063 219
----------
1,413
Tobacco - 1.1%
Philip Morris Cos., Inc. * .................. 115,699 4,689
R.J. Reynolds Tobacco Holdings, Inc. ........ 4,900 207
UST, Inc. * ................................. 9,337 312
----------
5,208
Trading Companies & Distributors - 0.1%
Genuine Parts Co. * ......................... 10,100 311
W.W. Grainger, Inc. * ....................... 5,338 275
----------
586
U.S. Government Agencies - 1.3%
Federal Home Loan Mortgage Corp. ............ 39,007 2,304
Federal National Mortgage Assoc. * .......... 55,655 3,580
----------
5,884
Wireless Telecommunications Services - 0.2%
AT&T Wireless Group * ....................... 150,849 852
----------
TOTAL COMMON STOCK- 97.0% 452,397
Par
Value
(000's)
SHORT-TERM INVESTMENTS
Investment in joint trading account
(Note B) - 3.2%
1.388% due 01/02/03 ......................... $ 15,059 15,059
U.S. Governmental - 0.3%
U.S. Treasury Bills
1.185% due 03/13/03 ......................... 1,245 $ 1,242
----------
TOTAL SHORT-TERM INVESTMENTS- 3.5% 16,301
---------- ----------
TOTAL INVESTMENTS- 100.5% 468,698
Payables, less cash and receivables- (0.5)% (2,440)
---------- ----------
NET ASSETS- 100.0% $ 466,258
========== ==========
* Non-income producing security.
See notes to financial statements.
156
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS
Aerospace & Defense - 1.2%
K & F Industries, Inc. - Sr. Sub. Notes
9.25% due 10/15/07 ...................... $ 180 $ 184
Sequa Corp.
9.0% due 08/01/09 ....................... 60 58
Sequa Corp. - Sr. Notes
8.875% due 04/01/08 ..................... 525 501
----------
743
Airlines - 1.4%
Air Canada, Inc. - Sr. Notes
10.25% due 03/15/11 ..................... 535 311
Delta Air Lines, Inc. - Notes
7.9% due 12/15/09 ....................... 520 353
Northwest Airlines Corp. - Notes
9.875% due 03/15/07 ..................... 195 125
Northwest Airlines Corp. - Sr. Notes
8.875% due 06/01/06 ..................... 110 69
----------
858
Auto Components - 3.8%
CSK Auto, Inc. - Sr. Notes
12.0% due 06/15/06 ...................... 55 59
Dana Corp. - Notes
9.0% due 08/15/11 ....................... 810 784
10.125% due 03/15/10 .................... 25 25
Dura Operating Corp. - Sr. Notes Ser. B
8.625% due 04/15/12 ..................... 105 106
Dura Operating Corp. - Sr. Sub. Notes
9.0% due 05/01/09 ....................... 505 457
Goodyear Tire & Rubber Co. - Notes
7.857% due 08/15/11 ..................... 145 107
8.5% due 03/15/07 ....................... 145 122
Lear Corp. - Ser B.
7.96% due 05/15/05 ...................... 140 144
8.11% due 05/15/09 ...................... 420 444
Numatics, Inc. - Ser. B
9.625% due 04/01/08 ..................... 100 45
----------
2,293
Automobiles - 0.8%
Navistar International - Sr. Sub Notes Ser. B
8.0% due 02/01/08 ....................... 580 475
9.375% due 06/01/06 ..................... 35 34
----------
509
Banks - 1.6%
Chevy Chase Savings Bank - Debs.
9.25% due 12/01/08 ...................... 135 134
Sovereign Bancorp., Inc. - Sr. Notes
10.5% due 11/15/06 ...................... 605 682
Western Financial Bank - Sub. Debs.
9.625% due 05/15/12 ..................... 175 170
----------
986
Beverages - 0.3%
Nash-Finch Co. - Ser. B
8.5% due 05/01/08 ....................... $ 225 $ 160
Biotechnology - 1.4%
Argo-Tech Corp.
8.625% due 10/01/07 ..................... 470 306
Fisher Scientific International, Inc. - Sr.
Sub. Notes
8.125% due 05/01/12 ..................... 505 521
----------
827
Chemicals - 3.0%
Airgas, Inc. - Sr. Sub. Notes
9.125% due 10/01/11 ..................... 140 152
Georgia Gulf Corp.
10.375% due 11/01/07 .................... 270 294
IMC Global, Inc. - Notes
7.625% due 11/01/05 ..................... 165 161
Lyondell Chemical Co.
9.875% due 05/01/07 ..................... 385 369
Lyondell Chemical Co. Debs.
9.8% due 02/01/20 ....................... 110 90
Lyondell Chemical Co. - Notes Ser. A
9.625% due 05/01/07 ..................... 400 383
Methanex Corp. - Sr. Notes
8.75% due 08/15/12 ...................... 70 74
Nova Chemicals Corp. - Notes
7.0% due 05/15/06 ....................... 135 131
Noveon, Inc. - Sr. Sub. Notes Ser. B
11.0% due 02/28/11 ...................... 115 124
PCI Chemicals Canada Co. - Sr. Sec'd. Notes
10.0% due 12/31/08 ...................... 30 21
----------
1,799
Commercial Services & Supplies - 11.0%
Allied Waste North America, Inc. - Sr. Notes
8.5% due 12/01/08 ....................... 800 804
8.875% due 04/01/08 ..................... 250 254
Armkel LLC - Sr. Sub. Notes
9.5% due 08/15/09 ....................... 270 292
HCA, Inc. - Notes
6.3% due 10/01/12 ....................... 785 798
Horton, Inc. - Sr. Sub. Notes
9.375% due 03/15/11 ..................... 840 844
Iron Mountain, Inc. Delaware - Sr. Sub. Notes
8.25% due 07/01/11 ...................... 205 212
Iron Mountain, Inc. Pennsylvania - Sr. Sub.
Notes
7.75% due 01/15/15 ...................... 220 220
Magnum Hunter Resources, Inc. - Sr. Notes
9.6% due 03/15/12 ....................... 75 80
Mail Welli Corp. - Sr. Notes
9.625% due 03/15/12 ..................... 305 268
157
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Commercial Services & Supplies - Continued
Pierce Leahy Command Co.
8.125% due 05/15/08 ..................... $ 75 $ 77
Pierce Leahy Corp. - Sr. Sub. Notes
9.125% due 07/15/07 ..................... 220 228
Roller Bearing Co. America, Inc. - Ser. B
9.625% due 06/15/07 ..................... 30 28
Ryland Group, Inc. - Sr. Sub. Notes
9.125% due 06/15/11 ..................... 275 291
Silgan Holdings, Inc. - Debs.
9.0% due 06/01/09 ....................... 475 494
Tyco International Group SA - Notes
5.8% due 08/01/06 ....................... 60 56
6.75% due 02/15/11 ...................... 110 102
Tyco International Group SA - Sr. Notes
6.125% due 01/15/09 ..................... 225 206
6.375% due 02/15/06 ..................... 110 104
6.375% due 10/15/11 ..................... 545 510
Waste Management, Inc. Delaware - Sr. Notes
144A (a)
6.375% due 11/15/12 ..................... 775 799
----------
6,667
Communications Equipment - 1.1%
Avaya, Inc. - Sr. Secd. Notes
11.125% due 04/01/09 .................... 335 308
L-3 Communications Corp. - Sr. Sub. Notes
7.625% due 06/15/12 ..................... 90 93
8.5% due 05/15/08 ....................... 35 37
Radiologix, Inc. - Sr. Notes
10.5% due 12/15/08 ...................... 290 226
----------
664
Computers & Peripherals - 0.6%
Unisys Corp. - Sr. Notes
7.875% due 04/01/08 ..................... 370 379
Construction & Engineering - 2.8%
American Standard Cos., Inc.
7.375% due 02/01/08 ..................... 600 627
7.625% due 02/15/10 ..................... 35 37
Beazer Homes USA, Inc. - Sr. Notes
8.625% due 05/15/11 ..................... 520 543
Standard Pacific Corp. - Sr. Notes
8.5% due 06/15/07 ....................... 110 111
8.5% due 04/01/09 ....................... 220 221
9.5% due 09/15/10 ....................... 150 157
----------
1,696
Containers & Packaging - 4.6%
BWAY Corp. - Sr. Sub. Notes 144A (a)
10.0% due 10/15/10 ...................... 175 182
Graphic Packaging Corp. - Sr. Sub Notes
8.625% due 02/15/12 ..................... 35 37
Owens Illinois, Inc.
7.15% due 05/15/05 ...................... 480 466
7.85% due 05/15/04 ...................... $ 240 $ 236
Owens-Illinois, Inc. - Debs.
7.5% due 05/15/10 ....................... 210 194
Packaging Corp. of America
9.625% due 04/01/09 ..................... 595 643
Stone Container Corp. - Sr. Notes
8.375% due 07/01/12 ..................... 380 389
9.25% due 02/01/08 ...................... 200 212
9.75% due 02/01/11 ...................... 400 430
----------
2,789
Diversified Financials - 1.6%
Bowater Canada Finance Corp. - Notes
7.95% due 11/15/11 ...................... 140 147
Clark Refining & Marketing, Inc. - Sr. Notes
8.625% due 08/15/08 ..................... 110 104
Fairfax Financial Holdings, Ltd. - Notes
7.375% due 03/15/06 ..................... 150 120
MDP Acquisitions plc - Sr. Notes 144A(a)
9.625% due 10/01/12 ..................... 115 120
NMHG Holding Co. - Sr. Notes
10.0% due 05/15/09 ...................... 65 64
Riviera Holdings Corp. - Sr. Secd. Notes
11.0% due 06/15/10 ...................... 475 428
----------
983
Diversified Telecommunication Services - 3.8%
Crown Castle International Corp. - Sr. Disc.
Notes
10.625% due 11/15/07 .................... 165 146
Entravision Communications - Sr. Sub. Notes
8.125% due 03/15/09 ..................... 80 83
GCI, Inc. - Sr. Notes
9.75% due 08/01/07 ...................... 190 152
Insight Midwest LP
9.75% due 10/01/09 ...................... 95 90
Insight Midwest LP Capital, Inc. - Sr. Notes
10.5% due 11/01/10 ...................... 515 500
MasTec, Inc. - Sr. Sub. Notes
7.75% due 02/01/08 ...................... 290 252
Nextel Communications, Inc. - Sr. Notes
9.375% due 11/15/09 ..................... 375 340
9.5% due 02/01/11 ....................... 760 695
Telecommunications Techniques Co.
9.75% due 05/15/08 ...................... 215 22
----------
2,280
Electric Utilities - 2.9%
AES Corp. - Sr. Notes
8.875% due 02/15/11 ..................... 660 383
Avista Corp. - Sr. Notes
9.75% due 06/01/08 ...................... 605 593
Calpine Corp. - Sr. Notes
8.5% due 02/15/11 ....................... 365 162
158
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Electric Utilities - Continued
CMS Energy Corp. - Notes
8.9% due 07/15/08 ....................... $ 210 $ 187
CMS Energy Corp. - Sr. Notes
7.5% due 01/15/09 ....................... 65 55
8.5% due 04/15/11 ....................... 170 144
CMS Energy Corp. - Sub. Notes
7.625% due 11/15/04 ..................... 200 190
Mirant Americas Generation LLC - Sr. Notes
7.625% due 05/01/06 ..................... 100 52
----------
1,766
Electric/Gas - 1.0%
Western Resources, Inc.
7.125% due 08/01/09 ..................... 215 170
Western Resources, Inc. - Sr. Notes
6.875% due 08/01/04 ..................... 225 203
9.75% due 05/01/07 ...................... 230 209
----------
582
Electronic Equipment & Instruments - 1.1%
International Game Technology - Sr. Notes
8.375% due 05/15/09 ..................... 100 110
Sanmina SCI Corp. - Sr. Secd. Notes 144A (a)
10.375% due 01/15/10 .................... 330 333
Solectron Corp. - Sr. Notes
9.625% due 02/15/09 ..................... 175 171
SPX Corp. - Sr. Notes
7.5% due 01/01/13 ....................... 70 71
----------
685
Finance - 0.7%
Hampshire Donnelly Finance Corp. - Sr. Sub.
Notes 144A(a)
10.875% due 12/15/12 .................... 280 305
Ucar Finance, Inc. - Sr. Notes
10.25% due 02/15/12 ..................... 170 133
----------
438
Food & Drug Retailing - 1.0%
Pathmark Stores, Inc. - Sr. Sub. Notes
8.75% due 02/01/12 ...................... 50 46
Winn Dixie Stores, Inc. - Sr. Notes
8.875% due 04/01/08 ..................... 570 581
----------
627
Gas Utilities - 0.1%
El Paso Corp. - Sr. Notes
7.0% due 05/15/11 ....................... 70 48
Health Care Equipment & Supplies - 1.4%
Advanced Medium Optics, Inc. - Sr. Sub
Notes
9.25% due 07/15/10 ...................... 35 36
Amerisource Bergen Corp. - Sr. Notes
8.125% due 09/01/08 ..................... 140 149
Amerisource Bergen Corp. - Sr. Notes
144A (a)
7.25% due 11/15/12 ...................... $ 160 $ 164
Owens & Minor
8.5% due 07/15/11 ....................... 385 408
Sybron Dental Specialities, Inc. - Sr. Sub.
Notes
8.125% due 06/15/12 ..................... 75 76
----------
833
Health Care Providers & Services - 3.9%
Beverly Enterprises, Inc. - Sr. Notes
9.625% due 04/15/09 ..................... 605 508
Conventry Health Care, Inc. - Sr. notes
8.125% due 02/15/12 ..................... 40 42
Healthsouth Corp. - Sr. Notes
7.375% due 10/01/06 ..................... 380 329
8.5% due 02/01/08 ....................... 95 82
NDC Healthcorp - Sr. Sub. Notes - 144A (a)
10.5% due 12/01/12 ...................... 120 120
Omnicare, Inc. - Sr. Sub. Notes Ser. B
8.125% due 03/15/11 ..................... 610 653
Tenet Healthcare Corp. - Sr. Notes
6.375% due 12/01/11 ..................... 165 148
Triad Hospitals, Inc. - Sr. Notes Ser. B
8.75% due 05/01/09 ...................... 480 514
----------
2,396
Hotels Restaurants & Leisure - 5.3%
AZTAR Corp. - Sr. Sub. Notes
9.0% due 08/15/11 ....................... 515 525
Corus Entertainment, Inc. - Sr. Sub. Notes
8.75% due 03/01/12 ...................... 55 58
Harrahs Operating Co., Inc.
7.875% due 12/15/05 ..................... 605 646
Mandalay Resort Group - Sr. Sub. Notes
9.375% due 02/15/10 ..................... 250 268
Mandalay Resort Group - Sr.Sub. Notes Ser. B
10.25% due 08/01/07 ..................... 45 49
MGM Mirage, Inc. - Sr. Sub. Notes
8.375% due 02/01/11 ..................... 610 656
Park Place Entertainment Corp. - Sr. Sub.
Notes
8.875% due 09/15/08 ..................... 140 148
Physician Sales & Service, Inc.
8.5% due 10/01/07 ....................... 300 309
Station Casinos, Inc. - Sr. Sub. Notes
8.875% due 12/01/08 ..................... 305 318
9.875% due 07/01/10 ..................... 100 109
Yum Brands, Inc. - Sr. Notes
7.7% due 07/01/12 ....................... 140 146
----------
3,232
Household Durables - 1.8%
KB Home - Sr. Sub Notes
8.625% due 12/15/08 ..................... 305 315
9.5% due 02/15/11 ....................... 255 273
159
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Household Durables - Continued
Resolution Peformance Products - Sr. Sub.
Notes
13.5% due 11/15/10 ...................... $ 175 $ 185
Sealy Mattress Co. - Sr. Sub. Notes - Ser. B
9.875% due 12/15/07 ..................... 355 344
----------
1,117
Industrial Conglomerates - 0.0%
Pioneer Americas LLC
5.355% due 12/31/06 ..................... 10 7
Leisure Equipment & Products - 0.5%
Hasbro, Inc. - Notes
6.15% due 07/15/08 ...................... 300 288
8.5% due 03/15/06 ....................... 34 35
----------
323
Machinery - 0.5%
Case Corp. - Notes
7.25% due 08/01/05 ...................... 300 252
Cummins, Inc. - Sr. Notes 144A (a)
9.5% due 12/01/10 ....................... 45 48
----------
300
Manufactured Housing - 1.0%
Toll Brothers Inc.
8.25% due 02/01/11 ...................... 600 603
Media - 11.8%
AOL Time Warner, Inc. - Notes
6.875% due 05/01/12 ..................... 515 544
British Sky Broadcasting
8.2% due 07/15/09 ....................... 770 841
Canwest Media, Inc. - Sr. Sub. Notes
10.625% due 05/15/11 .................... 135 144
Comcast Cable Communications
6.75% due 01/30/11 ...................... 295 307
CSC Holdings, Inc. - Debs.
8.125% due 08/15/09 ..................... 100 96
CSC Holdings, Inc. - Sr. Notes
7.625% due 04/01/11 ..................... 975 919
8.125% due 07/15/09 ..................... 50 48
EchoStar DBS Corp. - Sr. Notes
9.375% due 02/01/09 ..................... 935 991
Emmis Communications Corp.
8.125% due 03/15/09 ..................... 590 611
Lamar Media Corp. - Sr. Sub. Notes 144A (a)
7.25% due 01/01/13 ...................... 45 46
LIN Television Corp. - Sr. Notes
8.0% due 01/15/08 ....................... 540 572
Mediacom Broadband LLC - Sr. Notes
11.0% due 07/15/13 ...................... 215 217
Mediacom LLC - Sr. Notes
9.5% due 01/15/13 ....................... 35 32
Quebecor Media, Inc. - Sr. Notes
11.125% due 07/15/11 .................... $ 680 $ 626
Radio One, Inc. - Sr. Sub. Notes
8.875% due 07/01/11 ..................... 270 290
Rogers Communications
8.875% due 07/15/07 ..................... 200 190
Sinclair Broadcast Group, Inc. - Sr. Sub.
Notes 144A (a)
8.0% due 03/15/12 ....................... 40 41
8.75% due 12/15/11 ...................... 135 144
Univision Communications, Inc. - Sr. Notes
7.85% due 07/15/11 ...................... 460 522
----------
7,181
Metals & Mining - 3.1%
AK Steel Corp.
7.875% due 02/15/09 ..................... 540 545
Century Aluminum Co.
11.75% due 04/15/08 ..................... 95 92
Compass Minerals Group, Inc. - Sr. Sub.
Notes
10.0% due 08/15/11 ...................... 215 236
Newfield Exploration Co. - Sr. Sub. Notes
8.375% due 08/15/12 ..................... 150 158
Oregon Steel Mills, Inc. - Notes 144A (a)
10.0% due 07/15/09 ...................... 90 91
Steel Dynamics, Inc. - Sr. Notes
9.5% due 03/15/09 ....................... 45 47
United States Steel Corp. - Sr. Notes
10.75% due 08/01/08 ..................... 710 699
Weirton Steel Corp. - Sr. Sec'd. Notes
0.5% due 04/01/08 ....................... 206 21
----------
1,889
Multi-Utilities - 0.3%
Mirant Corp. - Sr. Notes
8.3% due 05/01/11 ....................... 400 184
Multiline Retail - 0.5%
J.C. Penney Co., Inc.
7.6% due 04/01/07 ....................... 50 50
J.C. Penney Co., Inc., - Notes
7.375% due 08/15/08 ..................... 255 257
----------
307
Office Electronics - 0.8%
Xerox Corp. - Sr. Notes 144A (a)
9.75% due 01/15/09 ...................... 500 480
Oil & Gas - 5.3%
Chesapeake Energy Corp. - Sr. Notes
8.125% due 04/01/11 ..................... 250 259
Clark Refining & Marketing, Inc. - Sr.
Notes
8.375% due 11/15/07 ..................... 240 230
160
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Oil & Gas - Continued
Cross Timbers Oil Co. - Sr. Sub. Notes
8.75% due 11/01/09 ...................... $ 600 $ 628
EL Paso Energy Corp. - Sr. Notes
6.75% due 05/15/09 ...................... 310 217
Forest Oil Corp. - Sr. Notes
8.0% due 06/15/08 ....................... 167 176
8.0% due 12/15/11 ....................... 95 100
Parker Drilling Co. - Sr. Notes - Ser. D
9.75% due 11/15/06 ...................... 195 195
Pioneer Natural Resources Co.
9.625% due 04/01/10 ..................... 410 478
Pride International, Inc. - Sr. Notes
9.375% due 05/01/07 ..................... 285 298
10.0% due 06/01/09 ...................... 300 324
Tesoro Petroleum Corp. - Sr. Sub. Notes
9.625% due 11/01/08 ..................... 270 173
Texas Petrochemical Corp. - Sr. Sub. Notes
11.125% due 07/01/06 .................... 150 92
Westport Resources Corp. - Sr. Sub. Notes
144A (a)
8.25% due 11/01/11 ...................... 50 52
----------
3,222
Paper & Forest Products - 4.0%
Abitibi-Consolidated, Inc.
8.55% due 08/01/10 ...................... 450 496
Caraustar Industries, Inc. - Sr. Sub. Notes
9.875% due 04/01/11 ..................... 465 481
Longview Fibre Co. - Sr. Sub. Notes
10.0% due 01/15/09 ...................... 175 184
Pacifica Papers, Inc. - Sr. Notes
10.0% due 03/15/09 ...................... 300 318
Scotts Co. - Sr. Sub. Notes
8.625% due 01/15/09 ..................... 350 364
Tembec Indiana, Inc. - Sr. Notes
8.5% due 02/01/11 ....................... 595 598
----------
2,441
Personal Products - 1.2%
Johnson Diversey, Inc. - Sr. Sub. Notes
144A (a)
9.625% due 05/15/12 ..................... 55 58
Playtex Products, Inc. - Sr. Sub. Notes
9.375% due 06/01/11 ..................... 600 654
----------
712
Road & Rail - 0.5%
Kansas City Southern Railway Co.
9.5% due 10/01/08 ....................... 265 292
Semiconductor Equipment & Products - 1.0%
Amkor Technologies, Inc.
9.25% due 02/15/08 ...................... 340 289
Fairchild Semiconductor Corp.
10.375% due 10/01/07 .................... 35 37
Fairchild Semiconductor Corp. - Sr. Sub.
Notes
10.5% due 02/01/09 ...................... $ 200 $ 217
SCG Holdings Corp.
12.0% due 08/01/09 ...................... 179 73
----------
616
Speciality Retail - 1.0%
Gap, Inc. - Notes
10.55% due 12/15/08 ..................... 575 630
Telephone - 0.5%
Qwest Corp. - Notes 144A (a)
8.875% due 03/15/12 ..................... 320 310
Water Utilities - 0.1%
National Waterworks, Inc. - 144A (a)
10.5% due 12/01/12 ...................... 35 37
Wireless Telecommunications Services - 1.7%
AT&T Wireless, Inc. - Sr. Notes
7.875% due 03/01/11 ..................... 300 301
Rogers Wireless, Inc. - Sr. Secd. Notes
9.625% due 05/01/11 ..................... 775 725
----------
1,026
----------
TOTAL PUBLICLY-TRADED BONDS- 92.0% 55,917
Shares
COMMON STOCK
Health Care Equipment & Supplies - 0.0%
MEDIQ, Inc. ................................. 230 0
PREFERRED STOCK
Metals & Mining - 0.0%
Weirton Steel Corp. - Ser. C ................ 3,375 3
Par
Value
(000's)
SHORT-TERM INVESTMENTS - 5.7%
Investment in joint trading account (Note B)
1.388% due 01/02/03 ........................ $ 3,494 3,494
---------- ----------
TOTAL INVESTMENTS- 97.7% 59,414
Cash and Receivables, less payables- 2.3% 1,367
---------- ----------
NET ASSETS- 100.0% $ 60,781
========== ==========
(a) Pursuant to Rule 144A under the Securities Act of 1993, these securities
may be resold in transactions exempt from registration, normally to
qualified institutional buyers. At December 31, 2002, securities aggregated
$3,186 or 5.2% of net assets of the Portfolio.
See notes to financial statements.
161
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
GLOBAL BOND FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS
Australia - 0.4%
Commonwealth of Australia - Bonds (FG)
7.5% due 07/15/05 ....................... $ 500 $ 301
Canada - 0.4%
Government of Canada - Bonds (FG)
7.0% due 12/01/06 ....................... 125 88
Government of Canada (FG)
7.25% due 06/01/07 ...................... 250 179
Province of British Columbia - Debs. (FG)
6.35% due 06/18/31 ...................... 125 86
----------
353
Denmark - 1.0%
Danske Kredit (AC)
6.0% due 10/01/29 ....................... 5,590 807
Finland - 3.0%
Republic of Finland - Bonds (FG)
5.75% due 02/23/11 ...................... 2,030 2,369
France - 2.3%
Government of France - Bonds (FG)
5.25% due 04/25/08 ...................... 1,580 1,791
Germany - 21.6%
Federal Republic of Germany (FG)
4.5% due 07/04/09 ....................... 3,250 3,552
5.25% due 01/04/08 ...................... 4,125 4,675
5.25% due 01/04/11 ...................... 4,500 5,102
6.0% due 07/04/07 ....................... 850 987
6.25% due 01/04/30 ...................... 1,250 1,586
Kredit Fuer Wiederaufbau (JP)
5.0% due 07/04/11 ....................... 950 1,053
----------
16,955
Greece - 0.5%
Hellenic Republic - Bonds (FG)
8.8% due 06/19/07 ....................... 293 375
Japan - 14.4%
Government of Japan - (FG)
0.5% due 09/20/06 ....................... 160,000 1,361
0.7% due 11/22/04 ....................... 120,000 1,022
0.9% due 12/22/08 ....................... 670,000 5,811
1.1% due 03/21/11 ....................... 95,000 825
1.8% due 03/22/10 ....................... 250,000 2,289
----------
11,308
Luxembourg - 1.8%
General Motors Acceptance Corp. (AL)
5.5% due 02/02/05 ....................... 440 466
KFW International Finance, Inc. (FB)
1.75% due 03/23/10 ...................... 100,000 920
----------
1,386
Netherlands - 2.4%
Government of Netherlands (FG)
5.5% due 01/15/28 ....................... $ 920 $ 1,063
Government of Netherlands - Bonds (FG)
6.5% due 04/15/03 ....................... 750 794
----------
1,857
New Zealand - 0.4%
Government of New Zealand - Bonds (FG)
8.0% due 11/15/06 ....................... 500 281
Spain - 2.3%
Kingdom of Spain (FG)
6.15% due 01/31/13 ...................... 1,500 1,804
Supra National - 13.9%
Allied Irish Banks plc (JP)
7.5% due 12/29/49 ....................... 500 584
Arena Brands Co. (JG)
6.1% due 11/15/62 ....................... 500 550
AT&T Corp. - 144A(a) (J1)
6.0% due 11/21/06 ....................... 250 262
Bank of Ireland (JP)
6.45% due 02/10/10 ...................... 1,000 1,166
BAT International Finance (FB)
4.875% due 02/25/09 ..................... 600 633
BNP Paribas (JP)
5.25% due 01/23/14 ...................... 125 137
Daimler Chrysler International Finance Co.
(AL)
6.125% due 03/21/06 ..................... 600 664
Deutsche Telekom International Finance BV
(FB)
7.5% due 05/29/07 ....................... 125 141
Deutsche Telekom International Finance BV
(FB)
8.125% due 05/29/12 ..................... 730 855
European Investment Bank - Notes (JP)
3.0% due 09/20/06 ....................... 90,000 837
Federal National Mortgage Assoc. - Bonds
(FD)
2.125% due 10/09/07 ..................... 100,000 913
Fixed Link Finance BV (JQ)
6.3% due 08/28/25 ....................... 250 402
France Telecom (JI)
7.25% due 03/14/08 ...................... 250 279
9.0% due 03/14/11 ....................... 180 312
GIE Psa Tresorerie - Bonds (BO)
5.875% due 09/27/11 ..................... 250 280
Household Finance Corp. (AH)
5.0% due 11/16/06 ....................... 330 344
International-American Development Bank -
Bonds (JP)
1.9% due 07/08/09 ....................... 100,000 922
Kingdom of Spain - Notes (FG)
3.1% due 09/20/06 ....................... 120,000 1,119
162
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
GLOBAL BOND FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
Supra National - Continued
Standard Charter Bank (JP)
5.375% due 05/06/09 ..................... $ 500 $ 533
----------
10,933
Sweden - 3.4%
Kingdom of Sweden (FG)
3.5% due 04/20/06 ....................... 6,700 759
5.0% due 01/28/09 ....................... 10,900 1,295
Spintab - Bonds (BO)
6.0% due 04/20/09 ....................... 5,000 612
----------
2,666
United Kingdom - 8.0%
Aegon NV - Notes (JR)
6.125% due 12/15/31 ..................... 110 180
British Telecom Plc (J1)
7.125% due 02/15/11 ..................... 910 1,069
Imperial Tobacco Finance plc (JI)
6.375% due 09/27/06 ..................... 510 567
Koninklijke KPN NV - Notes (JY)
4.75% due 11/05/08 ...................... 1,060 1,102
MMO2 (JQ)
6.375% due 01/25/07 ..................... 655 687
Royal Bank of Scotland (JP)
4.875% due 03/26/09 ..................... 125 134
U.K. Treasury - Bonds (FG)
6.0% due 12/07/28 ....................... 50 99
U.K. Treasury (FG)
7.25% due 12/07/07 ...................... 605 1,106
8.0% due 12/07/15 ....................... 480 1,042
8.0% due 06/07/21 ....................... 125 289
----------
6,275
United States - 19.3%
Aetna Inc. - Sr. Notes (JR)
7.375% due 03/01/06 ..................... 100 108
American Tower Corp. - Sr. Notes (JW)
9.375% due 02/01/09 ..................... 225 177
Analog Devices, Inc. - Sub. Notes (J0)
4.75% due 10/01/05 ...................... 50 50
AT & T Wireless Services, Inc. - Sr. Notes
(J2)
7.35% due 03/01/06 ...................... 80 82
California Infrastructure Development - Ser.
1997-1 CTF Cl. A7 (FB)
6.42% due 09/25/08 ...................... 100 109
Cendant Corp. - Notes (BO)
6.875% due 08/15/06 ..................... 50 52
Chancellor Media Corp. (JA)
8.0% due 11/01/08 ....................... 125 136
Cilcorp, Inc. - Sr. Notes (J3)
8.7% due 10/15/09 ....................... 15 16
Cingular Wireless LLC - 144A (a) (J2)
6.5% due 12/15/11 ....................... $ 125 $ 135
Clear Channel Communications, Inc. (JA)
7.65% due 09/15/10 ...................... 125 142
Constellation Energy Group, Inc. - Sr. Notes
(J3)
6.125% due 09/01/09 ..................... 50 51
Credit Suisse First Boston Mortgage - Cl. A2
(JP)
5.935% due 01/15/06 ..................... 100 108
Crown Castle International Corp. - Sr. Notes
(J1)
10.75% due 08/01/11 ..................... 75 66
Delhaize America, Inc. - Notes (JF)
8.125% due 04/15/11 ..................... 35 34
Deutsche Telekom International (J1)
8.5% due 06/15/10 ....................... 75 86
Devon Financing Corp. United LC - Notes
(JQ)
6.875% due 09/30/11 ..................... 50 56
Dominion Resources, Inc. - Notes (J3)
5.7% due 09/17/12 ....................... 50 52
Federal Home Loan Mortgage Corp. - Bonds
(FD)
5.5% due 12/25/32 ....................... 250 255
6.0% due 01/25/32 ....................... 250 258
Federal National Mortgage Assoc. - Notes
(FD)
5.125% due 02/13/04 ..................... 500 521
6.0% due 05/15/08 ....................... 300 340
Federal National Mortgage Assoc. - Bonds
(FD)
5.5% due 09/01/17 ....................... 186 194
6.0% due 07/01/17 ....................... 177 185
6.0% due 12/01/31 ....................... 184 190
6.5% due 08/01/13 ....................... 255 270
6.5% due 07/01/17 ....................... 145 153
6.5% due 09/01/30 ....................... 319 332
6.5% due 09/01/32 ....................... 399 415
7.0% due 11/01/30 ....................... 245 258
7.0% due 12/01/30 ....................... 50 53
7.0% due 12/01/30 ....................... 55 58
7.0% due 09/01/31 ....................... 122 129
7.5% due 12/01/29 ....................... 170 181
7.5% due 12/01/30 ....................... 72 76
First Union National Bank Commercial &
Mortgage Trust - CTF Cl. A1 (JP)
5.585% due 08/12/10 ..................... 72 77
France Telecom SA - Notes (J1)
9.25% due 03/01/11 ...................... 50 58
Gemstone Investor, Ltd. - Sr. Notes (JQ)
7.71% due 10/31/04 ...................... 100 77
163
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
GLOBAL BOND FUND
Par Market
Name of Issuer Value Value
(000's) (000's)
PUBLICLY-TRADED BONDS - Continued
United States - Continued
General Motors Acceptance Corp. - Notes (AL)
6.875% due 09/15/11 ..................... $ 175 $ 175
Government National Mortgage Assoc. -
Bonds (FD)
6.0% due 12/15/32 ....................... 650 676
HCA, Inc. - Notes (BO)
6.95% due 05/01/12 ...................... 50 53
Household Financial Corp. (AH)
5.75% due 01/30/07 ...................... 75 78
J.C. Penney, Inc. - Debs. (JD)
7.95% due 04/01/17 ...................... 25 22
Liberty Media Corp. - Bonds (JA)
7.875% due 07/15/09 ..................... 75 81
Pogo Producing Co. - Sr. Sub. Notes (BB)
10.375% due 02/15/09 .................... 50 54
Progress Energy, Inc. - Sr. Notes (J3)
7.1% due 03/01/11 ....................... 100 110
Salomon Brothers Commercial and Mortgage
Trust - CTF 2001-Cl Cl. A3 (JQ)
6.428% due 12/18/35 ..................... 125 140
Six Flags, Inc. - Sr. Notes (BZ)
9.5% due 02/01/09 ....................... 100 96
Solectron Corp. - Sr. Notes (JY)
9.625% due 02/15/09 ..................... 50 49
Spectrasite Holdings, Inc. - Sr. Notes Ser. B
(JW)
10.75% due 03/15/10 ..................... 75 28
Sprint Capital Corp. (J1)
7.625% due 01/30/11 ..................... 50 48
Sprint Capital Corp. - Notes (J1)
7.125% due 01/30/06 ..................... 50 50
8.375% due 03/15/12 ..................... 100 99
Staples, Inc. - Sr. Notes 144A (a) (JE)
7.375% due 10/01/12 ..................... 50 55
Telstra, Ltd. - Notes (J1)
6.375% due 04/01/12 ..................... 125 138
U.S. Treasury - Notes (TN)
3.25% due 05/31/04 ...................... 2,125 2,182
5.75% due 08/15/10 ...................... 900 1,035
6.25% due 02/15/07 ...................... 675 774
U.S. Treasury - Bonds (TB)
5.25% due 02/15/29 ...................... 1,000 1,045
7.25% due 05/15/16 ...................... 1,000 1,280
7.875% due 02/15/21 ..................... 450 617
8.875% due 08/15/17 ..................... 300 438
Univision Communications, Inc. - Sr. Notes
(JA)
7.85% due 07/15/11 ...................... 100 114
Washington Mutual, Inc. (JQ)
5.625% due 01/15/07 ..................... 125 134
Young Broadcasting, Inc. - Sr. Sub. Notes
(JA)
10.0% due 03/01/11 ...................... $ 34 $ 34
----------
15,145
----------
TOTAL PUBLICLY-TRADED BONDS- 95.1% 74,606
INVESTMENT COMPANIES HELD AS COLLATERAL ON LOANED
SECURITIES-6.0%
State Street Navigator Securities Lending
Portfolio ............................... 4,711 4,711
SHORT-TERM INVESTMENTS - 3.7%
Investment in joint trading account
(Note B)
1.388% due 01/02/03 ..................... 2,893 2,893
---------- ----------
TOTAL INVESTMENTS- 104.8% 82,210
Cash and Receivables, less payables- (4.8)% (3,739)
---------- ----------
NET ASSETS- 100.0% $ 78,471
========== ==========
(a) Pursuant to Rule 144A under the Securities Act of 1993, these securities
may be resold in transactions exempt from registration, normally to
qualified institutional buyers. At December 31, 2002, securities aggregated
$452 or 0.6% of net assets of the Portfolio.
See notes to financial statements.
164
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
GLOBAL BOND FUND
SUMMARY OF LONG-TERM SECURITIES BY INDUSTRY
Market % of
Industry Value Long-Term
Industry Abbreviation (000s) Investments
Foreign Governmental ................... FG $ 42,050 56.4%
Banks .................................. JP 5,552 7.5%
U.S. Government Agencies ............... FD 5,457 7.3%
U.S. Treasury Notes .................... TN 3,991 5.3%
U.S. Treasury Bonds .................... TB 3,381 4.5%
Finance ................................ FB 2,657 3.6%
Diversified Telecommunication Services.. J1 2,466 3.3%
Diversified Financials ................. JQ 1,496 2.0%
Auto Loan .............................. AL 1,305 1.7%
Electronic Equipment & Instruments ..... JY 1,150 1.5%
Commercial Services & Supplies ......... BO 997 1.3%
Credit Card ............................ AC 807 1.1%
Tobacco ................................ JI 567 0.8%
Beverages .............................. JG 550 0.7%
Media .................................. JA 507 0.7%
Home Equity Loan ....................... AH 423 0.6%
Insurance .............................. JR 288 0.4%
Electric Utilities ..................... J3 229 0.3%
Wireless Telecommunications Services ... J2 217 0.3%
Communications Equipment ............... JW 205 0.3%
Hotels Restaurants & Leisure ........... BZ 96 0.1%
Speciality Retail ...................... JE 55 0.1%
Oil & Gas .............................. BB 54 0.1%
Semiconductor Equipment & Products ..... J0 50 0.1%
Food & Drug Retailing .................. JF 34 0.0%
Multiline Retail ....................... JD 22 0.0%
---------- ----------
$ 74,606 100.0%
========== ==========
165
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE A--ORGANIZATION
The John Hancock Variable Series Trust I (the "Trust") is a diversified
open-end management investment company registered under the Investment Company
Act of 1940, as amended. The Trust is organized as a Massachusetts business
trust. The Trust consists of twenty-seven funds: Large Cap Growth, Fundamental
Growth, Active Bond, Emerging Markets Equity, International Equity Index, Small
Cap Growth, Health Sciences, Global Balanced, Multi Cap Growth (formerly, Mid
Cap Growth), Large Cap Value, Large Cap Value CORE, Fundamental Value (formerly,
Large/Mid Cap Value), Money Market, Small/Mid Cap Growth, Bond Index, Large Cap
Aggressive Growth, Small/Mid Cap CORE, Small Cap Value, Real Estate Equity,
Growth & Income, Managed, Short-Term Bond, Small Cap Equity, International
Opportunities, Equity Index, High Yield Bond and Global Bond Funds
(collectively, "the Funds"). The Trust may add or delete Funds in the future to
accommodate various investment objectives. The Trust has issued shares of
beneficial interest exclusively to John Hancock Variable Life Account U
("JHVLAU"), John Hancock Variable Life Account V ("JHVLAV"), John Hancock
Variable Life Account S ("JHVLAS"), and John Hancock Variable Annuity Account I
("JHVAAI") to fund policies and contracts issued by the John Hancock Variable
Life Insurance Company ("JHVLICO"), and to John Hancock Variable Annuity Account
U ("JHVAAU"), John Hancock Variable Annuity Account V ("JHVAAV"), John Hancock
Variable Life Insurance Account UV ("JHVLIAUV"), John Hancock Variable Annuity
Account H ("JHVAAH"), and John Hancock Variable Annuity Account JF ("JHVAAJF")
to fund contracts and policies issued by John Hancock Life Insurance Company
("John Hancock" or "JHLICO"), to John Hancock Variable Life Account PPM-1
("PPM-1"), and to John Hancock Variable Life Account PPM-2 ("PPM-2").
NOTE B--ACCOUNTING POLICIES
Valuation of investments: For the Large Cap Growth, Fundamental Growth,
Emerging Markets Equity, Small Cap Growth, Health Sciences, Multi Cap Growth,
Large Cap Value, Large Cap Value CORE, Fundamental Value, Small/Mid Cap Growth,
Large Cap Aggressive Growth, Small/Mid Cap CORE, Small Cap Value, Real Estate
Equity, Growth & Income, Managed, Small Cap Equity, and Equity Index Funds:
Common stocks and other such securities traded on national exchanges are
normally valued on the basis of closing prices. Securities traded in the
over-the-counter market and securities with no sales on the day of valuation are
normally valued at their last available bid price.
For the Active Bond, Bond Index, Managed, Short-Term Bond, High Yield Bond
and Global Bond Funds: Debt investment securities having a primary market
over-the-counter are valued on the basis of valuations furnished by a pricing
service which determines valuations for normal institutional size trading units
of debt securities, without exclusive reliance upon quoted prices.
For the Money Market Fund: The Board of Trustees has determined that the
appropriate method for valuing Fund securities is amortized cost, so long as the
average weighted maturity of money market instruments comprising the Fund does
not exceed 90 days. Accordingly, Fund securities are valued at amortized cost,
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.
For each of the Funds, short-term investments, with a maturity not to
exceed 60 days, are valued at amortized cost, which approximates market value.
For the International Equity Index, Global Balanced and International
Opportunities Funds: Investments in securities traded on national securities
exchanges in the United States or on equivalent foreign exchanges are normally
valued at the last quoted sales price on such exchanges as of the close of
business on the date of which assets are valued. Securities traded in the
over-the-counter market and securities traded with no sales on the day of
valuation are normally valued at their last available bid price. All Fund
securities initially expressed in terms of foreign currencies have been
translated into U.S. Dollars as described in "Currency Translation" below.
166
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE B--ACCOUNTING POLICIES--Continued
Investment securities for which no current market quotations are readily
available, including certain foreign securities, when held by the Funds, are
valued at fair value as determined in good faith by the Board of Trustees.
Investment security transactions are recorded on the date of purchase or sale.
Repurchase agreements: The Funds may enter into repurchase agreements which
are contracts under which a Fund would acquire a security for a relatively short
period (usually not more than 7 days) subject to the obligation of the seller to
repurchase and the Fund to resell such security at a fixed time and price
(representing the Funds' cost plus interest). A Fund will enter into repurchase
agreements only with member banks of the Federal Reserve System and with
"primary dealers" in United States Government Securities. The underlying
securities, which represent the collateral of the agreement, must be marked to
market daily to ensure that each repurchase agreement is fully collateralized at
all times. A Fund will not invest more than 10% of its net assets in repurchase
agreements maturing in more than 7 days.
Joint repurchase agreements: The Active Bond and Small Cap Growth Funds,
along with other registered investment companies having a management contract
with John Hancock Advisers, Inc. ("Adviser"), an indirect wholly-owned
subsidiary of John Hancock, may participate in a joint repurchase agreement
pursuant to an exemptive order issued by the Securities and Exchange Commission.
Aggregate cash balances are invested in one or more 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 repurchase agreement on the Funds' behalf. The Adviser
is responsible for ensuring that the agreement is fully collateralized at all
times. The Large Cap Value CORE and Small/Mid Cap CORE Funds, along with other
registered investment companies having a management contract with Goldman Sachs
Asset Management (GSAM), may participate in a joint repurchase agreement
pursuant to an exemptive order issued by the Securities and Exchange Commission.
Aggregate cash balances are invested in one or more 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 repurchase agreement on the Funds' behalf. GSAM is
responsible for ensuring that the agreement is fully collateralized at all
times.
Joint trading account: Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the order permits the Funds to pool daily
uninvested cash balances into a joint account for the purpose of investing the
cash balances in short-term repurchase agreements, commercial paper and other
short-term investments which in no event will have a maturity in excess of 7
days. Joint account holdings as of December 31, 2002 are as follows:
Name of Issuer Market Value
- -------------- ------------
Abbey National LLC., 1.35%, due 01/03/03 $ 45,333
American Express Credit Corp., 1.28%, due 01/07/03 50,000
Barton Capital Corp., 1.45%, due 01/02/03 19,000
Barton Capital Corp., 1.42%, due 01/06/03 30,536
Blue Ridge Asset, 1.45%, due 01/06/03 25,000
CBA Delaware Finance, Inc. 1.38%, due 01/03/03 10,000
Ed & F Man Treasury Management, 1.30%, due 01/07/03 24,000
General Electric Capital Corp., 1.35%, due 01/03/03 50,000
Goldman Sachs Group, 1.43%, due 01/02/03 50,000
National Australia Funding, Inc., 1.34%, due 01/02/03 50,000
New Center Asset, 1.28%, due 01/07/03 25,000
Old Line Funding Corp., 1.40%, due 01/02/03 22,106
167
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE B--ACCOUNTING POLICIES--Continued
Name of Issuer Market Value
- -------------- ------------
Preferred Receivables Funding Corp., 1.40%, due 01/03/03 $ 30,010
Salomon Smith Barney Holdings, 1.35%, due 01/02/03 50,000
Sheffield Receivables Corp., 1.45%, due 01/03/03 50,000
UBS Finance Inc., 1.25%, due 01/07/03 13,546
------------
Joint Trading Account Totals $ 544,531
============
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. Unrealized exchange
adjustments are included in unrealized appreciation (depreciation) of
investments. Transactions affecting statement of operations accounts and net
realized gain (loss) on investments translated at the rates prevailing at the
dates of 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 gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of forward foreign
currency contracts, disposition of foreign currencies, currency gains and losses
realized between trade and settlement dates of security transactions, and the
difference between the amounts of net investment income accrued and the U.S.
dollar amount actually received. 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.
Discount and premium on debt 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: Expenses directly attributable to a Fund are charged to that
Fund. Expenses not directly attributed to a Fund are allocated on the basis of
relative net assets.
Bank borrowings: The Funds (except for Money Market and International
Equity Index 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 (excluding
Equity Index) have entered into syndicated line of credit agreements with State
Street Bank and Trust Company ("SSBT"), the Trust's recordkeeper and custodian
and the Bank of New York. These agreements enable the Funds to participate in an
unsecured line of credit, which permits borrowings up to $125 and $75 million,
respectively. Equity Index has entered into a syndicated line of credit with
Fleet Bank. This agreement enables the Equity Index Fund to participate in an
unsecured line of credit, which permits borrowings up to $10 Million. 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. Interest expense paid
under the line of credit is included under the caption "Other fees" in the
Statement of Operations. The following funds had borrowings under the line of
credit during the year ended December 31, 2002:
168
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE B--ACCOUNTING POLICIES--Continued
Average Daily Loan Balance
During the Period for which Weighted Average
Fund Loans were Outstanding Interest Rate Interest Expense
- ---- --------------------------- ---------------- ----------------
Fundamental Growth $ 67 2.16% $ -
Health Sciences 185 2.18 -
Global Balanced 490 2.28 -
Large Cap Value CORE 85 2.07 -
Fundamental Value 70 2.25 -
Bond Index 3,281 1.75 -
Large Cap Aggressive Growth 163 1.96 -
Small/Mid Cap CORE 726 2.25 -
Small Cap Value 506 2.26 -
Real Estate Equity 803 1.77 -
Growth & Income 200 2.31 -
Small Cap Equity 895 1.79 -
International Opportunities 1,684 1.94 5
High Yield Bond 666 1.92 -
Global Bond 3,692 1.76 1
Emerging Markets Equity 585 1.77 -
Securities lending: Certain Funds (Large Cap Growth, Fundamental Growth,
Active Bond, International Equity Index, Small Cap Growth, Health Sciences,
Multi Cap Growth, Large Cap Value, Fundamental Value, Small/Mid Cap Growth, Bond
Index, Small/Mid Cap CORE, Small Cap Value, Growth & Income, Managed, Short-Term
Bond, Small Cap Equity, International Opportunities and Global Bond Funds) have
entered into an agreement with SSBT to lend their securities to certain
qualified brokers who pay these Funds negotiated lender fees. These 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. Cash collateral is invested
in a short-term instrument. As with other extensions of credit, these 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, 2002, the market value of the securities loaned and the market
value of the collateral were as follows:
Fund Value of Securities Loaned Value of Collateral
- ---- -------------------------- -------------------
Large Cap Growth $ 8,471 $ 8,792
Fundamental Growth 1,103 1,140
Active Bond 94,460 96,601
International Equity Index 24,141 25,433
Small Cap Growth 29,615 31,085
Health Sciences 5,596 5,759
Multi Cap Growth 9,956 10,176
Large Cap Value 4,720 5,152
Fundamental Value 2,890 3,002
Small/Mid Cap Growth 15,202 15,946
Bond Index 52,139 53,245
169
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE B--ACCOUNTING POLICIES-Continued
Fund Value of Securities Loaned Value of Collateral
- ---- -------------------------- -------------------
Small/Mid Cap CORE $ 12,163 $ 12,721
Small Cap Value 29,306 30,729
Growth & Income 11,346 11,578
Managed 99,296 101,925
Short-Term Bond 30,111 30,727
Small Cap Equity 12,447 13,237
International Opportunities 10,852 11,364
Global Bond 4,607 4,711
Financial futures contracts: The Large Cap Growth, Active Bond, Emerging
Markets Equity, International Equity Index, Small Cap Growth, Health Sciences,
Global Balanced, Multi Cap Growth, Large Cap Value CORE, Fundamental Value,
Small/Mid Cap Growth, Small Cap Value, Small/Mid Cap CORE, Real Estate Equity,
Growth & Income, Managed, Short-Term Bond, Equity Index, High Yield Bond and
Global Bond Funds may buy and sell financial futures contracts to hedge against
the effects of fluctuations in interest rates and other market conditions. At
the time the Fund enters into a financial futures contract, it will be required
to deposit with its custodian a specified amount of cash or U.S. government
securities, known as "initial margin". Each day, the futures contract is valued
at the official settlement price of the Chicago Board of Trade or U.S.
commodities exchange. Daily adjustments, called variation margin, arising from
this "mark to market", are recorded by the Funds as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or a loss. Risk
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 contract may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuations imposed by an exchange. At December 31, 2002, open financial
futures contracts were as follows:
Open Unrealized
Fund Contracts Position Expiration Month Gain (loss)
- ---- --------- -------- ---------------- -----------
INTERNATIONAL EQUITY INDEX
CAC 40 10 Euro Index Futures 18 Long March 03 $ (21)
DAX Index Futures 7 Long March 03 (54)
Nikkei 225 Index Futures 26 Long March 03 (10)
FTSE 100 Index Futures 14 Long March 03 (8)
----------
$ (93)
==========
LARGE CAP VALUE CORE
S&P 500 Index Futures 1 Long March 03 $ -
==========
FUNDAMENTAL VALUE
S&P 500 Index Futures 6 Long March 03 $ (104)
==========
SMALL/MID CAP CORE
Russell 2000 Index Futures 2 Long March 03 $ (2)
==========
170
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE B--ACCOUNTING POLICIES--Continued
Open Unrealized
Fund Contracts Position Expiration Month Gain (loss)
- ---- --------- -------- ---------------- -----------
EQUITY INDEX
S&P 500 Index Futures 63 Long March 03 $ (272)
==========
At December 31, 2002, the Large Cap Value CORE and Small/Mid Cap CORE, had
deposited $34 and $24, respectively, in segregated accounts to cover initial
margin requirements on open financial futures contracts.
Forward foreign currency contracts: The Funds may use forward foreign
currency contracts to facilitate transactions in foreign securities and to
manage Funds' currency exposure. Contracts to buy generally are used to acquire
exposure to foreign currencies, while contracts to sell are used to hedge the
Funds' investments against currency fluctuations. Neither type of forward
foreign currency transaction will eliminate fluctuations in the prices of the
Funds' securities or prevent loss if the price of such securities should
decline. The U.S. dollar value of a forward foreign currency contract is
determined using forward exchange rates supplied by a quotation service.
Realized gain (loss) on the purchases and sales of forward foreign currency
contracts is recognized on settlement date.
As of December 31, 2002 the Emerging Markets Equity, International Equity
Index, Health Sciences, Global Balanced, Multi Cap Growth and Global Bond Funds
had open forward foreign currency contracts which contractually obligate the
Fund to deliver or receive currencies at a specified date, as follows:
Principal Amount Unrealized
Fund Covered by Contract Expiration Month Gain (loss)
- ---- ------------------- ---------------- ---------------
EMERGING MARKETS EQUITY
Currency Purchased
Indonesian Rupiah 17 January 03 $ -
==============
INTERNATIONAL EQUITY INDEX
Currency Purchased
Euro 570 March 03 $ 15
Euro 582 March 03 14
Japanese Yen 1,112 March 03 24
Pound Sterling 878 March 03 10
--------------
$ 63
==============
Currency Sold
Euro 60 March 03 $ -
Euro 27 March 03 -
Japanese Yen 22 March 03 -
--------------
$ -
==============
171
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE B--ACCOUNTING POLICIES--Continued
Principal Amount Unrealized
Fund Covered by Contract Expiration Month Gain (Loss)
- ---- ------------------- ---------------- ---------------
HEALTH SCIENCES
Currency Purchased
Australian Dollar 61 March 03 $ 1
Canadian Dollar 77 March 03 (1)
Swiss Franc 298 March 03 19
Danish Krone 28 March 03 1
Euro 513 March 03 27
Pound Sterling 341 March 03 10
Japanese Yen 85 March 03 4
--------------
$ 61
==============
Currency Sold
Swiss Franc 63 March 03 $ (3)
Japanese Yen 79 March 03 (2)
--------------
$ (5)
==============
GLOBAL BALANCED
Currency Purchased
Euro 41 February 03 $ 1
Euro 111 February 03 8
Euro 60 March 03 3
Euro 242 March 03 17
Euro 59 April 03 4
Japanese Yen 149 January 03 5
Japanese Yen 163 February 03 5
Japanese Yen 96 February 03 5
Japanese Yen 60 April 03 2
--------------
$ 50
==============
Currency Sold
Canadian Dollar 41 February 03 $ -
Euro 149 January 03 (8)
Euro 382 March 03 (15)
Euro 60 April 03 (5)
Japanese Yen 111 February 03 -
Japanese Yen 242 March 03 (5)
Japanese Yen 60 April 03 (3)
Mexican Peso 60 March 03 2
--------------
$ (34)
==============
MULTI CAP GROWTH
Currency Sold
Euro 205 January 03 $ (5)
Euro 903 March 03 (37)
Euro 2,357 April 03 (45)
--------------
$ (87)
==============
172
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE B--ACCOUNTING POLICIES--Continued
Principal Amount Unrealized
Fund Covered by Contract Expiration Month Gain (Loss)
- ---- ------------------- ---------------- ---------------
GLOBAL BOND
Currency Purchased
Euro 544 January 03 $ 16
Japanese Yen 537 January 03 21
Japanese Yen 1,445 February 03 36
Japanese Yen 1,805 February 03 28
--------------
$ (85)
==============
Currency Sold
Euro 800 January 03 $ (38)
Euro 254 February 03 (8)
Euro 1,805 February 03 (89)
Euro 306 March 03 (8)
--------------
$ (143)
==============
Federal income taxes: Each of the Funds intends to comply with the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially all of its
taxable income to shareholders. Therefore, no federal income tax provision is
required.
As of December 31, 2002, the Funds had approximate net tax basis capital
loss carryforwards, which may be applied against any net taxable gains, as
follows: Large Cap Growth had $195,795 and $126,043, which expire in 2009 and
2010 respectively; Fundamental Growth had $633, $3,441, $20,263 and $9,747,
which expire in 2007, 2008, 2009 and 2010 respectively; Active Bond had $7,378
and $14,370, which expire in 2007 and 2008, respectively; Emerging Markets
Equity had $13,587 and $3,211, which expire in 2009 and 2010, respectively;
International Equity Index had $6,989 and $7,680, which expire in 2009 and 2010,
respectively; Small Cap Growth had $2,089, $8,256, $2,042, $43,738 and $35,469,
which expire in 2007, 2008, 2009 and 2010, respectively; Health Sciences had
$184 and $3,104, which expire in 2009 and 2010, respectively; Global Balanced
had $478 and $2,241, which expire in 2009 and 2010, respectively; Multi Cap
Growth had $207,299 and $105,946, which expire in 2009 and 2010, respectively;
Large Cap Value CORE had $491 and $5,514, which expire in 2009 and 2010
respectively; Fundamental Value had $406 and $18,317, which expire in 2009 and
2010, respectively; Money Market had $4 and $78, which expire in 2007 and 2008,
respectively; Small/Mid Cap Growth had $663 and $4,483, which expire in 2009 and
2010, respectively; Large Cap Aggressive Growth had $6,402 and $9,628, which
expire in 2009 and 2010, respectively; Small/Mid Cap CORE had $2,629, which
expires in 2010; Growth & Income had $1,307, $12,242, $472,612 and $228,422,
which expire in 2007, 2008, 2009 and 2010, respectively; Managed had $2,000,
$90,271 and $87,460, which expire in 2008, 2009 and 2010, respectively;
Short-Term Bond had $624 and $679, which expire in 2007, and 2008, respectively;
Small Cap Equity had $11,459 and $2,742, which expire in 2009 and 2010,
respectively; International Opportunities had $266, $2,071, $2,540, $9,656 and
$12,511, which expire in 2006, 2007, 2008, 2009 and 2010, respectively; Equity
Index had $3,209 and $15,841, which expire in 2009 and 2010, respectively; High
Yield Bond had $276, $513, $2,223 and $8,179, which expire in 2007, 2008, 2009
and 2010, respectively; and Global Bond had $634, $2,108 and $1, which expire in
2007, 2008 and 2010, respectively.
Included in the above, certain losses from the International Opportunities
Fund, Fundamental Growth Fund, Growth & Income Fund, Small Cap Growth Fund and
Managed Fund may be subject to certain limitations imposed by Sections 382-384
of the Internal Revenue Code.
173
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE B--ACCOUNTING POLICIES--Continued
In addition, from the period November 1, 2002 through December 31, 2002,
the following portfolios incurred approximate net realized capital losses as
follows: Large Cap Growth had $10,397; Fundamental Growth had $991, Emerging
Markets Equity had $414, Health Sciences had $227; Global Balanced had $390;
Multi Cap Growth had $2,979; Large Cap Value had $777; Large Cap Value CORE had
$1,149; Fundamental Value had $2,110; Small/Mid Cap Growth had $2,434; Large Cap
Aggressive Growth had $760; Small/Mid Cap CORE had $972; Real Estate Equity had
$538; Growth & Income had $31,184; Managed had $10,321; Small Cap Equity had
$3,387; International Opportunities had $5,469; Equity Index had $1,808; and
High Yield Bond had $5,203.
Dividends, Interest and Distributions: Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis. Dividend
income for the Large Cap Growth, Emerging Markets Equity, International Equity
Index, Health Sciences, Global Balanced, Multi Cap Growth, Large Cap Value,
Large Cap Value CORE, Fundamental Value, Large Cap Aggressive Growth, Real
Estate, Growth & Income, Managed, Small Cap Equity, International Opportunities,
Equity Index, and Global Bond Funds are shown net of foreign taxes withheld of
$16, $75, $270, $11, $20, $1, $28, $1, $13, $2, $18, $201, $196, $1, $203, $21
and $11 respectively. Realized gains and losses from security transactions are
determined on the basis of identified cost.
A dividend of its net investment income will be declared and distributed
daily by the Money Market Fund. Dividends of net investment income will be
declared and distributed monthly by all other Funds. Each Fund will distribute
all of its net realized capital gains annually, at the end of its fiscal year.
Estimates: The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
On May 1, 2001, the stable Net Asset Value of the Money Market portfolio
changed from $10 to $1 due to a 10 for 1 stock split. Per share information, for
the periods prior to December 31, 2001, has been restated to reflect the effect
of the change in the Financial Highlights and has been reflected in the capital
share activity on the Statement of Changes in Net Assets.
NOTE C--INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
On February 7, 2001, June 13, 2001, December 12, 2001, the Board of
Trustees of the Trust renewed its Investment Advisory Agreement with John
Hancock. For its services, John Hancock receives monthly compensation at the
following rates:
For the Large Cap Growth Fund, 0.80% on an annual basis of the first
$500,000 of the net assets of the Fund; 0.75% for net assets between
$500,000 and $1,000,000; and 0.70% for net assets in excess of $1,000,000
(prior to 10/05/2022 the rates were 0.40%, 0.35% and 0.30%, respectively);
For the Fundamental Growth Fund; 0.90% on an annual basis of the first
$250,000 the Fund's net assets; and 0.85% for net assets in excess of
$250,000;
For the Active Bond Fund, 0.70% on an annual basis of the first
$100,000 of the net assets of the Fund; 0.65% for net assets between
$100,000 and $250,000; 0.61% for net assets between $250,000 and $500,000;
0.58% for net assets between $500,000 and $1,000,000; and 0.55% for net
assets in excess of $1,000,000;
For the Emerging Markets Equity Fund, 1.65% on an annual basis of the
first $10,000 of the Fund's net assets; 1.45% for net assets between
$10,000 and $150,000; and 1.35% for net assets in excess of $150,000;
174
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST 1
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE C--INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES --
Continued
For the International Equity Index Fund, 0.18% on an annual basis of
the first $100,000 of the Fund's net assets; 0.15% for net assets between
$100,000 and $200,000; and 0.11% for net assets in excess of $200,000;
For the Small Cap Growth Fund, 1.05% on an annual basis of the Fund's
net assets;
For the Health Sciences Fund, 1.00% on an annual basis of the first
$250,000 of the Fund's net assets; 0.95% of net assets in excess of
$250,000;
For the Global Balanced Fund, 1.05% on an annual basis of the first
$150,000 of the Fund's net assets; 0.95% for net assets between $150,000
and $300,000; 0.80% for net assets between $300,000 and $500,000; and 0.75%
for net assets in excess of $500,000;
For the Multi Cap Growth (formerly, Mid Cap Growth) Fund, 1.00% on an
annual basis of the first $100,000 of the Fund's net assets; and 0.90% on
an annual basis for net assets in excess of $100,000;
For the Large Cap Value Fund, 0.75% on an annual basis of the Fund's
net assets;
For the Large Cap Value CORE Fund, 0.75% on an annual basis for the
first $50,000 of the Fund's net assets; 0.65% for net assets between
$50,000 and $200,000; and 0.60% in excess of $200,000;
For the Fundamental Value Fund, 0.95% on an annual basis for the first
$25,000 of the Fund's net assets; 0.85% for net assets between $25,000 and
$50,000; 0.75% for net assets between $50,000 and $100,000; and 0.65% for
net assets in excess of $100,000;
For the Money Market Fund, 0.25% on an annual basis of the Fund's net
assets;
For the Small/Mid Cap Growth Fund, 1.00% on an annual basis of the
first $50,000 of the Fund's net assets; 0.95% for net assets between
$50,000 and $200,000; 0.90% for net assets in excess of $200,000;
For the Bond Index Fund, 0.15% on an annual basis of the first
$100,000 of the Fund's net assets; 0.13% for net assets between $100,000
and $250,000; 0.11% for net assets in excess of $250,000;
For the Large Cap Aggressive Growth Fund, 1.00% on an annual basis for
the first $10,000 of the Fund's net assets; 0.875% for net assets between
$10,000 and $20,000; 0.75% for net assets in excess of $20,000;
For the Small/Mid Cap CORE Fund, 1.05% on an annual basis of the first
$50,000 of the Fund's net assets; 1.00% for net assets in excess of $50,000
(prior to 10/05/2002 the rates were 0.80% and 0.70%, respectively);
For the Small Cap Value Fund, 0.95% on an annual basis of the Fund's
net assets;
For the Real Estate Equity Fund, 1.10% on an annual basis of the first
$50,000 of the Fund's net assets, 1.00% for net assets between $50,000 and
$100,000; 0.90% for net assets between $100,000 and $200,000 and 0.80% for
net assets in excess of $200,000;
For the Growth & Income Fund, 0.71% on an annual basis of the first
$150,000 of the Fund's net assets; 0.69% for net assets between $150,000
and $300,000; and 0.67% for net assets in excess of $300,000;
For the Managed Fund, 0.74% on an annual basis of the first $500,000
of the Fund's net assets; 0.68% for net assets between $500,000 and
$1,000,000; and 0.65% for net assets in excess of $1,000,000;
For the Short-Term Bond Fund, 0.60% on an annual basis of the Fund's
net assets;
For the Small Cap Equity Fund, 0.90% on an annual basis of the first
$150,000 of the Fund's net assets; 0.75% for net assets between $150,000
and $300,000; 0.65% for net assets between $300,000 and $500,000; and 0.60%
for net assets in excess of $500,000;
For the International Opportunities Fund, 1.30% on an annual basis of
the first $20,000 of the Fund's net assets; 1.15% for net assets between
$20,000 and $50,000; and 1.05% for net assets in excess of $50,000;
175
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE C--INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES--Continued
For the Equity Index Fund, 0.15% on an annual basis of the first
$75,000 of the Fund's net assets; 0.14% for net assets between $75,000 and
$125,000; and 0.13% for the net assets in excess of $125,000;
For the High Yield Bond Fund, 0.80% on an annual basis of the first
$100,000 of the Fund's net assets; 0.70% for net assets in excess of
$100,000;
For the Global Bond Fund, 0.85% on an annual basis of the first
$150,000 of the Fund's net assets; 0.80% for net assets between $150,000
and $300,000; 0.75% for net assets between $300,000 and 500,000; and 0.70%
for the net assets in excess of $500,000.
In the event that normal operating expenses of each Fund, exclusive of
investment advisory fees, taxes, interest, brokerage commissions and
extraordinary expenses, shall exceed 0.10% of each Fund's daily net asset value,
John Hancock and JHVLICO will reimburse each Fund for such excess. Accordingly,
for the year ended December 31, 2002, the reimbursements paid from John Hancock
and JHVLICO were $45 to Fundamental Growth, $685 to Emerging Markets Equity,
$202 to International Equity Index, $77 to Health Sciences, $88 to Global
Balanced, $64 to Large Cap Value CORE, $13 to Small/Mid Cap Growth, $53 to Bond
Index, $5 to Large Cap Aggressive Growth, $71 to Small/Mid Cap CORE, $2 to Small
Cap Value, $23 to Small Cap Equity, $263 to International Opportunities, $33 to
High Yield Bond, and $37 to Global Bond Funds.
During the year ended December 31, 2000, John Hancock voluntarily
contributed approximately $284 to the Money Market Fund. John Hancock received
no shares of beneficial interest or other consideration in exchange for the
contribution, which increased the Funds' net asset values.
John Hancock has entered into Sub-Advisory Agreements with Independence
Investment LLC, formerly Independence Investment Associates, Inc., with respect
to the Large Cap Growth, International Equity Index Fund, Real Estate Equity,
Growth & Income, Managed and Short-Term Bond Funds; with Wellington Management
Company LLP, with respect to the Small Cap Value Fund; with Adviser, with
respect to the Active Bond and Small Cap Growth Funds, each of whom is an
affiliate of John Hancock, and, under the supervision of John Hancock, is
responsible for the day-to-day investment management of each of the Funds. John
Hancock has also entered into the Sub-Advisory Agreements with the following
Sub-Advisers, each of whom under the supervision of John Hancock, is responsible
for the day-to-day investment management of each of the Funds.
Fund Sub-Advisers
- ---- ------------
Fundamental Growth Putnam Investment Management, LLC.
Emerging Markets Equity Morgan Stanley Investment Management, Inc.
Health Sciences Putnam Investment Management, LLC
Global Balanced Capital Guardian Trust Company
Multi Cap Growth Janus Capital Corporation
Large Cap Value T. Rowe Price Associates, Inc.
Large Cap Value CORE Goldman Sachs Asset Management
Fundamental Value Wellington Management Company, LLP
Money Market Wellington Management Company, LLP
176
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE C--INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES--Continued
Fund Sub-Advisers
- ---- ------------
Small/Mid Cap Growth Wellington Management Company, LLP
Bond Index Mellon Bond Associates, LLP
Large Cap Aggressive Growth Alliance Capital Management, LLP
Small/Mid Cap CORE Goldman Sachs Asset Management
Small Cap Value T. Rowe Price Associates, Inc.
Real Estate Equity Morgan Stanley Investment Management, Inc.
Growth & Income Putnam Investment Management, LLC
Managed Capital Guardian Trust Company
Small Cap Equity Capital Guardian Trust Company
International Opportunities T. Rowe Price International, Inc.
Equity Index State Street Global Bank & Trust N.A.
High Yield Bond Wellington Management Company, LLP
Global Bond Capital Guardian Trust Company
Signator Investors, Inc., a wholly owned subsidiary of John Hancock is the
principal underwriter and transfer agent of the Trust. Certain officers and
trustees of the Trust are officers and directors of JHVLICO, JHVLAU, JHVLAV,
JHVLAS, JHVAAI, JHVLIAUV, JHVAAV, JHVAAU, JHVAAH, JHVAAJF, PPM-I, and PPM-2, and
some are also officers of John Hancock. Fees for independent trustees are paid
by the Trust.
NOTE D--INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of investments, excluding
short-term securities and obligations of the U.S.government, for each Fund for
the year ended December 31, 2002 were as follows:
Fund Purchases Sales and Maturities
- ---- --------- --------------------
Large Cap Growth $ 499,870 $ 558,460
Fundamental Growth 25,959 32,604
Active Bond 2,717,653 2,552,598
Emerging Markets Equity 40,522 30,745
International Equity Index 18,973 25,364
Small Cap Growth 111,574 123,970
Health Sciences 26,677 26,642
Global Balanced 23,168 19,826
Multi Cap Growth 346,738 335,460
Large Cap Value 85,295 40,443
Large Cap Value CORE 43,974 52,619
Fundamental Value 114,740 122,262
Small/Mid Cap Growth 202,604 205,865
Bond Index 170,369 70,507
Large Cap Aggressive Growth 19,547 22,211
Small/Mid Cap CORE 65,995 56,656
177
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE D--INVESTMENT TRANSACTIONS--Continued
Fund Purchases Sales and Maturities
- ---- --------- --------------------
Small Cap Value $ 81,615 $ 50,043
Real Estate Equity 64,226 40,509
Growth & Income 1,533,005 1,687,146
Managed 5,147,473 5,329,459
Short-Term Bond 261,057 142,867
Small Cap Equity 26,717 28,914
International Opportunities 84,175 65,971
Equity Index 110,080 51,832
High Yield Bond 65,494 48,247
Global Bond 56,528 34,450
The identified cost of investments owned by the Funds (including
earned discount on corporate short-term notes, and commercial paper) and their
respective gross unrealized appreciation and depreciation for Federal income tax
purposes at December 31, 2002 were as follows:
Net Unrealized
Identified Unrealized Unrealized Appreciation
Fund Cost Appreciation Depreciation (Depreciation)
- ---- ------------ ------------ ------------ --------------
Large Cap Growth $ 598,144 $ 12,687 $ (115,326) $ (102,639)
Fundamental Growth 23,501 104 (3,543) (3,439)
Active Bond 1,145,047 33,340 (10,185) 22,890
Emerging Markets Equity 37,851 913 (4,667) (3,754)
International Equity Index 138,112 4,457 (43,848) (39,390)
Small Cap Growth 137,801 7,213 (24,088) (16,875)
Health Sciences 26,291 (1,053) (2,646) (3,699)
Global Balanced 32,602 1,566 (4,046) (2,420)
Multi Cap Growth 170,823 264 (10,459) (10,195)
Large Cap Value 294,235 11,430 (45,221) (33,709)
Large Cap Value CORE 45,353 1,002 (5,713) (4,711)
Fundamental Value 134,855 2,465 (16,073) (13,608)
Small/Mid Cap Growth 161,864 2,679 (23,980) (21,301)
Bond Index 202,607 8,827 (116) 8,909
Large Cap Aggressive Growth 28,066 (338) (3,510) (3,848)
Small/Mid Cap CORE 51,649 1,919 (5,848) (3,928)
Small Cap Value 126,236 7,315 (12,248) (4,895)
Real Estate Equity 170,120 16,043 (10,844) 7,360
Growth & Income 1,940,283 45,165 (502,629) (179,623)
Managed 2,272,640 52,580 (109,239) (56,330)
Short-Term Bond 209,702 5,161 (401) 4,994
Small Cap Equity 68,853 3,291 (22,172) (18,852)
International Opportunities 110,202 (8,670) (17,048) (25,748)
Equity Index 663,660 4,060 (199,024) (194,962)
High Yield Bond 61,234 880 (3,029) (1,820)
Global Bond 70,520 7,061 (239) 980
178
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE D--INVESTMENT TRANSACTIONS--Continued
Distribution of Income and Gains: Distributions of net investment income,
if any, are made annually. Net realized gains from investment transactions, in
excess of available capital loss carryforwards, would be taxable to the Fund if
not distributed, and, therefore, will be distributed to shareholders at least
annually. Earnings and profits distributed to shareholders on redemption of fund
shares may be utilized by the Fund, to the extent permissible, as part of the
Fund's dividends-paid deduction on it's federal income tax returns.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations, which may differ from accounting principles generally accepted in
the United States of America. These differences primarily relate to investments
in passive foreign investment companies and foreign denominated investments.
Additionally, as a result, net investment income (loss) and net realized gain
(loss) on investment transactions for a reporting period may differ
significantly from distributions during such period. Accordingly, the Fund may
periodically make reclassifications among certain of it's capital accounts
without impacting the net asset value of the fund.
At December 31, 2002, the Fund's components of distributable earnings on a
tax basis were as follows:
Undistributed Undistributed Net Unrealized
ordinary net long-term Capital Loss Appreciation
Fund Income capital gain carryforwards (Depreciation)
- ---- ------------- ------------- ------------- ---------------
Large Cap Growth $ 414 $ - $ 321,838 $ (102,639)
Fundamental Growth - - 34,084 (3,439)
Active Bond 1,860 - 21,748 22,890
Emerging Markets Equity 181 - 16,798 (3,754)
International Equity Index 239 - 14,669 (39,390)
Small Cap Growth - - 91,594 (16,875)
Health Sciences 53 - 3,288 (3,699)
Global Balanced 284 - 2,719 (2,420)
Multi Cap Growth - - 313,245 (10,195)
Large Cap Value 509 400 - (33,709)
Large Cap Value CORE - - 6,005 (4,711)
Fundamental Value - - 18,723 (13,608)
Money Market 82 - 82 -
Small/Mid Cap Growth - - 5,146 (21,301)
Bond Index - - - 8,909
Large Cap Aggressive Growth - - 16,030 (3,848)
Small/Mid Cap CORE - - 2,629 (3,928)
Small Cap Value - - - (4,895)
Real Estate Equity - 1,447 - 7,360
Growth & Income 220 - 714,583 (179,623)
Managed 31,294 - 179,731 56,330
Short-Term Bond - - 1,303 4,994
Small Cap Equity - - 14,201 (18,852)
International Opportunities 209 - 27,044 (25,748)
179
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE D--INVESTMENT TRANSACTIONS--Continued
Undistributed Undistributed Net Unrealized
ordinary net long-term Capital Loss Appreciation
Fund Income capital gain carryforwards (Depreciation)
- ---- ------------- ------------- ------------- ---------------
Equity Index $ 5,533 $ - $ 19,050 $ (194,962)
High Yield Bond 835 - 11,191 (1,820)
Global Bond - - 2,743 980
In addition, during the year ended December 31, 2002, the tax character of
distributions paid by the Fund are summarized as follows:
Distributions from Distributions from
Fund ordinary income long-term capital gain Return of Capital
- ---- ------------------ ---------------------- -----------------
Large Cap Growth $ 2,023 $ - $ -
Active Bond 52,675 - -
Emerging Markets Equity 93 - -
International Equity Index 2,052 - -
Health Sciences 56 - -
Global Balanced 374 - -
Large Cap Value 4,351 3,600 -
Large Cap Value CORE 581 - -
Fundamental Value 1,766 - 28
Money Market 11,513 - -
Small/Mid Cap Growth - - 1,738
Bond Index 9,249 179 217
Small/Mid Cap CORE 226 - 2
Small Cap Value 885 1,001 1,231
Real Estate Equity 8,766 4,175 -
Growth & Income 15,248 - -
Managed 39,246 - -
Short-Term Bond 7,972 - 489
Small Cap Equity 114 - -
International Opportunities 592 - -
Equity Index 4,601 2,918 -
High Yield Bond 5,697 - -
Global Bond 3,132 - 335
180
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE E--COMBINATION
On December 6, 2001, shareholders approved the combination of several John
Hancock Funds. The shareholders of the aquiring funds approved the combination
of the funds in the following table:
Acquiring Fund Target Fund
- -------------- -----------
VST Active Bond VA Bond Fund
VST Growth & Income VA Core Equity
VST Growth & Income VA Large Cap Growth
VST Fundamental Growth VA Mid Cap Growth
VST Small Cap Growth VA Small Cap Growth
These combinations provide for the transfer of substantially all of the
assets and liabilites of the target funds to the aquiring funds in exchange
solely for the fund shares of the acquiring funds. The acquisitions were
accounted for as tax-free exchanges as follows:
Target Fund Acquiring Fund Acquiring Fund
Trust shares unrealized net assets aggregate net
Acquiring Fund issued by Target Fund appreciation/ prior to assets after
vs. Target Fund Acquiring Fund net assets (depreciation) combination combination
------------------ -------------- ----------- -------------- -------------- ---------------
VST Active Bond vs. VA Bond 7,379 $ 70,283 $ (24) $ 862,228 $ 932,510
VST Growth & Income vs. VA Core Equity 2,924 35,113 4,160 2,454,326 2,489,440
VST Growth & Income vs.
VA Large Cap Growth 429 5,158 663 2,489,440 2,494,598
VST Fundamental Growth
vs. VA \Mid Cap Growth 554 4,720 602 33,059 37,780
VST Small Cap Growth
vs. VA Small Cap Growth 904 $ 10,473 $ 1,119 $ 180,456 $ 191,197
On December 13, 2001, shareholders approved the combination of several John
Hancock Funds. The shareholders of the aquiring funds approved the combination
of the funds in the following table:
181
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE E--COMBINATION--Continued
Acquiring Fund Target Fund
-------------- -----------
VST Active Bond VST Active Bond II
VST Growth & Income VST Mid Cap Blend
VST Managed VST Aggressive Balanced
VST Money Market VA Money Market
VST Equity Index VA 500 Index
VST International Opportunities B VA International
(formerly, International Equity)
These combinations provide for the transfer of substantially all of the
assets and liabilities of the target funds to the acquiring funds in exchange
solely for the fund shares of the acquiring funds. The acquisitions were
accounted for as tax-free exchanges as follows:
Target Fund Acquiring Fund Acquiring Fund
Trust shares unrealized net assets aggregate net
Acquiring Fund vs. issued by Target Fund appreciation/ prior to assets after
Target Fund Acquiring Fund net assets (depreciation) combination combination
------------------ -------------- ----------- -------------- -------------- ---------------
VST Active Bond vs. VST
Active Bond II 801 $ 7,619 $ (26) $ 929,499 $ 937,118
VST Growth & Income vs.
VST Mid Cap Blend 1,623 18,947 954 2,417,601 2,436,548
VST Managed vs. VST
Aggressive Balanced 1,253 16,164 (144) 2,482,375 2,498,539
VST Money Market vs. VA
Money Market 130,550 130,550 - 608,089 738,639
VST Equity Index vs. VA 500
Index 1,009 15,141 3,209 509,212 524,353
VST International
Opportunities B (formerly,
International Equity) vs.
VA International 268 1,981 (14) 26,223 28,204
On December 18, 2001, shareholders approved the combination of several John
Hancock Funds. The shareholders of the aquiring funds approved the combination
of the funds in the following table:
182
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE E--COMBINATION--Continued
Acquiring Fund Target Fund
-------------- -----------
VST Large Cap Value Core VST Large Cap Value Core II
VST Fundamental Value (formerly, VST Large/Mid Cap
Large/Mid Cap Value) Value II
These combinations provide for the transfer of substantially all of the
assets and liabilities of the target funds to the acquiring funds in exchange
solely for the fund shares of the acquiring funds. The acquisitions were
accounted for as tax-free exchanges as follows:
Acquiring Fund Acquiring Fund
Trust shares Target Fund net assets aggregate net
Acquiring Fund vs. issued by Target Fund unrealized prior to assets after
Target Fund Acquiring Fund net assets depreciation combination combination
------------------ -------------- ----------- -------------- -------------- ---------------
VST Large Cap Value Core vs.
VST Large Cap Value Core II 675 $ 6,577 $ (129) $ 52,227 $ 58,804
VST Fundamental Value
(formerly, Large/Mid Cap
Value) vs. VST Large/Mid Cap
Value Core II 9,640 102,164 (1,911) 57,138 159,302
On June 12, 2002, the Board of Trustees approved the combination of two
John Hancock Funds. On September 13, 2002 the two funds in the following table
merged:
Acquiring Fund Target Fund
-------------- -----------
VST International Opportunities VST International Opportunities B
(formerly, International Equity)
This combination provides for the transfer of substantially all of the
assets and liabilities of the target fund to the acquiring fund in exchange
solely for the fund shares of the acquiring fund. This acquisition was accounted
for as taxfree exchange as follows:
Acquiring Fund Acquiring Fund
Trust shares Target Fund net assets aggregate net
Acquiring Fund vs. issued by Target Fund unrealized prior to assets after
Target Fund Acquiring Fund net assets depreciation combination combination
------------------ -------------- ----------- -------------- -------------- ---------------
VST International
Opportunities vs. VST
International Opportunities B
(formerly, International
Equity) 3,278 $ 24,706 $ (5,332) $ 71,914 $ 96,620
183
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE F--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 and accreting discount on debt securities. Prior to this
date, the Funds did not amortize premiums or accrete discount on debt
securities. The cumulative effect of this accounting change had no impact on the
total net assets of the Funds, but resulted in a 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:
Increase (decrease) in the Cost of Increase (decrease) in Net
Fund Investments Unrealized Appreciation
- ---- ---------------------------------- --------------------------
Active Bond $ (2,686) $ (2,686)
Global Balanced (23) (23)
Bond Index (490) (490)
Managed (5,148) (5,148)
Short-Term Bond (147) (147)
High Yield Bond 387 387
Global Bond (125) (125)
The effect of this change in the year ended December 31, 2001 was as
follows:
Increase (decrease) In Net Increase
Increase (decrease) in Net Unrealized (decrease) in Net
Fund Investment Income Appreciation/Depreciation Realized Losses
- ---- -------------------------- -------------------------- -----------------
Active Bond $ (4,024) $ (1,585) $ (2,439)
Global Balanced (141) (20) (121)
Bond Index (675) (334) (341)
Managed (3,488) (617) (2,871)
Short-Term Bond (820) (372) (448)
High Yield Bond 559 390 169
Global Bond (723) (140) (583)
The effect of this change on the per share operating performance and on the
annualized ratio of net investment income to average net assets in the year
ended December 31, 2001 was as follows:
184
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE F--CHANGE IN ACCOUNTING PRINCIPLE--Continued
Increase Increase (decrease) Increase (decrease)
(decrease) in in Net Realized and in Net Investment
Net Investment Unrealized Gains Income to Average
Fund Income Per Share (Losses) Per Share Net Assets
- ---- ---------------- ------------------- -------------------
Active Bond - - (.04)%
Global Balanced - - .03%
Bond Index - - (.06)%
Managed - - -%
Short-Term Bond $ (0.01) $ (0.01) (.09)%
High Yield Bond 0.06 0.06 1.10%
Global Bond - - (.03)%
The Statement of Changes in Net Assets and the Financial Highlights for
prior periods have not been restated to reflect this change in presentation.
NOTE G--OTHER MATTERS (UNAUDITED)
Section 30 and Rule 30d-1(b) under the Investment Company Act of 1940, as
amended, requires registered management investment companies to furnish
information relating to any matter submitted during the reporting period to a
vote of Shareholders of the Trust.
John Hancock Variable Series Trust I solicited a vote at special meeting of
Contract owners/Policyholders held on March 14, 2002 on the following matters:
For Against Abstain
--- ------- -------
For the Multi Cap Growth Fund (formerly, Mid
Cap Growth Fund):
To approve, as to the Mid Cap Growth Fund, a 89% 4% 7%
new Sub-Investment Agreement among the Trust,
John Hancock and Janus Capital Corp.
John Hancock Variable Series Trust I solicited a vote at special meeting of
Contract owners/Policyholders held on October 7, 2002 on the following matters:
For Against Abstain
--- ------- -------
FOR THE LARGE CAP GROWTH FUND:
To approve an amendment to change fundamental investment 85% 6% 9%
restriction on real estate.
To approve an amendment to change fundamental investment 81% 13% 6%
restriction loans.
To approve an amendment to change fundamental investment 82% 11% 7%
restriction on commodities and put and call options.
To approve an amendment to change fundamental investment 81% 13% 6%
restriction on borrowing money.
185
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
NOTE G--OTHER MATTERS (UNAUDITED)--Continued
For Against Abstain
--- ------- -------
FOR THE LARGE CAP GROWTH FUND--CONTINUED:
To approve an amendment to change fundamental investment restriction on 79% 14% 7%
purchasing securities on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on 82% 11% 7%
issuing senior securities.
To approve an amendment to delete fundamental investment restriction for 83% 10% 7%
investing for control.
To approve an amendment to delete fundamental investment restriction on 81% 12% 7%
purchasing illiquid investments.
To approve an amendment to delete fundamental investment restriction on 83% 10% 7%
purchasing securities issued by other investment companies.
To approve an "manager of managers" arrangement and delete the need for 80% 13% 7%
shareholder approval of the retention or termination of sub-investment
managers.
To approve an amendment to the current Investment Management Agreement 70% 23% 7%
between the Trust and John Hancock, reflecting an increase in this Fund's
investment advisory fee.
FOR THE FUNDAMENTAL GROWTH FUND:
To approve an amendment to change fundamental investment restriction on real 84% 7% 9%
estate.
To approve an amendment to change fundamental investment restriction loans. 83% 7% 10%
To approve an amendment to change fundamental investment restriction on 84% 7% 9%
commodities and put and call options.
To approve an amendment to change fundamental investment restriction on 83% 8% 9%
borrowing money.
To approve an amendment to change fundamental investment restriction on 83% 8% 9%
purchasing securities on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on 84% 7% 9%
issuing senior securities.
To approve an amendment to delete fundamental investment restriction for 84% 7% 9%
investing for control.
To approve an amendment to delete fundamental investment restriction on 84% 7% 9%
diversification of investments.
To approve an "manager of managers" arrangement and delete the need for 84% 7% 9%
shareholder approval of the retention or termination of sub-investment
managers.
FOR THE ACTIVE BOND FUND:
To approve an amendment to change fundamental investment restriction on real 86% 7% 7%
estate.
To approve an amendment to change fundamental investment restriction loans. 84% 9% 7%
To approve an amendment to change fundamental investment restriction on 82% 10% 8%
commodities and put and call options.
To approve an amendment to change fundamental investment restriction on 81% 11% 8%
borrowing money.
186
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
NOTE G--OTHER MATTERS (UNAUDITED)--Continued
For Against Abstain
--- ------- -------
FOR THE ACTIVE BOND FUND-CONTINUED:
To approve an amendment to change fundamental investment restriction on 80% 12% 8%
purchasing securities on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing 82% 10% 8%
senior securities.
To approve an amendment to delete fundamental investment restriction for 82% 10% 8%
investing for control.
To approve an amendment to delete fundamental investment restriction on 82% 10% 8%
purchasing illiquid investments.
To approve an amendment to delete fundamental investment restriction on 83% 10% 7%
purchasing securities issued by other investment companies.
To approve an amendment to delete fundamental investment restriction on 82% 10% 8%
diversification of investments.
To approve an "manager of managers" arrangement and delete the need for 80% 12% 8%
shareholder approval of the retention or termination of sub-investment managers.
FOR THE EMERGING MARKETS EQUITY FUND:
To approve an amendment to change fundamental investment restriction loans. 79% 13% 8%
To approve an amendment to change fundamental investment restriction on 81% 12% 7%
commodities and put and call options.
To approve an amendment to change fundamental investment restriction on 80% 13% 7%
borrowing money.
To approve an amendment to change fundamental investment restriction on 79% 14% 7%
purchasing securities on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing 81% 12% 7%
senior securities.
To approve an amendment to delete fundamental investment restriction for 81% 12% 7%
investing for control.
To approve an amendment to delete fundamental investment restriction on 69% 24% 7%
diversification of investments.
To approve an "manager of managers" arrangement and delete the need for 81% 12% 7%
shareholder approval of the retention or termination of sub-investment managers.
FOR THE INTERNATIONAL EQUITY INDEX FUND:
To approve an amendment to change fundamental investment restriction on real 86% 9% 5%
estate.
To approve an amendment to change fundamental investment restriction loans. 84% 11% 5%
To approve an amendment to change fundamental investment restriction on 84% 11% 5%
commodities and put and call options.
To approve an amendment to change fundamental investment restriction on 82% 13% 5%
borrowing money.
To approve an amendment to change fundamental investment restriction on 82% 13% 5%
purchasing securities on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing 84% 11% 5%
senior securities.
187
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
NOTE G--OTHER MATTERS (UNAUDITED)--Continued
For Against Abstain
--- ------- -------
FOR THE INTERNATIONAL EQUITY INDEX FUND-CONTINUED:
To approve an amendment to delete fundamental investment restriction for 85% 10% 5%
investing for control.
To approve an amendment to delete fundamental investment restriction on 84% 11% 5%
purchasing securities issued by other investment companies.
To approve an amendment to delete fundamental investment restriction on 81% 14% 5%
diversification of investments.
To approve an "manager of managers" arrangement and delete the need for 83% 12% 5%
shareholder approval of the retention or termination of sub-investment
managers.
FOR THE SMALL CAP GROWTH FUND:
To approve an amendment to change fundamental investment restriction on real 87% 6% 7%
estate.
To approve an amendment to change fundamental investment restriction loans. 84% 9% 7%
To approve an amendment to change fundamental investment restriction on 84% 10% 6%
commodities and put and call options.
To approve an amendment to change fundamental investment restriction on borrowing 82% 11% 7%
money.
To approve an amendment to change fundamental investment restriction on 83% 10% 7%
purchasing securities on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing 86% 8% 6%
senior securities.
To approve an amendment to delete fundamental investment restriction for 86% 7% 7%
investing for control.
To approve an amendment to delete fundamental investment restriction on 85% 9% 6%
diversification of investments.
To approve an "manager of managers" arrangement and delete the need for 83% 10% 6%
shareholder approval of the retention or termination of sub-investment
managers.
FOR THE HEALTH SCIENCES FUND:
To approve an amendment to change fundamental investment restriction on real 88% 5% 7%
estate.
To approve an amendment to change fundamental investment restriction loans. 81% 12% 7%
To approve an amendment to change fundamental investment restriction on 80% 13% 7%
commodities and put and call options.
To approve an amendment to change fundamental investment restriction on borrowing 79% 13% 8%
money.
To approve an amendment to change fundamental investment restriction on 80% 12% 7%
purchasing securities on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing 88% 5% 7%
senior securities.
To approve an amendment to delete fundamental investment restriction for 86% 7% 7%
investing for control.
188
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
NOTE G--OTHER MATTERS (UNAUDITED)--Continued
For Against Abstain
--- ------- -------
FOR THE HEALTH SCIENCES FUND--CONTINUED:
To approve an "manager of managers" arrangement and delete the need for 77% 16% 7%
shareholder approval of the retention or termination of sub-investment
managers.
FOR THE GLOBAL BALANCED FUND:
To approve an amendment to change fundamental investment restriction on real 93% 2% 5%
estate.
To approve an amendment to change fundamental investment restriction loans. 90% 6% 4%
To approve an amendment to change fundamental investment restriction on 92% 4% 4%
commodities and put and call options.
To approve an amendment to change fundamental investment restriction on 89% 6% 5%
borrowing money.
To approve an amendment to change fundamental investment restriction on 91% 5% 4%
purchasing securities on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing 90% 5% 5%
senior securities.
To approve an amendment to delete fundamental investment restriction for 92% 4% 4%
investing for control.
To approve an "manager of managers" arrangement and delete the need for 89% 6% 5%
shareholder approval of the retention or termination of sub-investment
managers.
FOR THE MULTI-CAP GROWTH FUND:
To approve an amendment to change fundamental investment restriction on real 89% 6% 5%
estate.
To approve an amendment to change fundamental investment restriction loans. 85% 9% 6%
To approve an amendment to change fundamental investment restriction on 85% 9% 6%
commodities and put and call options.
To approve an amendment to change fundamental investment restriction on 84% 10% 6%
borrowing money.
To approve an amendment to change fundamental investment restriction on 84% 10% 6%
purchasing securities on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing 86% 8% 6%
senior securities.
To approve an amendment to delete fundamental investment restriction for 87% 7% 6%
investing for control.
To approve an "manager of managers" arrangement and delete the need for 84% 10% 6%
shareholder approval of the retention or termination of sub-investment
managers.
FOR THE LARGE CAP VALUE FUND:
To approve an amendment to change fundamental investment restriction on real 92% 5% 3%
estate.
To approve an amendment to change fundamental investment restriction loans. 90% 6% 4%
To approve an amendment to change fundamental investment restriction on 91% 5% 4%
commodities and put and call options.
189
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
NOTE G--OTHER MATTERS (UNAUDITED)--Continued
For Against Abstain
--- ------- -------
FOR THE LARGE CAP VALUE FUND-CONTINUED:
To approve an amendment to change fundamental investment restriction on borrowing money. 90% 6% 4%
To approve an amendment to change fundamental investment restriction on purchasing securities. 88% 8% 4%
on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing senior securities 91% 5% 4%
To approve an amendment to delete fundamental investment restriction for investing for control. 91% 5% 4%
To approve an amendment to delete fundamental investment restriction on diversification of 88% 8% 4%
investments.
To approve an "manager of managers" arrangement and delete the need for shareholder approval 90% 6% 4%
of the retention or termination of sub-investment managers.
FOR THE LARGE CAP VALUE CORE FUND:
To approve an amendment to change fundamental investment restriction on real estate. 91% 3% 6%
To approve an amendment to change fundamental investment restriction loans. 90% 5% 5%
To approve an amendment to change fundamental investment restriction on commodities and put 90% 5% 5%
and call options.
To approve an amendment to change fundamental investment restriction on borrowing money. 91% 4% 5%
To approve an amendment to change fundamental investment restriction on purchasing securities 88% 6% 6%
on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing senior securities. 89% 5% 6%
To approve an amendment to delete fundamental investment restriction for investing for control. 89% 5% 6%
To approve an amendment to delete fundamental investment restriction on diversification of 89% 6% 5%
investments.
To approve an "manager of managers" arrangement and delete the need for shareholder approval 88% 7% 5%
of the retention or termination of sub-investment managers.
FOR THE FUNDAMENTAL VALUE FUND:
To approve an amendment to change fundamental investment restriction on real estate. 90% 5% 5%
To approve an amendment to change fundamental investment restriction loans. 88% 7% 5%
To approve an amendment to change fundamental investment restriction on commodities and put 88% 7% 5%
and call options.
To approve an amendment to change fundamental investment restriction on borrowing money. 88% 7% 5%
To approve an amendment to change fundamental investment restriction on purchasing securities 87% 8% 5%
on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing senior securities. 89% 6% 5%
190
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
NOTE G--OTHER MATTERS (UNAUDITED)--Continued
For Against Abstain
--- ------- -------
FOR THE FUNDAMENTAL VALUE FUND-CONTINUED:
To approve an amendment to delete fundamental investment restriction for investing for control. 89% 6% 5%
To approve an amendment to delete fundamental investment restriction on diversification of 89% 6% 5%
investments.
To approve an "manager of managers" arrangement and delete the need for shareholder approval 88% 7% 5%
of the retention or termination of sub-investment managers.
FOR THE MONEY MARKET FUND:
To approve an amendment to change fundamental investment restriction on real estate. 88% 7% 5%
To approve an amendment to change fundamental investment restriction loans. 86% 9% 5%
To approve an amendment to change fundamental investment restriction on commodities and put 86% 8% 6%
and call options.
To approve an amendment to change fundamental investment restriction on borrowing money. 86% 9% 5%
To approve an amendment to change fundamental investment restriction on purchasing securities 85% 9% 6%
on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing senior securities. 86% 8% 6%
To approve an amendment to delete fundamental investment restriction for investing for control. 87% 7% 6%
To approve an amendment to delete fundamental investment restriction on purchasing illiquid 86% 8% 6%
investments.
To approve an amendment to delete fundamental investment restriction on purchasing securities 87% 8% 5%
issued by other investment companies.
To approve an amendment to delete fundamental investment restriction on diversification of 87% 7% 6%
investments.
To approve an amendment to add authority to concentrate investment in U.S. banking industry. 88% 6% 5%
To approve an "manager of managers" arrangement and delete the need for shareholder approval 85% 10% 5%
of the retention or termination of sub-investment managers.
FOR THE SMALL/MID CAP GROWTH FUND:
To approve an amendment to change fundamental investment restriction on real estate. 88% 6% 6%
To approve an amendment to change fundamental investment restriction loans. 85% 9% 6%
To approve an amendment to change fundamental investment restriction on commodities and put 86% 8% 6%
and call options.
To approve an amendment to change fundamental investment restriction on borrowing money. 85% 9% 6%
To approve an amendment to change fundamental investment restriction on purchasing securities 84% 10% 6%
on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing senior securities. 86% 8% 6%
191
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
NOTE G--OTHER MATTERS (UNAUDITED)--Continued
For Against Abstain
--- ------- -------
FOR THE SMALL/MID CAP GROWTH FUND-CONTINUED:
To approve an amendment to delete fundamental investment restriction for investing for control. 87% 7% 6%
To approve an amendment to delete fundamental investment restriction on purchasing securities 86% 7% 7%
issued by other investment companies.
To approve an amendment to delete fundamental investment restriction on diversification of 86% 8% 6%
investments.
To approve an "manager of managers" arrangement and delete the need for shareholder approval 84% 10% 6%
of the retention or termination of sub-investment managers.
FOR THE BOND INDEX FUND:
To approve an amendment to change fundamental investment restriction on real estate. 90% 3% 7%
To approve an amendment to change fundamental investment restriction loans. 90% 4% 6%
To approve an amendment to change fundamental investment restriction on commodities and put 80% 13% 7%
and call options.
To approve an amendment to change fundamental investment restriction on borrowing money. 80% 13% 7%
To approve an amendment to change fundamental investment restriction on purchasing securities 79% 14% 7%
on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing senior securities. 80% 13% 7%
To approve an amendment to delete fundamental investment restriction for investing for control. 80% 13% 7%
To approve an amendment to delete fundamental investment restriction on diversification of 77% 15% 7%
investments.
To approve an "manager of managers" arrangement and delete the need for shareholder approval 79% 14% 7%
of the retention or termination of sub-investment managers.
FOR THE LARGE CAP AGGRESSIVE GROWTH FUND:
To approve an amendment to change fundamental investment restriction on real estate. 87% 4% 9%
To approve an amendment to change fundamental investment restriction loans. 86% 5% 9%
To approve an amendment to change fundamental investment restriction on commodities and put 86% 5% 9%
and call options.
To approve an amendment to change fundamental investment restriction on borrowing money. 82% 9% 8%
To approve an amendment to change fundamental investment restriction on purchasing securities 82% 10% 8%
on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing senior securities. 83% 9% 8%
To approve an amendment to delete fundamental investment restriction for investing for control. 87% 5% 8%
192
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
NOTE G--OTHER MATTERS (UNAUDITED)--Continued
For Against Abstain
--- ------- -------
FOR THE LARGE CAP AGGRESSIVE GROWTH FUND-CONTINUED:
To approve an "manager of managers" arrangement and delete the need for shareholder approval 85% 5% 10%
of the retention or termination of sub-investment managers.
FOR THE SMALL/MID CAP CORE FUND:
To approve an amendment to change fundamental investment restriction on real estate. 86% 11% 3%
To approve an amendment to change fundamental investment restriction loans. 83% 14% 3%
To approve an amendment to change fundamental investment restriction on commodities and put 83% 14% 3%
and call options.
To approve an amendment to change fundamental investment restriction on borrowing money. 81% 16% 3%
To approve an amendment to change fundamental investment restriction on purchasing securities 81% 16% 3%
on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing senior securities. 81% 16% 3%
To approve an amendment to delete fundamental investment restriction for investing for control. 85% 12% 3%
To approve an amendment to delete fundamental investment restriction on diversification of 83% 14% 3%
investments.
To approve an "manager of managers" arrangement and delete the need for shareholder approval 83% 14% 3%
of the retention or termination of sub-investment managers.
To approve an amendment to the current Investment Management Agreement between the Trust 74% 23% 3%
and John Hancock, reflecting an increase in this Fund's investment advisory fee.
FOR THE SMALL CAP VALUE FUND:
To approve an amendment to change fundamental investment restriction on real estate. 88% 5% 7%
To approve an amendment to change fundamental investment restriction loans. 86% 6% 8%
To approve an amendment to change fundamental investment restriction on commodities and put 84% 8% 8%
and call options.
To approve an amendment to change fundamental investment restriction on borrowing money. 84% 8% 8%
To approve an amendment to change fundamental investment restriction on purchasing securities 83% 9% 8%
on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing senior securities. 85% 7% 8%
To approve an amendment to delete fundamental investment restriction for investing for control. 85% 7% 8%
To approve an amendment to delete fundamental investment restriction on diversification of 83% 9% 8%
investments.
To approve an "manager of managers" arrangement and delete the need for shareholder approval 83% 9% 8%
of the retention or termination of sub-investment managers.
193
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
NOTE G--OTHER MATTERS (UNAUDITED)--Continued
For Against Abstain
--- ------- -------
FOR THE SMALL CAP VALUE FUND-CONTINUED:
To approve an amendment to the current Sub-Investment Management Agreement among the 89% 6% 5%
Trust, John Hancock, and Wellington Management Company, LLP.
To approve an amendment to the current Sub-Investment Management Agreement among the 90% 5% 5%
Trust, John Hancock, and T.Rowe Price Associates, Inc.
FOR THE REAL ESTATE EQUITY FUND:
To approve an amendment to change fundamental investment restriction on real estate. 88% 6% 6%
To approve an amendment to change fundamental investment restriction loans. 86% 8% 6%
To approve an amendment to change fundamental investment restriction on commodities and put 86% 8% 6%
and call options.
To approve an amendment to change fundamental investment restriction on borrowing money. 85% 8% 7%
To approve an amendment to change fundamental investment restriction on purchasing securities 84% 9% 6%
on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing senior securities. 86% 8% 6%
To approve an amendment to delete fundamental investment restriction for investing for control. 86% 7% 7%
To approve an amendment to delete fundamental investment restriction on purchasing illiquid 86% 8% 6%
investments.
To approve an amendment to delete fundamental investment restriction on purchasing securities 87% 7% 6%
issued by other investment companies.
To approve an "manager of managers" arrangement and delete the need for shareholder approval 84% 10% 6%
of the retention or termination of sub-investment managers.
FOR THE GROWTH & INCOME FUND:
To approve an amendment to change fundamental investment restriction on real estate. 86% 7% 7%
To approve an amendment to change fundamental investment restriction loans. 83% 10% 7%
To approve an amendment to change fundamental investment restriction on commodities and put 82% 10% 8%
and call options.
To approve an amendment to change fundamental investment restriction on borrowing money. 82% 11% 7%
To approve an amendment to change fundamental investment restriction on purchasing securities 80% 12% 8%
on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing senior securities. 82% 10% 8%
To approve an amendment to delete fundamental investment restriction for investing for control. 83% 9% 8%
To approve an amendment to delete fundamental investment restriction on purchasing illiquid 82% 10% 8%
investments.
194
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
NOTE G--OTHER MATTERS (UNAUDITED)--Continued
For Against Abstain
--- ------- -------
FOR THE GROWTH & INCOME FUND-CONTINUED:
To approve an amendment to delete fundamental investment restriction on purchasing securities 84% 9% 7%
issued by other investment companies.
To approve an "manager of managers" arrangement and delete the need for shareholder approval 80% 12% 8%
of the retention or termination of sub-investment managers.
FOR THE MANAGER FUND:
To approve an amendment to change fundamental investment restriction on real estate. 86% 6% 8%
To approve an amendment to change fundamental investment restriction loans. 84% 8% 8%
To approve an amendment to change fundamental investment restriction on commodities and put 83% 8% 9%
and call options.
To approve an amendment to change fundamental investment restriction on borrowing money. 84% 8% 8%
To approve an amendment to change fundamental investment restriction on purchasing securities 82% 9% 9%
on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing senior securities. 84% 8% 8%
To approve an amendment to delete fundamental investment restriction for investing for control. 84% 7% 9%
To approve an amendment to delete fundamental investment restriction on purchasing illiquid 83% 8% 9%
investments.
To approve an amendment to delete fundamental investment restriction on purchasing securities 85% 7% 8%
issued by other investment companies.
To approve an "manager of managers" arrangement and delete the need for shareholder approval 83% 8% 9%
of the retention or termination of sub-investment managers.
FOR THE SHORT-TERM BOND FUND:
To approve an amendment to change fundamental investment restriction on real estate. 90% 4% 6%
To approve an amendment to change fundamental investment restriction loans. 88% 7% 5%
To approve an amendment to change fundamental investment restriction on commodities and put 89% 5% 6%
and call options.
To approve an amendment to change fundamental investment restriction on borrowing money. 87% 7% 6%
To approve an amendment to change fundamental investment restriction on purchasing securities 86% 8% 6%
on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing senior securities. 87% 7% 6%
To approve an amendment to delete fundamental investment restriction for investing for control. 88% 6% 6%
To approve an amendment to delete fundamental investment restriction on purchasing securities 88% 6% 6%
issued by other investment companies.
195
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
NOTE G--OTHER MATTERS (UNAUDITED)--Continued
For Against Abstain
--- ------- -------
FOR THE SHORT-TERM BOND FUND-CONTINUED:
To approve an amendment to delete fundamental investment restriction on diversification of 88% 7% 5%
investments.
To approve an "manager of managers" arrangement and delete the need for shareholder approval 88% 7% 5%
of the retention or termination of sub-investment managers.
FOR THE SMALL CAP EQUITY FUND:
To approve an amendment to change fundamental investment restriction on real estate. 88% 4% 8%
To approve an amendment to change fundamental investment restriction loans. 85% 7% 8%
To approve an amendment to change fundamental investment restriction on commodities and put 86% 6% 8%
and call options.
To approve an amendment to change fundamental investment restriction on borrowing money. 83% 9% 8%
To approve an amendment to change fundamental investment restriction on purchasing securities 80% 12% 8%
on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing senior securities. 84% 8% 8%
To approve an amendment to delete fundamental investment restriction for investing for control. 87% 5% 8%
To approve an amendment to delete fundamental investment restriction on diversification of 80% 12% 8%
investments.
To approve an "manager of managers" arrangement and delete the need for shareholder approval 85% 6% 9%
of the retention or termination of sub-investment managers.
FOR THE INTERNATIONAL OPPORTUNITIES FUND:
To approve an amendment to change fundamental investment restriction on real estate. 91% 4% 5%
To approve an amendment to change fundamental investment restriction loans. 89% 6% 5%
To approve an amendment to change fundamental investment restriction on commodities and put 85% 9% 6%
and call options.
To approve an amendment to change fundamental investment restriction on borrowing money. 82% 12% 6%
To approve an amendment to change fundamental investment restriction on purchasing securities 80% 14% 6%
on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing senior securities. 85% 10% 5%
To approve an amendment to delete fundamental investment restriction for investing for control. 87% 8% 5%
To approve an amendment to delete fundamental investment restriction on diversification of 86% 9% 5%
investments.
To approve an "manager of managers" arrangement and delete the need for shareholder approval 84% 11% 5%
of the retention or termination of sub-investment managers.
196
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
NOTE G--OTHER MATTERS (UNAUDITED)--Continued
For Against Abstain
--- ------- -------
FOR THE EQUITY INDEX FUND-CONTINUED:
To approve an amendment to change fundamental investment restriction on real estate. 88% 9% 3%
To approve an amendment to change fundamental investment restriction loans. 86% 10% 4%
To approve an amendment to change fundamental investment restriction on commodities and put 83% 13% 4%
and call options.
To approve an amendment to change fundamental investment restriction on borrowing money. 83% 13% 4%
To approve an amendment to change fundamental investment restriction on purchasing securities 82% 14% 4%
on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing senior securities. 84% 12% 4%
To approve an amendment to delete fundamental investment restriction for investing for control. 85% 12% 3%
To approve an amendment to delete fundamental investment restriction on diversification of 83% 14% 3%
investments.
To approve an "manager of managers" arrangement and delete the need for shareholder approval 83% 14% 3%
of the retention or termination of sub-investment managers.
FOR THE HIGH YIELD BOND FUND:
To approve an amendment to change fundamental investment restriction on real estate. 92% 4% 4%
To approve an amendment to change fundamental investment restriction loans. 88% 8% 4%
To approve an amendment to change fundamental investment restriction on commodities and put 89% 7% 4%
and call options.
To approve an amendment to change fundamental investment restriction on borrowing money. 85% 11% 4%
To approve an amendment to change fundamental investment restriction on purchasing securities 85% 11% 4%
on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing senior securities. 87% 9% 4%
To approve an amendment to delete fundamental investment restriction for investing for control. 90% 6% 4%
To approve an amendment to delete fundamental investment restriction on diversification of 89% 7% 4%
investments.
To approve an "manager of managers" arrangement and delete the need for shareholder approval 89% 7% 4%
of the retention or termination of sub-investment managers.
FOR THE GLOBAL BOND FUND:
To approve an amendment to change fundamental investment restriction on real estate. 84% 10% 6%
To approve an amendment to change fundamental investment restriction loans. 80% 13% 7%
197
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
NOTE G--OTHER MATTERS (UNAUDITED)--Continued
For Against Abstain
--- ------- -------
FOR THE GLOBAL BOND FUND-CONTINUED:
To approve an amendment to change fundamental investment restriction on commodities and put 81% 12% 7%
and call options.
To approve an amendment to change fundamental investment restriction on borrowing money. 80% 14% 6%
To approve an amendment to change fundamental investment restriction on purchasing securities 80% 14% 6%
on margin and selling securities short.
To approve an amendment to delete fundamental investment restriction on issuing senior securities. 82% 12% 6%
To approve an amendment to delete fundamental investment restriction for investing for control. 83% 11% 6%
To approve an amendment to delete fundamental investment restriction on diversification of 82% 11% 6%
investments.
To approve an "manager of managers" arrangement and delete the need for shareholder approval 83% 11% 6%
of the retention or termination of sub-investment managers.
NOTE H--BOARD OF TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED)
The Board of Trustees of the Trust is responsible for overall management of the
Trust. The Board may exercise all powers of the Trust, except those powers which
are conferred solely upon or reserved to the shareholders. The Trust's Statement
of Additional Information (SAI) includes additional information about the
Trustees and is available without charge, upon request, by calling toll-free at
1-800-REAL-LIFE. The following table provides information about the memebrs of
the Board of Trustees and the officers of the Trust:
Positions Held Principal Occupation(s)
Name, Address and Age With Trust During Past Five Years
- --------------------------------- ------------------------ --------------------------------
Michele G. Van Leer* (age 44) Chairman and Trustee Senior Vice President, Product
John Hancock Place Boston, Management, John Hancock Life
Massachusetts 02117 Insurance Company; Vice
Chairman, President & Director,
John Hancock Variable Life
Insurance Company
Kathleen F. Driscoll* (age 45) Vice Chairman, President Vice President, Signator
John Hancock Place Boston, and Trustee Brokerage, John Hancock Life
Massachusetts 02117 Insurance Company; Vice
President Corporate
Communications, John Hancock
Life Insurance Company
198
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
NOTE H--BOARD OF TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED)-Continued
Positions Held Principal Occupation(s)
Name, Address and Age With Trust During Past Five Years
- --------------------------------- ---------------------------- --------------------------------
Elizabeth G. Cook (age 64) Trustee Expressive Arts Therapist, Dana-
c/o John Hancock Variable Series Farber Cancer Institute;
Trust I President, The Adveritising Club
John Hancock Place of Greater Boston
Boston, Massachusetts 02117
Diane C. Kessler (age 55) Trustee Executive Director,
c/o John Hancock Variable Series Massachusetts Council of
Trust I Churches
John Hancock Place
Boston, Massachusetts 02117
Robert Verdonck (age 56) Trustee Chairman, President and Chief
c/o John Hancock Variable Series Executive Officer, East Boston
Trust I Savings Bank
John Hancock Place
Boston, Massachusetts 02117
Hassell H. McClellan (age 56) Trustee Professor and Formerly
c/o John Hancock Variable Graduate Dean, The Graduate
Series Trust I School of the Wallace G. Carroll
John Hancock Place School of Management, Boston College
Boston, Massachusetts 02117
Jude A. Curtis (age 43) Compliance Officer Second Vice President and
John Hancock Place Boston, Chief Investment Officer, John
Massachusetts 02117 Hancock Life Insurance
Company; formerly Second Vice
President and Counsel, Office of
Business Conduct; John
Hancock Life Insurance
Company; formerly a partner at
Hale and Dorr LLP (law firm)
Maryellen Carney (age 36) Assistant Compliance Officer Compliance Specialist, John
John Hancock Place Boston, Hancock Life Insurance
Massachusetts 02117 Company; formerly Investment
Company and Investment
Adviser Examiner, U.S.
Securities and Exchange
Commission, Fort Worth
Office and Boston Office
Raymond F. Skiba (age 56) Treasurer Director, Fund Operations, John
John Hancock Place Boston, Hancock Signature Services, Inc.
Massachusetts 02117
199
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2002
- --------------------------------------------------------------------------------
NOTE H--BOARD OF TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED)-Continued
Positions Held Principal Occupation(s)
Name, Address and Age With Trust During Past Five Years
- -------------------------------- ------------------- ------------------------------------
Karen Q. Visconti (age 48) Secretary Senior Marketing Consultant, Life
John Hancock Place Boston, Product Management, John
Massachusetts 02117 Hancock Life Insurance Company
Arnold R. Bergman (age 51) Assistant Secretary Senior Counsel, Law Department,
John Hancock Place Boston, John Hancock Life Insurance
Massachusetts 02117 company; formerly Vice President,
General Counsel and Secretary, First
Variable Life Insurance Company
* Ms. Van Leer and Ms. Driscoll are the only Trustees who are "interested
persons" as defined in the Investment Company Act.
200
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Contractowners, Policyholders, and
Board of Trustees of
John Hancock Variable Series Trust I
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of John Hancock Variable Series Trust I
(the Trust) (comprising, respectively, the Large Cap Growth, Fundamental
Growth, Active Bond, Emerging Markets Equity, International Equity Index, Small
Cap Growth, Health Sciences, Global Balanced, Multi Cap Growth (formerly, Mid
Cap Growth), Large Cap Value, Large Cap Value CORE, Fundamental Value
(formerly, Large/Mid Cap Value), Money Market, Small/Mid Cap Growth, Bond
Index, Large Cap Aggressive Growth, Small/Mid Cap CORE, Small Cap Value, Real
Estate Equity, Growth & Income, Managed, Short-Term Bond, Small Cap Equity,
International Opportunities, Equity Index, High Yield Bond, and Global Bond
Portfolios) as of December 31, 2002, and the related statements of operations
for the year then ended, and the statements of changes in net assets and
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. Our procedures
included confirmation of securities owned as of December 31, 2002, by
correspondence with the custodian or 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 John Hancock Variable Series Trust I
at December 31, 2002, the results of their operations for the year then ended,
and the changes in their net assets and 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 6, 2003
201
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 MAILING
John Hancock V.A. Financial Industries Fund
Special Meeting of Shareholders to Be Held on
April 16, 2003
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: To approve an Agreement and Plan of Reorganization between V.A.
Financial Industries Fund and the Financial Industries Fund series of the John
Hancock Variable Series Trust I ("Financial Industries Fund"). Under this
Agreement, V.A. Financial Industries Fund would transfer all of its assets to
Financial Industries Fund in exchange for shares of Financial Industries Fund.
These shares will be distributed proportionately to you and the other
shareholders of V.A. Financial Industries Fund. Financial Industries Fund will
also assume V.A. Financial Industries 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 MAILING
JOHN HANCOCK V.A. FINANCIAL INDUSTRIES 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 (the "record owners") to vote all the
shares of beneficial interest of John Hancock V.A. Financial Industries Fund
("V.A. Financial Industries Fund") attributable to the undersigned's variable
insurance or annuity contract at the Special Meeting of Shareholders (the
"Meeting") of V.A. Financial Industries Fund to be held at 101 Huntington
Avenue, Boston, Massachusetts, on Wednesday, April 16, 2003 at 9:00 a.m.,
Eastern time, and at any adjournment (s) of the Meeting. Receipt of the Proxy
Statement dated March 24, 2003 is hereby acknowledged. If not revoked, this card
shall be voted for the proposal.
The record owners are hereby instructed to vote the shares held in the fund
attributable to the undersigned's contract at the special meeting of
shareholders and at any adjournment thereof, as specified on the reverse side.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
Date ___________ , 2003 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 MAILING
John Hancock V.A. Sovereign Investors Fund
Special Meeting of Shareholders to Be Held on
April 16, 2003
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: To approve an Agreement and Plan of Reorganization between V.A.
Sovereign Investors Fund and the Growth & Income Fund series of the John Hancock
Variable Series Trust I ("Growth & Income Fund"). Under this Agreement, V.A.
Sovereign Investors Fund. would transfer all of its assets to Growth & Income
Fund in exchange for shares of Growth & Income Fund. These shares will be
distributed proportionately to you and the other shareholders of V.A. Sovereign
Investors Fund. Growth & Income Fund will also assume V.A. Sovereign Investors
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 MAILING
JOHN HANCOCK V.A. SOVEREIGN INVESTORS 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 (the "record owners") to vote all the
shares of beneficial interest of John Hancock V.A. Sovereign Investors Fund
("V.A. Sovereign Investors Fund") attributable to the undersigned's variable
insurance or annuity contract at the Special Meeting of Shareholders (the
"Meeting") of V.A. Sovereign Investors Fund to be held at 101 Huntington Avenue,
Boston, Massachusetts, on Wednesday, April 16, 2003 at 9:00 a.m., Eastern time,
and at any adjournment (s) of the Meeting. Receipt of the Proxy Statement dated
March 24, 2003 is hereby acknowledged. If not revoked, this card shall be voted
for the proposal.
The record owners are hereby instructed to vote the shares held in the fund
attributable to the undersigned's contract at the special meeting of
shareholders and at any adjournment thereof, as specified on the reverse side.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
Date ________, 2003 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 MAILING
John Hancock V.A. Relative Value Fund
Special Meeting of Shareholders to Be Held on
April 16, 2003
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: To approve an Agreement and Plan of Reorganization between V.A.
Relative Value Fund and the Growth & Income Fund series of the John Hancock
Variable Series Trust I ("Growth & Income Fund"). Under this Agreement, V.A.
Relative Value Fund. would transfer all of its assets to Growth & Income Fund in
exchange for shares of Growth & Income Fund. These shares will be distributed
proportionately to you and the other shareholders of V.A. Relative Value Fund.
Growth & Income Fund will also assume V.A. Relative Value 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 MAILING
JOHN HANCOCK V.A. RELATIVE VALUE 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 (the "record owners") to vote all the
shares of beneficial interest of John Hancock V.A. Relative Value Fund ("V.A.
Relative Value Fund") attributable to the undersigned's variable insurance or
annuity contract at the Special Meeting of Shareholders (the "Meeting") of V.A.
Relative Value Fund to be held at 101 Huntington Avenue, Boston, Massachusetts,
on Wednesday, April 16, 2003 at 9:00 a.m., Eastern time, and at any adjournment
(s) of the Meeting. Receipt of the Proxy Statement dated March 24, 2003 is
hereby acknowledged. If not revoked, this card shall be voted for the proposal.
The record owners are hereby instructed to vote the shares held in the fund
attributable to the undersigned's contract at the special meeting of
shareholders and at any adjournment thereof, as specified on the reverse side.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
Date ________ , 2003 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 MAILING
John Hancock V.A. Strategic Income Fund
Special Meeting of Shareholders to Be Held on
April 16, 2003
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: To approve an Agreement and Plan of Reorganization between V.A.
Strategic Income Fund and the Active Bond Fund series of the John Hancock
Variable Series Trust I ("Active Bond Fund"). Under this Agreement, V.A.
Strategic Income Fund would transfer all of its assets to Active Bond Fund in
exchange for shares of Active Bond Fund. These shares will be distributed
proportionately to you and the other shareholders of V.A. Strategic Income Fund.
Active Bond Fund will also assume V.A. Strategic Income 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 MAILING
JOHN HANCOCK STRATEGIC INCOME 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 (the "record owners") to vote all the
shares of beneficial interest of John Hancock V.A. Strategic Income Fund ("V.A.
Strategic Income Fund") attributable to the undersigned's variable insurance or
annuity contract at the Special Meeting of Shareholders (the "Meeting") of V.A.
Strategic Income Fund to be held at 101 Huntington Avenue, Boston,
Massachusetts, on Wednesday, April 16, 2003 at 9:00 a.m., Eastern time, and at
any adjournment (s) of the Meeting. Receipt of the Proxy Statement dated March
24, 2003 is hereby acknowledged. If not revoked, this card shall be voted for
the proposal.
The record owners are hereby instructed to vote the shares held in the fund
attributable to the undersigned's contract at the special meeting of
shareholders and at any adjournment thereof, as specified on the reverse side.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
Date ___________, 2003 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 MAILING
John Hancock V.A. Technology Fund
Special Meeting of Shareholders to Be Held on
April 16, 2003
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: To approve an Agreement and Plan of Reorganization between V.A.
Technology Fund and the Large Cap Growth Fund series of the John Hancock
Variable Series Trust I ("Large Cap Growth Fund"). Under this Agreement, V.A.
Technology Fund would transfer all of its assets to Large Cap Growth Fund in
exchange for shares of Large Cap Growth Fund. These shares will be distributed
proportionately to you and the other shareholders of V.A. Technology Fund. Large
Cap Growth Fund will also assume V.A. Technology 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 MAILING
JOHN HANCOCK V.A. TECHNOLOGY 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 (the "record owners") to vote all the
shares of beneficial interest of John Hancock V.A. Technology Fund ("V.A.
Technology Fund") attributable to the undersigned's variable insurance or
annuity contract at the Special Meeting of Shareholders (the "Meeting") of V.A.
Technology Fund to be held at 101 Huntington Avenue, Boston, Massachusetts, on
Wednesday, April 16, 2003 at 9:00 a.m., Eastern time, and at any adjournment (s)
of the Meeting. Receipt of the Proxy Statement dated March 24, 2003 is hereby
acknowledged. If not revoked, this card shall be voted for the proposal.
The record owners are hereby instructed to vote the shares held in the fund
attributable to the undersigned's contract at the special meeting of
shareholders and at any adjournment thereof, as specified on the reverse side.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
Date _______, 2003 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 V.A. FINANCIAL INDUSTRIES FUND
JOHN HANCOCK V.A. RELATIVE VALUE FUND
JOHN HANCOCK V.A. SOVEREIGN INVESTORS FUND
JOHN HANCOCK V.A. STRATEGIC INCOME FUND
JOHN HANCOCK V.A. TECHNOLOGY FUND
(Each an "Acquired Fund", and each a Series of John Hancock Declaration Trust)
101 Huntington Avenue
Boston, MA 02199
1-800-824-0335
March 24, 2003
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the related proxy statement and prospectus for VST Growth &
Income Fund, VST Financial Industries Fund, VST Large Cap Growth Fund and VST
Active Bond Fund (the "Acquiring Funds") that is also dated March 24, 2003 for
use in connection with the Special Meeting of Shareholders of John Hancock V.A.
Financial Industries Fund, John Hancock V.A. Relative Value Fund, John Hancock
V.A. Sovereign Investors Fund, John Hancock V.A. Strategic Income Fund, and John
Hancock V.A. Technology Fund (the "Acquired Funds"). 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 the John
Hancock representative at 1-800-576-2227.
Table Of Contents
Page
Introduction 3
Additional Information about the Acquiring Funds 3
General Information and History 3
Investment Objective and Policies 3
Management of the Acquiring Funds 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 Acquiring Fund Shares 3
Tax Status 4
Underwriters 4
Calculation of Performance Data 4
Financial Statements 4
4
Additional Information about the Acquired Funds
General Information and History 4
Investment Objective and Policies 4
Management of the Acquired Funds 4
Investment Advisory and Other Services 4
Brokerage Allocation 4
Capital Stock and Other Securities 4
Purchase, Redemption and Pricing of the Acquired Funds 5
Tax Status 5
Underwriters 5
Calculation of Performance Data 5
Financial Statements 5
Exhibits
A - Statement of Additional Information, dated October 7, 2002, of the
Acquiring Funds including audited financial statements as of December
31, 2002.
B - Statement of Additional Information, dated July 25, 2002, of the
Acquired Funds including audited financial statements as of
December 31, 2002.
INTRODUCTION
This Statement of Additional Information ("SAI") is intended to supplement the
information provided in a proxy statement and prospectus dated March 24, 2003.
The proxy statement and prospectus has been sent to the shareholders of the
Acquired Funds in connection with the solicitation by the Trustees of the
Acquired Funds of proxies to be voted at the Special Meeting of Shareholders of
the Acquired Funds to be held on April 16, 2003. This Statement of Additional
Information incorporates by reference the Statement of Additional Information of
the Acquiring Funds, dated October 7, 2002, and the Statement of Additional
Information of the Acquired Funds, dated July 25, 2002. The SAI for the
Acquiring Funds and the SAI for the Acquired Funds are included with this
Statement of Additional Information.
NOTE REGARDING PRO FORMA FINANCIAL INFORMATION
In accordance with Item 14 (a) (2) of Form N-14, pro forma financial statements
were not prepared for the proposed reorganization of the Acquired Fund into the
Acquiring Fund, since the net asset value of the Acquired Fund did not exceed
ten percent of the net asset value of the Acquiring Fund on January 15, 2003.
Additional Information About the Acquiring Funds
------------------------------------------------
General Information and History
- -------------------------------
For additional information about the Acquiring Funds generally and their
history, see "What is the Trust" and "The Trust's Business History" in the
Acquiring Fund SAI attached hereto as Exhibit A.
Investment Objective and Policies
- ---------------------------------
For additional information about the Acquiring Funds' investment objectives,
policies and restrictions, see "The Funds' Investment Activities and Their
Risks" and "The Funds' Fundamental Investment Restrictions" in the Acquiring
Fund SAI attached hereto as Exhibit A.
Management of the Acquiring Funds
- ---------------------------------
For additional information about the Acquiring Funds' Board of Trustees,
officers and management personnel, see "Board of Trustees and Officers of the
Trust" in the Acquiring Fund SAI attached hereto as Exhibit A.
Control Persons and Principal Holders of Shares
- -----------------------------------------------
For additional information about control persons of the Acquiring Funds and
principal holders of shares of the Acquiring Funds, see "Board of Trustees and
Officers of the Trust" in the Acquiring Fund SAI attached hereto as Exhibit A.
Investment Advisory and Other Services
- --------------------------------------
For additional information about the Acquiring Funds' investment adviser,
sub-advisers, custodian, transfer agent and independent accountants, see
"Investment Advisory Arrangements" and "Arrangements with other Service
Providers" in the Acquiring Fund SAI attached hereto as Exhibit A.
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about the Acquiring Funds' brokerage allocation
practices, see "Portfolio Transactions and Brokerage Allocation" in the
Acquiring Fund SAI attached hereto as Exhibit A.
Capital Stock and Other Securities
- ----------------------------------
For additional information about the voting rights and other characteristics of
the Acquiring Funds' shares of beneficial interest, see "Features of the Trust's
Shares" and "Shareholder Meetings and Voting Rights" in the Acquiring Fund SAI
attached hereto as Exhibit A.
Purchase, Redemption and Pricing of Acquiring Fund Shares
- ---------------------------------------------------------
For additional information about the purchase, redemption and pricing of the
Acquiring Funds' shares, see "Computing the Funds' Net Asset Value" and "Sales
and Redemptions of Fund Shares" in the Acquiring Fund SAI attached hereto as
Exhibit A.
Tax Status
- ----------
For additional information about the tax status of the Acquiring Funds, see
"Taxes" in the Acquiring Fund SAI, attached hereto as Exhibit A..
Underwriters
- ------------
For additional information about the Acquiring Funds' principal underwriter and
the distribution contract between the principal underwriter and the Acquiring
Funds, see "Underwriting and Indemnity Agreement" in the Acquiring Fund SAI
attached hereto as Exhibit A.
Calculation of Performance Data
- -------------------------------
For additional information about the investment performance of the Acquiring
Funds, see "Information About Fund Performance" in the Acquiring Fund SAI
attached hereto as Exhibit A.
Financial Statements
- --------------------
Audited annual financial statements of the Acquiring Funds at December 31, 2000
and unaudited semi-annual financial statements as of June 30, 2001 are attached
to the Acquiring Fund SAI, which is attached hereto as Exhibit A.
Additional Information About the Acquired Funds
-----------------------------------------------
General Information and History
- -------------------------------
For additional information about the Acquired Funds generally and their history,
see "Organization of the Trust" in the Acquired Fund SAI attached hereto as
Exhibit B.
Investment Objective and Policies
- ---------------------------------
For additional information about the Acquired Funds' investment objectives,
policies and restrictions, see "Investment Policies and Strategies", "Risk
Factors, Investments and Techniques" and "Investment Restrictions" in the
Acquired Fund SAI attached hereto as Exhibit B.
Management of Acquired Funds
- ----------------------------
For additional information about the Acquired Funds' Board of Trustees, officers
and management personnel, see "Those Responsible for Management" in the Acquired
Fund SAI attached hereto as Exhibit B.
Investment Advisory and Other Services
- --------------------------------------
For additional information about the Acquired Funds' 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 Acquired Fund SAI
attached hereto as Exhibit B.
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about the Acquired Funds' brokerage allocation
practices, see "Brokerage Allocation" in the Acquired Fund SAI attached hereto
as Exhibit B..
Capital Stock and Other Securities
- ----------------------------------
For additional information about the voting rights and other characteristics of
the Acquired Funds' shares of beneficial interest, see "Description of the
Trust's Shares" and "Dividends" in the Acquired Fund SAI attached hereto as
Exhibit B.
Purchase, Redemption and Pricing of Acquired Fund Shares
- --------------------------------------------------------
For additional information about the purchase, redemption and pricing of the
Acquired Funds' shares, see "Net Asset Value", Special Redemptions" and
"Eligible Investors" in the Acquired Fund SAI attached hereto as Exhibit B.
Tax Status
- ----------
For additional information about the tax status of the Acquired Funds, see "Tax
Status" in the Acquired Fund SAI attached hereto as Exhibit B.
Underwriters
- ------------
For additional information about the Acquired Funds' principal underwriter and
the distribution contract between the principal underwriter and the Acquired
Funds, see "Distribution Contracts" in the Acquired Fund SAI attached hereto as
Exhibit B.
Calculation of Performance Data
- -------------------------------
For additional information about the investment performance of the Acquired
Funds, see "Calculation of Performance" in the Acquired Fund SAI attached hereto
as Exhibit B.
Financial Statements
- --------------------
Audited annual financial statements of the Acquired Funds at December 31, 2002
are attached to the Acquired Fund SAI, which is attached hereto as Exhibit B.
JOHN HANCOCK
VARIABLE SERIES TRUST I
STATEMENT OF ADDITIONAL INFORMATION
October 7, 2002
This Statement of Additional Information (sometimes referred to herein as
the "SAI") is not a prospectus. It is intended that this Statement of Additional
Information be read in conjunction with the Prospectus of John Hancock Variable
Series Trust I (the "Trust"), dated May 1, 2002. A copy of the Prospectus may be
obtained from John Hancock Variable Series Trust I, John Hancock Place, P.O. Box
111, Boston, Massachusetts 02117, telephone number 1-800-REAL LIFE.
This Statement of Additional Information relates to all twenty-seven of the
Trust's current "Funds."
The Trust's Financial Statements and Investment Performance Information
The Trust's financial statements appearing in its Annual Report to contract
holders and the report of Ernst & Young LLP, independent auditors of the Trust,
which appears therein, are incorporated by reference into this Statement of
Additional Information. The information about the total investment returns
achieved by the Trust's various Funds, is also incorporated herein by reference.
No other portions of the Annual Report are incorporated by reference. A free
copy of the Annual Report to contract holders may be obtained by writing to the
address or calling the number above.
TABLE OF CONTENTS
Page in this
Statement of
Additional
Information
-----------
A. What Is the Trust? 4
B. The Trust's Business History 4
C. The Funds' Investment Activities and Their Risks 5
1. Investing in Money Market Instruments 5
2. Investing in Other Fixed Income Obligations 5
3. Investing in Equity Securities 7
4. Investing in Real Estate Securities 9
5. Investing in Foreign Securities 9
6. Techniques and Instruments for Managing Currency Exposure 11
7. Reallocating a Fund's Assets Among Asset Classes 13
8. Adopting a Temporary Defensive Strategy 13
9. Investing With an Index-Based Objective 13
10. Investing on a Non-Diversified Basis 16
11. Using Options 16
12. Using Options on Securities (and related asset segregation requirements) 18
13. Using Financial Futures Contracts, Options on Such Contracts
and Options on Stock Indexes 18
14. "Swaps, "Caps," "Floors" and "Collars" 22
15. Investing In Other Investment Companies 24
16. "When Issued" Securities and Forward Commitments 25
17. Short-Term Trading 25
18. Entering Into Repurchase Agreements 25
19. Participating in Joint Trading Accounts 26
20. Lending of Fund Securities 26
21. Reverse Repurchase Agreements and Mortgages "Dollar Rolls" 26
22. Investing in Rule 144A and Illiquid Securities 27
23. Investing in Preferred Stock, Convertible Securities and Warrants 27
24. Investing in Initial Public Offerings ("IPOs") 27
D. The Funds' Fundamental Investment Restrictions 28
E. Board of Trustees and Officers of the Trust 29
F. Investment Advisory Arrangements 33
1. The Trust's Investment Advisory Arrangements With
John Hancock 33
2. The Trust's Arrangements With Subadvisers 35
3. Dollar Amounts of Advisory Fees, Subadvisory Fees, and
Expense Reimbursements 38
4. Basis of Trustee Approval of Continuance of Advisory Agreements 40
2
TABLE OF CONTENTS - continued
Page in this
Statement of
Additional
Information
-----------
G. Arrangements With Other Service Providers To The Trust 42
1. Underwriting and Indemnity Agreement 42
2. Custody of the Trust's Assets 42
3. Subadministration Agreement With State Street Bank 43
4. Independent Auditors 43
H. Portfolio Transactions and Brokerage Allocation 44
I. Codes of Ethics 47
J. Features of the Trust's Shares 48
K. Shareholder Meetings and Voting Rights 49
L. Sales and Redemptions of Fund Shares 49
M. Computing the Funds' Net Asset Value 50
N. Taxes 51
O. Information About Fund Performance 52
P. Legal Matters 53
Q. Reports to Contractholders 53
Appendix A - Corporate Bond Ratings 54
3
A. WHAT IS THE TRUST?
John Hancock Variable Series Trust I (the "Trust"), and each of the
Funds of the Trust, is an open-end management investment company. With the
exception of the Managed, Growth & Income, Large Cap Growth, Large Cap
Aggressive Growth, Multi Cap Growth, Real Estate Equity, Global Balanced and
Global Bond Funds, each of the Funds is a "diversified" Fund within the meaning
of the Investment Company Act of 1940 (the "Investment Company Act").
Shares of the Trust are currently sold to John Hancock Variable Life
Accounts U, V, and S to support variable life insurance policies issued by John
Hancock Variable Life Insurance Company ("JHVLICO"); John Hancock Variable
Annuity Accounts U and V to support variable annuity contracts issued by John
Hancock Life Insurance Company ("John Hancock"); John Hancock Variable Annuity
Accounts I and JF to support variable annuity contracts issued by JHVLICO; and
John Hancock Variable Life Account UV to support variable life insurance
policies issued by John Hancock. It is anticipated that, in the future, Trust
shares may be sold to other separate investment accounts of JHVLICO and John
Hancock and to separate investment accounts of other insurance companies (which
may or may not be affiliated with John Hancock). Each of these separate
investment accounts is hereinafter referred to as a "Separate Account."
Because the Separate Accounts currently own all of the Trust's shares,
those Separate Accounts (or John Hancock and JHVLICO) may be deemed to control
the Trust. John Hancock and JHVLICO, in turn, are both directly or indirectly
controlled by John Hancock Financial Services, Inc., a publicly-traded holding
company. The Trust issues a separate series of shares of beneficial interest for
each Fund. Each share issued with respect to a Fund has a pro rata interest in
the net assets of that Fund. The assets of each Fund are charged with the
liabilities of that Fund and a proportionate share of the general liabilities of
the Trust.
B. THE TRUST'S BUSINESS HISTORY
The Trust is, in part, a successor to three Separate Accounts of
JHVLICO, as well as the six Separate Accounts of John Hancock described below.
On March 28, 1986, all of the investment assets and related liabilities of the
Variable Life Stock, Bond, and Money Market Accounts were transferred to what
are now the Growth & Income, Active Bond and Money Market Funds of the Trust,
respectively, in exchange for shares of those Funds.
On February 20, 1987, all of the investment assets and related
liabilities of six Variable Annuity Stock, Bond and Money Market Accounts were
transferred to what are now the Growth & Income, Active Bond and Money Market
Funds of the Trust, respectively, in exchange for shares of these Funds. The
Trust itself was incorporated on September 23, 1985, under the laws of the State
of Maryland and was reorganized as a Massachusetts business trust effective
April 29, 1988.
Over the years, several Funds have been re-named as follows:
Year of
Current Fund Name Prior Name(s) Change
----------------- ------------- -------
Active Bond Sovereign Bond 2000
Bond 1996
Global Balanced International Balanced 2000
Global Bond Strategic Bond 1999
Growth & Income Stock 1996
4
Year of
Current Fund Name - continued Prior Name(s) - continued Change
----------------------------- ------------------------- ------
International Equity Index International Equities 1998
International 1995
Global 1994
Large Cap Growth Select Stock 1995
Short-Term Bond Short-Term U.S. Government 1998
Small/Mid Cap Growth Diversified Mid Cap Growth 1999
Special Opportunities 1998
Small Cap Equity Small Cap Value 2000
Fundamental Growth Fundamental Mid Cap Growth 2000
Small Cap Value Small/Mid Cap Value 2001
Fundamental Value Large/Mid Cap Value 2002
Multi Cap Growth Mid Cap Growth 2002
C. THE FUNDS' INVESTMENT ACTIVITIES AND THEIR RISKS
The Funds' different investment activities will affect both their
investment returns and the degree of risk to which they are subject. Sections
1.-24. below describe many (but not all) of these investment activities and
risks. In the following discussion, references to "Equity," "Bond," "Managed,"
or "Sector" Funds refers to the Funds listed as such in the prospectus.
1. Investing in Money Market Instruments
The Money Market Fund invests exclusively in "money market"
instruments; all the other Funds may invest in these instruments to some extent.
These are high quality, short-term fixed income obligations. Because of their
nature, money market instruments generally do not carry significant risks of
loss, but do have some credit and interest rate risk. The principal risk,
however, is that a Fund's return on money market instruments will be less than
it would have earned on a riskier investment.
2. Investing in Other Fixed Income Obligations
a. Overview: The following Bond Funds invest primarily in non-money
market fixed income (i.e., "debt") securities: the Short-Term Bond, Bond Index,
Active Bond, High Yield Bond and Global Bond Funds. The Managed and Global
Balanced Funds can vary their holdings of these securities within a broad range.
The Large Cap Value Fund may also invest in non-money market debt to a limited
extent.
Various types of risk associated with these securities are discussed in
the balance of this Section 2.
b. Interest rate risk: In general, debt securities with longer
maturities than money market instruments have exposure to interest rate risk.
Changes in generally prevailing market interest rates alter a debt security's
market value and introduce volatility into the rate of return of a Fund that
invests in such securities. When prevailing interest rates go up, the market
value of debt securities tends to go down and vice versa. This sensitivity
5
of the market value of a debt security to changes in interest rates is generally
related to the "duration" of the instrument. The market value of a shorter-term
fixed income security is generally less sensitive to interest rate moves than
that of a longer-term security. For example, the interest rate risk of the
Short-Term Bond Fund, although moderate, is below that of traditional
intermediate or long-term bond portfolios.
c. Credit risk: The value of a fixed income security may also change as
a result of market perceptions regarding its credit risk: i.e., the ability of
the borrower to repay its debts. The market value of a fixed income security can
fall when the market perceives the borrower to be less credit worthy.
Conversely, the market value of a fixed income security can increase due to its
borrower being perceived as financially stronger. All Funds that invest in debt
securities, including money market securities, may have some exposure to credit
risk.
Even some U.S. Government obligations have a degree of credit risk.
"U.S. Government obligations" are bills, certificates of indebtedness, notes and
bonds issued or guaranteed as to principal or interest by the United States or
by agencies or authorities controlled or supervised by and acting as
instrumentalities of the U.S. Government and established under the authority
granted by Congress. Some obligations of U.S. Government agencies, authorities,
and other instrumentalities are supported by the full faith and credit of the
U.S. Treasury; others by the right of the issuer to borrow from the Treasury;
and others only by the credit of the issuing agency, authority, or other
instrumentality. These latter types of obligations, therefore, do have a degree
of credit risk. All fixed income funds invest in U.S. Government obligations.
All of the other Funds may also invest in U.S. Government obligations to some
extent.
Securities having one of the four highest rating categories for debt
securities as defined by Moody's Investors Services, Inc. (Aaa, Aa, A, or Baa)
or Standard and Poor's Corporation (AAA, AA, A, or BBB) or, if unrated,
determined to be of comparable quality by the subadviser, are referred to as
"investment grade." The meanings of such ratings are set forth in Appendix A to
this Statement of Additional Information. Lower-rated bonds have more credit
risk than higher rated bonds.
d. Risk of lower-quality instruments: High-yield bonds (or "junk"
bonds) are debt securities rated below "investment grade" as defined above. The
value of these lower rated securities generally is more subject to credit risk
than is the case for higher rated securities, and their values tend to respond
more to changes in interest rates or changes in market perceptions regarding
their credit risk.
Investments in companies issuing high yield securities are considered
to be more speculative than higher quality instruments. As such, these
securities typically pay a higher interest rate than investment grade
securities.
Issuers of high yield securities are typically in weak financial
health, and their ability to pay back principal and interest on the bonds they
issue is uncertain. Some of these issuers may be in default or bankruptcy.
Compared with issuers of investment-grade bonds, they are more likely to
encounter financial difficulties and to be materially affected by these
difficulties when they do encounter them.
High yield bond markets may react strongly to adverse news about an
issuer or the economy, or to the perception or expectations of adverse news.
These debt securities may also have less liquid markets than higher rated
securities.
Judgment plays a greater role in valuing high yield securities than in
the case of other securities for which more extensive quotations and last-sale
information are available. Adverse publicity and changing investor perceptions
may affect the ability of outside pricing services used by a Fund to value its
portfolio securities, and the ability of the Fund to dispose of its lower-rated
bonds.
Past experience may not provide an accurate indication of future
performance of high yield securities, especially during periods of economic
recession. The market prices of high yield securities may decline significantly
in periods of general economic difficulty, which may follow periods of rising
interest rates. During an economic downturn, the ability of issuers of
lower-rated debt to service their payment obligations, meet projected goals, or
obtain additional financing may be impaired. In fact, in 2001, the percentage of
high yield securities that defaulted reached the highest level in ten years. In
some cases, a Fund may find it necessary, at its own expense or
6
in conjunction with others, to pursue litigation or otherwise exercise its
rights as a security holder to seek to protect the interests of security
holders, if it determines this to be in the interest of Fund investors.
All Funds that invest in debt securities (other than the Money Market
Fund) may at times have some exposure to high yield securities. The High Yield
Bond Fund invests primarily in these securities. The other Fund most likely to
invest a significant portion of its assets in high yield securities is the
Active Bond Fund. The Managed, Short-Term Bond, Global Bond and Global Balanced
Funds may also invest in high yield securities to some extent. In contrast, the
Bond Index Fund will not invest in debt securities that are not at least
investment grade at the time of purchase, but could end up holding high yield
securities if downgraded to below investment graded after already having been
purchased for the Fund.
Although not customarily referred to as "high yield" securities or
"junk bonds," debt securities that fall in the lowest rating within the
investment grade category are considered medium grade securities that have some
speculative characteristics. Accordingly, to a lesser degree, they may present
the same risks discussed above with respect to high yield securities.
The considerations discussed above for lower-rated debt securities also
are applicable to lower quality unrated debt instruments of all types, including
loans and other direct indebtedness of businesses with poor credit standing.
Unrated debt instruments are not necessarily of lower quality than rated
securities, but they may not be attractive to as many buyers.
e. Prepayment/Call risk: Prepayment risk is the risk that the obligor
on a debt security may repay or "call" the debt before it is due. Most mortgage
backed securities, asset backed securities, other public bond debt securities
and 144A securities that a Fund might own are exposed to this risk. U.S.
Government securities typically have minimal exposure to this risk.
Prepayment/call is most likely to occur when interest rates have declined and a
borrower can refinance the debt at a lower interest rate level. Generally, a
Fund reinvests the proceeds resulting from prepayments in a lower yielding
instrument. This results in a decrease in the Fund's current yield. The values
of securities that are subject to prepayment/call risk also tend to increase
less in response to declining interest rates and decrease more in response to
increasing interest rates than would the value of otherwise similar securities
that do not have prepayment or "call" features.
All Funds that invest in debt securities may at times have some
exposure to prepayment/call risk. The fixed income funds and balanced funds are
most likely to invest a significant portion of their assets in debt securities
with prepayment/call features.
f. Risks of "zero coupon" instruments: All of the Funds may, in varying
degrees, invest in debt instruments that provide for payment of interest at the
maturity date of the instrument (or payment of interest in the form of
additional securities), rather than payment of interest in cash periodically
over the life of the instrument. The values of such instruments tend to respond
more to changes in interest rates than do otherwise comparable debt obligations
that provide for periodic interest payments. The Bond Funds (other than the
Money Market Fund) and Balanced Funds may invest a significant amount of their
assets in instruments that are subject to this volatility risk. However, all
Funds that invest in debt securities may at times have some exposure to this
risk.
3. Investing in Equity Securities
a. Overview: All of the Funds intend to invest to some degree in common
stock or other equity securities, except for the Short-Term Bond, Bond Index,
and Money Market Funds. All Equity and Sector Funds may invest in equity
securities and are expected to make such securities their primary investment.
The Balanced and funds invest a significant portion of their assets in equity
services, but also invest a substantial amount of their assets in debt
obligations. The Active Bond, Global Bond and High Yield Bond Funds will invest
in equity securities only to a limited extent and will invest primarily in debt
obligations.
General risks of investing in equity securities are discussed in the
balance of this Section 3.
7
b. Equity risk: Investments in common stock or other equity securities
historically have offered a higher rate of return than money market instruments
or longer term debt securities. However, the risk associated with equity
securities also tend to be higher, because the investment performance of equity
securities depends upon factors which are difficult to predict. The fundamental
risk associated with any equity portfolio is the risk that the value of the
investments it holds might decrease in value. Equity security values may
fluctuate in response to the activities of an individual company or in response
to general market, interest rate, and/or economic conditions.
c. Market capitalization risk: One indication of the relative risk of a
common stock investment is the size of the company, which is typically defined
by reference to its "market capitalization." Market capitalization is computed
by multiplying the current market price of a share of the company's stock by the
total number of its shares outstanding.
Investing in larger capitalization companies generally involves a
lesser degree of risk than investing in smaller capitalization companies.
Conversely, investing in the equity securities of smaller companies generally
involves greater risks and potential rewards than investing in larger, more
established companies. Small capitalization companies, in particular, often have
limited product lines, markets or financial resources, and they may depend upon
a small group of relatively inexperienced managers. Investments in such
companies can be both more volatile and more speculative. These securities may
have limited marketability and are subject to more abrupt or erratic market
movements than securities of larger companies or the market in general.
The U.S. equity securities of the Equity Index, Large Cap Value, Large
Cap Value CORE, Large Cap Growth and Large Cap Aggressive Growth Funds are
generally expected to represent primarily companies that qualify as large cap
issuers. These Funds also may invest in the equity securities of companies that
qualify as small and mid cap issuers.
The U.S. equity securities of the Growth & Income, Fundamental Value,
Fundamental Growth, Managed, and Global Balanced Funds are generally expected to
represent primarily large and mid cap issuers. These Funds also may invest in
the equity securities of companies that qualify as small cap issuers.
The U.S. equity securities of the Small/Mid Cap Growth and Small/Mid
Cap CORE Funds are generally expected to represent companies that qualify as
small cap and mid cap issuers. These Funds also may invest in the equity
securities of companies that qualify as large cap issuers.
The U.S. equity securities of the Small Cap Equity, Small Cap Value and
Small Cap Growth Funds are generally expected to represent primarily companies
that qualify as small cap issuers. Although these Funds also may invest
significant amounts in the equity securities of companies that qualify as mid
cap issuers, it is expected that they would rarely invest in the equity
securities of companies that qualify only as large cap issuers.
The Multi Cap Growth Fund has broad latitude to invest in companies of
any size. The Real Estate Equity and Health Sciences Funds have broad latitude
to invest in companies of any size, depending on the market capitalization of
the respective sectors covered by those Funds.
The Market Capitalization Data section of the prospectus describes the
capitalization levels that are currently used by the Trust for U.S. equities.
Three capitalization levels are currently used by the Trust for
non-U.S. equities: large, medium ("mid"), and small.
. Large cap: Companies having a capitalization greater than $5 billion
. Mid cap: Companies having a capitalization between $1 billion and
$5 billion
. Small cap: Companies having a capitalization less than $1 billion
8
The non-U.S. equity securities of the International Equity Index,
International Opportunities and Global Balanced Funds are generally expected to
represent primarily non-U.S. companies that qualify as large and mid cap
issuers. These Funds also may invest in the equity securities of non-U.S.
companies that qualify as small cap issuers.
The Emerging Markets Equity Fund has broad latitude to invest in companies
of any size.
4. Investing in Real Estate Securities
a. Overview: The Real Estate Equity Fund invests primarily in companies
with activities related to the real estate industry, such as real estate
investment trusts ("REITs") that own commercial and multifamily residential real
estate, real estate operating companies ("REOCs") that derive the majority of
their revenue, income or asset value from real estate and other companies
engaged in non-real estate businesses but whose real estate holdings are
significant in relation to the market value of their common stock.
The securities purchased will be principally common stock (and
securities convertible into or with rights to purchase common stock) but a
portion of the Fund may be invested in preferred stock. The Fund may also invest
in commercial mortgage securities (debt obligations secured by commercial
property), collateralized mortgage obligations (mortgage pass through securities
secured by commercial mortgage pools) and master limited partnerships from time
to time, but does not do so on the date of this Statement of Additional
Information.
In addition to the Real Estate Equity Fund, all of the other Funds may
have some exposure to real estate risks through investments in companies engaged
in real estate related businesses or investments in debt instruments secured by
real estate or interests in real estate.
b. Risks of real estate securities: Generally speaking, real estate
securities may be affected by risks similar to those resulting from the direct
ownership of real estate, as well as by market risks due to changes in interest
rates and by the overall volatility of the equity markets. The market value of
shares in equity real estate investment trusts and commercial property
companies, in particular, is heavily dependent upon the value of their
underlying properties. Overbuilding, declines in local or regional economic
conditions, financial difficulties on the part of major tenants and increases in
real estate taxes and operating expenses all could decrease the value of the
real estate investments.
5. Investing in Foreign Securities
a. Overview: Investments in foreign securities may be made in a
foreign-denominated security, or in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs") or other U.S. dollar denominated securities representing underlying
shares of foreign securities. ADRs, EDRs, GDRs and other securities representing
underlying shares of foreign securities may not necessarily be denominated in
the same currency as the securities into which they may be converted, but rather
in the currency of the market in which they are traded. ADRs are receipts,
typically issued by an American bank or trust company, which evidence ownership
of underlying securities issued by a foreign corporation. EDRs are receipts
issued in Europe by banks or depositories which evidence a similar ownership
arrangement. GDRs are receipts issued in two or more markets by banks or
depositaries which evidence a similar ownership arrangement. Generally, ADRs are
designed for use in U.S. securities markets, EDRs for use in European securities
markets, and GDRs for use in multiple securities markets.
Investments in debt securities issued by foreign issuers may be made in
foreign-denominated debt instruments or in the form of U.S. dollar denominated
debt securities issued by foreign issuers and publicly traded in the United
States ("Yankees") or in Europe ("Eurobonds").
The International Equity Index, International Opportunities and
Emerging Markets Equity Funds invest primarily in foreign securities, including
foreign-denominated securities. The Health Sciences, Global Balanced, and Global
Bond Funds invest a significant portion of their assets in foreign securities,
including foreign-denominated
9
securities. To a lesser extent, the Large Cap Value, Multi Cap Growth, Real
Estate Equity, Managed, and High Yield Bond Funds may also invest in foreign
securities, including foreign-denominated securities.
Funds investing in equity securities may also invest in ADRs and other
U.S. dollar denominated foreign securities. Funds investing in debt securities
may also invest in foreign debt securities denominated in U.S. dollars (i.e.,
Yankees and Eurobonds).
The Emerging Markets Equity Fund invests primarily in developing
countries commonly known as "emerging markets." To a lesser extent, other Funds
(except for the Money Market Fund) may also invest in emerging markets
securities denominated in U.S. dollars or any other currency.
Risks of investing in foreign securities are discussed in the
paragraphs that follow:
b. Currency risks: When a Fund buys foreign-issued securities, it
usually must pay for those securities in the local currency. Therefore, the Fund
must convert funds into the local currency to the extent necessary for this
purpose. Similarly, when a Fund sells a foreign security, it may receive payment
in the local currency. Therefore, if the Fund does not wish to continue to hold
that currency, it must enter into a transaction disposing of it.
In these ways, therefore, a Fund may temporarily hold foreign currency
in order to facilitate the purchase and sale of foreign securities. This exposes
the fund to the risk that the foreign currency's value could, while the Fund was
temporarily holding that currency, decline relative to the U.S. dollar. This
could result in a loss to the Fund, because the Fund's assets and shares are
valued in U.S. dollars. On the other hand, the Fund could experience gains if
the foreign currency's value, relative to the U.S. dollar, increases during the
period when the Fund holds that currency.
More fundamentally, however, because the Fund values its assets and
shares in U.S. dollars, the Fund's gains and/or losses on investments that are
denominated or traded in foreign currencies will depend in part on changes in
the value of that currency relative to the U.S. dollar. This exposes the Fund to
the risk of loss if that foreign currency loses value, as well as the
possibility of gains if that currency gains value, relative to the U.S. dollar.
The Funds may (but are not required to) employ certain strategies to
limit their risks or otherwise manage their exposure to foreign currencies. Such
currency management techniques, as well as the risks that those techniques
themselves present, are discussed in Section 6. below.
Also, a risk exists that a foreign country may have or implement
restrictions on transactions in its currency that prevent a Fund from
effectively managing or reducing its exposure to that currency, even after the
Fund has disposed of any securities denominated or traded in that currency.
c. Political and economic risk: Foreign securities often are subject to
heightened political and economic risks, particularly in emerging markets or
other underdeveloped or developing countries, which may have relatively unstable
governments and economies based on only a few industries. Foreign governments
may take over the assets or operations of a company, may impose additional
taxes, or may place limits on the removal of the Fund's assets from that
country. However, investments in foreign securities also offer the opportunity
to diversify holdings and to invest in economies whose growth may outpace that
of the United States.
d. Regulatory risk: Generally, there is less government supervision of
foreign markets. Foreign issuers generally are not subject to uniform
accounting, auditing, and financial reporting standards and practices applicable
to domestic issuers. There may be less publicly available information about
foreign issuers than domestic issuers. These risks may be greater in emerging
markets or other underdeveloped or developing countries.
e. Market risk: Foreign securities markets, particularly those of
emerging markets or other underdeveloped or developing countries, may be less
liquid and more volatile than domestic markets. Certain markets may require
payment for securities a Fund purchases before delivery of these securities to
the Fund, and
10
delays may be encountered in settling securities transactions. In some foreign
markets, there may be limited protection against failures by other parties to
complete their transactions with a Fund. There may be limited legal recourse
against an issuer in the event of a default on a debt instrument held by a Fund.
f. Transaction costs: Transaction costs of buying and selling foreign
securities, including brokerage, tax, and custody costs, are generally higher
than those involved in domestic transactions. This is particularly likely for
investments in emerging markets, or other underdeveloped or developing
countries.
6. Techniques and Instruments for Managing Currency Exposure
a. General considerations and risks: The Funds are not obligated to try to
hedge against any change in the value of any currency. Even if a Fund wished to
do so, there is no assurance that market conditions would be such as to make
such hedging possible. In general, however, the more foreign securities a given
Fund invests in, the greater its currency management activities are likely to
be. The foreign currency management techniques and instruments discussed below
do not eliminate fluctuations in the prices of portfolio securities or prevent
losses if the prices of such securities decline. A Fund may use certain types of
these instruments in currency management strategies that expose that Fund to
currencies other than the U.S. dollar. Although this would not be done for the
purpose of "leveraging" the Fund's overall exposure to fluctuations in currency
values, such strategies could expose the Fund to greater risks of loss and
greater volatility than it otherwise would experience. Moreover, even where a
Fund establishes positions designed to manage its foreign currency exposure,
there is no assurance that this will be beneficial to the Fund. Such positions
may cause a Fund to forego gains that it otherwise could have achieved or incur
costs and losses that it would not otherwise have incurred. (In general the cost
to the Funds of engaging in foreign currency management transactions varies with
such factors as the currency involved, the type and duration of the instrument
being used for this purpose, and the market conditions then prevailing.) It is
entirely possible, therefore, that any effort to manage a Fund's currency
exposure could have a negative effect on the Fund's investment performance.
The Funds may or may not attempt to hedge some or all of their foreign
portfolio positions. Rather, they will enter into such transactions only to the
extent, if any, deemed appropriate by their subadvisers. Furthermore, no Fund
will use forward foreign currency exchange contracts for the purpose of
leveraging the Fund's currency exposure.
b. Techniques for managing currency exposure: The Funds may employ one or
more of the following techniques for managing currency exposure:
(i) Transaction hedging: When a Fund anticipates having to purchase
or sell a foreign currency to facilitate a foreign securities transaction,
it may wish to "lock in" the current exchange rate for that currency
(vis-a-vis the U.S. dollar) and thus avoid (in whole or in part) exposure
to further changes in that rate that could occur prior to when the purchase
or sale proceeds are actually paid. This is called "transaction hedging."
A Fund can do transaction hedging by purchasing or selling foreign
currencies in the "spot" (i.e., cash) market. Alternatively, a Fund may use
one or more of the instruments described in Section 6.c. below for
transaction hedging.
(ii) Portfolio hedging: A Fund may also use one or more of the
instruments described below to reduce its exposure to changes (relative to
the U.S. dollar) in the value of a foreign currency during a period of time
when the Fund owns securities that are denominated, exposed to or traded in
that currency. This is called "portfolio hedging." A Fund generally will
not engage in portfolio hedging with respect to the currency of a
particular country to an extent greater than the aggregate market value (at
the time of establishing the hedge) of securities held by that Fund which
are denominated in, exposed to or traded primarily in that particular
foreign currency but may do so for purposes if transactions involving
"proxy" currency or "cross hedging."
(iii) "Proxy" currency: For purposes of transaction hedging or
portfolio hedging, the Funds may use instruments on a "proxy" currency,
instead of the currency being hedged. A proxy currency is one that the
subadviser believes will bear a close relationship to the currency being
hedged and believes will approximately
11
equal the performance of such currency relative to the U.S. dollar.
Nevertheless, changes in the value of the currency being hedged may not
correspond to changes in the value of the proxy currency as expected, which
could result in the currency hedge being more favorable or less favorable
to the Fund than the subadviser had expected.
(iv) Cross hedging: The Funds may use additional techniques when their
subadvisers believe that the currency of a particular country may suffer a
significant decline against the U.S. dollar or against another currency. In
that case, a Fund may use an instrument that, in effect, simultaneously
establishes for the Fund (1) a "short" position in an amount of foreign
currency approximating the value of some or all of that Fund's securities
denominated in, traded in, or exposed to such foreign currency and (2) a
corresponding "long" position in U.S. dollars or another currency. The
"long" position might be a currency other than U.S. dollars, for example,
if such other currency is believed to be undervalued or necessary to bring
the Fund's overall exposure to various currencies into a more desirable
balance. This is called "cross hedging."
(v) Other: To otherwise adjust the currency exposure of their
portfolios, the Funds may also enter into contracts that, in effect,
simultaneously establish for the Fund (1) a "short" position in an amount
of U.S. dollars, or other appropriate currency, and (2) a corresponding
"long" position in an amount of foreign currency equal to the value of some
of the Fund's securities.
c. Instruments for managing currency exposure: In furtherance of the
above-described techniques for managing currency exposure, the Funds may use one
or more of the following instruments:
(i) Forward exchange contracts (and related asset segregation
requirements): In a forward exchange contract, a Fund purchases or sells a
specific amount of foreign currency, at a price and time (which may be any
fixed number of days in the future) set in the contract. A Fund's
obligation to deliver an amount of a currency under a forward contract must
at all times be "covered" by the Fund's (a) owning at least that amount of
investments denominated or primarily traded in such currency that are not
segregated to support any other Fund obligation or (b) having a contractual
right to acquire that amount of such investments or such amount of currency
at a price no greater than the amount the Fund will receive on settlement
of the forward contract; or, alternatively, the Fund's sub-adviser must (c)
cause the Fund's custodian to segregate cash or other liquid assets of the
Fund that are not segregated to support any other Fund obligation and that,
together with any margin the Fund has on deposit for that forward contract,
at all times at least equals the amount of the Fund's obligation under that
contract; provided that, as to any forward contract on any currency that
settles on a "net" basis, a Fund may, for purposes of clause (c), consider
its "obligation" to be the net amount it owes under that contract that is
not covered as provided in clauses (a) and (b) of this sentence.
(ii) Options on currencies (and related asset segregation
requirements): A Fund may purchase and write put and call options on
foreign currencies. This could include options traded on U.S. and foreign
exchanges, as well as those traded in "over-the-counter" markets. The
characteristics and risks of these currency option transactions are similar
to those discussed in Sections 11. and 12. below with respect to put and
call options on securities.
A Fund's obligation to deliver an amount of currency upon exercise of
a call option written by the Fund must at all times be "covered" by the
Fund's (a) owning at least that amount of investments denominated or
primarily traded in such currency that are not segregated to support any
other Fund obligation or (b) having a contractual right to acquire such
investments or such amount of currency at a price no greater than the
amount the Fund will receive upon exercise of the option; or,
alternatively, the Fund's sub-adviser must cause the Fund's custodian at
all times to have segregated cash or other liquid assets of the Fund that
are not segregated to support any other Fund obligation and that, together
with any margin the Fund has on deposit with respect to that option, at all
times at least equals the value of the currency that the Fund is obligated
to deliver under the option and that is not covered as provided in clause
(a) or (b) of this sentence.
In connection with any currency put option written by a Fund, the
Fund's sub-adviser will cause the Fund's custodian at all times to have
segregated cash or other liquid assets of the Fund that are not segregated
to support any other obligation of the Fund and that, together with any
margin the Fund has on deposit with
12
respect to such option, at all times at least equals the amount the Fund is
obligated to pay upon exercise of the option.
(iii) Currency futures contracts (and options thereon): A Fund may use
currency futures contracts and options thereon to manage currency exposure.
The characteristics and risks of such futures and options transactions are
similar to those discussed in Sections 11, 12, and 13. below for other
transactions in futures contracts and options thereon. All transactions in
currency futures and options thereon also would be subject to the
applicable limitations in Section 13.c.(ix) below.
(iv) Other derivative instruments: A Fund may use certain "swaps,"
"caps," "floors," and "collars" to manage currency exposure. The
characteristics and risks of such "derivative" transactions, as discussed
in Section 14 below, are generally also applicable when such instruments
are used for currency management purposes.
7. Reallocating a Fund's Assets Among Asset Classes
The continual reallocation of assets among the major asset classes (e.g.,
stocks, bonds, and cash) involves the risk that the subadviser may reduce the
Fund's holdings in an asset class whose value increases unexpectedly, or may
increase the Fund's holdings in an asset class just prior to that asset class
experiencing a loss of value. The Managed and Global Balanced Funds tend to
exercise broad discretion in reallocating assets across asset classes. The
Global Bond Fund intends to exercise discretion to reallocate assets across
domestic and international asset classes.
All of the other Funds, with the exception of the Money Market Fund,
generally allow the subadviser some latitude to allocate across asset classes.
Nevertheless, this latitude is expected to be exercised to a lesser degree than
in the Balanced funds.
8. Adopting a Temporary Defensive Strategy
All of the Funds, except the Money Market Fund, may (but are not
required to) adopt a defensive investment posture if the subadviser believes the
investment environment for the Fund is negative. Such a defensive posture would
involve reallocating some or all of a Fund's assets in a manner different from
that contemplated by its primary investment objective and strategies and normal
level of assets, cash and cash equivalents. For most "actively managed" funds,
(i.e., Funds that do not invest with an index-based objective), this level is
10% or less, except in abnormal market conditions, when the level can be higher.
The Funds are limited only by their fundamental investment restrictions
as to the types of investments they could use temporarily for defensive
purposes. Thus, for example, a small cap equity Fund might temporarily invest in
stocks of larger cap companies or in high quality, short term debt securities. A
bond Fund might shorten maturities or tighten its investment quality parameters.
An international Fund might, for example, limit the countries it would invest in
or temporarily invest only in high quality, short-term debt securities in the
United States.
There can be no assurance that the transaction costs and lost investment
opportunities will not outweigh any benefits to a Fund that attempts to adopt a
defensive strategy.
9. Investing With an Index-Based Objective
The Equity Index, International Equity Index, and Bond Index Funds expect
to invest substantially all of their assets in equity or debt securities within
their investment objectives and policies at all times. Accordingly, these Funds
may carry more risk in times of declining markets than "actively managed" Funds
that during normal market conditions, maintain a higher level of cash or cash
equivalents and, during periods of abnormal market conditions, are more likely
to adopt a defensive investment posture by reallocating their assets in a manner
different from that contemplated by their primary investment objective and
strategies.
Investments in the Equity Index, International Equity Index, and Bond
Index Funds each involve the risk
13
that the Fund will be unable to match the performance of its corresponding
target index. Each Fund's ability to do so is affected by (a) the size and
timing of cash flows into and out of that Fund, (b) the level of the Fund's
expenses, including commissions and "spreads," on its portfolio transactions,
other portfolio management expenses, and other operating expenses, and (c) the
degree of success of the techniques employed by the Fund's subadviser. Further,
if the size of a Fund limits the number of issues that the Fund can purchase, or
that size is relatively small in relation to cash flows, there is a greater
possibility that the Fund may be unable to match the performance of the
corresponding target index.
The S&P 500 Index: The S&P 500 is an index that is constructed by the
Standard & Poor's Corporation ("Standard & Poor's" or "S&P"), which chooses
stocks on the basis of market values and industry diversification. Most of the
largest 500 companies listed on U.S. stock exchanges are included in the index.
Additional stocks that are not among the 500 largest stocks, by market value,
may be included in the S&P 500 for diversification purposes. The index is
capitalization weighted -- that is, stocks with a larger capitalization (shares
outstanding times current price) have a greater weight in the index. Selection
of a stock for inclusion in the S&P 500 Index in no way implies an opinion by
S&P as to its attractiveness as an investment.
The Trust and the insurance products supported by the Trust are not
sponsored, endorsed, sold or promoted by Standard & Poor's. Standard & Poor's
makes no representation or warranty, express or implied, to the owners of the
insurance products supported by the Trust or to any member of the public
regarding the advisability of investing in the Trust or such insurance products.
Standard & Poor's only relationship to the Trust is the licensing of Standard &
Poor's "marks" and the S&P 500 Index, which is determined, composed and
calculated by Standard & Poor's without regard to the Fund or the Trust.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of McGraw-Hill, Inc. and have been licensed for use by the
Trust. In determining, composing, or calculating the S&P 500 Index, S&P has no
obligation to take into consideration the needs of the Trust or those of the
owners of the insurance products supported by the Trust. S&P is not responsible
for and has not participated in the determination of the prices and amount of
the insurance products supported by the Trust or the timing of the issuance or
sale of such products or in the determination or calculation of the equations by
which such products are to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing, or trading of such
products.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE TRUST, OWNERS OF THE PRODUCTS
SUPPORTED BY THE TRUST, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN. S&P 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 S&P
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The Lehman Brothers Aggregate Bond Indexes: The Lehman Brothers Aggregate
Bond Index (the "Aggregate Bond Index") is intended to measure the performance
of the domestic, investment grade, fixed-rate investment grade debt market
including government and corporate securities, agency mortgage pass-through
securities, commercial mortgage-backed securities and asset-backed securities.
The Aggregate Bond Index covers those securities in the Lehman Brothers
Government/Credit Index (the "Government/Credit Index"), plus those covered by
the Lehman Mortgage-Backed Securities Index ("MBS Index"), the Lehman Commercial
Mortgage-Backed Securities (ERISA Eligible) Index ("CMBS (ERISA Eligible)
Index"), and the Lehman Asset-Backed Securities Index ("ABS Index"). The
Government/Credit Index is composed of (1) all public obligations of the U.S.
Government, its agencies and instrumentalities (excluding "flower" bonds and
pass-through issues, such as GNMA certificates) and (2) all publicly issued,
fixed-rate, non-convertible, investment grade, U.S. dollar-denominated,
SEC-registered obligations of domestic corporations, foreign governments and
supranational organizations.
14
The MBS Index covers fixed-rate securities backed by mortgage pools of the
Government National Mortgage Association, the Federal Home Loan Mortgage
Association, and the Federal National Mortgage Association. The CMBS (ERISA
Eligible) Index covers ERISA-Eligible CMBS securities. The ABS Index covers
several subsectors -- including credit and charge cards, auto, utilities and
home equity loans -- and includes pass-through, "bullet," and controlled
amortization structures.
All securities in the index generally have at least $150 million par amount
outstanding and at least 1 year remaining to maturity.
All non-government issues in the Aggregate Bond Index are rated at least
Baa by Moody's Investors Service, Inc. ("Moody's") or, if unrated by Moody's,
BBB by Standard & Poor's Ratings Group ("Standard & Poor's").
All securities in the Aggregate Bond Index issued by non-U.S. entities are
denominated in U.S. dollars.
Lehman Brothers, Inc. is neither a sponsor of nor in any other way
affiliated with the Trust or the insurance products supported by the Trust.
Inclusion of a security in the Aggregate Bond Index in no way implies an opinion
of Lehman Brothers, Inc. as to its attractiveness or appropriateness as an
investment.
The MSCI EAFE GDP Index and MSCI Emerging Markets Free ("EMF") Index: The
MSCI EAFE GDP Index weights countries such that a country with a larger GDP will
have a greater weight in the index. Stocks within those countries are
capitalization weighted; that is, stocks with a larger capitalization have a
greater weight in the index. The MSCI EMF Index is a market capitalization
weighted index composed primarily of companies representative of the market
structure of Emerging Market countries in Europe, Latin America, and the Pacific
Basin. The MSCI EMF Index excludes closed markets and those shares in otherwise
free markets that are not purchasable by foreigners.
The Trust and the insurance products supported by the Trust are not
sponsored, endorsed, sold or promoted by Morgan Stanley Capital International
("MSCI"). MSCI makes no representation or warranty, express or implied, to the
owners of the Trust, or any member of the public regarding the advisability of
investing in funds generally or in the Trust or any Fund particularly, or the
ability of the MSCI EAFE GDP or MSCI EMF Indexes to track general stock market
performance. MSCI is the licensor of certain trademarks, service marks and trade
names of MSCI and of the MSCI EAFE GDP Index, which is determined, composed and
calculated by MSCI without regard to the Trust. "Morgan Stanley Capital
International" is a service mark of Morgan Stanley & Co., Incorporated, that has
been licensed for use by the Trust.
MSCI has no obligation to take the needs of the Trust or the owners of
insurance products supported by the Trust into consideration in determining,
composing or calculating the MSCI EAFE GDP or MSCI EMF Indexes. MSCI is not
responsible for and has not participated in the determination of the prices or
amounts of insurance products supported by the Trust or the timing of the
issuance and sale of such products, or in the determination or calculation of
the equations by which such products are convertible into cash. MSCI has no
obligation or liability to owners of the Trust or of the insurance products
supported by the Trust in connection with the administration, marketing or
trading of any Fund of the Trust.
ALTHOUGH MSCI OBTAINS INFORMATION FOR INCLUSION IN OR FOR USE IN THE
CALCULATION OF THE INDEX FROM SOURCES WHICH MSCI CONSIDERS RELIABLE, NEITHER
MSCI NOR ANY OTHER PARTY GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE
INDEX OR ANY DATA INCLUDED THEREIN. NEITHER MSCI NOR ANY OTHER PARTY MAKES ANY
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY OWNERS OF THE
TRUST, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA
INCLUDED THEREIN. NEITHER MSCI NOR ANY OTHER PARTY MAKES ANY EXPRESS OR IMPLIED
WARRANTIES, AND MSCI HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
15
SHALL MSCI OR ANY OTHER PARTY HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT,
SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS)
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
10. Investing on a Non-Diversified Basis
The Large Cap Growth, Large Cap Aggressive Growth, Growth & Income, Multi
Cap Growth, Real Estate Equity, Health Sciences, Managed, Global Balanced, and
Global Bond Funds are "non-diversified Funds." Non-diversified Funds are less
restricted in the extent to which they may invest more than 5% of their assets
in any issuer or purchase more than 10% of the voting securities of any issuer.
Because a relatively high percentage of a non-diversified Fund's assets may be
invested in the obligations of a single issuer or a limited number of issuers,
the value of that Fund's shares may be more volatile and more susceptible to any
single economic, political, or regulatory event, or to credit and market risks
associated with a single issuer, than would the shares of a diversified Fund.
11. Using Options
a. Overview: The Funds may, in varying degrees, use options on the
following (which, for simplicity, may be referred to as the "subject" of an
option): currencies, securities, equity indexes, interest rate indexes, and
financial futures contracts. This Section 11. discusses certain characteristics
and risks that are generally common to all of these types of options. The Funds'
use of specific types is further discussed in Section 6. above and 12. below,
including characteristics and risks peculiar to those types of options.
b. Purchasing "call" options: If a Fund (or anyone else) "purchases" a
"call" option, it pays a purchase price (often called a "premium") plus, in most
cases, a commission to the broker through whom the purchase was made. In return
the Fund (or other purchaser) has the right (but not the obligation), at or
before a specified future time (called the "expiration date"), to acquire a
specified amount of the option's subject (or the economic equivalent thereof) at
a specified price (called the "strike price" or "exercise price"). If the
purchaser of an option decides to exercise this right, we say the option has
been "exercised." If an option is never exercised before its expiration date, it
expires unexercised.
A Fund (or other purchasers of a call option) may profit in one of two
ways. First, the Fund may be able to exercise the call option at a date when the
value of the option's subject exceeds the purchase price of the option
(including any brokerage commission) plus the exercise price. Whether the Fund
will be able to do this depends on how favorable those prices were and how the
value of the option's subject has changed since the option was purchased.
Secondly, a Fund may profit from purchasing an option if the Fund is able
to sell the option (unexercised) at a profit sometime before its expiration
date. (As a practical matter, such a sale would generally be accomplished by
having the Fund sell (i.e., "write") an option identical to the option it owns,
thereby "netting out" the Fund's exposure to the position.) Whether such a
profit will be possible, of course depends on whether the then market price for
the option (less any commission payable on the sale) exceeds the option's
purchase price (including any related commission). In this regard, one of the
general risks of purchasing options is that, for a variety of reasons, the
market price of an option usually does not vary in the same way or to the same
extent as the value of the option's subject varies. Therefore, a Fund can lose
money purchasing a call option, even if the value of the option's subject
increases.
The basic risk in purchasing an option is that, if the Fund never exercises
or sells the option at a profit, the Fund will lose the entire purchase price of
the option (plus any related commissions). That is the maximum amount the Fund
could lose, however.
c. Selling or "writing" call options: Selling an option is commonly
referred to as "writing" an option. If the Fund (or anyone else) sells
("writes") a call option, it receives the premium (less any commission) paid by
the option's purchaser and has the obligation to sell the option's subject to
the purchaser at the exercise price if the purchaser exercises the option before
it expires.
16
The Fund can make a profit writing a call option if the purchaser fails to
exercise the option (which usually would happen only if the value of the
option's subject were below the exercise price). In this case, the option's
purchase price (net of any commissions) would be a profit to the Fund.
Alternatively, a Fund could profit from writing a call option if it is able
to subsequently purchase an identical option that would close out the Fund's
position at a profit. This could be done only if the market price of the option
then exceeded the Fund's purchase price by an amount greater than any
commissions payable by the Fund on the purchase and sale transactions. There is
a risk, however, that a Fund may be unable to do this, even if the value of the
call option's subject has declined. This is because, as noted above, the value
of an option does not vary in identical fashion to the value of the option's
subject.
The risk of writing a call option is that, if the value of the option's
subject exceeds the option's exercise price, the option is almost sure to be
exercised. In that case, the Fund will suffer a loss to the extent that the
premium it received for writing the option (net of any commissions), plus the
exercise price it receives are less than the value of the option's subject at
the time of exercise. Therefore, the higher the value of the option's subject
rises, the greater the Fund's potential loss on an option it has written. A Fund
could cut off its further exposure in such a case by purchasing an identical
call option that would close out its position. The Fund would, however, probably
realize a loss on the transaction, because the purchase price it would have to
pay for that call option would probably have increased to reflect the increasing
value of the option's subject.
d. Writing call options on a "covered" basis. One way for a Fund to limit
its risk exposure on call options it has written is to "cover." A call option
may be considered "covered" if, as long as the option is outstanding, the writer
(seller) of the option owns assets that are identical to, or have the same or
similar investment characteristics to, the option's subject. In such a case, if
the value of the option's subject increases, the losses that the Fund will incur
on the call option it has written will tend to be offset by gains that Fund
earns on the assets it is holding to "cover" the option.
Naturally, the more similar the assets held by the fund are to the option's
subject, the more assurance the Fund will have that its losses on call options
it has written will be "covered."
Call options written by Funds can also be considered to be "covered" to the
extent that the Fund's liabilities under these options are fully offset by its
rights under call options on the same subject owned by the Fund.
e. Purchasing and selling (writing) "put" options: A "put" option is the
same as a call option, except that a Fund (or any other person) that purchases a
put option, by paying the purchase price ("premium") has the right to sell
(rather than buy) the option's subject for a stated exercise ("strike") price.
Conversely, the seller (writer) of a put option receives the premium (net of any
commissions) but has the obligation to purchase the option's subject at its
exercise price if the option is exercised.
Thus, if a Fund purchases a put option, its maximum potential loss would
equal the purchase price (plus any commissions thereon). If the Fund actually
owns at least the amount of whatever assets are the subject of the option, the
option is sometimes referred to as a "protective" put option. If the market
value of such underlying securities remains above the option's exercise price,
the Fund will, in effect, lose the premium it has paid for the option. The Fund,
however, avoids the risk of loss on the underlying securities, to the extent
that the market value of the underlying securities falls below the exercise
price of the put option.
On the other hand, if a Fund sells (writes) a put option, the Fund could
experience continuing losses while the option is outstanding, to the extent that
the value of the subject of the option continues to decline. If the subject lost
its value entirely, the Fund's maximum loss would equal the exercise price less
the premium (net of any commissions) that the Fund received initially for
writing the option. Because of this risk exposure, a Fund that writes a put
option may seek to "cover" that option with other assets that it owns
f. Accounting for options: The value of any option that the Fund has
purchased, and the amount of the Fund's obligation under any outstanding option
it has written, will vary as market prices change. These variations
17
are reflected daily in the Fund's calculation of its net asset value, so that
such value always reflects the estimated impact of current market conditions on
all of the Fund's option positions.
g. Liquidity risk: The Funds intend to write and purchase options only if
the subadviser believes that adequate liquidity exists. If for any reason a Fund
cannot, however, close out its open option position when deemed advisable, the
Fund's investment performance could be adversely affected.
h. Using options traded over-the-counter or on foreign exchanges: A Fund
may use options on securities and options on indexes that are traded
"over-the-counter" or on foreign exchanges, in any manner and to the same extent
that they would be permitted to use such options that were traded on domestic
exchanges. The Funds will engage in over-the-counter options only with member
banks of the Federal Reserve System and primary dealers in U.S. Government
securities. The Funds will treat over-the-counter options they have purchased
and assets used to cover over-the-counter options they have written as illiquid
securities. However, with respect to options written with primary dealers in
U.S. Government securities pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount of illiquid securities may be
calculated with reference to the formula price.
12. Using Options on Securities (and related asset segregation requirements)
A Fund may purchase or write (sell) put and call options on securities of a
type that the Fund could invest in directly.
If a Fund writes a call option, it will at all times while that option is
outstanding, own an amount of securities subject to the option that are not
segregated to support any other obligation of the Fund and/or a call option on
the same securities at an exercise price that is not higher than that of the
call option written by the Fund; or, alternatively, the Fund's subadviser will
cause the Fund's custodian at all times to have segregated cash or other liquid
assets of the Fund that are not segregated to support any other Fund obligation
and that, together with any margin the Fund has on deposit with respect to the
option it has written, at all times at least equals the value of the securities
subject to the option that are not "covered" by the means set out in the first
clause of this sentence.
A Fund's obligation to make a payment upon the exercise of a put option on
securities written by the Fund will at all times be fully covered by the Fund's
owning a put option on the same securities at an exercise price that is no less
than the amount the Fund must pay upon exercise of the put it has written; or,
alternatively, the Fund's sub-adviser will cause the Fund's custodian at all
times to have segregated cash or other liquid assets of the Fund that are not
segregated to support any other Fund obligation and that, together with any
margin the Fund has on deposit with respect to the put option it has written, at
all times at least equals the amount of the Fund's obligation upon exercise of
the put option that is not covered as provided in the first clause of this
sentence.
13. Using Financial Futures Contracts, Options on Such Contracts and Options on
Stock Indexes
a. Overview: The Funds may, in varying degrees, use financial futures
contracts, options on such futures and options on stock indexes. This Section 13
discusses certain characteristics and risks that generally pertain to these
instruments, as well as the Funds' specific uses of these instruments and
specific risks related to those uses.
b. General characteristics and risks: The general characteristics and risks
of financial futures, options on such contracts and options on stock indexes are
discussed in the following subsections.
(i) Financial futures contracts: Financial futures contracts consist
of interest rate futures contracts, stock index futures contracts, and
currency futures contracts.
An interest rate futures contract is a contract to buy or sell
specified debt securities at a future time for a fixed price. A public
market currently exists for interest rate futures contracts on United
States Treasury Bills, United States Treasury Notes, bank certificates of
deposit, and various other domestic or foreign instruments and indexes.
18
Stock index futures contracts bind purchaser and seller to delivery at
a future date specified in the contract of a cash amount equal to a
multiple of the difference between the value of a specified stock index on
that date and settlement price specified by the contract. That is, the
seller of the futures contract must pay and the purchaser would receive a
multiple of any excess of the value of the index over the settlement price,
and the purchaser must pay and the seller would receive a multiple of any
excess of the settlement price over the value of the index. A public market
currently exists for stock index futures contracts based on the Standard &
Poor's 500 Stock Index, the Standard & Poor's Midcap Index, the New York
Stock Exchange Composite Index, the Value Line Stock Index, and various
other domestic or foreign indexes.
A currency futures contract is a contract to buy or sell a specified
amount of another currency at a future time for a fixed price.
(ii) Options on financial futures contracts: The writer of an option
on a financial futures contract agrees to assume a position in such
financial futures contract having a specified price, if the purchaser
exercises the option and thereby assumes the opposite position in the
financial futures contract. If the option purchaser would assume the sale
side of the futures contract upon exercise of the option, the option is
commonly called a "put" option. If the option writer would assume the
purchase side, it is commonly called a "call" option. As with other types
of options, the party that writes the option receives a premium for doing
so, and the party that purchases an option pays a premium therefor.
However, there is no exercise (or strike) price, as such. Rather, if the
value of the futures contract moves against the writer of the option, so
that the option is (or is likely to be) exercised, the option writer, in
effect, has the obligation to pay those losses.
More specifically, an option written by a Fund on a financial futures
contract requires the Fund to pay any amount by which the fluctuating price
of the underlying debt instrument or index exceeds (in the case of a call
option) or is less than (in the case of a put option) the price specified
in the futures contract to which the option relates. Therefore, if the
price of the debt instrument or stock index on which the futures contract
is based increases (in the case of a call option written by a Fund) or
decreases (in the case of a put option written by a Fund), the Fund may
incur losses that exceed the amount of the premium received by the Fund for
writing the option.
(iii) Stock index options: After payment of a specified premium at the
time a stock index option is entered into, the purchaser of a stock index
call option obtains the right to receive a sum of money upon exercise of
the option equal to a multiple of the excess of a specified stock index on
the exercise date over the exercise or "strike" price specified by the
option. The purchaser of a put option obtains the right to receive a sum of
money upon exercise of the option equal to a multiple of any excess of the
strike price over the stock index. The writer of a call or put stock index
option receives a premium, but has the obligation, upon exercise of the
option, to pay a multiple of the difference between the index and the
strike price. Thus, if the price of the stock index on which an index
option is based increases (in the case of a call option written by a Fund)
or decreases (in the case of a put option written by a Fund), the Fund may
incur losses that exceed the premium it received for writing the option.
Stock indexes for which options are currently traded include the
Standard & Poor's 100 and Standard & Poor's 500 Indexes.
(iv) Margin requirements for futures and options: When futures
contracts are traded, both buyer and seller are required to post an initial
margin of cash or U.S. Treasury Bills equaling as much as 5 to 10 percent
or more of the contract settlement price. The nature of the margin
requirements in futures transactions differs from traditional margin
payments made in securities transactions in that margins for futures
contracts do not involve the borrowing of funds by the customer to finance
the transaction. Instead, a customer's margin on a futures contract
represents a good faith deposit securing the customer's contractual
obligations under the futures contract. If the market moves against the
Trust, so that a Fund has a net loss on its outstanding futures contracts
for a given day, the Fund generally will be required to post additional
margin to that extent. The margin deposit is returned, assuming the Trust's
obligations have
19
been met, when the futures contract is terminated.
Similar margin requirements will apply in connection with any
transactions in which a Fund writes any options. This includes options on
indexes and futures contracts, as well as other types of options.
(v) Certain risks: Financial futures, options thereon, and stock
index options, if used by a Fund, will in most cases be based on securities
or stock indexes the components of which are not identical to the portfolio
securities owned or intended to be acquired by the Fund and in connection
with which such instruments are used. Furthermore, due to supply and demand
imbalances and other market factors, the price movements of financial
futures, options thereon, and stock index options do not necessarily
correspond exactly to the price movements of the securities, currencies, or
stock index on which such instruments are based. These factors increase the
difficulty of implementing a successful strategy using futures and options
contracts.
The Funds generally will not take delivery of debt instruments
pursuant to purchasing an interest rate futures contract, nor make a
delivery of debt instruments pursuant to selling an interest rate futures
contract. Nor will the Funds necessarily take delivery of or deliver
currencies in connection with currency futures contracts. Instead, a Fund
will more typically close out such futures positions by entering into
closing futures contract transactions. Similarly, a Fund may wish to close
out an option on a futures contract or an option on an index by entering
into an offsetting position in those instruments.
Generally speaking, entering into closing transactions such as
described immediately above would not affect gains and losses of the Fund
resulting from market action prior to such closing transactions. Moreover,
there is a risk that, at the time a Fund wishes to enter into such a
closing transaction, trading in futures or options could be interrupted,
for example, because of supply and demand imbalances arising from a lack of
either buyers or sellers. The futures and options exchanges also may
suspend trading after the price has risen or fallen more than the maximum
amount specified by the exchange. Exercise of options could also be
restricted or delayed because of regulatory restrictions or other factors.
Although the subadvisers will seek to avoid situations where these factors
would be likely to cause a problem for the Trust, in some cases they could
adversely affect particular Fund transactions in these instruments.
(vi) Asset segregation requirement for certain futures and options
positions: A Fund will maintain at all times in a segregated account with
its custodian cash or liquid securities that are not segregated to support
any other obligations of the Fund and that at all times at least equals (a)
the sum of the purchase prices of all of the Fund's open futures purchase
positions, plus (b) the current value of the securities underlying all of
the Fund's open futures sales positions that are maintained for purposes
other than bona fide hedging, plus (c) the exercise price of all
outstanding put options on futures contracts written by the Fund, minus (d)
the amount of margin deposits with respect to all of such contracts.
(c) Specific uses of financial futures, options thereon, and stock index
options: All Funds, except the Money Market Fund, may use exchange-traded
financial futures contracts, options thereon, and exchange-traded put or call
options on stock indexes, for the purposes discussed below. It should be
emphasized that none of the Funds is required to use any of these strategies,
and doing so is not a principal investment strategy of any of their investment
portfolios. Therefore, it should not be assumed that any particular Fund will
ever necessarily use any of these strategies to a significant extent.
(i) Hedging with financial futures contracts against market changes,
and risks thereon: A Fund may use financial futures contracts, and options
thereon, as a hedge to protect against possible changes in interest rates
and security prices.
Thus, for example, to hedge against the possibility that interest
rates or other factors may result in a general decline in prices of equity
securities of a type it owns, a Fund may sell stock index futures
contracts. Similarly, to hedge against the possibility that increases in
interest rates may adversely affect the market values of debt securities it
holds, a Fund may enter into interest rate futures sale contracts.
20
(ii) Establishing market exposure and managing cash flow with
financial futures contracts and options thereon: A Fund may purchase and
sell stock index and interest rate futures, and options thereon, to
maintain market exposure and manage cash flows. Purchasing futures
contracts, and options thereon, could enable a Fund to take the approximate
economic equivalent of a substantial position in bonds or equity
securities, although there is no assurance that this goal can be achieved.
(iii) Managing foreign currency exposure with foreign currency futures
contracts: A Fund may use foreign currency futures contracts, and options
thereon, to the same extent and in the same manner as it is authorized to
use forward foreign exchange contracts in Section 6. above.
(iv) Risks of hedging type strategies: If, after a Fund establishes a
hedge position, the value of the securities or currency being hedged moves
in the opposite direction from that anticipated, the Fund as a whole will
perform less well than it would have had it not entered into the futures or
option transaction.
The success of the Funds in using hedging-type techniques depends,
among other things, on the subadviser's ability to predict the direction
and volatility of price movements in the futures or options markets, as
well as the securities markets and, in some cases, currency markets, and on
the subadviser's ability to select the proper type, time and duration of
option or futures contracts. Certain of the subadvisers have limited
experience in utilizing these hedging-type techniques, and there can be no
assurance that these techniques will produce their intended result.
The prices of the futures and options contracts used for hedging-type
strategies may not vary as contemplated in relation to changes in the price
of the securities or currencies being hedged. Accordingly, there is a risk
that transactions in these instruments, if used by a Fund, may not in fact
offset the impact of adverse market developments in the manner or to the
extent contemplated or that such transactions may result in losses to the
Fund which would not be offset by gains with respect to corresponding
portfolio securities owned or to be purchased by that Fund. Hedging-type
transactions also may be more, rather than less, favorable to a Fund than
originally anticipated.
(v) Writing "covered" index options (and related asset segregation
requirements): A Fund may write put and call options on indexes composed of
securities in which the Fund may invest. A Fund's obligation to make a
payment upon the exercise of a put or call option on an index written by
the Fund will at all times be fully covered by (a) in the case of a put
option, the Fund's owning a put option on the same index at an exercise
price not lower than that of the option written by the Fund, or (b) in the
case of a call option, the Fund's owning a call option on the same index at
an exercise price not higher than that of the option written by the Fund;
or, alternatively, the Fund's sub-adviser will cause the Fund's custodian
at all times to have segregated cash of other liquid assets of the Fund
that are not segregated to support any other Fund obligation and that,
together with any margin the Fund has on deposit with respect to the option
it has written, at all times at least equals the amount of the Fund's
obligation upon exercise of the option it has written that is not covered
as provided in clause (a) or (b) of this sentence.
(vi) Purchasing index options. A Fund may purchase put and call
options on indexes composed of securities in which the Fund may invest,
without specific restriction on the circumstances of such purchases. Option
purchases of this type, however, would have to be consistent with the
Fund's investment objective. Also, each Fund is subject to the limitation
on certain futures and options transactions described in Section 13.c.(ix).
(vii) Using futures contracts and options on futures contracts: A Fund
may use futures contracts on securities or on market indexes, and options
on such futures contracts, without specific restriction on the purposes of
such transactions. Nevertheless, such transactions would have to be
consistent with the Fund's investment objective.
There is no specific overall limit on the amount of the assets a Fund
may devote to financial futures contracts and options thereon, even if such
contracts are not limited to hedging-type transactions.
21
Nevertheless (except through the purchase of options, as discussed below)
the Funds will not use these techniques for purpose of "leveraging" the
Fund's exposure to the securities underlying any futures contract or option
thereon or its exposure to foreign currencies. Although this limitation
does not apply to options on futures contracts that are purchased by a
Fund, the total amount of assets on deposit as margin to secure options on
futures contracts that are not used for bona fide hedging purposes plus the
amount of premiums paid by a Fund for such options is (pursuant to the
limitations set forth below) limited to 5% of the Fund's net assets.
(viii) Risks of potentially more aggressive options and futures
strategies: To the extent that a Fund exercises its broad authority to
enter into options and futures transactions for purposes that are not
solely for hedging-type purposes or that otherwise may be for more
speculative purposes, it may incur greater risks than another Fund that
limits its strategy to hedging-type transactions.
(ix) Limitations on the Funds' exposure to certain futures and
option transactions: No Fund may purchase, sell or write futures contracts
or options thereon other than for "bona fide" hedging purposes (as defined
by the U.S. Commodity Futures Trading Commission) if immediately thereafter
the Fund's initial margin deposits on such outstanding non-hedging futures
and options positions, plus the amount of premiums paid by the Fund for
such outstanding non-hedging options on futures contracts, exceeds 5% of
the market value of the Fund's net assets. For the purpose of this
calculation, any amount by which an option is "in the money" at the time of
its purchase is excluded from the premium paid therefor.
Nor will any Fund consider as "hedging" any transaction that is
intended to leverage the Fund's investment exposure to the type of security
being hedged or to leverage the Fund's currency exposure.
14. "Swaps," "Caps," "Floors," and "Collars"
a. Overview: The nature and risks of these types of transactions are
discussed in the paragraphs that follow.
b. Interest rate swaps: In a typical interest rate swap agreement, one
party agrees to make payments equal to a floating interest rate on a specified
amount (the "notional amount") in return for payments equal to a fixed interest
rate on the same amount for a specified period. If a swap agreement provides for
payments in different currencies, the parties might agree to exchange the
notional amount as well.
Provided the contract so permits, a Fund will usually enter into swaps on a
"net" basis: that is, the two payment streams are netted out in a cash
settlement on the payment date or dates specified in the instrument, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments.
c. Interest rate caps, floors and collars: The purchaser of an interest
rate cap or floor, upon payment of a fee, has the right to receive payments (and
the seller of the cap is obligated to make payments) to the extent a specified
interest rate exceeds (in the case of a cap) or is less than (in the case of a
floor) a specified level over a specified period of time or at specified dates.
The purchaser of an interest rate collar, upon payment of a fee, has the right
to receive payments (and the seller of the collar is obligated to make payments)
to the extent that a specified interest rate falls outside an agreed upon range
over a specified period of time or at specified dates.
d. Currency, index and equity swaps, caps, floors and collars: Currency,
index, and equity swaps, caps, floors, and collars are similar to those for
interest rates described in the two preceding paragraphs above, except that,
rather than being determined by variations in specified interest rates, the
obligations of the parties are determined by variations in a specified currency,
interest rate index, or equity index, as the case may be.
e. Certain risks: The amount of a Fund's potential gain or loss on any swap
transaction is not subject to any fixed limit. Nor is there any fixed limit on
the Fund's potential loss if it sells a cap, floor or collar. If a Fund buys a
cap, floor or collar, however, the Fund's potential loss is limited to the
amount of the fee that it has paid.
Swaps, caps, floors and collars tend to be more volatile than many other
types of investments.
22
Nevertheless, a Fund will use these techniques only as a risk management tool
and not for purposes of leveraging the Fund's market exposure or its exposure to
changing interest rates, security values or currency values. Rather, a Fund will
use these transactions only to preserve a return or spread on a particular
investment or portion of its investments, to protect against currency
fluctuations, as a duration management technique, to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date, or to gain exposure to certain markets in the most economical way
possible. Nor will a Fund sell interest rate caps, floors or collars if it does
not own securities providing the interest that the Fund may be required to pay
under such derivative instruments. Finally, of course, a Fund may use these
derivative instruments only in ways that are consistent with its investment
objective.
The use of swaps, caps, floors and collars involves investment techniques
and risks different from those associated with other portfolio security
transactions. If the subadviser is incorrect in its forecasts of market values,
interest rates, currency rates and other applicable factors, the investment
performance of a Fund might be less favorable than if these techniques had not
been used.
These instruments are typically not traded on exchanges. Accordingly, there
is a heightened risk that the other party to certain of these instruments will
not perform its obligations to the Fund. None of the Funds will enter into any
swap, cap, floor, or collar, unless the other party to the transaction is deemed
creditworthy by the subadviser.
There also is a risk that a Fund may be unable to enter into offsetting
positions to terminate its exposure or liquidate its investment under certain of
these instruments when it wishes to do so. Such occurrences could result in
losses to the Fund. In recent years, the swap market has become relatively
liquid. Caps, floors and collars are more recent innovations for which
standardized documentation has not yet been fully developed and, for that
reason, they are less liquid than swaps.
The liquidity of swaps, caps, floors and collars will be determined by the
subadviser based on various factors, including (1) the frequency of trades and
quotations, (2) the number of dealers and prospective purchasers in the
marketplace, (3) dealer undertakings to make a market, (4) the nature of the
instrument (including any demand or tender features) and (5) the nature of the
marketplace for trades (including the ability to assign or offset a Fund's
rights and obligations relating to the investment). Such determinations will
govern whether the instrument will be deemed within the Fund's 15% restriction
on investments in securities that are not readily marketable.
f. Segregation requirements for these derivatives:
Each Fund's sub-adviser will cause the Fund's custodian to segregate cash or
liquid assets of the Fund that are not then segregated to cover any other
obligation of the Fund and that, together with any margin the Fund has deposited
in connection with its outstanding swaps, caps, floors, and collars, at all
times at least equals the amount of the Fund's obligations under these
instruments. If a swap is on a net basis, the Fund's obligation for this purpose
is deemed to be the net amount, if any, that the Fund owes on the swap. In all
other cases, the full amount of the Fund's accrued obligation will be
segregated.
23
15. Investing in Other Investment Companies
a. Overview: Each Fund may invest up to 10% of its total assets in
shares of other investment companies investing exclusively in securities in
which that Fund may otherwise invest. Such investments may involve the payment
of substantial premiums above the net asset value of those investment companies'
portfolio securities and are subject to limitations under the Investment Company
Act of 1940. As a shareholder in an investment company, a Fund would bear its
ratable share of that investment company's expenses, including advisory and
administration fees, except as specifically stated otherwise in the paragraphs
that follow.
b. Investing in passive foreign investment companies: Because of
restrictions on direct investment by U.S. entities in certain countries, other
investment companies may provide the most practical (or only) way for a Fund to
invest in certain markets. A Fund may incur tax liability to the extent it
invests in the stock of a foreign issuer that is a "passive foreign investment
company," regardless of whether such "passive foreign investment company" makes
distributions to the Fund.
The International Equity Index Fund is more likely than other Funds to
invest in closed-end investment companies known as "country funds" or passive
foreign investment companies. (A "closed end" company is one whose shares can
generally be disposed of only in market transactions, as opposed to redemptions.
An "open end" company is one whose shares are freely redeemable.)
c. Investing in exchange traded funds: All Funds (other than the Money
Market Fund) may invest in certain forms of Exchange Traded Funds ("ETFs"),
provided such investment is consistent with the Fund's investment objectives.
ETFs are registered open-end investment companies whose shares can be bought and
sold on various exchanges in the same way as stocks. ETFs may be used for
several reasons, including but not limited to: facilitating the handling of cash
flows or trading, or reducing transaction costs. There are various forms of
ETFs, but the ones that are most commonly used at the current time are iShares
(formerly called World Equity Benchmark Shares or "WEBS") and SPDRs (Standard
and Poor's Depository Receipts).
(i) Investing in iShares: iShares(SM) are shares of an
open-end investment company that invests substantially all of its
assets in securities included in various indices. iShares(SM) are
listed on the AMEX and were initially offered to the public in 1996.
The market prices of iShares(SM) are expected to fluctuate in
accordance with both changes in the NAVs of their underlying indices
and supply and demand of iShares(SM) on the AMEX. To date, iShares(SM)
have traded at relatively modest discounts and premiums to the NAVs.
However, iShares have a limited operating history and information is
lacking regarding the actual performance and trading liquidity of
iShares(SM) for extended periods or over complete market cycles. In
addition, there is no assurance that the requirements of the AMEX
necessary to maintain the listing of iShares(SM) will continue to be
met or will remain unchanged. In the event substantial market or other
disruptions affecting iShares(SM) should occur in the future, the
liquidity and value of a Fund's shares could also be substantially and
adversely affected. If such disruptions were to occur, a Fund could be
required to reconsider the use of iShares(SM) as part of its investment
strategy.
(ii) Investing in SPDRs: SPDRs are American Stock
Exchange-traded securities that represent ownership in the SPDR Trust,
a trust which has been established to accumulate and hold a portfolio
of common stocks that is intended to track the price performance and
dividend yield of the S&P 500. This trust is a regulated investment
company that is sponsored by a subsidiary of the American Stock
Exchange.
d. Investing in money market fund shares: A Fund may also invest in
money market funds managed by its subadviser in reliance upon an exemptive order
received by its subadviser from the SEC. Such exemptive orders may permit funds
managed by the subadviser to invest in money market funds managed by it, to an
extent in excess of amounts otherwise permitted by the Investment Company Act.
The subadviser to the Multi Cap Growth Fund will remit the fees it receives from
money market funds it manages, to the extent such fees are based on the Multi
Cap Growth Fund's assets, to the Multi Cap Growth Fund. Nor are the Large Cap
Value, Small Cap Value, and International Opportunities Funds charged any
investment management fees for investments in money market funds managed by
their subadvisers.
24
16. "When Issued" Securities and Forward Commitments
a. Overview: All Funds may purchase securities on a when issued or
delayed delivery basis. When such transactions are negotiated, the price of such
securities is fixed at the time of commitment, but delivery and payment for the
securities may take place a month or more after the date of the commitment to
purchase. The securities so purchased are subject to market fluctuations, and no
interest accrues to the purchaser during this period.
In addition, these Funds may make contracts to purchase securities for
a fixed price at a future date beyond customary settlement time ("forward
commitments"), because new issues of securities are typically offered to
investors on that basis. Forward commitments involve a risk of loss if the value
of the security to be purchased declines prior to the settlement date. This risk
is in addition to the risk of decline in value of the Fund's other assets.
Although a Fund will enter into such contracts with the intention of acquiring
the securities, the Fund may dispose of a commitment prior to settlement if its
subadviser deems it appropriate to do so.
b. Asset segregation requirement for these transactions. Each Fund's
sub-adviser will cause the Fund's custodian to segregate cash or other liquid
assets of the Fund that are not then segregated to cover any other obligation to
the Fund and that, together with any margin the Fund has deposited in connection
with when-issued securities and forward commitments, at all times at least
equals the aggregate amount of the Fund's when-issued and forward commitments.
17. Short-Term Trading
All Funds can use short-term trading of securities as a means of
managing their portfolios to achieve their investment objectives. As used
herein, "short-term trading" means the purchase and subsequent sale of a
security after it has been held for a relatively brief period of time. A Fund
may engage in short-term trading to the extent that the subadviser believes the
transactions, net of costs (including commissions, if any), will benefit the
Fund. Generally speaking, short-term trading can be expected to generate
expenses for a Fund that would not be incurred by a Fund that did not engage in
that practice.
18. Entering Into Repurchase Agreements
All of the Funds may enter into repurchase agreements.
A repurchase agreement is a contract under which a Fund would acquire a
security for a relatively short period (e.g., 7 days), subject to the seller's
obligation to repurchase the security at a fixed time and price (representing
the Fund's cost plus interest). Repurchase agreements will be entered into only
with member banks of the Federal Reserve System, with "primary dealers" in U.S.
Government securities or with other dealers and banks who meet a subadviser's
credit standards
No Fund will invest in repurchase agreements maturing in more than 7
days if that investment, together with any other investments deemed "illiquid,"
would exceed 15% (10% in the case of the Money Market Fund) of the Fund's net
assets.
Each Fund has a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian, co-custodian, or sub-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 a
bankruptcy or other default by a seller of a repurchase agreement, however, the
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 while the Fund seeks to enforce its rights thereto,
possible subnormal levels of income and lack of access to income during this
period, and expenses of enforcing its rights).
25
19. Participating in Joint Trading Accounts
John Hancock has established a "joint trading account" that all Funds,
in the discretion of their subadvisers, can use to invest relatively small
amounts of cash on a more favorable basis than they could do individually. John
Hancock is responsible for investing the aggregate cash balances in the joint
trading account into one or more repurchase agreements, as described in Section
18. above, or in other money market instruments. The joint trading account was
established pursuant to an order of the SEC and all of the Funds (except the
Large Cap Value CORE, Multi Cap Growth Fund, Small/Mid Cap CORE, International
Opportunities, and Money Market Funds) regularly participate in it.
Each Fund is also free to participate in any similar joint trading
account that its subadviser operates for mutual fund assets managed by it. These
other joint trading accounts would be operated pursuant to their own SEC
exemptive orders, and the following Funds regularly participate in such other
joint trading accounts: the Large Cap Value CORE, Multi Cap Growth, Small/Mid
Cap CORE and International Opportunities Funds.
In each case, the subadviser that operates one of these joint trading
accounts is responsible for ensuring that all repurchase agreements acquired
through these accounts are at all times fully collateralized.
20. Lending of Fund Securities
In order to generate additional income, all Funds may, and most do,
lend securities from their portfolios to brokers, dealers and financial
institutions such as banks and trust companies. Such loans will be secured by
collateral consisting of cash or U.S. Government securities, which will be
maintained in an amount equal to at least 100% of the current market value of
the loaned securities. During the period of the loan, the Fund receives the
income (if any) on the loaned securities, as well as additional compensation for
making the loan. Cash collateral may be invested in short-term securities, which
will increase the current income of the Fund. Such loans will be terminable by
the Fund at any time. The Fund will have the right to regain record ownership of
loaned securities in order to exercise rights of a holder thereof including
receiving interest or other distributions or exercising voting rights. The Fund
may pay reasonable fees to persons unaffiliated with the Fund for services in
arranging such loans.
Lending of portfolio securities involves a risk of failure by the
borrower to return the loaned securities, in which event the Fund may incur a
loss. However, most of the Funds' loans of securities are pursuant to an
arrangement with State Street Bank & Trust Company, the Trust's primary
custodian. Under these arrangements, State Street Bank & Trust Company
guarantees the Trust against any loss or damages that any Fund incurs as a
result of the borrower failing to return the Fund's securities in accordance
with the terms of the loan. No Fund will lend portfolio securities having a
total value in excess of 33 1/3% of its total assets.
21. Reverse Repurchase Agreements and Mortgage "Dollar Rolls"
a. Overview: A Fund may enter into reverse repurchase agreements to
facilitate portfolio liquidity, or in arbitrage transactions (discussed below).
In a reverse repurchase agreement, the Fund sells a security and enters into an
agreement to repurchase the security at a specified future date, but at a lower
price. The Fund generally retains the right to interest and principal payments
on the security, as well as use of the proceeds while the repurchase agreement
is outstanding.
A Fund may enter into mortgage dollar rolls, in which the Fund sells
mortgage-backed securities for delivery in the current month and simultaneously
contracts to purchase substantially similar securities at a specified future
date and price. While the Fund foregoes principal and interest paid on the
mortgage-backed securities during the "roll" period, the Fund is compensated by
the difference between the current sale price and the lower price for the future
purchase as well as by any return earned on the proceeds of the initial sale.
The mortgage dollar rolls and reverse repurchase agreements entered
into by a Fund may be used as arbitrage transactions in which the Fund will
maintain an offsetting position in investment-grade debt obligations or
repurchase agreements that mature on or before the settlement date of the
related mortgage dollar roll or reverse repurchase agreement. Since the Fund
will receive interest on the securities or repurchase agreements in which it
26
invests the transaction proceeds, such transactions could be considered to
involve financial leverage. However, since such securities or repurchase
agreements will be high quality and will mature on or before the settlement date
of the mortgage dollar roll or reverse repurchase agreement, the Trust does not
believe that such arbitrage transactions present the risks to the Fund that are
generally associated with financial leverage.
b. Asset segregation requirements for reverse repurchase agreements and
mortgage dollar rolls: The Fund's sub-adviser will cause the Fund's custodian to
have segregated cash or other liquid assets of the Fund that are not segregated
to support any other Fund obligation and that at all times at least equals the
amount of the Fund's obligations under outstanding mortgage dollar rolls and
reverse repurchase agreements.
22. Investing in Rule 144A and Illiquid Securities
A Fund may purchase unregistered securities that are eligible for
resale to "qualified institutional buyers" pursuant to Rule 144A under the
Securities Act of 1933. Case-by-case determinations are made whether each issue
of Rule 144A securities owned by the Fund is an illiquid security.
Each Fund may purchase illiquid Rule 144A securities, or other illiquid
assets if, and only if, the total of all the Fund's illiquid assets would not
thereby be made to exceed 15% (10% in the case of the Money Market Fund) of the
Fund's net assets.
23. Investing in Preferred Stock, Convertible Securities and Warrants
Investments may be made in debt or preferred equity securities and
those convertible into, or exchangeable for, equity securities. Traditionally,
convertible securities have paid dividends or interest at rates higher than
common stocks but lower than nonconvertible securities. They generally
participate in the appreciation or depreciation of the underlying stock into
which they are convertible, but to a lesser degree. In recent years,
convertibles have been developed which combine higher or lower current income
with options and other features. Warrants are options to buy a stated number of
shares of common stock at a specified price anytime during the life of the
warrants (generally, two or more years).
24. Investing in Initial Public Offerings ("IPOs")
Almost all Funds of the Trust have the ability to invest in IPOs. IPO
investments may be more volatile than other types of investments and a Fund's
investments in IPOs may be subject to more erratic price movements than the
overall equity market. IPOs could have a substantial impact on performance,
either positive or negative, particularly on a fund with a small asset base. The
actual effect of IPOs on performance depends on a variety of factors, including
the number of IPOs the Fund invests in, whether and to what extent a security
purchased in an IPO appreciates in value, and the asset base of the Fund. There
is no guarantee that a Fund's investments in IPOs, if any, will continue to have
a similar impact on the Fund's performance in the future.
27
D. THE FUNDS' FUNDAMENTAL INVESTMENT RESTRICTIONS
The Funds' investment objectives and strategies may, in general, be
changed without the approval of shareholders.
In a few cases, however, the Investment Company Act requires such
approval. In addition, the Trust has adopted as "fundamental" the below-listed
restrictions relating to the investment of each Fund's assets. That these
restrictions are "fundamental" policies means that they may not be changed for
any Fund without the approval of a majority of the outstanding voting shares of
each affected Fund. (The term "majority of the outstanding voting shares" means
the lesser of (1) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are represented or (2) more than 50% of the
outstanding shares.)
To the extent the Trust's prospectus or this Statement of Additional
Information anywhere sets forth investment restrictions more restrictive than
the fundamental restrictions described below, the more restrictive limitation
controls; but any such more restrictive limitation may be changed without any
shareholder approval, subject to the below fundamental restrictions.
The Trust's current fundamental investment restrictions are as follows:
1. REAL ESTATE. No Fund will purchase or sell real estate. This restriction does
not prevent (a) a Fund from acquiring real estate as a result of ownership of
those securities or other instruments in which the Fund is permitted to invest;
(b) a Fund from investing in securities that are secured by real estate or
interests therein; (c) a Fund from investing in issuers that invest, deal, or
otherwise engage in transactions in real estate or interests therein; or (d) the
Real Estate Equity Fund from making any type of investment that it is otherwise
permitted to make.
2. LOANS. No Fund will make loans, except that this restriction does not prevent
a Fund from (a) making loans through the acquisition of obligations in which the
Fund may invest consistent with its objective and investment policies; (b)
lending portfolio securities; or (c) making loans to other Funds or investment
companies managed or sponsored by an investment adviser to the Fund or by any
company controlling, controlled by, or under common control with such investment
adviser.
3. COMMODITIES. No Fund will purchase or sell physical commodities, except that
a Fund may sell physical commodities acquired as a result of ownership of those
securities or other instruments in which a Fund is permitted to invest.
4. UNDERWRITING. No Fund will engage in the underwriting of securities of other
issuers. This restriction will not prevent a Fund from disposing of its
portfolio securities regardless of its status as an underwriter under any
federal or state securities laws.
5. BORROWING. No Fund will borrow money, except that this restriction will not
prevent a Fund from borrowing (a) from banks for any purpose, provided that
immediately after any such borrowing there is an asset coverage of at least 300%
for all borrowings of the Fund as required under Section 18(f)(1) of the
Investment Company Act (subject to any amendments to, regulations under, or
exemptions from Section 18(f)(1) of the Investment Company Act); (b) for
temporary purposes only, provided that loans for temporary purposes do not
exceed 5% of the value of the total assets of the Fund as of the time when each
such loan is made; or (c) from another fund, or from a related entity of another
fund, pursuant to any amendments to, regulations under, exemptions from or
interpretations of the Investment Company Act./1/
- --------------------
/1/ All of the Funds also operate under a non-fundamental policy that, if
borrowings by a Fund ever exceed 5% of its total assets, that Fund will make no
new investments until it has paid down its borrowings to below 5%.
28
6. SENIOR SECURITIES. No Fund will issue senior securities, except as permitted
under Section 18(f) of the Investment Company Act, any amendments thereto, any
regulations thereunder, or any applicable exceptions therefrom.
7. INDUSTRY CONCENTRATION. No Fund will purchase the securities of issuers
conducting their principal business activity in the same industry, if,
immediately after such purchase, the Fund's investments in such industry would
exceed 25% of the value of its total assets at the time of such investment. This
restriction does not limit the Money Market Fund's investments in instruments
issued by domestic banks (or by a foreign branch of a domestic bank, but only if
the domestic bank is unconditionally liable in the event that the foreign branch
fails to honor the instrument)."
E. BOARD OF TRUSTEES AND OFFICERS OF THE TRUST
The Board of Trustees of the Trust is responsible for overall
management of the Trust. The Board may exercise all powers of the Trust, except
those powers which are conferred solely upon or reserved to the shareholders.
The Board has three standing committees, which are discussed below.
The Governance Committee of the Board consists of the Trust's four
independent Trustees: Ms. Cook, Ms. Kessler, Mr. Verdonck and Mr. McClellan. The
Governance Committee assists the Board of Trustees by considering and making
recommendations on such matters as the Board's structure, composition, manner of
operations, and effectiveness; and the compensation and continuing education of
independent Trustees. This committee also gives particular consideration to
certain matters that involve actual or potential conflicts of interest between
the Trust and its service providers. The terms of the Trust's advisory
agreements are one important example of this. This committee met four times in
2001.
The Nominating Committee of the Board also consists of the Trust's four
independent Trustees. This committee is responsible for the selection and
nomination of candidates to be independent Trustees. Although the Nominating
Committee may receive input from John Hancock in this regard, the committee
controls the selection and nominating process. The extent of this committee's
activities in a given year will vary somewhat, depending on how many vacancies
for the office of independent trustee need to be filled. The Nominating
Committee did not meet during 2001.
The Audit Committee of the Board consists of the following independent
Trustees: Ms. Cook, Mr. McClellan and Mr. Verdonck. The Audit Committee assists
the Board in fulfilling its oversight responsibilities relating to the quality
and objectivity of financial reporting, the effectiveness and efficiency of
operations (including internal controls), and compliance with applicable laws
and regulations. Among other things, the Audit Committee seeks to maintain good
communication among the Trustees, the Trust's independent auditors and the
Trust's management. Each year, the committee evaluates and makes a
recommendation to the Board of Trustees as to the independent auditors to be
retained by the Trust to audit the Trust's financial statements. The committee
also reviews with such auditors the scope of the audit to be performed and the
results of such audit. The Audit Committee met three times during 2001.
Each of the above-described committees has authority to retain, at the
Trust's expense, legal counsel and such other experts as the committee deems
advisable to help discharge its functions.
29
The following table provides information about the members of the Board of
Trustees and the officers of the Trust:
Name, Address and Age Position with Term of Principal Occupation Number of Other
--------------------- Trust Office During Past 5 years the Directorships
----- ------ ------------------- Trust's Held by
Funds Trustees
Overseen --------
by
Trustees
--------
Interested Trustees*:
Michele G. Van Leer Chairman and Indefinite Senior Vice President, 27 None
(age 44) Trustee (Commenced Product Management, John
John Hancock Place September 1998) Hancock Life Insurance
Boston, Massachusetts Company; President and
02117 Director John Hancock
Variable Life Insurance
Company
Kathleen F. Driscoll Vice Chairman, Indefinite Vice President, Signator 27 None
(age 45) President and (Commenced June, Brokerage, John Hancock
John Hancock Place Trustee 2001) Life Insurance Company,
Boston, Massachusetts Vice President, Corporate
02117 Communications, John
Hancock Life Insurance
Company
Independent Trustees:
Elizabeth G. Cook
(age 64) Trustee Indefinite Expressive Arts Therapist, 27 None
c/o John Hancock (Commenced April Dana Farber Cancer
Variable Series Trust 1993) Institute; President, The
I, John Hancock Place, Advertising Club of
Boston, Massachusetts Greater Boston
02117
Diane C. Kessler Trustee Indefinite Executive Director, 27 None
(age 55) (Commenced April Massachusetts Council of
c/o John Hancock 1999) Churches
Variable Series Trust
I, John Hancock Place,
Boston, Massachusetts
02117
- ------------
* Ms. Van Leer and Ms. Driscoll are the only Trustees who are "interested
persons" as defined in the Investment Company Act.
30
Robert F. Verdonck Trustee Indefinite President and Chief 27 None
(age 56) (Commenced Executive Officer, East
c/o John Hancock April 1999) Boston Savings Bank
Variable Series
Trust I, John
Hancock Place,
Boston,
Massachusetts
02117
Hassell H. Trustee Indefinite Professor and Graduate 27 None
McClellan (age 56) (Commenced Dean, The Graduate
c/o John Hancock February, 2001) School of the Wallace G.
Variable Series Carroll School of
Trust I, John Management, Boston
Hancock Place, College
Boston,
Massachusetts
02117
Other Officers
Jude A. Curtis (age Compliance Indefinite Second Vice President N/A N/A
43) Officer (Commenced and Chief Investment
John Hancock Place June, 2000) Compliance Officer, John
Boston, Hancock Life Insurance
Massachusetts Company; formerly
02117 Second Vice President
and Counsel, Office of
Business Conduct; John
Hancock Life Insurance
Company; formerly a
Partner at Hale and Dorr
LLP (law firm)
Maryellen Carney Asst. Indefinite Compliance Specialist, N/A N/A
(age 36) Compliance (Commenced John Hancock Life
John Hancock Place Officer June, 1999) Insurance Company;
Boston, formerly Investment
Massachusetts Company and Investment
02117 Adviser Examiner, U.S.
Securities & Exchange
Commission, Fort Worth
Office and Boston Office
31
Raymond F. Skiba Treasurer Indefinite Director of Fund N/A N/A
(age 56) (Commenced Operations, John Hancock
John Hancock Place February, 1986) Life Insurance Company
Boston,
Massachusetts
02117
Karen Q. Visconti Secretary Indefinite Senior Marketing N/A N/A
(age 48) (Commenced August, Consultant, Life Product
John Hancock Place August, 1999) Management, John
Boston, Hancock Life Insurance
Massachusetts Company
02117
Arnold R. Bergman Assistant Indefinite Senior Counsel, Law N/A N/A
(age 51) John Secretary (Commenced Department, John
Hancock Place, December, 1999) Hancock Life Insurance
Boston, company; formerly Vice
Massachusetts President, General
02117 Counsel and Secretary,
First Variable Life
Insurance Company
Certain members of the Trust's Board of Trustees may own either
variable annuity contracts or variable life insurance policies that are
supported by one of the Separate Accounts and, in that sense, have an interest
in shares of the Trust.
The names and range of each Trustee's interest in any Fund as of
December 31, 2001 are set forth in the table below
Name of Trustee Dollar Range of Interest in Dollar Range of Interest in
Any Fund All Funds
Interested Trustees:
Michele G. Van Leer 0 0
Kathleen F. Driscoll $10,000-$50,000 $10,000-$50,000
Independent Trustees:
Elizabeth G. Cook $50,000-$100,000 $50,000-$100,000
Diane C. Kessler $10,000-$50,000 $10,000-$50,000
Robert F. Verdonck $1,000-$10,000 $1,000-$10,000
Hassell H. McClellan 0 0
Compensation paid by the Trust to its current disinterested Trustees
during 2001 was as follows:
Ms. Cook $61,000
Ms. Kessler $53,000
Mr. Verdonck $59,000
Mr. McClellan $57,000
The Trust paid no compensation to any other officer or Trustee. The
Trustees' fees are allocated among the Trust's Funds in proportion to their
relative net assets. The average aggregate net assets for all of the Funds
totaled approximately $10.3 billion for the year 2001.
32
F. INVESTMENT ADVISORY ARRANGEMENTS
1. The Trust's Investment Advisory Arrangements With John Hancock
John Hancock, the Trust's investment adviser, is a Massachusetts
corporation. Until February 1, 2000, John Hancock was a mutual life insurance
company. Now, it is a subsidiary of John Hancock Financial Services, Inc., a
publicly-traded holding company. John Hancock provides advisory services to the
Funds pursuant to several investment advisory agreements. The Trust is party to
each of these investment advisory agreements with John Hancock.
The Trust currently pays John Hancock investment advisory fees at the
following rates:
John Hancock's Investment Advisory Fee
as an Annual Percentage of Each Portion
Fund of the Fund's Average Daily Net Assets
- ---- --------------------------------------
Equity Index .15% of first $75 million; .14% of next $50 million; .13% above $125
million
Large Cap Value .75%
Large Cap Value CORE .75% of first $50 million; .65% of next $150 million; .60% above $200
million
Large Cap Growth .80% of first $500 million; .75% of next $500 million; .70% above $1
billion
Large Cap Aggressive Growth 1.00% of first $10 million; .875% of next $10 million; .75% above $20
million
Growth & Income .71% of first $150 million; .69% of next $150 million; .67% above $300
million
Fundamental Value .95% of first $25 million; .85% of next $25 million; .75% of next $50
million; 65% above $100 million
Multi Cap Growth 1.00% of first $100 million; .90% above $100 million
Fundamental Growth .90% of first $250 million; .85% above $250 million
Small/Mid Cap CORE 1.05% of first $100 million; 1.00% above $100 million
Small/Mid Cap Growth 1.00% of first $50 million; .95% of next $150 million; .90% above $200
million
Small Cap Equity .90% of first $150 million; .75% of next $150 million; .65% of next $200
million; .60% above $500 million
Small Cap Value .95%
Small Cap Growth 1.05%
33
John Hancock's Investment Advisory Fee
as an Annual Percentage of Each Portion
Fund of the Fund's Average Daily Net Assets
- ---- --------------------------------------
International Equity Index .18% of first $100 million; .15% of next $100 million; .11% above $200
million
International Opportunities 1.30% of first $20 million; 1.15% of next $30 million; 1.05% above $50
million
Emerging Markets Equity 1.65% of first $10 million; 1.45% of next $140 million; 1.35% above $150
million
Real Estate Equity 1.10% of first $50 million; 1.00% of the next $50 million; .90% of the
next $100 million; .80% above $200 million
Health Sciences 1.00% of first $250 million; .95% above $250 million
Managed .74% of first $500 million; .68% of next $500 million; .65% above $1
billion
Global Balanced 1.05% of first $150 million; .95% of next $150 million; .80% of next
$200 million; .75% above $500 million
Short-Term Bond .60%
Bond Index .15% of first $100 million; .13% of next $150 million; .11% above $250
million
Active Bond .70% of first $100 million; .65% of next $150 million; .61% of next $250
million; .58% of next $500 million; .55% above $1 billion
High Yield Bond .80% of first $100 million; .70% above $100 million
Global Bond .85% of first $150 million; .80% of next $150 million; .75 of next $200
million; .70% above $500 million
Money Market .25%
Under its investment advisory agreements with the Trust, John Hancock
advises the Trust in connection with policy and strategy decisions; provides
administration of much of the Trust's day-to-day operations; serves as the
Trust's transfer agent and dividend disbursing agent; prepares the Trust's
financial statements; maintains records required by the Investment Company Act
of 1940; and supervises activities of the subadvisers (discussed below) and of
other service providers to the Trust. John Hancock also provides the Trust with
office space, supplies and other facilities required for the business of the
Trust. John Hancock pays the compensation of Trust officers and employees and
the expenses of clerical services relating to the administration of the Trust.
To the extent that any administrative or legal services for the Trust are
provided by John Hancock's Law Department, however, John Hancock charges the
Trust separately, and the Trust pays such charges in accordance with the terms
of the investment advisory agreements.
All other expenses not expressly assumed by John Hancock under the
investment advisory agreements are paid by the Trust. These include, but are not
limited to, the Trust's taxes (if any); custodian fees; auditing fees; brokerage
commissions; advisory fees; the compensation of Trustees who are not affiliated
with John Hancock; the Trust's fidelity bond coverage; the costs of printing and
distributing annual and semi-annual reports and voting
34
materials to holders of variable annuity contracts and variable life insurance
policies that participate in the Trust; tabulating votes; fees for certain
accounting, valuation, and compliance services; legal fees; SEC registration
costs; proxy costs; costs of organizing any new Funds; and other expenses
related to the Trust's operations.
2. The Trust's Arrangements With Subadvisers
Set forth below are the names to the Funds' subadvisers and certain
persons who may control them.
Subadviser Subadviser's General Nature
and the Funds Controlling of
It Manages Person Basis of Control Control Person's Business
---------- ------ ---------------- -------------------------
1. Independence Investment LLC John Hancock Indirectly owns 100% Financial services holding
(Managed, Growth & Income, Financial of voting stock company
Large Cap Growth, Real Estate Services Inc.
Equity, Short-Term Bond, and
International Equity Index John Indirectly owns Life insurance and other
Funds) Hancock 100% of voting stock financial services provided
Life Insurance directly or through
Company subsidiaries
2. John Hancock Advisers, LLC Same as 1. above.
(Small Cap Growth, and Active
Bond)
3. SSgA Funds Management, Inc. State Street Owns 100% of the Financial services holding
(Equity Index Fund) Corporation subadviser company
4. T. Rowe Price Associates, Inc. T. Rowe price Owns 100% of the Publicly traded financial
(Large Cap Value and Small Cap Group, Inc. subadviser services holding company
Value Funds)
5. Janus Capital Management, LLC Stilwell Indirectly owns 92% Publicly traded financial
(Multi Cap Growth Fund) Financial, Inc. of the subadviser services asset management
company
6. Goldman Sachs Asset Management The Goldman Sachs The subadviser is a Publicly traded global
(Small/Mid Cap CORE, and Large Group Inc. unit of the investment banking and
Cap Value CORE. Investment Management securities firm
Division of Goldman,
Sachs & Co., a
subsidiary of Goldman
Sachs Group Inc.
7. T. Rowe Price International, T. Rowe Price Indirectly owns 100% Publicly traded financial
Inc. (International Group, Inc. of the subadviser services holding company
Opportunities Fund)
8. Morgan Stanley Investment Morgan Stanley Directly owns 100% of Publicly traded financial
Management Inc. (Emerging Dean Witter & Co. voting stock services company
Markets Equity and Real Estate
Equity Funds)
35
9. Mellon Bond Associates, LLP Mellon Financial Directly owns 100% of Bank holding company
(Bond Index Fund) Corporation the subadviser
10. Wellington Management Company, Laurie A. Gabriel; Managing Partners Investment management
LLP (High Yield Bond, Duncan M.
Small/Mid Cap Growth, McFarland;
Fundamental Value, Money John R. Ryan
Market and Small Cap Value
Funds)
11. Alliance Capital Management, AXA Financial, AXA and its Life insurance and other
L.P. (Large Cap Aggressive Inc. ("AXA") subsidiaries owned financial services
Growth) (as of 12/31/01)
51.7% of the
outstanding units of
limited partnership
interests in the
subadviser
12. Capital Guardian Trust Company The Capital The subadviser is an Financial services holding
(Managed, Small Cap Equity, Guardian Group indirect wholly owned company
Global Balanced and Global Companies, Inc. subsidiary of CGCI
Bond Funds) ("CGCI")
13. Putnam Investment Management, Marsh & McLennan The subadviser is an Publicly owned holding company
LLC Companies, Inc indirect wholly owned whose principal businesses are
(Growth & Income, Fundamental ("Marsh") subsidiary of Marsh international insurance and
Growth and Health Sciences reinsurance brokerage,
Funds) employment benefit counseling
and investment management
36
Set forth below are the sub-advisory fees that John Hancock pays the subadvisers
for each Fund. The below fees are paid by John Hancock and not by the Funds.
Subadvisory Fees Payable by John Hancock,
Fund as a Percentage of Each Fund's Average Daily Net Assets
---- -------------------------------------------------------
Equity Index .05% of first $50 million; .04% of next $50 million; .02% of next $300 million; and
.01% above $400 million
Large Cap Value .40% of first $500 million; and .35% above $500 million
Large Cap Value CORE .40% of first $50 million; .30% of next $150 million; .25% of next $800 million; and
.20% above $1 billion
Large Cap Growth .30% of first $500 million; .2625% of next $500 million; and .225% above $1 billion
Large Cap Aggressive Growth .75% of first $10 million; .625% of next $10 million; and .50% above $20 million
Growth & Income Assets managed by Independence Investment, LLC: .1875%
Assets managed by Putnam Investment Management, LLC; .50% of first $150 million; .45%
of next $150 million; and .35% above $300 million
Fundamental Value .50%% of first $50 million; .40% of next $50 million; and .30% above $100 million
Multi Cap Growth .55% of first $100 million; .50% of the next $400 million; and .45% above $500
million
Fundamental Growth .50% of first $250 million; and .45% above $250 million
Small/Mid Cap CORE .60% of first $50 million; and .50% above $50 million
Small/Mid Cap Growth .50% of first $50 million; .45% of next $150 million; and .40% above $200 million
Small Cap Equity .65% of first $150 million; .50% of next $150 million; .40% of next $200 million; and
.35% above $500 million
Small Cap Value .60% of the first $500 million; and .55% above $500 million
Small Cap Growth .50%
International Equity Index .125% of first $100 million; .10% of next $100 million; and .06% above $200 million
International Opportunities .75% of first $20 million; .60% of next $30 million; .50% of next $150 million; .50%
of all assets when the Fund is more than $200 million but less than $500 million;
.45% of all assets above $500 million
Emerging Markets Equity 1.10% of first $10 million; .90% of next $140 million; and .80% above $150 million.
37
Real Estate Equity Assets managed by Independence Investment LLC:
.30% of first $300 million; .25% of next $500
million; and .20% above $800 million
Assets managed by Morgan Stanley Investment
Management Inc.: .70% of first $50 million; .60%
of next $50 million; .50% of next $100 million;
and .40% above $200 million
Health Sciences .55% of first $250 million; and .50% above $250
million
Managed Assets managed by Independence Investment LLC:
.30% of first $500 million; .2625% of next $500
million; and .2250% above $1 billion Assets
managed by Capital Guardian Trust Company: .50%
of first $150 million; .45% of next $150 million;
.30% of next $200 million; and .25% above $500
million
Global Balanced .65% of first $150 million; .55% of next $150
million; .40 of next $200 million; and .35%
above $500 million
Short-Term Bond .19% of first $250 million; .17% of next $250
million; and .15% above $500 million
Bond Index .07% of first $100 million; .06% of next $150
million; .03% of next $250 million; and .01%
above $500 million
Active Bond .25% of first $100 million; .20% of next $150
million; .16% of next $250 million; .125% of next
$500 million; and .10% above $1 billion
High Yield Bond .45%
Global Bond .40% of first $150 million; .35% of next $150
million; .30% of next $200 million; and .25%
above $500 million
Money Market .075% of first $500 million; and .02% above $500
million
3. Dollar Amounts of Advisory Fees, Subadvisory Fees, and Expense Reimbursements
Set out below are the dollar amounts of advisory fees that the Trust
paid to John Hancock and the subadvisory fees that John Hancock paid to
subadvisers for the past three years:
Fund Investment Adviser Subadvisers*
- ---- ------------------ ------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
Managed .......................... 18,129,438 12,069,024 10,789,553 7,509,704 7,988,141 8,001,416
Growth & Income .................. 18,378,237 12,188,384 9,806,770 6,378,814 7,674,810 7,269,220
Equity Index ..................... 638,853 682,347 448,044 184,656 252,856 181,624
Large Cap Value .................. 1,654,981 1,222,357 1,087,807 892,337 811,804 710,068
Large Cap Value CORE ............. 278,769 81,748 13,622 148,487 43,874 6,990
Large Cap Growth ................. 3,319,872 4,955,653 4,378,106 2,489,889 3,756,913 3,250,179
Large Cap Aggressive
Growth ........................ 272,132 214,471 38,421 193,921 156,294 27,498
Fundamental Value ................ 342,746 87,948 16,857 208,657 55,933 10,259
Multi Cap Growth ................. 2,410,233 4,303,524 1,646,277 1,535,019 3,001,588 1,119,977
Real Estate Equity ............... 1,556,143 946,388 835,184 758,395 473,629 413,496
Health Sciences .................. 163,858 -- -- 90,120 -- --
Small/Mid Cap Growth ............. 1,403,338 1,382,046 1,360,053 848,219 939,041 902,527
Fundamental Growth ............... 327,064 249,227 17,491 181,703 144,847 9,805
38
Small/Mid Cap CORE ................... 218,743 131,301 47,616 164,053 99,006 35,177
Small Cap Equity ..................... 619,083 602,274 512,633 459,131 409,844 348,363
Small Cap Value ...................... 559,231 126,890 15,837 353,196 87,204 10,454
Small Cap Growth ..................... 1,533,746 1,965,285 732,594 937,017 1,319,650 478,916
Global Balanced ...................... 291,727 261,293 253,044 187,638 149,889 147,136
International Equity Index ........... 261,569 354,066 313,649 179,380 240,625 210,822
International Opportunities B ........ 218,738 139,438 35,992 123,235 84,469 20,788
International Opportunities .......... 844,115 819,520 582,128 547,558 589,537 409,561
Emerging Markets Equity .............. 364,553 523,867 182,265 272,023 408,779 145,114
Short-Term Bond ...................... 468,356 220,826 216,170 225,303 114,279 135,464
Bond Index ........................... 135,751 72,662 48,433 66,937 39,093 25,498
Active Bond .......................... 5,236,730 2,573,480 2,214,912 1,389,019 1,534,969 1,643,765
Global Bond .......................... 518,629 467,803 488,070 239,893 290,135 306,570
High Yield Bond ...................... 260,006 159,282 111,177 175,704 123,619 84,425
Money Market ......................... 1,319,703 1,038,533 965,427 650,891 1,038,533 953,183
- ----------------------
* Paying these fees to the sub-advisers is solely the responsibility of John
Hancock and not the Trust.
Under the investment advisory agreements, for any fiscal year in which
the normal operating costs and expenses of any Fund, exclusive of the investment
advisory fee, interest, brokerage commissions, taxes and extraordinary expenses
outside the control of John Hancock exceed 0.10% of that Fund's average daily
net assets, John Hancock will reimburse that Fund in an amount equal to such
excess. These reimbursements have been as follows for the past three years.
Fund 2001 2000 1999
- ---- ---- ---- ----
Equity Index ......................................... -- -- 275,336
Large Cap Value CORE ................................. 10,830 26,638 5,824
Large Cap Aggressive Growth .......................... 29,164 11,479 3,504
Fundamental Value .................................... 79,742 28,895 6,512
Small/Mid Cap Growth ................................. 4,000 -- 1,790
Small Cap Equity ..................................... 7,794 23,198 6,224
Small Cap Value ...................................... 16,492 32,214 9,254
Small Cap Growth ..................................... 50,542 -- --
Global Balanced ...................................... 58,591 85,676 91,146
International Equity Index ........................... 202,794 195,833 21,900
International Opportunities B ........................ 21,991 92,396 21,901
International Opportunities .......................... 143,444 154,310 92,017
Global Bond .......................................... 2,284 63,735 1,445
Fundamental Growth ................................... 67,599 10,455 2,888
Small/Mid Cap CORE ................................... 68,521 53,769 77,179
Emerging Markets Equity .............................. 733,661 499,569 294,354
Bond Index ........................................... -- 11,335 17,185
High Yield Bond ...................................... 38,330 29,620 42,314
Active Bond .......................................... -- 201,827 --
39
4. Basis of Trustee Approval of Continuance of Advisory Arrangements
The Trust's Board of Trustees, at a meeting on February 6, 2002, approved
the continuance of the Trust's investment management agreements ("advisory
agreements") with John Hancock and the Trust's sub-investment management
agreements ("sub-advisory agreements") with sub-advisers. In the process, the
Board evaluated, among other things, written and oral information provided by
John Hancock in response to a request of the Trustees. In addition, the Board's
Trust Governance Committee, composed exclusively of the Board's independent
Trustees, met prior to the Board meeting and evaluated written information
provided in advance to the Board by John Hancock.
During the year, the Board devotes a substantial portion of each of its
five regularly scheduled meetings to an ongoing review and evaluation of John
Hancock and the sub-advisers. This ongoing process is based primarily on written
and oral reports by John Hancock, in-person presentations by the Trust's
sub-advisers on a rotating basis, and answers to questions addressed by the
Trustees to representatives of John Hancock and the sub-advisers. In this
connection, the Trustees receive information from John Hancock regarding John
Hancock's performance of its functions, including monitoring and evaluation of
each sub-adviser. This information relates to such matters as the nature, scope
and quality of the services provided by the sub-advisers to the Trust, and
includes, among other things, (i) the investment performance of each
sub-adviser, (ii) any recommendation by John Hancock to terminate, replace or
add a sub-adviser, and (iii) any recommendation by John Hancock to change any
advisory or sub-advisory fee.
The Trust Governance Committee schedules four meetings a year pursuant to
a Charter that empowers the Committee to meet separately from management in
connection with consideration of the advisory and sub-advisory agreements. The
Charter also empowers the Committee, in any case it deems advisable, to retain
special counsel or other experts or consultants, at the expense of the Trust or
any Fund, to further the interests of the Trust.
The Board generally schedules its meeting in February of each year to
consider whether or not to approve continuing the advisory and sub-advisory
agreements for another year. The Board considers, as applicable, factors bearing
on the nature, scope, quality, cost and profitability of the services provided
to the Trust under these agreements, with a view toward making a business
judgment whether each agreement, including the fee, is, under all of the
circumstances, in the best interest of the Trust.
In approving the agreements at their February 6, 2002 meeting, the
Trustees considered various factors, and, in their business judgment, reached
various conclusions, principally including the following:
.. The Trustees reviewed the nature and scope of the various management and
administrative services that John Hancock provides to the Trust,
including, among other things, John Hancock's functions in overseeing,
monitoring and reporting on the Trust's 13 sub-advisers. The Trustees also
reviewed the nature and scope of the portfolio management services that
the sub-advisers provide to the various Funds.
.. The Trustees assessed the quality of John Hancock's services and each
sub-adviser's services, on such bases as investment performance and
expense experience for each Fund, on both an absolute basis and a
comparative basis (against benchmarks and certain investment performance
data of similar funds prepared at John Hancock's request by an
unaffiliated company) over current and multi-year periods. Given that
similar funds may allocate other operating expenses (non-advisory fees)
differently between the fund and its adviser than does a Fund of the
Trust, the Trustees concluded that a comparison of aggregate fees and
expenses can be more meaningful than comparison of advisory fees only
and/or comparison of other operating expenses only.
.. Furthermore, the Trustees considered that John Hancock and its insurance
company affiliates (the "Insurers") impose fees and charges at the
separate account level under the variable insurance products and that some
of these fees and charges, like the Funds' advisory fees, are computed as
a percentage of net assets invested. Therefore, the Trustees concluded
that a comparison of Trust operating expenses aggregated with certain such
asset-based charges imposed at the separate account level could be
meaningful, even though the Trustees are not responsible for the fees and
charges deducted by the Insurers under the variable insurance products.
Therefore, the Trustees considered expense information for each Fund, both
on an absolute basis and a
40
comparative basis (against data for similar funds underlying variable
insurance products that was compiled at John Hancock's request by an
unaffiliated company) that also included certain of such charges at the
separate account level.
.. The Trustees reviewed a schedule of the advisory fee and sub-advisory fee
for each Fund and concluded that most of the Funds have breakpoints that
can pass along a portion of any economies of scale to the contract owners.
The Trustees will consider instituting or accentuating breakpoints for
each Fund or seeking a fee reduction if the Fund's assets continue to
increase and further economies of scale result.
.. The Trustees considered the above-mentioned analysis of similar fund
advisory fee and expense data. Based on that analysis, the Trustees
concluded that, while comparative data are not to be relied on
exclusively, the aggregate advisory fees and other expenses of each Fund
are within the range paid by similar funds. The Trustees also considered
the fact that John Hancock has undertaken to reimburse the Funds for
certain operating expenses in excess of a stated rate and that, for 2001,
John Hancock reimbursed 16 of the Funds pursuant to this undertaking.
.. The Trustees considered that, in addition to the advisory fees received by
John Hancock from the Trust, the Insurers derive benefits by having the
Trust serve as the underlying funding medium for variable insurance
products offered by the Insurers, which are subject to fees and charges
payable to the Insurers. In this regard, the Trustees considered
representations from John Hancock that (i) those fees and charges, in the
aggregate, are reasonable in relation to the services rendered, expenses
expected to be incurred, and risks assumed by the Insurers, (ii) those
fees and charges do not duplicate fees and expenses paid by the Trust, and
(iii) the advisory fees make no specific allowance to provide monies to
finance distribution of either Trust shares or variable insurance products
(although John Hancock may use profits realized from the advisory fees for
any lawful purpose). While the Trustees are not responsible for the fees
and charges deducted by the Insurers under the variable insurance products
funded through the Trust, the Trustees concluded that, under all the
circumstances, any such benefits to John Hancock did not appear to be
inconsistent with the best interest of each Fund.
.. The Trustees considered that, in addition to the sub-advisory fees
received by sub-advisers from John Hancock, sub-advisers in some cases
receive benefits through soft dollar arrangements by which brokers provide
research and certain other services to sub-advisers in return for being
allocated Trust "brokerage" transactions. The Trustees considered: (i)
information provided by John Hancock about the extent and nature of such
practice by each Fund as applicable; (ii) representations of sub-advisers
regarding the appropriateness of their practices and (iii) an ongoing
study and assessment by an unaffiliated company of the degree to which
each Fund is receiving "best execution." Under all the circumstances, the
Trustees concluded that each Fund's practices in this regard did not
appear to be inconsistent with the best interest of the Fund.
.. The Trustees considered certain information from John Hancock about the
overall profitability to John Hancock and its affiliates of the variable
insurance products funded through the Trust, including information about
profits to John Hancock from serving as the Trust's primary investment
adviser. They also considered information they had received from John
Hancock about the difficulties of quantifying the cost and profitability
of the advisory function separately from the aggregate cost and
profitability of all of the functions performed by John Hancock and its
affiliates to develop, offer, and maintain the products, including the
cost of processing orders for the purchase and redemption of Trust shares.
The Trustees concluded that, particularly in view of the interdependence
of the Fund and the variable insurance products that it supports, the
aggregate profitability information the Trustees had received was
appropriate for purposes of their deliberations.
.. The Trustees considered the fact that: (i) John Hancock pays the
sub-advisory fees to the sub-advisers; (ii) John Hancock and a Fund
generally have a common interest in negotiating the sub-advisory fees
downward; (iii) in some cases, John Hancock has succeeded in negotiating a
sub-advisory fee rate that is less than the average rate that a
sub-adviser charges to similar funds; and (iv) the sub-advisers have less
influence over the management of their respective Funds than a primary
adviser to a retail mutual fund normally would (including any influence
with respect to the level of their sub-advisory fees). In light of, among
other things, the particular characteristics of the adviser/sub-adviser
relationship, the Trustees concluded that the profitability information
41
mentioned above concerning the Insurers was appropriate for purposes of
their deliberations over continuation of both the advisory and
sub-advisory agreements.
In connection with their deliberations, the Board and the Trust Governance
Committee received legal advice from outside counsel to the Trust regarding the
standards and methodology of evaluation articulated by the SEC, the courts and
the industry for mutual funds selling shares to the public and the applicability
of those standards and that methodology to mutual funds - like the Trust -
selling shares to life insurance company separate accounts. Such legal counsel,
through its representation of John Hancock on certain matters in which the Trust
does not have a direct interest, is also familiar with the Insurers' variable
insurance products and separate accounts funded through the Trust. The Trustees
considered advice of such legal counsel that mutual funds selling shares to life
insurance companies differed, in certain respects, from mutual funds selling
shares to the public and that, consequently, the standards and methodology of
evaluation developed for the latter did not necessarily apply to the former in
all respects. The Trustees considered, for example, the fact that SEC rules
would permit John Hancock to "veto" Trustee or contract owner proposals for an
adviser other than John Hancock under specified circumstances and that the 1940
Act would permit John Hancock to seek SEC approval to substitute another mutual
fund for the Trust if the Trustees were to select an adviser other than John
Hancock.
The Trustees also took into account the fact that John Hancock affords
contract owners the privilege of instructing John Hancock how to vote the Trust
shares held by John Hancock and that, pursuant to the process, the contract
owners, had voted to approve the advisory agreement and each of the sub-advisory
agreements.
The foregoing discussion of the material factors considered and
conclusions reached by the Trustees is not intended to be all-inclusive. The
Trustees reviewed a large variety of factors and considered a significant amount
of information, including information received on an ongoing basis at meetings
of the Board, the Trust Governance Committee, and the Audit Committee and
otherwise. In view of the broad scope and variety of these factors and
information, the Board did not find it practicable to, and did not, make
specific assessments of, quantify, or otherwise assign relative weights to the
specific factors considered in reaching the Board's conclusions and
determinations to approve the continuance of the Trust's advisory agreement and
each sub-advisory agreement. The approval determinations were made on the basis
of each Trustee's business judgment after consideration of all of the factors
taken as a whole, though individual Trustees may have given different weights to
different factors and assigned various degrees of materiality to various
conclusions.
As a result of their consideration, the Trustees, in the exercise of their
business judgment, approved the continuation each such agreement as being in the
best interest of each Fund to which it relates.
G. ARRANGEMENTS WITH OTHER SERVICE PROVIDERS TO THE TRUST
1. Underwriting and Indemnity Agreement
Pursuant to an Underwriting and Indemnity Agreement, Signator
Investors, Inc. ("Signator") serves as the Trust's principal underwriter, and
John Hancock provides certain indemnities to the Trust and its Trustees. Neither
Signator nor John Hancock receives any additional compensation from the Trust
for the services and indemnities they provide pursuant to the Underwriting and
Indemnity Agreement. The offering of the Trust's shares through Signator is a
continuous offering on a "best efforts" basis. Signator is a wholly-owned
subsidiary of John Hancock and is located at 197 Clarendon Street, Boston, MA
02117.
2. Custody of the Trust's Assets
State Street Bank and Trust Company ("State Street Bank") is the
primary custodian of the assets of all Funds. State Street Bank's principal
business address is 225 Franklin Street, Boston MA 02110. The primary
custodian's duties include safeguarding and controlling the Trust's cash and
investments, handling the receipt and delivery of securities, and collecting
interest and dividends on the Trust's investments. Fund securities
purchased in the United States are maintained in the custody of State Street
Bank, although such securities may be deposited in the book-entry system of the
Federal Reserve System, with Depository Trust Company, or with other qualified
purchased in the United States are maintained in the custody of State Street
Bank, although such securities may be deposited in the book-entry system of the
Federal Reserve System, with Depository Trust Company, or with other qualified
42
domestic book-entry systems or depositories. Also, pursuant to its agreement
with the Trust, State Street Bank provides certain accounting and recordkeeping
services to the Trust and generally values the Trust's assets by computing each
Fund's net asset value each day. The Trust compensates State Street Bank for
these functions through the payment of an annual custody asset fee of .01% of
the total net assets of the Trust, allocated to each Fund based on the
percentage of that Fund's total net assets to the total net assets of the Trust;
miscellaneous transaction charges ranging from $7.00 to $25.00; global asset and
transaction fees that vary by the country in which a Fund's assets are held or
traded; a monthly accounting fee charge that is allocated to each Fund based on
the percentage of that Fund's total net assets to the total net assets of the
Trust; valuation and monthly quote charges; special service fees for activities
of a non-recurring nature; and reimbursement of specified out-of-pocket
expenses.
Foreign securities are generally held through subcustodian banks and
depositories around the world with whom State Street Bank has relationships. In
some cases, Funds whose securities are held in this manner may be exposed to
greater risks of loss. This is because the soundness of such foreign entities,
as well as foreign regulatory practices and procedures, may provide less
protection to security holders than is available in the U.S.
In certain circumstances, brokers may have access to assets that a Fund
posts as "margin" in connection with futures and options transactions. In the
event of a broker's insolvency or bankruptcy, a Fund could experience a delay or
incur costs in recovering such assets or might recover less than the full amount
due. Also the value of such assets could decline by the time the Trust could
effect such recovery.
If on any day a Fund experiences net realized or unrealized gains with
respect to financial futures contracts held through a given broker, it will be
entitled immediately to receive from the broker the net amount of such gains.
The Trust will request payment of such amounts promptly after notification by
the broker that such amounts are due. Thereupon, these assets will be deposited
in the Trust's general or segregated account with its primary custodian, as
appropriate.
3. Subadministration Agreement With State Street Bank
Pursuant to a Subadministration agreement, with the Trust, State Street
Bank also provides assistance to John Hancock and the subadvisers in computing
total return information for the Trust and in monitoring each Fund's compliance
with the Fund's investment objectives and restrictions, as well as compliance
with certain other applicable legal requirements. The Trust compensates State
Street Bank for these services through payment of an annual fee that accrues
daily and is billed monthly in arrears. The annual fee is based on the average
net assets of the Trust and is 0.012% of the first $1 billion of average net
assets, 0.0075% of the next $1 of average net assets, and 0.0025% of average net
assets after that. Each Fund is allocated the greater of a minimum monthly Fund
fee or the basis point annual fee, based on the pro-rata total net asset value
of that Fund. The minimum monthly Fund fee is $1,333.
4. Independent Auditors
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts, are the
independent auditors of the Trust. Ernst & Young audits the financial statements
of the Trust, prepares the Trust's tax returns, and renders other advice to the
Trust concerning accounting and tax matters. Ernst & Young also meets
periodically with the Trust's Board and with the Audit Committee of the Board to
discuss matters within the scope of Ernst & Young's activities with respect to
the Trust.
43
H. PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Funds pay brokers' commissions, transfer taxes, and other fees
relating to their specific portfolio transactions. (Investments in debt
securities are, however, generally traded on a "net" basis through issuers or
dealers acting for their own account as principals and not as brokers.
Therefore, no brokerage commissions are payable on most such transactions,
although the price to the Trust usually reflects a dealer "spread" or
"mark-up.")
Amounts of Brokerage Paid
Brokerage commissions paid by the Funds were as follows for the past
three years:
Fund 2001 2000 1999
- ---- ---- ---- ----
Managed ........................................ 2,387,899 2,765,087 2,390,067
Growth & Income ................................ 4,394,341 5,189,868 4,747,539
Equity Index ................................... 96,080 64,982 61,865
Large Cap Value ................................ 164,776 155,165 110,393
Large Cap Value CORE ........................... 40,010 13,326 3,240
Large Cap Growth ............................... 1,042,938 1,695,781 1,389,454
Large Cap Aggressive Growth .................... 64,914 33,476 11,885
Fundamental Value .............................. 635,553 19,805 390,510
Multi Cap Growth ............................... 483,126 486,217 245,913
Real Estate Equity ............................. 171,319 341,413 122,021
Fundamental Growth ............................. 56,725 40,554 3,082
Small/Mid Cap CORE ............................. 33,593 29,151 12,371
Small/Mid Cap Growth ........................... 362,533 214,360 621,068
Small Cap Equity ............................... 89,478 325,733 284,381
Small Cap Value ................................ 130,951 142,364 21,848
Small Cap Growth ............................... 268,016 236,981 146,206
Global Balanced ................................ 21,248 76,975 47,678
International Equity Index ..................... 43,092 87,614 133,746
International Opportunities .................... 128,826 277,851 74,940
International Opportunities B .................. 80,159 36,616
Emerging Markets Equity ........................ 158,236 236,636 189,025
Bond Index ..................................... 3,312 1,770 598
Global Bond .................................... 0 5,910
High Yield Bond ................................ 88 200
Health Sciences ................................ 28,279
How Brokers and Dealers are Selected
Orders for the purchase and sale of Fund portfolio investments are
placed by the respective subadvisers to the Funds. The subadvisers use their
best efforts to obtain best available price (including brokerage commissions and
other transaction costs) and most favorable execution for all transactions. The
subadvisers select brokers and dealers to execute Fund portfolio transactions
primarily on the basis of their execution capability and trading expertise.
Consideration is also given to such factors as the price of the security, the
rate of the commission, the size and difficulty of the order, the
confidentiality of trades, the reliability, integrity, financial condition, and
operational capabilities of competing brokers or dealers, and the brokerage and
research services which they provide. Applicability of specific criteria will
vary depending on the nature of the transaction, the market in which it is
effected, and the extent to which it is possible to select from among multiple
brokers or dealers capable of effecting the transaction.
It is not the policy of the subadvisers to seek the lowest available commission
if, in their reasonable judgment, there is a material risk that the total cost
or proceeds from the transaction might be less favorable than may be obtainable
elsewhere.
44
Research and Statistical Services Furnished by Brokers and Dealers
Research and statistical assistance typically furnished by brokers or
dealers includes analysts' reports on companies and industries, market
forecasts, and economic analyses. Brokers or dealers may also provide reports on
pertinent federal and state legislative developments and changes in accounting
practices; direct access by telephone or meetings with leading research analysts
throughout the financial community, corporate management personnel, industry
experts, leading economists and government officials; comparative performance
and evaluation and technical performance measurement services; portfolio
optimization software; availability of economic advice; quotation services; and
services from recognized experts on investment matters of particular interest to
the subadviser. In addition, the foregoing services may comprise the use of or
be delivered by computer systems whose software and hardware components may be
provided to the subadviser as part of the services. In any case in which the
foregoing systems can be used for both research and non-research purposes, the
subadviser makes an appropriate allocation of those uses and will permit brokers
and dealers to provide only the portion of the systems to be used for research
services. Costs which are allocable to non-research purposes will be paid
directly by the subadviser.
Research and statistical services furnished by brokers and dealers
handling the Funds' transactions may be used by the subadvisers for the benefit
of all of the accounts managed by them and not all of such research and
statistical services may be used by the subadvisers in connection with the
Funds.
Relationship Between Brokerage Commissions and Research and Statistical Services
Furnished by Brokers and Dealers
When the subadvisers reasonably determine that more than one broker or
dealer can offer the brokerage and execution services needed to obtain best
available price and most favorable execution, consideration may be given to
selecting the brokers or dealers who supply research and statistical services to
the subadvisers. In receiving these services, which are designed to augment the
subadvisers' own internal research capabilities, the subadvisers comply with
Section 28(e) of the Securities Exchange Act of 1934. This means that the
sub-advisers' traders for the Funds, on the basis of their experience and
judgement, evaluate the overall reasonableness of any broker's commissions in
light of all of the brokerage and research services the broker provides. If the
trader for a Fund concludes that the commission rate is reasonable, and the
other requirements of Section 28(e) are met, the law protects the sub-adviser
from any legal liability that might otherwise result from causing the Fund to
pay the broker a commission in excess of what another broker would have charged.
The subadvisers of the Funds will not at any time make a commitment pursuant to
an agreement with a broker because of research services provided. The
sub-advisers do, however, have internal procedures that seek to direct certain
amounts to broker-dealers that provide research and statistical services of a
type covered by Section 28(e). These internal procedures do not mandate that any
amount of business be directed to any broker-dealer, and in no event will a
broker-dealer be used unless the sub-adviser believes that the broker-dealer
also will provide the best available price and most favorable execution, as
discussed above. During 2001, the amount of transactions, of each Fund directed
to brokers who are included in these internal arrangements, and the related
amounts of commission were as follows:
Fund Dollar Amount Dollar Amount
- ---- ------------- -------------
of Transactions of Commissions
--------------- --------------
Managed .................................. 874,725,522 480,850
Growth & Income .......................... 548,555,439 1,237,781
Large Cap Value .......................... 12,633,806 16,848
Large Cap Growth ......................... 384,351,913 229,887
Large Cap Aggressive Growth .............. 16,288,422 16,920
Fundamental Value ........................ 67,980,088 36,012
Multi Cap Growth ......................... 4,877,365 10,926
Real Estate Equity ....................... 13,038,134 49,437
Fundamental Growth ....................... 24,674,591 23,962
Small/Mid Cap Growth ..................... 42,079,549 50,250
45
Small Cap Value ................................... 3,528,235 5,981
Small Cap Growth .................................. 46,980,820 33,365
International Opportunities ....................... 3,511,500 7,373
Emerging Markets Equity ........................... 4,661,904 11,959
Health Sciences ................................... 1,619,801 2,457
Evaluations of the overall reasonableness of any broker's commissions
are made by the subadvisers' traders for the Funds on the basis of their
experience and judgment. To the extent permitted by Section 28(e) of the
Securities Exchange Act of 1934, such traders are authorized to pay a brokerage
commission on a particular transaction in excess of what another broker might
have charged in recognition of the value of the broker's brokerage or research
services.
Brokerage Transactions in Foreign Markets
Brokerage transactions in securities of companies domiciled in
countries other than the United States are anticipated to be normally conducted
on the stock exchanges or other markets of those countries in which the
particular security is traded. Fixed commissions on foreign stock exchange
transactions are generally higher than negotiated commissions available in the
United States. Moreover, there is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the United
States. Settlement periods in non-U.S. markets may differ from the normal
settlement period in the United States.
Simultaneous Transactions with Other Accounts
The subadvisers also perform investment advisory services for a number
of other accounts and clients, none of which is given preference over the Trust
in allocating investment opportunities. When opportunities occur which are
consistent with the investment objective of more than one account, it is the
policy of each subadviser to avoid favoring any one account over another.
Accordingly, investment opportunities in such cases are allocated in a manner
deemed equitable by the subadvisers to the particular accounts involved. The
allocation may be based, for example, on such factors as the accounts'
respective investment objectives and then current investment and cash positions.
Subject to these requirements, Trust orders may be combined with orders of other
accounts or clients advised by any of the subadvisers at share prices which are
approximately averaged.
The subadvisers' allocation policies recognize that no rigid formula will
always lead to a fair and reasonable result, and that a degree of flexibility to
adjust to specific circumstances is necessary. Therefore, under certain
circumstances, allocation on a basis other than strictly pro rata or based on
order size is permitted if it is believed that such allocation is fair and
reasonable.
Use of Brokers Who are Affiliated With a Subadviser
A Fund may place portfolio transactions through certain brokers who are
affiliated with the Fund's subadviser. The Trust has implemented special
procedures governing the circumstances of these transactions. In addition to
complying with any applicable provisions of the Trust's procedures, these
transactions must comply with all applicable legal requirements, including,
where applicable, Rule 17e-1 under the Investment Company Act. Among other
things, that rule requires the commissions or other compensation paid to the
affiliated broker to be reasonable and fair compared to those in similar
transactions between unrelated parties.
46
Set forth below is information about transactions by each Fund with
affiliated brokers in reliance on Rule 17e-1 for each of the past three years:
Amount of Commissions
Name Nature of Broker's Paid by Fund
of Affiliation with -------------------------------------
Fund Affiliated Broker Fund's Sub-Adviser 2001 2000 1999
- ---- ----------------- ------------------ ---- ---- ----
International Opportunities Ord Minnett Group Wholly-owned subsidiary of $ 0 $ 0 $ 34
Ltd. sub-adviser's parent
International Opportunities Jardine Fleming & Wholly-owned subsidiary of $ 0 $ 518 $ 10
Co. sub-adviser's parent
International Opportunities Robert Fleming Wholly-owned subsidiary of $ 0 $ 527 $ 166
Securities, Ltd. sub-adviser's parent
International Opportunities Jardine Fleming & Wholly-owned subsidiary of $ 0 $ 4,485 $ 0
Co. sub-adviser's parent
International Opportunities Robert Fleming Wholly-owned subsidiary of $ 0 $ 77 $ 0
Securities, Ltd sub-adviser's parent
Large Cap Value CORE Goldman, Sachs & Dual operating division of $ 0 $ 0 $ 96
Co. sub-adviser's parent
Large Cap Value Neuberger Berman Affiliated broker of Trust $ 0 $ 190 $ 0
LLC affiliated sub-adviser
Small/Mid Cap CORE Goldman, Sachs & Dual operating division of $ 0 $ 753 $ 120
Co. parent of sub-adviser
International Equity Goldman, Sachs & Dual operating division of $ 3,141 $ 128 $ 0
Co. parent of sub-adviser
Emerging Markets Equity Morgan Stanley Wholly-owned subsidiary of $ 163 $ 1,785 $ 2,779
Asia Limited sub-adviser's parent
Emerging Markets Equity Morgan Stanley Wholly-owned subsidiary of $ 162 $ 0 $ 0
India Limited sub-adviser's parent
Emerging Markets Equity Morgan Stanley & Wholly-owned subsidiary of $ 2,120 $ 0 $ 0
Co. sub-adviser's parent
Emerging Markets Equity Morgan Stanley Wholly-owned subsidiary of $ 0 $ 880 $ 3,276
International sub-adviser's parent
Limited
For 2001, the total dollar amount of such transactions through affiliated
brokers as a percentage of all brokerage-type transactions 3.92% for the
International Equity Fund, and 1.54% of the Emerging Markets Equity Fund. For
2000, the total dollar amount of such transactions through affiliated brokers as
a percentage of all brokerage-type transactions was 5.13% for the International
Opportunities Fund, 4.98% for the International Opportunities II Fund, 3.89% for
the Large/Mid Cap Value II Fund, 0.82% for the Large Cap Value Fund, 2.26% for
the Small/Mid Cap CORE Fund, 1.84% for the International Equity Fund, and 1.82%
of the Emerging Markets Equity Fund.
I. CODES OF ETHICS
Employees of John Hancock Life Insurance Company, the Trust, and the
sub-advisers to the Trust and officers and Trustees of the Trust are subject to
restrictions on engaging in personal securities transactions. These restrictions
are set forth in the John Hancock Insider Information Policy and Procedures, the
Variable Series Trust Code of Ethics, and the Codes of Ethics of the
sub-advisers to the various Funds of the Trust ("Sub-Advisers' Codes of
Ethics"), (combined, "Codes"). The Codes, in accordance with rule 17j-1 of the
Investment Company Act of 1940, as amended, contain provisions and requirements
designed to identify and address certain conflicts of interest between personal
investment activities of employees of the adviser and sub-advisers to the Funds
and the interests of the Funds. These Codes do not prohibit personnel from
investing in securities that may be purchased or held by the Funds within the
Trust. However, the Codes, consistent with standards recommended by the
Investment Company
47
Institute's Advisory Group on Personal Investing and requirements established by
rule 17j-1, among other things, prohibit personal securities investments without
pre-clearance for certain employees, impose time periods during which personal
transactions may not be made in certain securities by employees with access to
investment information, and require the timely submission to compliance
personnel of broker confirmations and quarterly reporting of personal securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process. The
Variable Series Trust Code of Ethics incorporates and applies its restrictions
to officers and Trustees of the Trust who are affiliated with John Hancock Life
Insurance Company. The Variable Series Trust Code of Ethics does not prohibit
unaffiliated Trustees from investing in securities that may be held by the
Trust; however, the Variable Series Trust Code of Ethics does regulate the
personal securities transactions of unaffiliated Trustees of the Trust,
including limiting the time periods during which they may personally buy and
sell certain securities about which they may receive information. The Trust's
Trustees, in compliance with rule 17j-1, have approved the Variable Series Trust
Codes of Ethics and the Sub-Advisers' Codes of Ethics and are required to
approve any material changes to the Variable Series Trust Code of Ethics as well
as to the Sub-Advisers' Codes of Ethics. The Trustees also provide continuing
oversight of personal investment policies and annually evaluate the
implementation and effectiveness of the Codes. The Codes are on public file
with, and are available from, the Securities and Exchange Commission.
J. FEATURES OF THE TRUST'S SHARES
The shares of beneficial interest of the Trust currently are divided into
27 series, each corresponding to one of the Trust's 27 Funds. The Trust has the
right to establish additional series and issue additional shares without the
consent of its shareholders.
If the holders of variable annuity contracts and variable life insurance
policies show minimal interest in any Fund, the Trust's Board of Trustees, by
majority vote, may eliminate the Fund or substitute shares of another investment
company. Any such action by the Board would be subject to compliance with any
requirements for governmental approvals or exemptions or for shareholder
approval. The holders of variable annuity contracts and variable life insurance
policies participating in any such Fund will be notified in writing of the
Trust's intention to eliminate the Fund and given 30 days to transfer amounts
from such Fund to other Funds without incurring any transaction fee. Amounts not
transferred or withdrawn would automatically be transferred, at the discretion
of the Fund's management.
The assets received by the Trust for the issuance or sale of shares of each
Fund and all income, earnings, profits, and proceeds thereof are specifically
allocated to that Fund. They constitute the underlying assets of each Fund, are
segregated on the books of the Trust, and are to be charged with the expenses of
such Fund. Any assets which are not clearly allocable to a particular Fund or
Funds are allocated in a manner determined by the Board of Trustees. Accrued
liabilities which are not clearly allocable to one or more Funds would generally
be allocated among the Funds in proportion to their relative net assets before
adjustment for such unallocated liabilities.
Each issued and outstanding share in a Fund is entitled to participate
equally in dividends and distributions declared with respect to such Fund and in
the net assets of such Fund upon liquidation or dissolution remaining after
satisfaction of outstanding liabilities.
A dividend from the net investment income of the Money Market Fund will be
declared and distributed daily. Dividends from net investment income of the
other Funds will be declared and distributed monthly. The Trust will distribute
all of its net realized capital gains annually. Dividends and capital gains
distributions will normally be reinvested in additional full or fractional
shares of the Fund to which they relate and will be appropriately credited to
investment performance under the variable life insurance policies and variable
annuity contracts participating in that Fund.
The shares of each Fund, when issued, will be fully paid and
non-assessable, and will have no preference, preemptive, exchange or similar
rights. Shares do not have cumulative voting rights.
48
K. SHAREHOLDER MEETINGS AND VOTING RIGHTS
Under the Trust's Declaration of Trust, the Trust is not required to hold
an annual shareholders' meeting. Normally, for example, there will be no
shareholders meetings for the purpose of electing Trustees.
In addition, it is expected that the Trustees generally will elect their
own successors and appoint Trustees to fill any vacancy, so long as, after
filling the vacancy, at least two-thirds of the Trustees then in office have
been elected by the shareholders.
Notwithstanding the above, if at any time less than a majority of Trustees
in office have been elected by the shareholders, the Trustees must call a
special shareholders' meeting promptly. Also the Trustees will promptly call a
meeting of shareholders for the purpose of voting upon the question of removal
of any Trustee or all of the Trustees, if requested in writing to do so by
holders of 10% or more of the outstanding shares. In this regard, whenever ten
or more shareholders who have been such for at least six months and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the outstanding shares, whichever is less, apply to the Trustees in
writing stating that they wish to communicate with other shareholders with a
view to obtaining signatures to a request for a shareholders' meeting, for
consideration of the removal of any or all of the Trustees and accompanied by
the material which they wish to transmit, the Trustees will within five business
days after receipt either afford to such applicants access to the Trust's
shareholder list or inform such applicants as to the approximate number of
shareholders of record, and the approximate cost of mailing the material. If the
Trustees elect the latter, the Trustees, upon written request of such
applicants, accompanied by the material to be mailed and the reasonable expenses
of mailing, shall promptly mail such material to all shareholders of record,
unless within five business days the Trustees shall mail to such applicants and
file with the SEC, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Trustees to the effect that, in
their opinion, either such material is misleading or in violation of applicable
law and specifying the basis of such opinion.
At any shareholders' meeting, all shares of the Trust of whatever class are
entitled to one vote, and the votes of all classes are cast on an aggregate
basis, except on matters where the interests of the Funds differ. Where the
interests of the Funds differ, the voting is on a Fund-by-Fund basis. Approval
or disapproval by the shareholders in one Fund on such a matter would not
generally be a prerequisite of approval or disapproval by shareholders in
another Fund; and shareholders in a Fund not affected by a matter generally
would not be entitled to vote on that matter. Examples of matters which would
require a Fund-by-Fund vote are changes in the fundamental investment policy of
a particular Fund and approval of investment management or sub-investment
management agreements.
L. SALES AND REDEMPTIONS OF FUND SHARES
"Seed Money" Shares
Typically, when a new Fund is added to the Trust, John Hancock (or one of
its affiliates) initially purchases a substantial amount of that Fund's shares
to provide the new fund with a reasonable asset base with which to commence
operations. For example, the most recent such contributions of "seed money" to
currently available funds have been as follows:
"Seed Money" Date
Shares Purchased by of
Fund John Hancock Purchase
- ---- ------------ --------
Large Cap Value CORE 5,000,000 8/31/99
Large Cap Aggressive Growth 10,000,000 8/31/99
Fundamental Value 5,000,000 8/31/99
Fundamental Growth 5,000,000 8/31/99
Small/Mid Cap CORE 5,000,000 5/1/98
Small Cap Value 5,000,000 8/31/99
Health Sciences 20,000,000 5/1/01
International Opportunities 15,000,000 5/1/96
Global Balanced 20,000,000 5/1/96
49
Emerging Markets Equity 10,000,000 5/1/98
Bond Index 25,000,000 5/1/98
High Yield Bond 10,000,000 5/1/98
John Hancock (or its affiliate) may redeem these shares (and thus withdraw
its seed money investment) at some time. However, before withdrawing any part of
their interests in any Fund, John Hancock (or its affiliate) will consider any
possible adverse impact the withdrawal might have on that Fund.
Purchases and redemptions of seed money shares are made at the applicable
Fund's net asset value per share (with no additions or deductions for charges)
next computed after the purchase or redemption order is placed.
As of October 7, 2002, only the following Funds still have seed money that
has not been withdrawn: Health Sciences, Global Balanced, International
Opportunities and Emerging Markets Equity.
Shares Sold and Redeemed In Connection With Transactions Under Variable Annuity
Contracts and Variable Life Insurance Policies
Fund shares are sold at their net asset value as next determined after
receipt of net premiums by the Separate Account, without the addition of any
selling commission or sales load.
Shares are redeemed at their net asset value as next determined after
receipt of net surrender requests by the Separate Account. No fee is charged on
redemption. Redemption payments will usually be paid within seven days after
receipt of the redemption request, except that the right of redemption may be
suspended or payments postponed whenever permitted by applicable law and
regulations. Redemptions are normally made in cash, but the Trust reserves the
right, at its discretion, to make full or partial payment by assignment to the
appropriate Separate Account of portfolio securities at their value used in
determining the redemption price. In such cases, the Separate Account would
incur brokerage costs should it wish to liquidate these portfolio securities.
Trust shares are also sold and redeemed as a result of transfer requests,
loans, loan repayments, and similar Separate Account transactions, in each case
without any sales load or commission or at the net asset value per share
computed for the day as of which such Separate Account transactions are
effected.
M. COMPUTING THE FUNDS' NET ASSET VALUE
Each Fund determines its net asset value per share once daily as of the
close of the customary trading session of the New York Stock Exchange
("Exchange") on each business day of the Fund. The Exchange generally closes at
4:00 p.m. Eastern Standard Time. However, ETFs and certain derivative
instruments may be valued using prices as late as 4:15 p.m. Eastern Standard
Time. In the event the Exchange closes at any time other than 4:00 p.m. Eastern
Standard Time on a particular day, each Fund will determine its net asset value
per share as of the close of the Exchange on that day.
The net asset value per share of each Fund is determined by adding the
value of all portfolio securities and other assets, deducting all portfolio
liabilities, and dividing by the number of outstanding shares. All Trust
expenses will be accrued daily for this purpose.
Short-term investments with a remaining maturity of 60 days or less, and
all investments of the Money Market Fund, are valued at "amortized cost," which
approximates market value. This involves valuing a security at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates. While this
method provides certainty in valuation, it may result in periods during which
the value of an instrument, as determined by amortized cost, is higher or lower
than the price the Fund would receive upon the sale of the instrument.
The Board of Trustees has established procedures designed to stabilize the
Money Market Fund's price per share, as computed for the purpose of sales and
redemptions, at $1. There can be no assurance, however, that the Fund will at
all times be able to maintain a constant $1 net asset value per share. Such
procedures include review of
50
the Fund's holdings at such intervals as is deemed appropriate to determine
whether the Fund's net asset value, calculated by using available market
quotations, deviates from $1 per share and, if so, whether such deviation may
result in material dilution, or is otherwise unfair to existing shareholders. In
the event that it is determined that such a deviation exists, the Board of
Trustees will take such corrective action as it regards as necessary and
appropriate. Such action may cause losses or gains to be recorded for the Fund,
including decreases or increases in the Fund's net asset value per share.
Securities and call and put options that are listed on a stock exchange are
normally valued at the closing sales price. If there were no sales during the
day, they are normally valued at the last previous sale or bid price reported,
as are equity securities that are traded in the over-the-counter market.
Non-exchange traded debt securities (other than certain short-term
investments) are valued on the basis of valuations furnished by a pricing
service which uses electronic data processing techniques, without exclusive
reliance upon quoted prices.
Any other security for which market quotations are not readily available,
and any other property for which valuation is not otherwise available, is valued
at fair value as determined in good faith by, or under the direction of, the
Board of Trustees.
Financial futures contracts, options thereon and options on stock indexes
are valued at the last trade price of the day. In the absence of a trade on a
given day, the value generally is used which is established by the exchange on
which the instrument is traded.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed at various times before the close
of business on each day on which the New York Stock Exchange is open. The values
of such securities used in computing net asset value per share are normally
determined as of such times. Trading of these securities may not take place on
every New York Stock Exchange business day and may take place on days which are
not business days in New York. The Trust calculates net asset value per share as
of the close of regular trading on the New York Stock Exchange on each day on
which that exchange is open. Therefore, such calculation does not take place
contemporaneously with the determination of the prices of many of the Funds'
securities used in such calculation. If events affecting the value of such
securities occur between the time when their price is determined and the time as
of which the Fund's net asset value is calculated, such securities may be valued
at fair value by or under the direction of the Board of Trustees.
N. TAXES
The Trust intends that each Fund qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code ("Code"). This requires that
each Fund comply with certain requirements as to the nature of its income and
amounts of dividends and other distributions it pays. Also, in order to qualify
under Subchapter M, at the end of each quarter of a Fund's taxable year, (i) at
least 50% of the market value of the Fund's assets must be represented by cash
and cash items, U.S. Government securities, securities of other regulated
investment companies, and other securities, with such other securities limited,
in respect of any one issuer, to an amount that does not exceed 10% of the
voting securities of such issuer or 5% of the value of the Fund's total assets;
and (ii) not more than 25% of the value of its assets may be invested in the
securities (other than U.S. Government securities and securities of other RICs)
of any one issuer or two or more issuers which the Fund controls and which are
engaged in the same, similar or related trades or businesses.
The Trust also intends that each Fund comply with certain other
diversification requirements, promulgated under Section 817(h) of the Code.
Under these requirements, no more than 55% of the total value of the assets of
each Fund may be represented by any one investment, no more than 70% by any two
investments, no more than 80% by three investments and no more than 90% by four
investments. Generally, for these purposes, all securities of the same issuer
are treated as one investment. In the context of U.S. Government securities
(including any security that is issued, guaranteed or insured by the United
States or an instrumentality of the United States), each U.S. Government agency
or instrumentality is treated as a separate issuer.
51
Assuming the Funds qualify as regulated investment companies under
Subchapter M, they will not owe any income taxes. On the other hand, if a Fund
fails to qualify under Subchapter M, it may incur income tax liabilities, which
will negatively affect its investment performance.
Also, qualification under Subchapter M, as well as compliance with the
Section 817(h) diversification requirements, (among other things) are necessary
to secure the tax treatment intended for most holders of variable annuity
contracts and variable life insurance policies that are supported by the Trust.
Therefore, any such failure to qualify under Subchapter M or to meet the
diversification standards under Section 817(h) could have serious adverse
consequences for such investors.
For a discussion of these and other tax implications of owning a variable
annuity contract or a variable life insurance policy for which the Fund serves
as the investment medium, please refer to the Prospectus for such contract or
policy attached at the front of this Prospectus.
Those Funds that invest substantial amounts of their assets in foreign
securities may be able to make an election to pass through to the insurance
company issuing the variable annuity contract or a variable life insurance
policy any taxes withheld by foreign taxing jurisdictions on foreign source
income. Such an election will result in additional taxable income and income tax
to the insurance company. The amount of additional income tax, however, may be
more than offset by credits for the foreign taxes withheld, which are also
passed through.
O. INFORMATION ABOUT FUND PERFORMANCE
How Money Market Fund Yields Are Calculated
The Money Market Fund may advertise investment performance figures,
including its current yield and its effective yield.
The Money Market Fund's yield is its current investment income, expressed
in annualized terms. The current yield is based on a specified
seven-calendar-day period. It is computed by (1) determining the net change
(exclusive of capital changes) in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period, (2)
dividing the net change in account value by the value of the account at the
beginning of the base period to get the base period return, then (3) multiplying
the base period return by 52.15 (365 divided by 7). The resulting yield figure
is carried to the nearest hundredth of one percent.
The calculations include the value of additional shares purchased with any
dividends paid on the original share and the value of dividends declared on both
the original share and any such additional shares. The capital changes excluded
from the calculation are realized capital gains and losses from the sale of
securities and unrealized appreciation and depreciation.
Compound (effective) yield for the Fund will be computed by dividing the
seven-day annualized yield (determined as above) by 365, adding 1 to the
quotient, raising the sum to the 365th power, and subtracting 1 from the result.
For the seven-day period ending December 31, 2001, the Money Market Fund's
current yield was 1.77%; its effective yield was 1.79%.
The Fund's yield will fluctuate depending upon market conditions, the type,
quality, and maturity of the instruments in the Fund, and its expenses.
Charges Under Variable Life Insurance and Variable Annuity Policies
Yield and total return quotations do not reflect any charges imposed on any
Separate Account or otherwise imposed pursuant to the variable life insurance
policies and variable annuity contracts that are supported by the Funds. (Those
charges are discussed in the prospectus for such policies or contracts.)
Therefore, the yield or total return of any Fund is not comparable to that of a
publicly available fund. Nor should yield or total return quotations
52
be considered representative of the Fund's yield or total return in any future
period.
P. LEGAL MATTERS
The law firm of Foley & Lardner of Washington, D.C., advises the Trust on
certain legal matters relating to the Federal securities laws.
Q. REPORTS TO CONTRACTHOLDERS
Annual and semi-annual reports containing financial statements of the
Trust, as well as any materials soliciting voting instructions for Trust shares,
will be sent to variable life insurance and annuity contractowners having an
interest in the Trust.
53
APPENDIX A
CORPORATE BOND RATINGS
Moody's Investors Service, Inc., describes its ratings for corporate bonds as
follows:
. 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.
. 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 fluctuation of protection 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.
. 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
some time in the future.
. 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.
. Bonds which are rated Ba have speculative elements and their future
cannot be considered as well assured. 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. Bonds in
this class are characterized by uncertainty of position.
. Bonds which are rated B generally lack characteristics of a 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.
. Bonds which are rated Caa are of poor standing. Issues may be in
default or there may be present elements of danger with respect to
principal or interest.
. Bonds which are rated Ca are speculative in a high degree. They are
often in default or have other marked shortcomings.
. Bonds which are rated C are the lowest rated class of bonds. They can
be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Standard & Poor's Corporation describes its ratings for corporate bonds as
follows:
. AAA - - This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay
principal and interest.
. AA -- Bonds rated AA also qualify as high-quality obligations.
Capacity to pay principal and interest
54
is very strong, and in the majority of instances, they differ from AAA
issues only in small degree.
. A -- Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
. BBB -- Bonds rated BBB are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay principal and
interest for bonds in this category than for bonds in the A category.
. BB, B, CCC, CC, C -- Bonds rated in these categories are 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 C the
highest degree of speculation. While this debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
. C1 -- This rating is reserved for income bonds on which no interest is
being paid.
. D -- Bonds rated D are in default and payment of interest and/or
repayment of principal is in arrears.
55
John Hancock
Declaration Funds
Prospectus
May 1, 2002
- --------------------------------------------------------------------------------
Equity
V.A. Relative Value Fund
Sector
V.A. Financial Industries Fund
V.A. Technology Fund
Income
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, V.A. Relative Value Fund 4
performance and financial
highlights. Sector
V.A. Financial Industries Fund 6
V.A. Technology Fund 8
Income
V.A. Strategic Income Fund 10
Transaction policies and Account information
other information affecting
your fund investment. Buying and selling fund shares 12
Valuing fund shares 12
Fund expenses 12
Dividends and taxes 12
Further information on the Fund details
Declaration funds.
Business structure 13
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, LLC.
Founded in 1968, John Hancock Advisers is a wholly owned subsidiary of John
Hancock Financial Services, Inc. and manages approximately $29 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. Relative Value Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund invests primarily in a diversified portfolio of 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.
The fund may also invest in bonds and money market securities. In selecting
bonds of any maturity, the managers look 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
Paul J. Berlinguet
- ----------------------------------------
Vice president of adviser
Joined fund team in 2002
Joined adviser in 2001
U.S. equity investment manager at Baring
America Asset Management (1989-2001)
Began business career in 1986
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 1991
Roger C. Hamilton
- ----------------------------------------
Vice president of adviser
Joined fund team in 1999
Joined adviser in 1994
Began business career in 1980
Robert J. Uek, CFA
- ----------------------------------------
Vice president of adviser
Joined fund team in 2002
Joined adviser in 1997
Corporate finance manager at
Ernst & Young (1994-1997)
Began business career in 1990
Timothy N. Manning
- ----------------------------------------
Joined fund team in 2002
Joined adviser in 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 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), and would
be lower if they did. Past performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1998 1999 2000 2001
21.39% 56.65% -4.80% -2.81%
2002 total return as of March 31: -13.43%
Best quarter: Q4 `99, 43.25% Worst quarter: Q3 `01, -29.30%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12-31-01
- --------------------------------------------------------------------------------
Fund Index
1 year -2.81% -11.89%
Life of fund - began 1-6-98 15.24% 5.50%
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 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 small- or medium-capitalization stocks. Similarly, value stocks could
under-perform 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, 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.
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] The financial highlights table is intended to help you understand the
fund's financial performance over the time periods shown. The 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. Total
return information does not include variable contract charges. Inclusion of
these charges would reduce the total return figures for all periods shown.
Figures audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, are included in the fund's annual report, which is
available upon request.
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended: 12-31-98(1) 12-31-99 12-31-00 12-31-01
- ------------------------------------------------------------------------------------------------------------------------------------
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 0.02
Net realized and unrealized gain (loss) on investments 2.02 6.65 (0.80) (0.32)
Total from investment operations 2.13 6.75 (0.78) (0.30)
Less distributions:
From net investment income (0.10) (0.10) (0.02) (0.02)
From net realized gain -- (0.65) (6.59) (0.60)
Total distributions (0.10) (0.75) (6.61) (0.62)
Net asset value, end of period $12.03 $18.03 $10.64 $9.72
Total investment return(3) (%) 21.39(4,5) 56.65 (4.80) (2.81)
Ratios and supplemental data
Net assets, end of period (in millions) $17 $39 $39 $64
Ratio of expenses to average net assets (%) 0.85(6) 0.77 0.79 0.74
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 0.23
Portfolio turnover rate (%) 242 166 164 59
(1) Began operations on 1-6-98.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) Not annualized.
(5) 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.
================================================================================
The following return is not audited and is not part of the audited financial
highlights presented above:
Without the expense reductions, return for the period ended December 31, 1998
would have been 21.21%.
5
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 80% of its 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 circumstances, 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 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), and would
be lower if they did. Past performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1998 1999 2000 2001
8.55% 1.23% 27.16% -17.51%
2002 total return as of March 31: 1.03%
Best quarter: Q3 `00, 19.95% Worst quarter: Q3 `98, -16.76%
- --------------------------------------------------------------------------------
Fund Index 1 Index 2
- --------------------------------------------------------------------------------
1 year -17.51% -11.89% -10.53%
Life of fund - began 4-30-97 9.94% 9.71% 11.06%
Index 1: Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
Index 2: Standard & Poor's Financial Index, an unmanaged index of financial
sector stocks in the Standard & Poor's 500 Index.
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. 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 under-perform 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, 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.
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] The financial highlights table is intended to help you understand the
fund's financial performance over the time periods shown. The 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. Total
return information does not include variable contract charges. Inclusion of
these charges would reduce the total return figures for all periods shown.
Figures audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, are included in the fund's annual report, which is
available upon request.
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended: 12-31-97(1) 12-31-98 12-31-99 12-31-00 12-31-01
- ------------------------------------------------------------------------------------------------------------------------------------
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 (0.11)
Net realized and unrealized gain (loss) on investments 3.39 0.97 0.06 3.87 (3.11)
Total from investment operations 3.50 1.15 0.17 3.93 (3.22)
Less distributions:
From net investment income (0.05) (0.14) (0.10) (0.05) (0.09)
From net realized gain (0.01) --(3) (0.05) -- (0.47)
Tax return of capital -- -- (0.01) -- --
Total distributions (0.06) (0.14) (0.16) (0.05) (0.56)
Net asset value, end of period $13.44 $14.45 $14.46 $18.34 $14.56
Total investment return(4) (%) 35.05(5,6) 8.55 1.23 27.16 (17.51)
Ratios and supplemental data
Net assets, end of period (in millions) $18 $55 $49 $71 $89
Ratio of expenses to average net assets (%) 1.05(7) 0.92 0.90 0.90 0.89
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 0.71
Portfolio turnover rate (%) 11 38 72 41 97(9)
(1) Began operations on 4-30-97.
(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) 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) Excludes merger activity.
================================================================================
The following return is not audited and is not part of the audited financial
highlights presented above:
Without the expense reduction, return for the period ended December 31, 1997
would have been 34.82%.
7
V.A. Technology 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 its assets in U.S. and foreign companies
that rely extensively on technology in their product development or operations.
These companies are in fields such as: computer software, hardware and Internet
services; telecommunications; electronics; and data management and storage.
In managing the portfolio, the managers focus primarily on stock selection
rather than industry allocation. The managers invest in companies of any size
whose stocks appear to be trading below their true value, as determined by
fundamental financial analysis of their business models and balance sheets as
well as interviews with senior management. The fund focuses on companies that
are undergoing a business change that appears to signal accelerated growth or
higher earnings.
The fund may invest up to 10% of net assets in debt securities of any maturity,
including bonds rated as low as CC/Ca and their unrated equivalents. (Bonds
rated below BBB/Baa are considered junk bonds.)
It may also invest in certain higher-risk securities, including securities that
are not publicly offered or traded, called restricted securities.
The fund may use certain derivatives (investments whose value is based on
indexes, securities or currencies).
In abnormal circumstances, 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.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
================================================================================
SUBADVISER
American Fund Advisors, Inc.
- ----------------------------------------
Responsible for day-to-day
investments
Founded in 1978
Supervised by the adviser
PORTFOLIO MANAGERS
Barry J. Gordon
- ----------------------------------------
President of subadviser
Joined fund team in 2000
Began business career in 1971
Marc H. Klee, CFA
- ----------------------------------------
Executive vice president of subadviser
Joined fund team in 2000
Began business career in 1977
Alan J. Loewenstein, CFA
- ----------------------------------------
Senior vice president of subadviser
Joined fund team in 2000
Began business career in 1979
================================================================================
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), and would
be lower if they did. Past performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
2001
-44.06%
2002 total return as of March 31: -3.90%
Best quarter: Q4 '01, 38.05% Worst quarter: Q3 '01, -43.64%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12-31-01
- --------------------------------------------------------------------------------
Fund Index 1 Index 2
1 year -44.06% -11.89% -29.31%
Life of fund - began 5-1-2000 -41.33% -12.03% -40.71%
Index 1: Standard & Poor's 500 Index, an unmanaged index of 500 stocks.
Index 2: Russell 3000 Technology Index, an unmanaged index of technology sector
stocks in the Russell 3000 Index, which represents the 3,000 largest U.S.
companies based on total market capitalization.
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.
Technology companies face special risks, and could be hurt by factors such as
market saturation, price competition, obsolescence and competing technologies.
Many technology companies are smaller companies that may have limited product
lines and finan-cial and managerial resources, making them vulnerable to
isolated business setbacks.
Stocks of technology companies as a group could fall out of favor with the
market, causing the fund to underper-form 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 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.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
================================================================================
FINANCIAL HIGHLIGHTS
[Clip Art] The financial highlights table is intended to help you understand the
fund's financial performance over the time periods shown. The 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. Total
return information does not include variable contract charges. Inclusion of
these charges would reduce the total return figures for all periods shown.
Figures audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, are included in the fund's annual report, which is
available upon request.
- ----------------------------------------------------------------------------------------------------------------------------------
Period ended: 12-31-00(1) 12-31-01
- ----------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.00 $7.33
Net investment income (loss)(2) 0.03 (0.02)
Net realized and unrealized loss on investments (2.69) (3.21)
Total from investment operations (2.66) (3.23)
Less distributions:
From net investment income (0.01) --(3)
Net asset value, end of period $7.33 $4.10
Total return(4,5) (%) (26.56)(6) (44.06)
Ratios and supplemental data
Net assets, end of period (in millions) $14 $22
Ratio of expenses to average net assets (%) 1.05(7) 1.05
Ratio of adjusted expenses to average net assets(8) (%) 1.99(7) 1.08
Ratio of net investment income (loss) to average net assets (%) 0.62(7) (0.45)
Portfolio turnover rate (%) 75 29
(1) Began operations on 5-1-00.
(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) 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.
================================================================================
The following return is not audited and is not part of the audited financial
highlights presented above:
Without the expense reductions, returns for the period or year ended December
31, 2000 and 2001 would have been (27.19%) and (44.09%), respectively.
9
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 types 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 (AAA to BBB). There is no limit on the fund's average
maturity.
In managing the portfolio, the managers allocate assets among the three major
sectors 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 sector.
Within each sector, 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
Daniel S. Janis III
- ----------------------------------------
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
Indexes:
In the future, the adviser will compare the fund's performance to the Merrill
Lynch High Yield Master II Index, Merrill Lynch Government Master Index and
Salomon Smith Barney World Government Bond Index, since they more closely
represent the fund's investment strategy.
================================================================================
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), and would
be lower if they did. Past performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1997 1998 1999 2000 2001
11.77% 4.92% 4.82% 1.40% 4.58%
2002 total return as of March 31: 0.25%
Best quarter: Q2 `97, 6.28% Worst quarter: Q3 `98, -2.79%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/01
- --------------------------------------------------------------------------------
Fund Index 1 Index 2 Index 3 Index 4
1 year 4.58% 8.50% 4.48% 7.18% -0.99%
5 year 5.44% 7.37% 3.45% 7.40% 2.16%
Life of fund - began 8-29-96 6.32% 7.84% 4.40% 7.83% 2.52%
Index 1: Lehman Brothers Government/Credit Bond Index, an unmanaged index of
U.S. government, U.S. corporate and Yankee bonds.
Index 2: Merrill Lynch High Yield Master II Index, an unmanaged index consisting
of U.S. dollar-denominated public corporate issues with par amounts greater than
$100 million that are rated below investment grade.
Index 3: Merrill Lynch Government Master Index, an unmanaged index of fixed rate
U.S. Treasury and agency securities.
Index 4: Salomon Smith Barney World Government Bond Index, an unmanaged index
consisting of approximately 650 securities issued by 18 governments in various
countries.
10
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, 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 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] The financial highlights table is intended to help you understand the
fund's financial performance over the time periods shown. The 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. Total
return information does not include variable contract charges. Inclusion of
these charges would reduce the total return figures for all periods shown.
Figures audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, are included in the fund's annual report, which is
available upon request.
- -----------------------------------------------------------------------------------------------------------------------------------
Period ended: 12-31-97 12-31-98 12-31-99 12-31-00 12-31-01(1)
- -----------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.30 $10.47 $10.10 $9.77 $8.97
Net investment income(2) 0.91 0.85 0.80 0.83 0.65
Net realized and unrealized gain (loss) on investments 0.26 (0.35) (0.33) (0.71) (0.26)
Total from investment operations 1.17 0.50 0.47 0.12 0.39
Less distributions:
From net investment income (0.91) (0.85) (0.80) (0.83) (0.72)
From net realized gain (0.09) (0.02) -- (0.09) --
Total distributions (1.00) (0.87) (0.80) (0.92) (0.72)
Net asset value, end of period $10.47 $10.10 $9.77 $8.97 $8.64
Total investment return(3) (%) 11.77(4) 4.92(4) 4.82(4) 1.40 4.58
Ratios and supplemental data
Net assets, end of period (in millions) $6 $15 $22 $34 $69
Ratio of expenses to average net assets (%) 0.85 0.85 0.85 0.76 0.71
Ratio of adjusted expenses to average net assets(5) (%) 1.37 0.93 0.87 -- --
Ratio of net investment income (loss) to average net assets (%) 8.77 8.19 8.06 8.91 7.16
Portfolio turnover rate (%) 110 92 53(6) 53 101(6)
(1) As required, effective 1-1-01, the fund has adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies, as revised, and
began amortizing premiums on debt securities. The effect of this change
for the year ended 12-31-01 was to decrease net investment income per
share by $0.07, decrease net realized and unrealized losses per share by
$0.07, and, had the fund not amortized premiums on debt securities, the
annualized ratio of net investment income to average net assets would have
been 8.00%. Per share ratios and supplemental data for periods prior to
1-1-01 have not been restated to reflect this change in presentation.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) Total returns would have been lower had certain expenses not been reduced
during the periods shown.
(5) Does not take into consideration expense reductions during the periods
shown.
(6) Excludes merger activity.
================================================================================
The following returns are not audited and are not part of the audited financial
highlights presented above:
Without the expense reductions, returns for the period or years ended December
31, 1997, 1998 and 1999 would have been 11.25%, 4.84% and 4.80%, respectively.
11
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.
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. Relative Value Fund 0.60%
- --------------------------------------------------------------------------------
Sector Funds
- --------------------------------------------------------------------------------
V.A. Financial Industries Fund 0.80%
V.A. Technology Fund 0.80%
- --------------------------------------------------------------------------------
Income Funds
- --------------------------------------------------------------------------------
V.A. Strategic Income Fund 0.60%
The adviser pays subadvisory fees out of its own assets and V.A. Technology Fund
is not responsible for paying a fee to its sub-adviser.
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,
2003. 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.
12 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.
Investment adviser John Hancock Advisers, LLC, 101 Huntington Avenue, Boston, MA
02199, is the investment adviser to the funds and provides investment management
and related administrative services and facilities to the funds. Founded in
1968, John Hancock Advisers managed $29 billion in open-end funds, closed-end
funds, private accounts, variable annuities and retirement plans as of December
31, 2001. The firm is a wholly owned subsidiary of John Hancock Financial
Services, Inc.
-----------------------
Variable
contract holders
-----------------------
-----------------------
Insurance company
separate accounts
-----------------------
-----------------------
Declaration
funds
-----------------------
---------------------------------------------------
Subadviser
American Fund Advisors, Inc.
1415 Kellum Place, Suite 205
Garden City, NY 11530
Provides portfolio management
to V.A. Technology Fund.
---------------------------------------------------
---------------------------------------------------
Investment adviser
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Manages the funds' business and
investment activities.
---------------------------------------------------
---------------------------------------------------
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Holds the funds' assets, settles all
portfolio trades and collects most of
the valuation data required for
calculating each fund's NAV.
---------------------------------------------------
---------------------------------------------------
Trustees
Oversee the funds' activities.
---------------------------------------------------
FUND DETAILS 13
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)
[OLYMPIC LOGO]
WORLDWIDE SPONSOR
John Hancock Funds, LLC
MEMBER NASD
101 Huntington Avenue
Boston, MA 02199-7603
www.jhfunds.com
Mutual Funds
Institutional Services
Private Managed Accounts
Retirement Plans
(C)2002 JOHN HANCOCK FUNDS, LLC RVA00P 5/02
John Hancock
Declaration Funds
Prospectus
May 1, 2002
- --------------------------------------------------------------------------------
V.A. Sovereign Investors Fund
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved this fund 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
- --------------------------------------------------------------------------------
A summary of the fund's V.A. Sovereign Investors Fund 4
goals, strategies, risks,
performance and financial
highlights.
Transaction policies and Account information
other information affecting
your fund investment. Buying and selling fund shares 6
Valuing fund shares 6
Fund expenses 6
Dividends and taxes 6
Further information on the Fund details
fund.
Business structure 7
For more information back cover
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, 2002, that range was $439 million to $372 billion.
At least 65% of the fund's stock investments are "dividend performers" --
companies whose dividend payments have increased steadily for ten years. In
managing the portfolio, 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 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
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), and would
be lower if they did. Past performance does not indicate future results.
- --------------------------------------------------------------------------------
Year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1997 1998 1999 2000 2001
28.43% 16.87% 3.84% -0.33% -5.56%
2002 total return as of March 31: -0.46%
Best quarter: Q4 `98, 15.75% Worst quarter: Q1 `01, -9.03%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12-31-01
- --------------------------------------------------------------------------------
Fund Index
1 year -5.56% -11.89%
5 year 7.97% 10.70%
Life of fund - began 8-29-96 9.06% 12.39%
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 and
bond market movements.
The fund's management strategy has a significant influence on fund performance.
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, these 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] The financial highlights table is intended to help you understand the
fund's financial performance over the time periods shown. The 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. Total
return information does not include variable contract charges. Inclusion of
these charges would reduce the total return figures for all periods shown.
Figures audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, are included in the fund's annual report, which is
available upon request.
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended: 12-31-97 12-31-98 12-31-99 12-31-00 12-31-01
- ------------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $10.74 $13.59 $15.61 $15.96 $15.69
Net investment income(1) 0.22 0.27 0.24 0.21 0.24
Net realized and unrealized gain (loss) on investments 2.82 2.00 0.35 (0.27) (1.12)
Total from investment operations 3.04 2.27 0.59 (0.06) (0.88)
Less distributions:
From net investment income (0.18) (0.25) (0.24) (0.21) (0.24)
From net realized gain (0.01) -- -- -- --
Tax return of capital -- -- --(2) -- --
Total distributions (0.19) (0.25) (0.24) (0.21) (0.24)
Net asset value, end of period $13.59 $15.61 $15.96 $15.69 $14.57
Total investment return(3) (%) 28.43(4) 16.88 3.84 (0.33) (5.56)
Ratios and supplemental data
Net assets, end of period (in millions) $12 $34 $50 $55 $64
Ratio of expenses to average net assets (%) 0.85 0.74 0.70 0.72 0.70
Ratio of adjusted expenses to average net assets(5) (%) 1.16 -- -- -- --
Ratio of net investment income (loss) to average net assets (%) 1.81 1.88 1.57 1.37 1.63
Portfolio turnover rate (%) 11 19 26 46 77
(1) Based on the average of the shares outstanding at the end of each month.
(2) Less than $0.01 per share.
(3) Assumes dividend reinvestment.
(4) Total return would have been lower had certain expenses not been reduced
during the period shown.
(5) Does not take into consideration expense reductions during the period
shown.
================================================================================
The following return is not audited and is not part of the audited financial
highlights presented above:
Without the expense reduction, return for the period ended December 31, 1997
would have been 28.12%.
5
Account information
- --------------------------------------------------------------------------------
BUYING AND SELLING FUND SHARES
When you invest in the 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, the fund may refuse a purchase order, especially when the adviser
believes the order might be large enough to disrupt the fund's management. The
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 the 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.
Securities in the fund's portfolio are generally valued on the basis of market
quotations and valuations provided by independent pricing services. The fund 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 fund's board of trustees. If the 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 For the period ended December 31, 2001, the fund paid the
investment adviser management fees at an annual rate of 0.60% of average net
assets.
Expense limitation 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 agreed to limit temporarily the fund's expenses to 0.25% of
average net assets, excluding management fees, at least until April 30, 2003. If
annual expenses fall below this limitation at the end of the 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.
6 ACCOUNT INFORMATION
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the fund. The
fund's board of trustees oversees the fund's business activities and retains the
services of the various firms that carry out the fund's operations.
The trustees of the fund have the power to change the fund's investment goals
without shareholder or contract holder approval.
Investment adviser John Hancock Advisers, LLC, 101 Huntington Avenue, Boston, MA
02199, is the investment adviser to the fund and provides investment management
and related administrative services and facilities to the fund. Founded in 1968,
John Hancock Advisers managed $29 billion in open-end funds, closed-end funds,
private accounts, variable annuities and retirement plans as of December 31,
2001. The firm is a wholly owned subsidiary of John Hancock Financial Services,
Inc.
-----------------------
Variable
contract holders
-----------------------
-----------------------
Insurance company
separate accounts
-----------------------
-----------------------
Declaration
funds
-----------------------
---------------------------------------------------
Investment adviser
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Manages the fund's business and
investment activities.
---------------------------------------------------
---------------------------------------------------
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Holds the fund's assets, settles all
portfolio trades and collects most of
the valuation data required for
calculating the fund's NAV.
---------------------------------------------------
---------------------------------------------------
Trustees
Oversee the fund's activities.
---------------------------------------------------
FUND DETAILS 7
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
V.A. Sovereign Investors Fund:
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 fund. 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)
[OLYMPIC LOGO]
WORLDWIDE SPONSOR
John Hancock Funds, LLC
MEMBER NASD
101 Huntington Avenue
Boston, MA 02199-7603
www.jhfunds.com
Mutual Funds
Institutional Services
Private Managed Accounts
Retirement Plans
(C)2002 JOHN HANCOCK FUNDS, LLC VA815PN 5/02
JOHN HANCOCK DECLARATION TRUST
Statement of Additional Information
July 25, 2002
John Hancock V.A. Relative Value Fund
John Hancock V.A. Sovereign Investors Fund
John Hancock V.A. Financial Industries Fund
John Hancock V.A. Technology 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................................................ 2
Eligible Investors....................................................... 2
Investment Policies and Strategies....................................... 2
Equity................................................................... 3
Sector................................................................... 4
Income................................................................... 5
Risk Factors Investments and Techniques.................................. 6
Investment Restrictions.................................................. 24
Those Responsible for Management......................................... 26
Investment Advisory and Other Services................................... 33
Distribution Contracts................................................... 37
Net Asset Value.......................................................... 37
Special Redemptions...................................................... 38
Description of the Trust's Shares........................................ 38
Dividends................................................................ 40
Tax Status............................................................... 40
Calculation of Performance............................................... 43
Brokerage Allocation..................................................... 45
Shareholder Servicing Agent.............................................. 48
Custody of Portfolio..................................................... 48
Independent Auditors .................................................... 48
Appendix - Description of Bond Ratings................................... A-1
Financial Statements..................................................... F-1
1
ORGANIZATION OF THE TRUST
John Hancock Declaration Trust (the "Trust") is an open-end investment
management company organized in 1995 as a Massachusetts business trust under the
laws of the Commonwealth of Massachusetts. The Trust currently has five series
of shares designated as: John Hancock V.A. Financial Industries Fund ("Financial
Industries Fund"); John Hancock V.A. Technology Fund ("Technology 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. Sovereign Investors Fund ("Sovereign Investors Fund")
and V.A. Strategic Income Fund ("Strategic Income Fund").
The investment adviser of each Fund is John Hancock Advisers, LLC (prior to
February 1, 2002, 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 Technology Fund's Sub-adviser is American Fund Advisors, Inc. ("AFA"). AFA
is referred to herein as the "Sub-adviser." AFA is responsible for providing
investment advice to the Technology Fund, subject to the review of the trustees
and overall supervision of the Adviser.
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.
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.
2
EQUITY
Relative Value Fund
The RELATIVE VALUE FUND seeks long-term capital appreciation. To pursue this
goal, the Fund invests primarily in a diversified portfolio of stocks.
In selecting equity securities for the Fund, the portfolio manager emphasizes 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 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).
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, 2002,
that range was $439 million to $372 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.
3
SECTOR
Financial Industries Fund
The FINANCIAL INDUSTRIES FUND seeks capital appreciation. Under ordinary
circumstances, the Fund will invest at least 80% of its Assets in equity
securities of financial services companies.
With respect to the Fund's investment policy of investing at least 80% of its
Assets in financial services companies, "Assets" is defined as net assets plus
the amount of any borrowing for investment purposes. In addition, the Fund will
notify shareholders at least 60 days prior to any change in this policy.
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.
In abnormal circumstances, such as situations where the Fund experiences
unusually large cash inflows or anticipates unusually large redemptions, and in
adverse market, economic, political, or other conditions, the Fund may
temporarily invest up to 80% of its Assets in investment-grade short-term
securities.
Technology Fund
The TECHNOLOGY FUND seeks long-term growth of capital. The Fund invests
principally in equity securities of companies that rely extensively on
technology in their product development or operations. Under ordinary
circumstances, at least 80% of the Fund's Assets are invested in securities of
technology companies as 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.
4
With respect to the Fund's investment policy of investing at least 80% of its
Assets in companies that rely extensively on technology in their product
development or operations, "Assets" is defined as net assets plus the amount of
any borrowings for investment purposes. In addition, the Fund will notify
shareholders at least 60 days prior to any change in this policy.
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."
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.
In abnormal circumstances, such as situations where the Fund experiences
unusually large cash inflows or anticipates unusually large redemptions, and in
adverse market, economic, political, or other conditions, the Fund may
temporarily invest more than 20% of its Assets in investment-grade short-term
securities, cash and cash equivalents.
INCOME
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
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.
5
RISK FACTORS, INVESTMENTS AND TECHNIQUES
Financial Industries. Since 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.
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
6
Industries 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.
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 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 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.
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 Sub-adviser will give primary emphasis to
the attractiveness of the underlying common stock.
Foreign Securities and Emerging Countries. Each Fund (other than Sovereign
Investors Fund) may invest in U.S. Dollar and foreign denominated securities of
foreign issuers. The Sovereign Investors Fund may only invest in U.S. dollar
denominated securities including those of foreign issuers which are traded on a
U.S. Exchange. The Technology 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
7
(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.
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
8
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 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 Sovereign Investors Fund) may 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 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 Sovereign Investors 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 Sovereign Investors 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
9
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.
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
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% 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
10
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.
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. A Fund will not invest more than 15% 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. Sovereign Investors Fund
may purchase and write (sell) call and put options on any index based on
securities in which it may invest. Each other 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 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.
11
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."
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
12
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.
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. Sovereign Investors Fund may
purchase and sell futures contracts on any index based on securities in which it
may invest for hedging or 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 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.
13
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
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 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 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.
14
Other Considerations. The Sovereign Investors Fund may engage in futures and
related options transactions for hedging or other non-speculative purposes. Each
other 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
15
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. 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.
Swaps, Caps, Floors and Collars. As one way of managing exposure to different
types of investments, Strategic Income Fund may enter into interest rate swaps
and other types of swap agreements such as caps, collars and floors. Strategic
Income Fund 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.
16
Participation Interests. The Technology 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 Strategic Income 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 Strategic Income 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.
Custodial Receipts. Each 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
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
17
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 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.
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.
18
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 Strategic Income 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.
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
19
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.
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 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
20
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.
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,
Financial Industries Fund, Relative Value Fund, Sovereign Investors Fund, and
Technology 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).
21
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 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 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.
Short Sales. 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 Sovereign Investors Fund and Technology 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
22
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
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 Relative Value Fund, Technology Fund, and Strategic Income
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 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.
23
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 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.
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.
24
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. 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. 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.
Non-Fundamental Investment Restrictions. The following restrictions are
designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
Each 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
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 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.
25
(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, 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) 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).
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time on investment is made, a later change in
percentage resulting from changes in the value of each Fund's assets will not be
considered a violation of the restriction.
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.
If allowed by its other investment policies and restrictions, each Fund may
invest up to 5% of its total assets in Russian equity securities and up to 10%
of its total assets in Russian fixed income securities. All Russian securities
must be: (1) denominated in U.S. dollars, Canadian dollars, euros, sterling, or
yen; (2) traded on a major exchange; and (3) held physically outside of Russia.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Funds is managed by its Trustees, 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 Funds
are also officers or Directors of the Adviser, or officers and Directors of the
Fund's principal distributor, John Hancock Funds, LLC (prior to February 1,
2002, John Hancock Funds, Inc.) ("John Hancock Funds").
26
- ---------------------------- ------------- -------------- -------------------------------------------- ----------------
Number of John
Position(s) Trustee/ Principal Occupation(s) Hancock Funds
Name, Address (1) Held with Officer and other Directorships Overseen by
And Age Funds since(2) During Past 5 Years Trustee
- ---------------------------- ------------- -------------- -------------------------------------------- ----------------
Independent Trustees
- ---------------------------- ------------- -------------- -------------------------------------------- ----------------
Dennis S. Aronowitz Trustee *1998 Professor of Law, Emeritus, Boston 31
Born: 1931 1996 University School of Law (as of 1996);
1997 Director, Brookline Bancorp.
2000
1996
- ---------------------------- ------------- -------------- -------------------------------------------- ----------------
Richard P. Chapman, Jr. Trustee *1998 Chairman, President and Chief Executive 31
Born: 1935 1996 Officer, Brookline Bancorp. (lending)
1997 (since 1972); Trustee, Northeastern
2000 University (education); Chairman and
1996 Director, Lumber Insurance Co. (insurance)
(until 2000); Chairman and Director,
Northeast Retirement Services, Inc.
(retirement administration) (since 1998).
- ---------------------------- ------------- -------------- -------------------------------------------- ----------------
William J. Cosgrove Trustee *1998 Vice President, Senior Banker and Senior 31
Born: 1933 1996 Credit Officer, Citibank, N.A. (retired
1997 1991); Executive Vice President, Citadel
2000 Group Representatives, Inc.; Director,
1996 Hudson City Bancorp; Trustee, Scholarship
Fund for Inner City Children (since 1986).
- ---------------------------- ------------- -------------- -------------------------------------------- ----------------
Richard A. Farrell Trustee *1998 President, Farrell, Healer & Co., Inc., 31
Born: 1932 1996 (venture capital management firm)(since
1997 1980) and General Partner of the Venture
2000 Capital Fund of NE (since 1980); Prior to
1996 1980, headed the venture capital group at
Bank of Boston Corporation.
- ---------------------------- ------------- -------------- -------------------------------------------- ----------------
* Relative Value, Sovereign Investors, Financial Industries, Technology and
Strategic Income Funds, respectively.
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02199.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and/or certain other affiliates.
27
- ---------------------------- ------------- -------------- -------------------------------------------- ----------------
Number of John
Position(s) Trustee/ Principal Occupation(s) Hancock Funds
Name, Address (1) Held with Officer and other Directorships Overseen by
And Age Funds since(2) During Past 5 Years Trustee
- ---------------------------- ------------- -------------- -------------------------------------------------- ------------------
Gail D. Fosler Trustee *1998 Senior Vice President and Chief Economist, The 31
Born: 1947 1996 Conference Board (non-profit economic and
1997 business research)(since 1989); Director, Unisys
2000 Corp. (since 1993); Director, H.B. Fuller
1996 Company (since 1992) and DBS Holdings
(Singapore) (banking and financial
services)(since 1999); Director, National
Bureau of Economic Research
(academic)(since 1989); Director,
Baxter International (medical health care)
(since 2001).
- ---------------------------- ------------- -------------- -------------------------------------------------- ------------------
William F. Glavin Trustee *1998 President Emeritus, Babson College (as of 1998); 31
Born: 1932 1996 Vice Chairman, Xerox Corporation (until 1989);
1997 Director, Reebok, Inc. (since 1994) and Inco Ltd.
2000
1996
- ---------------------------- ------------- -------------- -------------------------------------------------- ------------------
John A. Moore Trustee *1998 President and Chief Executive Officer, Institute 37
Born: 1939 1996 for Evaluating Health Risks, (nonprofit
1997 institution) (until 2001); Senior Scientist,
2000 Sciences International (health research)(since
1996 1998); Principal, Hollyhouse (consulting)(since
2000); Director, CIIT(nonprofit research) (since
2002).
- ---------------------------- ------------- -------------- -------------------------------------------------- ------------------
Patti McGill Peterson Trustee *1998 Executive Director, Council for International 37
Born: 1943 1996 Exchange of Scholars (since 1998); Vice
1997 President, Institute of International Education
2000 (since 1998); Senior Fellow, Cornell Institute
1996 of Public Affairs, Cornell University (until
1997); President Emerita of Wells College and
St. Lawrence University; Director, Niagara
Mohawk Power Corporation (electric utility).
- ---------------------------- ------------- -------------- -------------------------------------------------- ------------------
John W. Pratt Trustee *1998 Professor of Business Administration Emeritus, 31
Born: 1931 1996 Harvard University Graduate School of Business
1997 Administration (as of 1998).
2000
1996
- ---------------------------- ------------- -------------- -------------------------------------------------- ------------------
* Relative Value, Sovereign Investors, Financial Industries, Technology and
Strategic Income Funds, respectively.
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02199.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and/or certain other affiliates.
28
- ---------------------------- ------------- -------------- -------------------------------------------- ----------------
Number of John
Position(s) Trustee/ Principal Occupation(s) Hancock Funds
Name, Address (1) Held with Officer and other Directorships Overseen by
And Age Funds since(2) During Past 5 Years Trustee
- ---------------------------- ------------- -------------- ------------------------------------------------ --------------------
Interested Trustees
- ---------------------------- ------------- -------------- ------------------------------------------------ --------------------
John M. DeCiccio (3) Trustee *2001 Executive Vice President and Chief Investment 59
Born: 1948 2001 Officer, John Hancock Financial Services,
2001 Inc.; Director, Executive Vice President and
2001 Chief Investment Officer, John Hancock Life
2001 Insurance Company; Chairman of the Committee
of Finance of John Hancock Life Insurance
Company; Director, John Hancock
Subsidiaries, LLC, Hancock Natural
Resource Group, Independence
Investment LLC, Independence Fixed
Income LLC, John Hancock Advisers, LLC
(the "Adviser") and The Berkeley Financial
Group, LLC ("The Berkeley Group"), John
Hancock Funds, LLC ("John Hancock
Funds"), Massachusetts Business Development
Corporation; Director, John Hancock Insurance
Agency, Inc. ("Insurance Agency,
Inc.") (until 1999) and John Hancock
Signature Services, Inc. ("Signature
Services") (until 1997).
- ---------------------------- ------------- -------------- ------------------------------------------------ --------------------
Maureen R. Ford (3) Trustee, *2000 Executive Vice President, John Hancock 59
Born: 1955 Chairman, 2000 Financial Services, Inc., John Hancock Life
President 2000 Insurance Company; Chairman, Director,
and Chief 2000 President and Chief Executive Officer, the
Executive 2000 Advisers and The Berkeley Group; Chairman,
Officer Director and Chief Executive Officer, John
Hancock Funds, Chairman, Director and
President, Insurance Agency, Inc.; Chairman,
Director and Chief Executive Officer,
Sovereign Asset Management Corporation
("SAMCorp."); Director, Independence
Investment LLC, Independence Fixed Income LLC
and Signature Services; Senior Vice President,
MassMutual Insurance Co. (until 1999); Senior
Vice President, Connecticut Mutual Insurance
Co. (until 1996).
- ---------------------------- ------------- -------------- ------------------------------------------------ --------------------
* Relative Value, Sovereign Investors, Financial Industries, Technology and
Strategic Income Funds, respectively.
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02199.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and/or certain other affiliates.
29
- ---------------------------- ------------- -------------- -------------------------------------------- ----------------
Number of John
Position(s) Trustee/ Principal Occupation(s) Hancock Funds
Name, Address (1) Held with Officer and other Directorships Overseen by
And Age Funds since(2) During Past 5 Years Trustee
- --------------------------- -------------- -------------- -------------------------------------------- -----------------
Principal Officers who
are not Trustees
- --------------------------- -------------- -------------- -------------------------------------------- -----------------
William L. Braman Executive *2000 Executive Vice President and Chief N/A
Born: 1953 Vice 2000 Investment Officer, the Adviser and each
President 2000 of the John Hancock funds; Director,
and Chief 2000 SAMCorp., Executive Vice President and
Investment 2000 Chief Investment Officer, Barring Asset
Officer Management, London U.K. (until 2000).
- --------------------------- -------------- -------------- -------------------------------------------- -----------------
Richard A. Brown Senior Vice *2000 Senior Vice President, Chief Financial N/A
Born: 1949 President 2000 Officer and Treasurer, the Adviser, John
and Chief 2000 Hancock Funds, and The Berkeley Group;
Financial 2000 Second Vice President and Senior Associate
Officer 2000 Controller, Corporate Tax Department, John
Hancock Financial Services, Inc. (until
2001).
- --------------------------- -------------- -------------- -------------------------------------------- -----------------
Thomas H. Connors Vice *1998 Vice President and Compliance Officer, the N/A
Born: 1959 President 1996 Adviser and each of the John Hancock
and 1997 funds; Vice President, John Hancock Funds.
Compliance 2000
Officer 1996
- --------------------------- -------------- -------------- -------------------------------------------- -----------------
William H. King Vice *2001 Vice President and Assistant Treasurer, N/A
Born: 1952 President 1996 the Adviser; Vice President and Treasurer
and Treasurer 1997 of each of the John Hancock funds;
2000 Assistant Treasurer of each of the John
1996 Hancock funds (until 2001).
- --------------------------- -------------- -------------- -------------------------------------------- -----------------
Susan S. Newton Senior Vice *1998 Senior Vice President, Secretary and Chief N/A
Born: 1950 President, 1996 Legal Officer, SAMCorp., the Adviser and
Secretary 1997 each of the John Hancock funds, John
and Chief 2000 Hancock Funds and The Berkeley Group; Vice
Legal Officer 1996 President, Signature Services (until
2000), Director, Senior Vice President and
Secretary, NM Capital.
- --------------------------- -------------- -------------- -------------------------------------------- -----------------
* Relative Value, Sovereign Investors, Financial Industries, Technology and
Strategic Income Funds, respectively.
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02199.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and/or certain other affiliates.
30
The Funds' Board of Trustees currently has five standing Committees: the Audit
Committee, the Administration Committee, the Contracts/Operations Committee, the
Investment Performance Committee and the Coordinating Committee. Each Committee
is comprised of Independent Trustees who are not "interested persons". The Audit
Committee members are Messrs. Moore, Farrell and Ms. Fosler. The Audit Committee
recommends to the full board auditors for each Fund, monitors and oversees the
audits of the Funds, communicates with both independent auditors and internal
auditors on a regular basis and provides a forum for the auditors to report and
discuss any matters they deem appropriate at any time. The Audit Committee held
four meetings during the fiscal year ended December 31, 2001.
The Administration Committee's members are all of the Independent Trustees of
the Fund. The Administration Committee reviews the activities of the other four
standing committees and makes the final selection and nomination of candidates
to serve as Independent Trustees. The Administration Committee will consider
nominees recommended by shareholders to serve as Independent Trustees, provided
that shareholders submit recommendations in compliance with all of the pertinent
provisions of Rule 14a-8 under the Securities Exchange Act of 1934. The
Administration Committee also works with all Trustees on the selection and
election of officers of the Funds. The Administration Committee held four
meetings during the fiscal year ended December 31, 2001.
The Contracts/Operations Committee members are Messrs. Chapman, Cosgrove and
Pratt. The Contracts/Operations Committee oversees the initiation, operation,
and renewal of contracts between the Funds and other entities. These contracts
include advisory and subadvisory agreements, custodial and transfer agency
agreements and arrangements with other service providers. The
Contracts/Operations Committee held five meetings during the fiscal year ended
December 31, 2001.
The Investment Performance Committee consists of Messrs. Aronowitz, Glavin and
Ms. Peterson. The Investment Performance Committee monitors and analyzes the
performance of each Fund generally, consults with the adviser as necessary if a
Fund requires special attention, and reviews peer groups and other comparative
standards as necessary. The Investment Performance Committee held four meetings
during the fiscal year ended December 31, 2001.
The Coordinating Committee members are the chairpersons of the other four
standing committees. The Coordinating Committee assures consistency of action
among committees, reviews Trustee compensation, evaluates Trustee performance
and considers committee membership rotations as well as relevant corporate
governance issues.
Certain members of the Board of Trustees may own either variable annuity
contracts or variable life insurance contracts that are supported by one of the
insurance company separate accounts and, in that sense, have an interest in
shares of the Funds. The following table provides a dollar range indicating each
Trustee's ownership of shares in the Funds, as well as aggregate holdings of
shares of all John Hancock funds overseen by the Trustees, as of December 31,
2001.
31
- --------------------------------------------------------------------------------
Aggregate Dollar Range
Dollar Range of of holdings in
Shares In The Funds John Hancock funds
Name of Trustee Owned by Trustee overseen by Trustee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Independent Trustees
- --------------------------------------------------------------------------------
Dennis S. Aronowitz None $50,001-$100,000
- --------------------------------------------------------------------------------
Richard P. Chapman, Jr. None Over $100,000
- --------------------------------------------------------------------------------
William J. Cosgrove None Over $100,000
- --------------------------------------------------------------------------------
Richard A. Farrell None Over $100,000
- --------------------------------------------------------------------------------
Gail D. Fosler None $10,001-$50,000
- --------------------------------------------------------------------------------
William F. Glavin None $10,001-$50,000
- --------------------------------------------------------------------------------
Dr. John A. Moore None Over $100,000
- --------------------------------------------------------------------------------
Patti McGill Peterson None Over $100,000
- --------------------------------------------------------------------------------
John W. Pratt None Over $100,000
- --------------------------------------------------------------------------------
Interested Trustees
- --------------------------------------------------------------------------------
John M. DeCiccio None Over $100,000
- --------------------------------------------------------------------------------
Maureen R. Ford None Over $100,000
- --------------------------------------------------------------------------------
(1) Under the John Hancock Deferred Compensation Plan for Independent Trustees,
an Independent Trustee may elect to earn a return on his deferred fees
equal to the amount that he would have earned if the deferred fees amount
were invested in one or more funds in the John Hancock fund complex. Under
these circumstances, a trustee is not the legal owner of the underlying
shares, but participates in any positive or negative return on those shares
to the same extent as other shareholders. If the Trustees were deemed to
own the shares used in computing the value of his deferred compensation, as
of December 31, 2001, the respective "Dollar Range of Fund Shares Owned by
Trustee" and the "Aggregate Dollar Range of holdings in John Hancock funds
overseen by Trustee" would be none and over $100,000 for Mr. Chapman,
none and over $100,000 for Mr. Cosgrove, none and over $100,000 for Mr.
Glavin, and none and over $100,000 for Mr. Moore.
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. Mr. DeCiccio and Ms. Ford, each a
non-Independent Trustee, and each of the officers of the Fund who are interested
persons of the Adviser, are compensated by the Adviser and/or affiliates and
receive no compensation from the Fund for their services.
Aggregate Total Compensation From the
Compensation Fund and John Hancock Fund
Independent Trustees from the Funds (1) Complex to Trustees (2)
- -------------------- ------------------ -----------------------
Dennis J. Aronowitz $ 1,300 $ 75,000
Richard P. Chapman* 1,363 78,100
William J. Cosgrove* 1,239 72,000
Leland O. Erdahl+ 294 18,000
Richard A. Farrell 1,239 72,000
Gail D. Fosler 1,301 75,000
William F. Glavin* 1,239 72,000
Dr. John A. Moore* 1,302 75,100
Patti McGill Peterson 1,239 72,000
John Pratt 1,239 72,000
-------- ---------
Total $11,755 $681,200
(1) Compensation is for the current fiscal year ending December 31, 2001, and
includes any deferred compensation.
32
(2) Total compensation paid by the John Hancock Funds Complex to the Independent
Trustees is as of December 31, 2001. As of this date, there were sixty-six funds
in the John Hancock Fund Complex , with Mr. Moore and Ms. Peterson serving on
thirty-six funds and each other Independent Trustees serving on thirty funds.
+As of February 28, 2001, Mr. Erdahl resigned as Trustee of the Complex.
*As of December 31, 2001, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Funds Complex for Mr.
Chapman was $71,309, Mr. Cosgrove was $207,842, Mr. Glavin was $280,742 and for
Dr. Moore was $238,982 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 or
Affiliated Companies. Some of the Trustees and officers may also be officers or
Trustees of one or more of the other funds for which the Adviser serves as
investment adviser.
As of April 10, 2002, all shares were held by the Life Co. and the Variable Life
Co.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has approximately $28 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 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.
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.
33
Under the Sub-advisory agreement, the 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 Technology 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%
- ---------------------------------------------------------------------
Financial Industries Fund 0.80%
- ---------------------------------------------------------------------
Relative Value Fund 0.60%
- ---------------------------------------------------------------------
Sovereign Investors Fund 0.60%
- ---------------------------------------------------------------------
Strategic Income Fund 0.60%
- ---------------------------------------------------------------------
With respect to Technology Fund, the Adviser (not the Fund) 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.
34
For the fiscal years ended December 31, 1999, 2000 and 2001, the Adviser's
management fee for each Fund is listed below.
1999 2000 2001
Management Fee Management Fee Management Fee
Funds received by the Adviser received by the Adviser received by the Adviser
----- ----------------------- ----------------------- -----------------------
Technology $ ---- $33,261 $141,663
Financial Industries 398,471 434,813 $592,963
Relative Value 147,515 257,116 $283,176
Sovereign Investors 248,937 295,467 $375,151
Strategic Income 117,404 165,020 $298,966
Board Review of Investment Advisory Agreements Each Fund's Board of Trustees is
responsible for overseeing the performance of the Fund's investment adviser (and
Sub-adviser with respect to Technology Fund) and determining whether to approve
and renew the Fund's Advisory Agreement (and Sub-advisory Agreement for
Technology Fund). The Board has a standing request that the Adviser provide the
Board with certain information the Board has deemed important to evaluating the
short- and long-term performance of the Adviser and Sub-adviser. This
information includes periodic performance analysis and status reports from the
Adviser and quarterly Portfolio and Investment Performance Reports. Each Fund's
portfolio managers meet with the Board from time to time to discuss the
management and performance of the Fund and respond to the Board's questions
concerning the performance of the Adviser. When the Board considers whether to
renew an investment advisory contract or sub-advisory contract, the Board takes
into account numerous factors, including: (1) the nature, extent and quality of
the services provided by the Adviser and Sub-adviser; (2) the investment
performance of the Fund's assets managed by the Adviser or Sub-adviser; (3) the
fair market value of the services provided by the Adviser or Sub-adviser; (4) a
comparative analysis of expense ratios of, and advisory fees paid by, similar
funds; (5) the extent to which the Adviser has realized or will realize
economies of scale as the Fund grows; (6) other sources of revenue to the
Adviser or its affiliates from its relationship with the Fund and intangible or
"fall-out" benefits that accrue to the Adviser and its affiliates, if relevant;
and (7) the Adviser's control of the operating expenses of the fund, such as
transaction costs, including ways in which portfolio transactions for the fund
are conducted and brokers are selected.
Financial Industries Fund: The primary factors underlying the Board's decision
to renew the Financial Industries Fund's Advisory Agreement were as follows:
o The Board determined that the performance results of the Fund and the
Adviser's responsive actions were reasonable, as compared with relevant
performance standards, including the performance results of comparable
variable insurance product specialty and miscellaneous funds derived from
data provided by Lipper Inc. and appropriate market indexes.
o The Board decided that the advisory fee paid by the Fund was reasonable
based on the average advisory fee for comparable funds.
o The Board evaluated the Adviser's investment staff and portfolio management
process, and reviewed the composition and overall performance of the Fund's
portfolio on both a short-term and long-term basis. The Board considered
whether the Fund should obtain alternative portfolio management services
and concluded that, under all the circumstances and based on its informed
business judgement, the most appropriate course of action in the best
interest of the Fund's shareholders was to renew the agreement with the
Adviser.
Relative Value Fund: The primary factors underlying the Board's decision to
renew the Relative Value Fund's Advisory Agreement were as follows:
35
o The Board determined that the performance results of the Fund and the
Adviser's responsive actions were reasonable, as compared with relevant
performance standards, including the performance results of comparable
variable insurance product growth and income funds derived from data
provided by Lipper Inc. and appropriate market indexes.
o The Board decided that the advisory fee paid by the Fund was reasonable
based on the average advisory fee for comparable funds.
o The Board evaluated the Adviser's investment staff and portfolio management
process, and reviewed the composition and overall performance of the Fund's
portfolio on both a short-term and long-term basis. The Board considered
whether the Fund should obtain alternative portfolio management services
and concluded that, under all the circumstances and based on its informed
business judgement, the most appropriate course of action in the best
interest of the Fund's shareholders was to renew the agreement with the
Adviser.
Sovereign Investors Fund: The primary factors underlying the Board's decision to
renew the Sovereign Investors Fund's Advisory Agreement were as follows:
o The Board determined that the performance results of the Fund and the
Adviser's responsive actions were reasonable, as compared with relevant
performance standards, including the performance results of comparable
variable insurance product equity income funds and balanced funds derived
from data provided by Lipper Inc. and appropriate market indexes.
o The Board decided that the advisory fee paid by the Fund was reasonable
based on the average advisory fee for comparable funds.
o The Board evaluated the Adviser's investment staff and portfolio management
process, and reviewed the composition and overall performance of the Fund's
portfolio on both a short-term and long-term basis. The Board considered
whether the Fund should obtain alternative portfolio management services
and concluded that, under all the circumstances and based on its informed
business judgement, the most appropriate course of action in the best
interest of the Fund's shareholders was to renew the agreement with the
Adviser.
Strategic Income Fund: The primary factors underlying the Board's decision to
renew the Strategic Income Fund's Advisory Agreement were as follows:
o The Board determined that the performance results of the Fund and the
Adviser's responsive actions were reasonable, as compared with relevant
performance standards, including the performance results of comparable
variable insurance product general bond funds derived from data provided by
Lipper Inc. and appropriate market indexes.
o The Board decided that the advisory fee paid by the Fund was reasonable
based on the average advisory fee for comparable funds.
o The Board evaluated the Adviser's investment staff and portfolio management
process, and reviewed the composition and overall performance of the Fund's
portfolio on both a short-term and long-term basis. The Board considered
whether the Fund should obtain alternative portfolio management services
and concluded that, under all the circumstances and based on its informed
business judgement, the most appropriate course of action in the best
interest of the Fund's shareholders was to renew the agreement with the
Adviser.
Technology Fund: The primary factors underlying the Board's decision to renew
the Technology Fund's Advisory Agreement and Sub-Advisory Agreement were as
follows:
o The Board determined that the performance results of the Fund and the
Adviser's and Sub-adviser's responsive actions were reasonable, as compared
with relevant performance standards, including the performance results of
comparable variable insurance specialty and miscellaneous funds derived
from data provided by Lipper Inc. and appropriate market indexes.
o The Board decided that the advisory fee paid by the Fund was reasonable
based on the average advisory fee for comparable funds.
36
o The Board evaluated the Adviser's and Sub-adviser's investment staff and
portfolio management process, and reviewed the composition and overall
performance of the Fund's portfolio on both a short-term and long-term
basis. The Board considered whether the Fund should obtain alternative
portfolio management services and concluded that, under all the
circumstances and based on its informed business judgement, the most
appropriate course of action in the best interest of the Fund's
shareholders was to renew the agreements with the Adviser and Sub-adviser.
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.
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. For the fiscal years ended December 31, 1999, 2000 and 2001,
the Funds paid the Adviser the following amounts under this Agreement.
- --------------------------------------------------------------------------------
Funds 1999 2000 2001
- --------------------------------------------------------------------------------
Technology $ ---- $ 810+ $ 3,619
- --------------------------------------------------------------------------------
Financial Industries 8,707 10,269 15,125
- --------------------------------------------------------------------------------
Relative Value 4,476 8,056 9,669
- --------------------------------------------------------------------------------
Sovereign Investors 7,445 9,273 12,758
- --------------------------------------------------------------------------------
Strategic Income 3,504 5,193 10,237
- --------------------------------------------------------------------------------
+From commencement of operations on May 1, 2000.
Personnel of the Adviser 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(s),
the principal underwriter 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.
37
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.
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
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.
38
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.
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.
39
DIVIDENDS
Dividends from net investment income are declared and paid as follows:
FUND DECLARED PAID
- ---- -------- ----
Technology Fund Annually Annually
Financial Industries Fund Annually Annually
Relative Value Fund Annually Annually
Sovereign Investors Fund Quarterly Quarterly
Strategic Income 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
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
40
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.
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.
41
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, 2001, the
following Funds had capital loss carryforwards:
- --------------------------------------------------------------------------------
2006 2007 2008 2009
- --------------------------------------------------------------------------------
Technology $ 0 $ 0 $ 14,000 $3,708,037
- --------------------------------------------------------------------------------
Financial Industries 0 0 760,639 0
- --------------------------------------------------------------------------------
Relative Value 0 0 0 0
- --------------------------------------------------------------------------------
Sovereign Investors 157,877 101,159 1,206,695 3,153,775
- --------------------------------------------------------------------------------
Strategic Income 4,130 136,493 1,506,009 1,757,056
- --------------------------------------------------------------------------------
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.
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 and
Financial Industries 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.
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.
42
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, 2001, the annualized yield was:
Strategic Income Fund 6.45%
Yield. The yield of each 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:
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.
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.
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.
43
The average annual total return for each Fund for the 1 year period ended
December 31, 2001, the 5 year period for Sovereign Investors Fund and Strategic
Income Fund and since the commencement of operations for each Fund through
December 31, 2001 is as follows:
Commencement of
1 year period ended 5 year period ended Operations to
Funds December 31, 2001 December 31, 2001 December 31, 2001*
- ----- ----------------- ----------------- ------------------
Technology Fund -44.06% --% -41.33%
Financial Industries -17.51% 2.02% 9.94%
Relative Value -2.81% --% 15.24%
Sovereign Investors -5.56% 7.99% 9.06%
Strategic Income 4.58% 5.44% 6.32%
* Financial Industries Fund commenced operations on April 30, 1997. Relative
Value Fund commenced operations on January 6, 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.
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.
44
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser, Sub-adviser (if
applicable) pursuant to recommendations made by an investment committee of the
Adviser, which consists of officers and directors of the Adviser and affiliates
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 officers
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.
Purchases of securities for the Strategic Income 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 Sub-adviser (if
applicable), and their value and expected contribution to the performance of the
Fund.
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 such price is reasonable in light
of the services provided and to such policies as the Trustees may adopt from
time to time. During the fiscal year ended December 31, 2001, Relative Value,
Sovereign Investors and Financial Industries paid no commissions to compensate
brokers for research services, but Strategic Income and Technology paid
commissions of $7,691 and $306, respectively.
45
Research services received from broker-dealers supplement the Adviser's own
research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indexes and investment
accounts; and information concerning prices of securities. Broker-dealers may
communicate such information electronically, orally, in written form or on
computer software. Research services may also include the providing of
electronic communication of trade information and the providing of custody
services, as well as the providing of equipment used to communicate research
information, the providing of specialized consultations with the Adviser's
personnel with respect to computerized systems and data furnished to the Adviser
as a component of other research services, the arranging of meetings with
management of companies, and the providing of access to consultants who supply
research information.
The outside research assistance is useful to the Adviser since the
broker-dealers used by the Adviser tend to follow a broader universe of
securities and other matters than the Adviser's staff can follow. In addition,
the research provides the Adviser with a diverse perspective on financial
markets. Research services provided to the Adviser by broker-dealers are
available for the benefit of all accounts managed or advised by the Adviser or
by its affiliates. Some broker-dealers may indicate that the provision of
research services is dependent upon the generation of certain specified levels
of commissions and underwriting concessions by the Adviser's clients, including
the Fund. However, the Fund is not under any obligation to deal with any
broker-dealer in the execution of transactions in portfolio securities. In some
cases, the research services are available only from the broker-dealer providing
them. In other cases, the research services may be obtainable from alternative
sources in return for cash payments.
The Adviser believes that the research services are beneficial in supplementing
the Adviser's research and analysis and that they improve the quality of the
Adviser's investment advice. It is not possible to place a dollar value on
information and services to be received from brokers and dealers, since it is
only supplementary to the research efforts of the Adviser. The advisory fee paid
by the Fund is not reduced because the Adviser receives such services. However,
to the extent that the Adviser would have purchased research services had they
not been provided by broker-dealers, the expenses to the Adviser could be
considered to have been reduced accordingly. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Fund. The
Fund will make no commitment to allocate portfolio transactions upon any
prescribed basis.
While the Adviser's officers, in connection with the Subadviser (if applicable),
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. For the fiscal years ended December 31, 1999, 2000 and 2001, the Funds
paid the following negotiated brokerage commission:
- --------------------------------------------------------------------------------
1999 Broker 2000 Broker 2001 Broker
Funds Commissions Commissions Commissions
- --------------------------------------------------------------------------------
Financial Industries $107,541 $16,755 $175,195
- --------------------------------------------------------------------------------
Relative Value 113,466 49,360 115,065
- --------------------------------------------------------------------------------
Sovereign Investors 38,021 49,746 74,926
- --------------------------------------------------------------------------------
Strategic Income 12 120 498
- --------------------------------------------------------------------------------
Technology 0 10,693 21,527
- --------------------------------------------------------------------------------
46
The Adviser may determine target levels of commission business with various
brokers on behalf of its clients (including the Fund) over a certain time
period. The target levels will be based upon the following factors, among
others: (1) the execution services provided by the broker; (2) the research
services provided by the broker; and (3) the broker's interest in mutual funds
in general and in the Fund and other mutual funds advised by the Adviser in
particular, including sales of the Fund. In connection with (3) above, the
Fund's trades may be executed directly by dealers that sell shares of the John
Hancock funds or by other broker-dealers with which such dealers have clearing
arrangements, consistent with obtaining best execution and the Conduct Rules of
the National Association of Securities Dealers, Inc. The Adviser will not use a
specific formula in connection with any of these considerations to determine the
target levels.
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"). 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, 1999,
2000 and 2001, the Funds did not execute any portfolio transactions with
Affiliated Brokers.
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
47
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, strategies, duration benchmarks and credit and sector exposure. For
example, value funds will likely not participate in initial public offerings as
frequently as growth funds. 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.
CUSTODY OF PORTFOLIO
Portfolio securities of the Funds are held pursuant to a custodian agreement
between each Fund and The Bank of New York, One Wall Street, New York, New York
10286. Under the custodian agreement, The Bank of New York is performing
custody, Foreign Custody Manager 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.
48
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
F-1
ANNUAL
REPORT
John Hancock
Declaration Trust
12.31.02
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo at bottom left
center of page. A tag line below reads "JOHN HANCOCK FUNDS."]
TABLE OF
CONTENTS
SECTOR FUND
V.A. Financial Industries Fund
Chairman's Message 3
Managers' Report 4
A Look at Performance 5
Growth of $10,000 5
Fund's Investments 6
Financial Statements 7
Auditors' Opinion 12
Trustees & Officers 13
EQUITY FUNDS
V.A. Relative Value Fund
Chairman's Message 3
Managers' Report 4
A Look at Performance 5
Growth of $10,000 5
Fund's Investments 6
Financial Statements 8
Auditors' Opinion 13
Trustees & Officers 14
V.A. Sovereign Investors Fund
Chairman's Message 3
Managers' Report 4
A Look at Performance 5
Growth of $10,000 5
Fund's Investments 6
Financial Statements 7
Auditors' Opinion 12
Trustees & Officers 13
INCOME FUND
V.A. Strategic Income Fund
Chairman's Message 3
Managers' Report 4
A Look at Performance 5
Growth of $10,000 5
Fund's Investments 6
Financial Statements 11
Auditors' Opinion 17
Trustees & Officers 18
ANNUAL
REPORT
John Hancock
V.A. Financial Industries Fund
A series of John Hancock Declaration Trust
12.31.02
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo at bottom left
center of page. A tag line below reads "JOHN HANCOCK FUNDS."]
FOR YOUR
INFORMATION
TRUSTEES
Dennis S. Aronowitz
Richard P. Chapman, Jr.
William J. Cosgrove
John M. DeCiccio
Richard A. Farrell*
Maureen R. Ford
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
CUSTODIAN
The Bank of New York
One Wall Street
New York, New York 10286
TRANSFER AGENT
John Hancock Signature Services, Inc.
529 Main Street
Charlestown, Massachusetts 02129
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
INSURANCE PRODUCTS ISSUER
John Hancock Life Insurance
Company, John Hancock Variable
Life Insurance Company*
200 Clarendon Street
Boston, Massachusetts 02117
*Not licensed in New York
FUND DISTRIBUTOR
John Hancock Funds, LLC
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
HOW TO
CONTACT US
On the Internet
www.jhancock.com
By regular mail
John Hancock Signature Services, Inc.
529 Main Street
Charlestown, Massachusetts 02129
Customer service representatives
1-800-225-5291
24-hour automated information
1-800-338-8080
WELCOME
[A photo of Maureen Ford, Chairman and CEO, flush right next to
first paragraph.]
Dear Shareholders,
Investors were probably never happier to close out a year than they were
in 2002, since it was the third consecutive year that the stock market
declined -- something that hadn't occurred in 60 years. Driving the fall
were fears of war, a weak economy, disappointing profits, rising oil
prices and a string of corporate scandals. All market sectors and
investment styles suffered. As a result, the broad Standard & Poor's 500
Index fell by 22.09% for the year, while the Dow Jones Industrial
Average lost 15.04% and the technology laden Nasdaq Composite Index lost
31.53%.
Despite a fourth-quarter rally, only 3.8% of U.S. stock mutual funds
made money last year, and the average U.S. stock fund lost 22.42%,
according to Lipper, Inc. Bond funds provided the only bright spot,
producing mostly positive results, with the average long-term bond fund
rising 7.9%. It was the third year in which bonds outperformed stocks
and gained ground, confirming yet again the importance of having a
portfolio well-diversified among stocks, bonds and cash.
In fact, the disparity between stock and bond results over the last
three years means that many investors' portfolios may have shifted
substantially in their mix between stocks and bonds. We recommend
working with your investment professional to rebalance your assets
according to your long-term goals.
After three down years, no one can predict when the bear market cycle
will turn. Currently, uncertainties abound, as the good news seen in
signs of improving economic and corporate data, and efforts by
Washington to stimulate the economy, are offset by the possibility of
war and other geopolitical risks.
While all these factors are beyond our control, investors can take
charge of how they maneuver through the inevitable bull and bear market
cycles. We've said it before, but it bears repeating: the key is to keep
a long-term perspective and work with your investment professional to
develop and maintain a properly diversified portfolio. We believe this
offers the best protection in the tough times and the best means to
reach your long-term goals.
Sincerely,
/S/ MAUREEN R. FORD
Maureen R. Ford,
Chairman and Chief Executive Officer
Table of contents
Managers' Report
page 4
A Look at Performance
page 5
Growth of $10,000
page 5
Fund's Investments
page 6
Financial Statements
page 7
Auditors' Opinion
page 12
Trustees & Officers
page 13
BY JAMES K. SCHMIDT, CFA, AND THOMAS C. GOGGINS, PORTFOLIO MANAGERS
John Hancock V.A. Financial Industries Fund
MANAGERS'
REPORT
[Photos of Jim Schmidt and Tom Goggins.]
The stock market declined broadly during 2002. A combination of negative
factors worked on investors, from accounting and other corporate
scandals to growing fears of terrorism and war. Perhaps most important,
the economy's rebound from recession stalled and corporate profits
remained weak. As a result, the broad market, as measured by the
Standard & Poor's 500 Index, returned -22.09% for the year ended
December 31, 2002.
Financial stocks continued to outperform the broad market, due largely
to the strong performance of small and midsize bank stocks. They were
bolstered by falling interest rates, solid earnings growth and little
exposure to the problem areas that hurt the larger banks -- syndicated
loans, capital markets activity and involvement with struggling Latin
American countries. On the other hand, financial companies with exposure
to the difficult stock market were hammered, from insurance companies to
brokerage firms and money-center and trust banks. In the summer, several
headline earnings misses, along with congressional testimony by
Citigroup and J.P. Morgan Chase regarding their Enron connections, also
soured investors on the sector despite good earnings news overall.
FUND PERFORMANCE REVIEW
For the year ended December 31, 2002, John Hancock V.A. Financial
Industries Fund posted a total return of -19.46% at net asset value,
compared with the -10.87% return for the average open-end financial
services fund and the -30.90% return of the average variable annuity
specialty/miscellaneous fund, according to Lipper, Inc.
Although the Fund outperformed the broad market, it lagged the Lipper
group of financial services funds because it had more of an emphasis on
large-cap and growth-oriented financial companies during a time when
small and value-oriented stocks did better. Several of these large
companies were penalized by a heightened skepticism, in the face of
several accounting scandals, surrounding any large company with complex
financial statements. These included insurance giant American
International Group (AIG), government-sponsored mortgage lenders Fannie
Mae and Freddie Mac and money-center bank Citigroup. Citigroup and J.P.
Morgan Chase were also hurt by regulatory scrutiny.
LARGE BANK STAKE HELPS
Our 49% stake in banks served us well during the year, as investors
sought safety in companies with solid balance sheets and steady growth.
Traditional retail banks, which tend to struggle in a weak economy, were
shining lights. Asset quality was relatively good and there was a
surprising growth in core deposits, as retail customers became
increasingly wary of the market and more comfortable choosing the
low-returning, but safe, bank savings products. As a result these banks
posted double-digit earnings growth and outperformed larger banks by
avoiding their market-related pitfalls. They were also our biggest
contributors to performance, including Wells Fargo, Bank of America,
BB&T and Wachovia.
[Table at bottom right hand column entitled "Top five stock holdings."
The first listing is Fifth Third Bancorp 7.4%, the second is Wells
Fargo 7.3%, the third Bank of America 7.0%, the fourth Fannie Mae 5.7%
and the fifth Citigroup 5.3%. A note below the table reads "As a
percentage of net assets on 12-31-02."]
INSURANCE FOCUS ON P&C'S
Throughout the year we kept the Fund's insurance exposure focused on
property and casualty companies, and insurance brokers such as Marsh &
McLennan and Willis Group Holdings, to take advantage of the strong
pricing cycle currently playing out. However, we became increasingly
selective, avoiding companies with "legacy issues" such as asbestos
claims, and focusing on companies with pristine balance sheets and solid
credit ratings.
CONSUMER LENDERS, BROKERS
The Fund's biggest detractor, which we sold, was subprime lender
Household International, which came under scrutiny from regulators
concerned about practices that might take advantage of less creditworthy
consumers. On the other hand, consumer finance companies such as
American Express that deal mainly with higher credit quality borrowers
benefited from consumers' continued spending in a low interest-rate and
relatively low unemployment environment.
Brokers and investment bankers were a disappointment for the most part,
since the stagnant economy and fallout from Enron and WorldCom prevented
an upsurge in the issuance of secondary equities that we had expected so
corporations could reliquify their balance sheets. The Fund's holdings
in Goldman Sachs and Merrill Lynch held us back.
A LOOK AHEAD
We continue to be optimistic about the prospects for financial stocks,
although we think that we may be at an inflection point with respect to
which sectors will be the best performers. The wind has been at the
backs of many of the smaller banks as deposits have flowed in and
interest margins have widened. The upcoming year could prove more
rewarding for companies that can benefit from an improving economy. This
includes not only stock market-related companies such as securities
brokers and asset managers, but also commercial banks that have
experienced credit problems or derive substantial revenue from capital
market activities.
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the
managers' views are subject to change as market and other conditions
warrant.
Sector investing is subject to greater risks than the market as a whole.
A LOOK AT
PERFORMANCE
For the period ended 12-31-02
Cumulative total returns
One year -19.46%
Five years -7.16%
Since inception (4-30-97) 25.38%
Average annual total returns
One year -19.46%
Five years -1.48%
Since inception (4-30-97) 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.
GROWTH OF
$10,000
The chart to the left 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 two indexes:
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
Standard & Poor's Financial Index, a capital ization-weighted index
designed to measure the financial sector of the S&P 500
It is not possible to invest in an index.
Line chart with the heading John Hancock V.A. Financial Industries
Fund 4-30-97 - 12-31-02, 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 Standard & Poor's Financial
Index and is equal to $14,985 as of December 31, 2002. The second 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 $12,538 as of December 31, 2002. The third line represents
the Standard & Poor's 500 Index and is equal to $11,904 as of December
31, 2002.
FINANCIAL
STATEMENTS
Fund's Investments
Securities owned by the Fund on 12-31-02
SHARES ISSUER VALUE
COMMON STOCKS 96.95% $55,622,623
(Cost $63,132,328)
Banks -- Midwest 7.38% $4,235,624
72,342 Fifth Third Bancorp 4,235,624
Banks -- Money Center 13.13% 7,535,525
57,500 Bank of America Corp. 4,000,275
87,000 Citigroup, Inc. 3,061,530
13,000 Wachovia Corp. 473,720
Banks -- Northeast 4.66% 2,673,525
1,500 M&T Bank Corp. 119,025
65,500 State Street Corp. 2,554,500
Banks -- Southeast 5.45% 3,126,166
80,900 BB&T Corp. 2,992,491
3,000 National Commerce Financial Corp. 71,550
2,500 SouthTrust Corp. 62,125
Banks -- Superregional 17.78% 10,200,702
68,000 Bank of New York Co., Inc. (The) 1,629,280
11,500 Bank One Corp. 420,325
2,100 Charter One Financial, Inc. 60,333
1,000 Comerica, Inc. 43,240
76,500 Mellon Financial Corp. 1,997,415
18,344 PNC Financial Services Group 768,614
6,500 SunTrust Banks, Inc. 369,980
17,500 U.S. Bancorp 371,350
10,000 Washington Mutual, Inc. 345,300
89,500 Wells Fargo & Co. 4,194,865
Banks -- West 0.27% 157,396
4,000 Zions Bancorp. 157,396
Broker Services 11.11% 6,371,175
34,700 Goldman Sachs Group, Inc. 2,363,070
47,000 Legg Mason, Inc. 2,281,380
45,500 Merrill Lynch & Co., Inc. 1,726,725
Diversified Operations 2.78% 1,594,925
65,500 General Electric Co. 1,594,925
Finance -- Consumer Loans 3.17% 1,815,935
95,475 MBNA Corp. 1,815,935
Finance -- Investment Management 1.44% 826,497
129,000 Amvescap Plc (United Kingdom) 826,497
Finance -- Services Misc. 4.91% 2,816,393
70,900 American Express Co. 2,506,315
19,700 Concord EFS, Inc.* 310,078
Insurance -- Brokers 5.25% 3,011,429
59,600 Marsh & McLennan Cos., Inc. 2,754,116
8,975 Willis Group Holdings Ltd.* 257,313
Insurance -- Diversified 3.59% 2,059,550
850 Berkshire Hathaway, Inc.* 2,059,550
Insurance -- Property & Casualty 5.32% 3,053,026
51,704 American International Group, Inc. 2,991,076
2,950 ProAssurance Corp. * 61,950
Mortgage & Real Estate Services 10.71% 6,144,755
51,000 Fannie Mae 3,280,830
48,500 Freddie Mac 2,863,925
ISSUER, DESCRIPTION, INTEREST PAR VALUE
MATURITY DATE RATE (000s OMITTED) VALUE
SHORT-TERM INVESTMENTS 3.34% $1,915,853
(Cost $1,915,853)
Joint Repurchase Agreement 3.06%
Investment in a Joint Repurchase Agreement
Transaction with UBS Warburg, Inc. -- Dated
12-31-02, due 01-02-03 (Secured by U.S.
Treasury Bond 8.500% due 02-15-20, U.S.
Treasury Notes 4.625% due 02-28-02 and 5.375%
due 06-30-03, U.S. Treasury Inflation Indexed
Notes 3.500% due 01-15-11 and 3.000% due 07-15-12) 1.15% $1,759 1,759,000
SHARES
Cash Equivalents 0.28%
AIM Cash Investment Trust** 156,853 156,853
TOTAL INVESTMENTS 100.29% $57,538,476
OTHER ASSETS AND LIABILITIES, NET (0.29%) ($163,606)
TOTAL NET ASSETS 100.00% $57,374,870
* Non-income producing security.
** Represents investment of security lending collateral.
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.
Statement of Assets and Liabilities
12-31-02
ASSETS
Investments at value (Cost $65,048,181)
including $153,461 of securities loaned $57,538,476
Foreign cash at value (Cost $8,719) 9,402
Dividends and interest receivable 69,476
Other assets 6,875
Total assets 57,624,229
LIABILITIES
Due to custodian 18,943
Payable for securities on loan 156,853
Payable to affiliates 42,753
Other payables and accrued expenses 30,810
Total liabilities 249,359
NET ASSETS
Capital paid-in 76,758,435
Accumulated net realized loss on investments
and foreign currency transactions (11,874,296)
Net unrealized depreciation of investments
and translation of assets and liabilities
in foreign currencies (7,508,641)
Distributions in excess of
net investment income (628)
Net assets $57,374,870
NET ASSET VALUE PER SHARE
Based on 4,944,287 shares of beneficial
interest outstanding -- unlimited number
of shares authorized with no par value $11.60
Statement of Operations
For the year ended 12-31-02
INVESTMENT INCOME
Dividends (net of foreign withholding
taxes of $6,299) $1,271,802
Interest (includes securities lending
income of $1,657) 26,109
Total investment income 1,297,911
EXPENSES
Investment management fee 584,729
Auditing fee 20,146
Custodian fee 17,212
Accounting and legal services fee 15,420
Miscellaneous 5,712
Legal fee 5,405
Trustees' fee 5,123
Printing 3,626
Interest expense 1,760
Registration and filing fee 25
Total expenses 659,158
Net investment income 638,753
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss on
Investments (7,399,086)
Foreign currency transactions (4,693)
Change in unrealized appreciation
(depreciation) of Investments (9,487,204)
Translation of assets and liabilities
in foreign currencies 1,064
Net realized and unrealized loss (16,889,919)
Decrease in net assets from operations ($16,251,166)
See notes to financial statements.
Statement of Changes in Net Assets
YEAR YEAR
ENDED ENDED
12-31-01 12-31-02
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income $525,836 $638,753
Net realized gain (loss) 2,883,241 (7,403,779)
Change in net unrealized appreciation
(depreciation) (17,546,190) (9,486,140)
Decrease in net assets resulting
from operations (14,137,113) (16,251,166)
Distributions to shareholders
From net investment income (499,736) (641,124)
From net realized gain (2,739,375) --
(3,239,111) (641,124)
From Fund share transactions 34,929,896 (14,653,108)
NET ASSETS
Beginning of period 71,366,596 88,920,268
End of period 1 $88,920,268 $57,374,870
1 Includes distributions in excess of net investment income of $27,024
and $628, respectively.
Financial Highlights
12-31-98 12-31-99 12-31-00 12-31-01 12-31-02
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $13.44 $14.45 $14.46 $18.34 $14.56
Net investment income 1 0.18 0.11 0.06 0.11 0.12
Net realized and unrealized gain (loss)
on investments 0.97 0.06 3.87 (3.33) (2.95)
Total from investment operations 1.15 0.17 3.93 (3.22) (2.83)
Less distributions
From net investment income (0.14) (0.10) (0.05) (0.09) (0.13)
From net realized gain -- 2 (0.05) -- (0.47) --
Tax return of capital -- (0.01) -- -- --
(0.14) (0.16) (0.05) (0.56) (0.13)
Net asset value, end of period $14.45 $14.46 $18.34 $14.56 $11.60
Total return 3 (%) 8.55 1.23 27.16 (17.51) (19.46)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $55 $49 $71 $89 $57
Ratio of expenses to average net assets % 0.92 0.90 0.90 0.89 0.90
Ratio of net investment income
to average net assets % 1.25 0.77 0.36 0.71 0.87
Portfolio turnover % 38 72 41 97 4 2
1 Based on the average of the shares outstanding.
2 Less than $0.01 per share.
3 Assumes dividend reinvestment.
4 Excludes merger activity.
See notes to financial statements.
NOTES TO
FINANCIAL STATEMENTS
NOTE A
Accounting policies
John Hancock V.A. Financial Industries Fund (the "Fund") is a
diversified series of John Hancock Declaration Trust ("the Trust"), an
open-end investment management company registered under the Investment
Company Act of 1940. The Trust, organized as a Massachusetts business
trust in 1995, consists of five different series at December 31, 2002.
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 Fund 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 Fund
in proportion to the voting instructions received.
The investment objective of the Fund is to seek capital appreciation.
The Fund has one class of shares with equal rights as to voting,
redemption, dividends and liquidation.
Significant accounting policies of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio 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. Investments in AIM Cash Investment
Trust are valued at their net asset value each business day.
Joint repurchase agreement
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies
having a management contract with John Hancock Advisers, LLC (the
"Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
LLC, 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 Fund's custodian bank receives
delivery of the underlying securities for the joint account on the
Fund's 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 Fund. 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 Fund does 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 Fund's 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 rates.
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.
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.
Bank borrowings
The Fund is 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 Fund has
entered into a syndicated line of credit agreement with various banks.
This agreement enables the Fund to participate with other funds managed
by the Adviser in an unsecured line of credit with banks, which permit
borrowings of up to $475 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 Fund
had no borrowing activity under the line of credit during the year ended
December 31, 2002.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the
Fund 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 Fund 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. On
December 31, 2002, the Fund loaned securities having a market value of
$153,461 collateralized by cash in the amount of $156,853. The cash
collateral was invested in a short-term instrument.
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income that is distributed to
shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund has $10,714,626 of a capital
loss carryforward available, to the extent provided by regulations, to
offset future net realized capital gains. To the extent that such
carryforward is used by the Fund, no capital gain distributions will be
made. The amount of the loss carryforward expires as follows: December
31, 2008 -- $1,143,472 and December 31, 2010 -- $9,571,154. Net capital
losses of $959,453 attributable to security transactions incurred after
October 31, 2002, are treated as arising on January 1, 2003, the first
day of the Fund's 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 Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions to shareholders from net investment
income and net realized gains on the ex-dividend date. During the year
ended December 31, 2002, the tax character of distributions paid was as
follows: ordinary income $641,124.
As of December 31, 2002, there were no distributable earnings on a tax
basis. Such distributions and distributable earnings, on a tax basis,
are determined in conformity with income tax regulations, which may
differ from accounting principles generally accepted in the United
States of America. Distributions in excess of tax basis earnings and
profits, if any, are reported in the Fund's financial statements as a
return of capital.
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
Fund. Actual results could differ from these estimates.
NOTE B
Management fee and transactions with affiliates and others
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a monthly management
fee to the to the Adviser at an annual rate of 0.80% of the Fund's
average daily net asset value.
The Adviser has agreed to limit the Fund's expenses, excluding the
management fee to 0.25% of the Fund's average daily net assets, at least
until April 30, 2003. There was no expense reduction for the year ended
December 31, 2002. The Adviser reserves the right to terminate this
limitation in the future.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
year was at an annual rate of approximately 0.02% of the average net
assets of the Fund.
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 Fund. The compensation of unaffiliated Trustees is borne by the
Fund. 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 Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's 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 Fund.
NOTE C
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding
dollar value. The Fund has an unlimited number of shares authorized with
no par value.
YEAR ENDED 12-31-01 YEAR ENDED 12-31-02
SHARES AMOUNT SHARES AMOUNT
Shares sold 1,981,835 $42,063,445 672,740 $8,600,419
Issued in reorganization 675,457 9,888,426 -- --
Distributions reinvested 225,879 3,239,111 53,471 641,124
Repurchased (666,362) (20,261,086) (1,890,878) (23,894,651)
NET INCREASE (DECREASE) 2,216,809 $34,929,896 (1,164,667) ($14,653,108)
NOTE D
Investment transactions
Purchases and proceeds from sales of securities, other than short-term
securities and obligations of the U.S. government, during the year ended
December 31, 2002, aggregated $1,199,483 and $16,637,043, respectively.
The cost of investments owned on December 31, 2002, including short-term
investments, for federal income tax purposes was $65,248,399. Gross
unrealized appreciation and depreciation of investments aggregated
$2,928,276 and $10,638,199, respectively, resulting in net unrealized
depreciation of $7,709,923. The difference between book basis and tax
basis net unrealized depreciation of investments is attributable
primarily to the tax deferral of losses on wash sales.
NOTE E
Reclassification of accounts
During the year ended December 31, 2002, the Fund reclassified amounts
to reflect a decrease in accumulated net realized loss on investments of
$4,872, a decrease in distributions in excess of net investment income
of $28,767 and a decrease in capital paid-in of $33,639. This represents
the amount necessary to report these balances on a tax basis, excluding
certain temporary differences, as of December 31, 2002. Additional
adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net asset value of the
Fund, are primarily attributable to treatment of foreign currency gains
and losses in the computation of distributable income and capital gains
under federal tax rules versus accounting principles generally accepted
in the United States of America, book and tax differences in accounting
for deferred compensation. The calculation of net investment income per
share in the financial highlights excludes these adjustments.
NOTE F
Reorganization
On December 5, 2001, the shareholders of John Hancock V.A. Regional Bank
Fund ("V.A. Regional Bank Fund") approved a plan of reorganization
between V.A. Regional Bank Fund and the Fund providing for the transfer
of substantially all of the assets and liabilities of the V.A. Regional
Bank Fund to the Fund in exchange solely for shares of beneficial
interest in the fund. The acquisition of the V.A. Regional Bank Fund was
accounted for as a tax-free exchange of 675,457 shares of the Fund for
the net assets of V.A. Regional Bank Fund, which amounted to $9,888,426,
including $523,082 of unrealized appreciation, after the close of
business on December 14, 2001.
Report of Ernst & Young LLP, Independent Auditors
To the Contract Owners and Trustees of
John Hancock Declaration Trust,
We have audited the accompanying statement of assets and liabilities of
John Hancock V.A. Financial Industries Fund (the "Fund"), one of the
portfolios constituting John Hancock Declaration Trust, including the
schedule of investments, as of December 31, 2002, and the related
statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the
responsibility of the Fund'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. Our procedures included confirmation of securities owned as
of December 31, 2002, by correspondence with the custodian and brokers,
or 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 John Hancock V.A. Financial Industries Fund of the
John Hancock Declaration Trust at December 31, 2002, the results of its
operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended 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
Boston, Massachusetts
February 7, 2003
Tax Information
UNAUDITED
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund paid, if any, during its
taxable year ended December 31, 2002.
With respect to the ordinary dividends paid by the Fund for the fiscal
year ended December 31, 2002, 100% of the dividends qualify for the
corporate dividends-received deduction.
If the Fund had distributions, the shareholders will be mailed a 2002
U.S. Treasury Department Form 1099-DIV in January 2003. This will
reflect the total of all distributions that are taxable for the calendar
year 2002.
TRUSTEES &
OFFICERS
This chart provides information about the Trustees and Officers who
oversee your John Hancock fund. Officers elected by the Trustees manage
the day-to-day operations of the Fund and execute policies formulated by
the Trustees.
INDEPENDENT TRUSTEES
NUMBER OF
NAME, AGE TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
Dennis S. Aronowitz, Born: 1931 1997 31
Professor of Law, Emeritus, Boston University School of
Law (as of 1996); Director, Brookline Bancorp.
Richard P. Chapman, Jr., Born: 1935 1997 31
President and Chief Executive Officer, Brookline
Bancorp. (lending) (since 1972); Chairman and
Director, Lumber Insurance Co. (insurance) (until
2000); Chairman and Director, Northeast Retirement
Services, Inc. (retirement administration) (since 1998).
William J. Cosgrove, Born: 1933 1997 31
Vice President, Senior Banker and Senior Credit Officer,
Citibank, N.A. (retired 1991); Executive Vice President,
Citadel Group Representatives, Inc.; Director, Hudson
City Bancorp; Trustee, Scholarship Fund for Inner City
Children (since 1986).
Richard A. Farrell 2, Born: 1932 1997 31
President, Farrell, Healer & Co., Inc. (venture capital
management firm) (since 1980) and General Partner of
the Venture Capital Fund of NE (since 1980); prior to
1980, headed the venture capital group at Bank of
Boston Corporation.
William F. Glavin 2, Born: 1932 1997 31
President Emeritus, Babson College (as of 1998);
Vice Chairman, Xerox Corporation (until 1989);
Director, Reebok, Inc. (since 1994) and Inco Ltd.
Patti McGill Peterson, Born: 1943 1997 39
Executive Director, Council for International Exchange
of Scholars (since 1998), Vice President, Institute of
International Education (since January 1998); Senior
Fellow, Cornell Institute of Public Affairs, Cornell
University (until 1997); President Emerita of Wells
College and St. Lawrence University; Director, Niagara
Mohawk Power Corporation (electric utility).
John A. Moore 2, Born: 1939 1997 39
President and Chief Executive Officer, Institute for
Evaluating Health Risks, (nonprofit institution)
(until 2001); Senior Scientist, Sciences International
(health research) (since 1998); Principal, Hollyhouse
(consulting) (since 2000); Director, CIIT (nonprofit
research) (since 2002).
John W. Pratt, Born: 1931 1997 31
Professor of Business Administration Emeritus,
Harvard University Graduate School of Business
Administration (as of 1998).
INTERESTED TRUSTEES 3
NAME, AGE NUMBER OF
POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
John M. DeCiccio, Born: 1948 2001 61
Trustee
Executive Vice President and Chief Investment Officer,
John Hancock Financial Services, Inc.; Director,
Executive Vice President and Chief Investment Officer,
John Hancock Life Insurance Company; Chairman of
the Committee of Finance of John Hancock Life
Insurance Company; Director, John Hancock
Subsidiaries, LLC ("Subsidiaries, LLC"), Hancock
Natural Resource Group, Independence Investment
LLC, Independence Fixed Income LLC, John Hancock
Advisers, LLC (the "Adviser") and The Berkeley
Financial Group, LLC ("The Berkeley Group"),
John Hancock Funds, LLC ("John Hancock Funds"),
Massachusetts Business Development Corporation;
Director, John Hancock Insurance Agency, Inc.
("Insurance Agency, Inc.") (until 1999).
Maureen R. Ford, Born: 1955 2000 61
Trustee, Chairman, President and Chief Executive
Officer, John Hancock Financial Services, Inc.,
John Hancock Life Insurance Company; Chairman,
Director, President and Chief Executive Officer,
the Adviser and The Berkeley Group; Chairman,
Director, President and Chief Executive Officer, John
Hancock Funds; Chairman, Director and Chief
Executive Officer, Sovereign Asset Management
Corporation ("SAMCorp."); Director, Independence
Investment LLC, Subsidiaries, LLC, Independence
Fixed Income LLC and Signature Services; Senior Vice
President, MassMutual Insurance Co. (until 1999).
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NAME, AGE
POSITION(S) HELD WITH FUND OFFICER
PRINCIPAL OCCUPATION(S) AND OF FUND
DIRECTORSHIPS DURING PAST 5 YEARS SINCE
William L. Braman, Born: 1953 2000
Executive Vice President and Chief Investment Officer
Executive Vice President and Chief Investment Officer, the
Adviser and each of the John Hancock funds; Director,
SAMCorp., Executive Vice President and Chief Investment
Officer, Barring Asset Management, London UK (until 2000).
Richard A. Brown, Born: 1949 2000
Senior Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, the
Adviser, John Hancock Funds, and The Berkeley Group; Second
Vice President and Senior Associate Controller, Corporate Tax
Department, John Hancock Financial Services, Inc. (until 2001).
Thomas H. Connors, Born: 1959 1997
Vice President and Compliance Officer
Vice President and Compliance Officer, the Adviser and each of
the John Hancock funds; Vice President, John Hancock Funds.
William H. King, Born: 1952 1997
Vice President and Treasurer
Vice President and Assistant Treasurer, the Adviser; Vice President
and Treasurer of each of the John Hancock funds; Assistant
Treasurer of each of the John Hancock funds (until 2001).
Susan S. Newton, Born: 1950 1997
Senior Vice President, Secretary and Chief Legal Officer
Senior Vice President, Secretary and Chief Legal Officer,
SAMCorp., the Adviser and each of the John Hancock funds,
John Hancock Funds and The Berkeley Group; Vice President,
Signature Services (until 2000); Director, Senior Vice President
and Secretary, NM Capital.
The business address for all Trustees and Officers is 101 Huntington
Avenue, Boston, Massachusetts 02199.
The Statement of Additional Information of the Fund includes additional
information about members of the board of Trustees of the Fund and is
available, without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his or
her successor is elected.
2 Member of Audit Committee.
3 Interested Trustee holds positions with the Fund's investment adviser,
underwriter and certain other affiliates.
JOHN HANCOCK FUNDS
DECLARATION TRUST
ANNUAL
REPORT
[LOGO] John Hancock
[Rings]
Worldwide Sponsor
John Hancock Funds, LLC
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
Mutual Funds
Institutional Services
Private Managed Accounts
Retirement Plans
This report is for the information of the shareholders of the
Hancock V.A. Financial Industries Fund.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
8280A 12/02
2/03
ANNUAL
REPORT
John Hancock
V.A. Relative Value Fund
A series of John Hancock Declaration Trust
12.31.02
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo at bottom left
center of page. A tag line below reads "JOHN HANCOCK FUNDS."]
FOR YOUR
INFORMATION
TRUSTEES
Dennis S. Aronowitz
Richard P. Chapman, Jr.
William J. Cosgrove
John M. DeCiccio
Richard A. Farrell*
Maureen R. Ford
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
CUSTODIAN
The Bank of New York
One Wall Street
New York, New York 10286
TRANSFER AGENT
John Hancock Signature Services, Inc.
529 Main Street
Charlestown, Massachusetts 02129
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
INSURANCE PRODUCTS ISSUER
John Hancock Life Insurance
Company, John Hancock Variable
Life Insurance Company*
200 Clarendon Street
Boston, Massachusetts 02117
*Not licensed in New York
FUND DISTRIBUTOR
John Hancock Funds, LLC
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
HOW TO
CONTACT US
On the Internet
www.jhancock.com
By regular mail
John Hancock Signature Services, Inc.
529 Main Street
Charlestown, Massachusetts 02129
Customer service representatives
1-800-225-5291
24-hour automated information
1-800-338-8080
WELCOME
[A photo of Maureen Ford, Chairman and CEO, flush right next to
first paragraph.]
Dear Shareholders,
Investors were probably never happier to close out a year than they were
in 2002, since it was the third consecutive year that the stock market
declined -- something that hadn't occurred in 60 years. Driving the fall
were fears of war, a weak economy, disappointing profits, rising oil
prices and a string of corporate scandals. All market sectors and
investment styles suffered. As a result, the broad Standard & Poor's 500
Index fell by 22.09% for the year, while the Dow Jones Industrial
Average lost 15.04% and the technology laden Nasdaq Composite Index lost
31.53%.
Despite a fourth-quarter rally, only 3.8% of U.S. stock mutual funds
made money last year, and the average U.S. stock fund lost 22.42%,
according to Lipper, Inc. Bond funds provided the only bright spot,
producing mostly positive results, with the average long-term bond fund
rising 7.9%. It was the third year in which bonds outperformed stocks
and gained ground, confirming yet again the importance of having a
portfolio well-diversified among stocks, bonds and cash.
In fact, the disparity between stock and bond results over the last
three years means that many investors' portfolios may have shifted
substantially in their mix between stocks and bonds. We recommend
working with your investment professional to rebalance your assets
according to your long-term goals.
After three down years, no one can predict when the bear market cycle
will turn. Currently, uncertainties abound, as the good news seen in
signs of improving economic and corporate data, and efforts by
Washington to stimulate the economy, are offset by the possibility of
war and other geopolitical risks.
While all these factors are beyond our control, investors can take
charge of how they maneuver through the inevitable bull and bear market
cycles. We've said it before, but it bears repeating: the key is to keep
a long-term perspective and work with your investment professional to
develop and maintain a properly diversified portfolio. We believe this
offers the best protection in the tough times and the best means to
reach your long-term goals.
Sincerely,
/S/ MAUREEN R. FORD
Maureen R. Ford,
Chairman and Chief Executive Officer
Table of contents
Managers' Report
page 4
A Look at Performance
page 5
Growth of $10,000
page 5
Fund's Investments
page 6
Financial Statements
page 8
Auditors' Opinion
page 13
Trustees & Officers
page 14
BY PAUL J. BERLINGUET, ROBERT J. UEK, CFA, THOMAS P. NORTON, CFA, AND
ROGER C. HAMILTON, PORTFOLIO MANAGERS
John Hancock V.A. Relative Value Fund
MANAGERS'
REPORT
[Photos of Paul Berlinguet, Robert Uek, Thomas Norton and Roger
Hamilton.]
Concerns about the strength of the economic recovery, weak corporate
spending, faltering consumer confidence, accounting fraud and the
possibility of war with Iraq caused stock market prices to tumble again
in 2002. The market was especially volatile during the second half of
the year as investors searched for stocks with cheap valuations. Some of
the most beaten-down names, especially in the technology sector, rallied
in the fall, but later retreated as investors took profits. Despite
encouraging reports of marginal improvements in demand and capital
spending near year-end, the Standard & Poor's 500 Index returned a
disappointing -22.09% for 2002. Large-cap stocks were among the hardest
hit due to the complex, diversified and global nature of their
businesses.
PERFORMANCE AND STRATEGY REVIEW
John Hancock V.A. Relative Value Fund went through a major restructuring
late last spring. We eliminated less established companies and focused
exclusively on businesses with proven management teams and strong
balance sheets whose shares were selling at attractive prices. We also
increased the Fund's diversification and introduced a more rigorous sell
discipline in an effort to better control risk and volatility.
Performance improved in the second half of the year, but not enough to
offset the losses incurred early on in the technology, finance,
pharmaceuticals, media and industrials sectors. For the year ended
December 31, 2002, the Fund returned -41.93% at net asset value,
lagging the average variable annuity multi-cap core fund, which returned
- -22.48% for the same period, according to Lipper, Inc.
TECH AND TELECOM SHIFT
Early in 2002, the Fund had sizable concentrations in the economically
sensitive tech and telecom sectors, which sank as the recovery got off
to a slow start. We cut the Fund's losses by substantially paring our
stakes in these sectors late last spring. Our sales included Parametric
Technology, a software developer; Agere Systems, a telecommunications
equipment company; and Nextel Communications, a wireless provider. All
were among the Fund's weakest performers. We began focusing on companies
like Microsoft, which has a steady earnings stream, strong balance sheet
and promising new .NET strategy that helps integrate applications on the
Internet. It was one of our largest investments and strongest
performers. Late in the year, we also began adding other well-known
technology names, including Intel and Nokia, as well as established
telecom service providers like Verizon Communications.
[Table at bottom right hand column entitled "Top five stock holdings."
The first listing is Microsoft 4.7%, the second is General Electronic
3.7%, the third American International Group 3.4%, the fourth
ExxonMobil 3.1% and the fifth Kraft Foods 3.1%. A note below the table
reads "As a percentage of net assets on 12-31-02."]
ADDED DIVERSIFICATION
We sold most of the Fund's stake in large pharmaceutical companies
during the first half of the year, as concerns about patent expirations,
the lack of promising new drugs and manufacturing problems hammered
stock prices. Disappointments included Bristol-Myers Squibb,
Schering-Plough and Merck. During the second half of the year, we added
health insurers, such as Cigna and UnitedHealth Group, as well as
medical equipment companies, such as Medtronic and Johnson & Johnson.
Both Medtronic and Johnson & Johnson contributed positively to
performance. Despite disappointing performance, we also kept a sizable
stake in Pfizer, a well-run drug company with a strong pipeline of new
drugs that should benefit from merging with Pharmacia.
In the finance area, we exited from economically sensitive brokerage
stocks, including J.P. Morgan Chase, Morgan Stanley Dean Witter and
Charles Schwab. We also trimmed our large stake in Citigroup, a leading
global financial services company whose near-term prospects weakened.
Our focus shifted to diversified banks like Bank of America, Wells Fargo
and Fifth Third Bancorp which tend to benefit in tough times as
consumers flock to the safety of deposit accounts. We added as well to
proven companies such as American International Group, a leading global
insurer that came under pressure as investors shunned companies with
complex business structures.
CHANGES TO CONSUMER FOCUS
Consumer staples stocks provided a safe haven for many investors. As
prices rose, we sold CVS, a drug-store retail chain, and Gillette, a
consumer care products company. We used the proceeds to buy Kraft Foods,
a well-run company with steady market share gains that was recently
spun-off from Philip Morris, and Coca-Cola, a brand name company in the
midst of a promising restructuring. We significantly reduced our
commitment to the consumer discretionary sector, selling Pegasus
Communications, a highly leveraged satellite television company; Liberty
Media, a complex media holding company; and McDonald's, a maturing
company grappling with slower growth. We held on, however, to a large
stake in Viacom, a well-run business with a great collection of media
assets that has held up well.
IMPROVED OUTLOOK
We are cautiously optimistic that the U.S. economy will continue to show
steady improvement, barring a prolonged war with Iraq or another
terrorist attack. Most U.S. companies are well positioned for a recovery
with little inventory backlog and improved productivity. Our strategy
will be to run a diversified portfolio, buying good companies when their
stock prices go on sale and then selling them when they approach full
valuation. About 80% of the companies in the S&P 500 have strong balance
sheets, and most valuations appear reasonable. We believe large-cap
stocks are particularly attractively priced and offer strong long-term
prospects as many of the regulatory, disclosure, and corporate
governance issues that have plagued them this past year disappear.
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the
managers' views are subject to change as market and other conditions
warrant.
A LOOK AT
PERFORMANCE
For the period ended 12-31-02
Cumulative total returns
One year -41.93%
Since inception (1-6-98) 2.17%
Average annual total returns
One year -41.93%
Since inception (1-6-98) 0.43%
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.
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. See the prospectus for details.
GROWTH OF
$10,000
John Hancock V.A. Relative Value Fund
1-6-98 -- 12-31-02
The chart to the left 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
1-6-98 - 12-31-02, 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 $10,217 as of December 31, 2002. The
second line represents the Standard & Poor's 500 Index and is equal to
$9,713 as of December 31, 2002.
FINANCIAL
STATEMENTS
Fund's Investments
Securities owned by the Fund on 12-31-02
SHARES ISSUER VALUE
COMMON STOCKS 92.15% $28,135,946
(Cost $31,279,320)
Advertising 0.49% $148,580
2,300 Omnicom Group, Inc. 148,580
Banks -- United States 6.98% 2,131,880
10,500 Bank of America Corp. 730,485
4,200 Fifth Third Bancorp 245,910
11,000 State Street Corp. 429,000
15,500 Wells Fargo & Co. 726,485
Beverages 3.79% 1,158,036
6,000 Anheuser-Busch Cos., Inc. 290,400
19,800 Coca-Cola Co. (The) 867,636
Chemicals 2.14% 653,400
22,000 Dow Chemical Co. (The) 653,400
Computers 8.30% 2,534,785
5,500 Dell Computer Corp.* 147,070
84,000 EMC Corp. 515,760
3,750 International Business Machines Corp. 290,625
28,000 Microsoft Corp.* 1,447,600
43,000 Sun Microsystems, Inc.* 133,730
Cosmetics & Personal Care 1.42% 434,840
3,000 Gillette Co. (The) 91,080
4,000 Procter & Gamble Co. (The) 343,760
Diversified Operations 1.82% 554,850
4,500 3M Co. 554,850
Electronics 8.76% 2,673,025
21,000 Applied Materials, Inc.* 273,630
46,000 General Electric Co. 1,120,100
23,500 Intel Corp. 365,895
12,000 Micron Technology, Inc. 116,880
1,000 MKS Instruments, Inc.* 16,430
40,000 Skyworks Solutions, Inc. 344,800
29,000 Texas Instruments, Inc. 435,290
Finance 3.76% 1,146,475
17,500 American Express Co. 618,625
15,000 Citigroup, Inc. 527,850
Food 3.34% 1,019,995
2,500 Kellogg Co. 85,675
24,000 Kraft Foods, Inc. (Class A) 934,320
Household 1.69% 515,610
17,000 Newell Rubbermaid, Inc. 515,610
Insurance 10.09% 3,080,818
10,000 ACE, Ltd. (Bermuda) 293,400
7,000 Ambac Financial Group, Inc. 393,680
18,000 American International Group, Inc. 1,041,300
5 Berkshire Hathaway, Inc. (Class A)* 363,750
7,800 CIGNA Corp. 320,736
45,594 Travelers Property Casualty Corp. (Class A)* 667,952
Leisure 1.69% 517,050
27,000 Mattel, Inc. 517,050
Media 3.33% 1,017,582
9,700 Cumulus Media, Inc. (Class A)* 144,239
23,850 Pegasus Communications Corp.* 31,243
20,000 Viacom, Inc. (Class B)* 815,200
10,000 XM Satellite Radio Holdings, Inc. (Class A)* 26,900
Medical 16.85% 5,145,225
13,000 Abbott Laboratories 520,000
7,500 Aetna, Inc. 308,400
10,000 Alpharma, Inc. (Class A) 119,100
5,000 Anthem, Inc.* 314,500
7,000 Bard (C.R.), Inc. 406,000
6,260 Baxter International, Inc. 175,280
6,600 Gilead Sciences, Inc.* 224,400
180,000 I-STAT Corp.* 720,000
4,600 Johnson & Johnson 247,066
5,448 Medtronic, Inc. 248,429
26,000 Pfizer, Inc. 794,820
9,000 St. Jude Medical, Inc. 357,480
8,500 UnitedHealth Group, Inc. 709,750
Office 1.60% 488,640
8,000 Avery Dennison Corp. 488,640
Oil & Gas 6.51% 1,988,065
8,000 Anadarko Petroleum Corp. 383,200
7,500 BJ Services Co.* 242,325
10,500 EOG Resources, Inc. 419,160
27,000 ExxonMobil Corp. 943,380
Retail 6.36% 1,942,165
15,000 Bed Bath & Beyond, Inc.* 517,950
16,000 Home Depot, Inc. (The) 383,360
7,500 Lowe's Cos., Inc. 281,250
6,000 SYSCO Corp. 178,740
11,500 Wal-Mart Stores, Inc. 580,865
Telecommunications 2.23% 680,950
8,800 Nokia Corp., American Depositary Receipt
(ADR) (Finland) 136,400
5,000 SBA Communications Corp.* 2,050
14,000 Verizon Communications, Inc. 542,500
Tobacco 1.00% 303,975
7,500 Philip Morris Cos., Inc. 303,975
ISSUER, DESCRIPTION, INTEREST PAR VALUE
MATURITY DATE RATE (000s OMITTED) VALUE
SHORT-TERM INVESTMENTS 12.39% $3,781,279
(Cost $3,781,279)
Joint Repurchase Agreement 7.89%
Investment in a joint repurchase agreement
transaction with UBS Warburg, Inc. -- Dated
12-31-02, due 01-02-03 (Secured by U.S.
Treasury Bond 8.500%, due 02-15-20, U.S.
Treasury Inflation Indexed Notes, 3.000% thru
3.500%, due 01-15-11 thru 07-15-12, and U.S.
Treasury Notes, 4.625% thru 5.375%,
due 02-28-02 thru 06-30-03) 1.15% $2,408 2,408,000
ISSUER, DESCRIPTION SHARES VALUE
Cash Equivalents 4.50%
AIM Cash Investment Trust** 1,373,279 1,373,279
TOTAL INVESTMENTS 104.54% $31,917,225
OTHER ASSETS AND LIABILITIES, NET (4.54%) ($1,386,453)
TOTAL INVESTMENTS 100.00% $30,530,772
* Non-income producing security.
** Represents investment of security lending collateral.
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.
Statement of Assets and Liabilities
12-31-02
ASSETS
Investments at value (cost $35,060,599)
including $1,346,352 of securities loaned $31,917,225
Dividends and interest receivable 44,976
Other assets 849
Total assets 31,963,050
LIABILITIES
Due to custodian 15,742
Payable for securities on loan 1,373,279
Payable to affiliates 17,164
Other payables and accrued expenses 26,093
Total liabilities 1,432,278
NET ASSETS
Capital paid-in 65,804,397
Accumulated net realized loss on investments
and foreign currency transactions (32,132,370)
Net unrealized depreciation of investments (3,143,374)
Accumulated net investment income 2,119
Net assets $30,530,772
NET ASSET VALUE PER SHARE
Based on 5,465,376 shares of beneficial
interest outstanding -- unlimited number
of shares authorized with no par value $5.59
Statement of Operations
For the year ended 12-31-02
INVESTMENT INCOME
Dividends
(net of foreign withholding taxes of $141) $448,294
Securities lending income 58,678
Interest 41,799
Total investment income 548,771
EXPENSES
Investment management fee 260,429
Auditing fee 18,000
Custodian fee 13,499
Accounting and legal services fee 9,160
Printing 6,831
Trustees' fee 3,494
Miscellaneous 3,350
Interest expense 1,976
Legal fee 661
Registration and filing fee 20
Total expenses 317,420
Net investment income 231,351
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss on
Investments (30,227,736)
Foreign currency transactions (716)
Change in unrealized appreciation (depreciation)
of investments 3,472,659
Net realized and unrealized gain (loss) (26,755,793)
Decrease in net assets from operations ($26,524,442)
See notes to financial statements.
Statement of Changes in Net Assets
YEAR YEAR
ENDED ENDED
12-31-01 12-31-02
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income $109,779 $231,351
Net realized loss (461,403) (30,228,452)
Change in net unrealized
appreciation (depreciation) (929,271) 3,472,659
Decrease in net assets resulting
from operations (1,280,895) (26,524,442)
Distributions to shareholders
From net investment income (103,992) (241,442)
From net realized gain (3,603,363) (91,252)
(3,707,355) (332,694)
From Fund share transactions 30,011,640 (6,678,094)
NET ASSETS
Beginning of period 39,042,612 64,066,002
End of period 1 $64,066,002 $30,530,772
1 Includes accumulated net investment income of $12,891 and $2,119,
respectively.
Financial Highlights
12-31-98 1 12-31-99 12-31-00 12-31-01 12-31-02
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 $12.03 $18.03 $10.64 $9.72
Net investment income 2 0.11 0.10 0.02 0.02 0.04
Net realized and unrealized gain (loss)
on investments 2.02 6.65 (0.80) (0.32) (4.11)
Total from investment operations 2.13 6.75 (0.78) (0.30) (4.07)
Less distributions
From net investment income (0.10) (0.10) (0.02) (0.02) (0.04)
From net realized gain -- (0.65) (6.59) (0.60) (0.02)
(0.10) (0.75) (6.61) (0.62) (0.06)
Net asset value, end of period $12.03 $18.03 $10.64 $9.72 $5.59
Total return 3 (%) 21.39 4,5 56.65 (4.80) (2.81) (41.93)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $17 $39 $39 $64 $31
Ratio of expenses to average net assets (%) 0.85 6 0.77 0.79 0.74 0.73
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 0.23 0.53
Portfolio turnover (%) 242 166 164 59 136
1 Began operations on 1- 6-98.
2 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment.
4 Not annualized.
5 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.
NOTES TO
FINANCIAL STATEMENTS
NOTE A
Accounting policies
John Hancock V.A. Relative Value Fund (the "Fund") is a diversified
series of John Hancock Declaration Trust ("the Trust"), an open-end
investment management company registered under the Investment Company
Act of 1940. The Trust, organized as a Massachusetts business trust in
1995, consists of five different series at December 31, 2002. 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 Fund 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 Fund
in proportion to the voting instructions received.
The investment objective of the Fund is to seek long-term capital
appreciation. Prior to May 1, 2002, the investment objective of the Fund
was to seek the highest total return (capital appreciation plus current
income) that was consistent with reasonable safety of capital. The Fund
currently has one class of shares with equal rights as to voting,
redemption, dividends and liquidation.
Significant accounting policies of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio 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. Investments in
AIM Cash Investment Trust are valued at their net asset value each
business day.
Joint repurchase agreement
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies
having a management contract with John Hancock Advisers, LLC (the
"Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
LLC, 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 Fund's custodian bank receives
delivery of the underlying securities for the joint account on the Fund's
behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
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.
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.
Bank borrowings
The Fund is 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 Fund has entered into a
syndicated line of credit agreement with various banks. This agreement
enables the Fund to participate with other funds managed by the Adviser in
an unsecured line of credit with banks, which permit borrowings of up to
$475 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 Fund had no borrowing activity under the
line of credit during the year ended December 31, 2002.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the Fund
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 Fund 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. On December 31,
2002, the Fund loaned securities having a market value of $1,346,352
collateralized by cash in the amount of $1,373,279. The cash collateral was
invested in a short-term instrument.
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income that is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, the Fund has $31,801,591 of a capital loss
carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. To the extent that such carryforward is
used by the Fund, no capital gain distributions will be made. The entire
amount of the loss carryforward expires December 31, 2010.
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 Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. Foreign income may be subject
to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions to shareholders from net investment income
and net realized gains on the ex-dividend date. During the year ended
December 31, 2002, the tax character of distributions paid was as follows:
ordinary income $330,278 and long-term capital gains $2,416.
As of December 31, 2002, the components of distributable earnings on a tax
basis included $2,523 of undistributed ordinary income. Such distributions
and distributable earnings, on a tax basis, are determined in conformity
with income tax regulations, which may differ from accounting principles
generally accepted in the United States of America. Distributions in excess
of tax basis earnings and profits, if any, are reported in the Fund's
financial statements as a return of capital.
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
Fund. Actual results could differ from these estimates.
NOTE B
Management fee and transactions with affiliates and others
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a monthly management
fee to the to the Adviser at an annual rate of 0.60% of the Fund's
average daily net asset value.
The Adviser has agreed to limit the Fund's expenses, excluding the
management fee, to 0.25% of the Fund's average daily net assets, at
least until April 30, 2003. There was no expense reduction for the year
ended December 31, 2002. The Adviser reserves the right to terminate
this limitation in the future.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
year was at an annual rate of approximately 0.02% of the average net
assets of the Fund.
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 Fund. The compensation of unaffiliated Trustees is borne by the
Fund. 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 Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's 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 Fund.
NOTE C
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding
dollar value. The Fund has an unlimited number of shares authorized with
no par value.
YEAR ENDED 12-31-01 YEAR ENDED 12-31-02
SHARES AMOUNT SHARES AMOUNT
Shares sold 5,398,455 $56,971,452 890,182 $6,871,313
Distributions reinvested 383,527 3,707,355 55,738 332,694
Repurchased (2,861,752) (30,667,167) (2,070,610) (13,882,101)
NET INCREASE (DECREASE) 2,920,230 $30,011,640 (1,124,690) ($6,678,094)
NOTE D
Investment transactions
Purchases and proceeds from sales of securities, other than short-term
securities and obligations of the U.S. government, during the year ended
December 31, 2002, aggregated $55,990,488 and $63,427,937 respectively.
The cost of investments owned on December 31, 2002, including short-term
investments, for federal income tax purposes was $35,391,379. Gross
unrealized appreciation and depreciation of investments aggregated
$692,316 and $4,166,470, respectively, resulting in net unrealized
depreciation of $3,474,154. The difference between book basis and tax
basis net unrealized depreciation of investments is attributable
primarily to the tax deferral of losses on wash sales.
NOTE E
Reclassification of accounts
During the year ended December 31, 2002, the Fund reclassified amounts
to reflect an decrease in accumulated net realized loss on investments
of $894, a decrease in accumulated net investment income of $681 and a
decrease in capital paid-in of $213. This represents the amount
necessary to report these balances on a tax basis, excluding certain
temporary differences, as of December 31, 2002. Additional adjustments
may be needed in subsequent reporting periods. These reclassifications,
which have no impact on the net asset value of the Fund, are primarily
attributable to the treatment of foreign currency gains and losses in
the computation of distributable income and capital gains under federal
tax rules versus accounting principles generally accepted in the United
States of America, book and tax differences in accounting for deferred
compensation and foreign currency. The calculation of net investment
income per share in the financial highlights excludes these adjustments.
Report of Ernst & Young LLP, Independent Auditors
To the Contract Owners and Trustees of
John Hancock Declaration Trust,
We have audited the accompanying statement of assets and liabilities of
John Hancock V.A. Relative Value Fund (the "Fund"), one of the portfolios
constituting John Hancock Declaration Trust, including the schedule of
investments, as of December 31, 2002, and the related statement of
operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of
the Fund'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. Our procedures included confirmation of securities owned as
of December 31, 2002, by correspondence with the custodian and brokers,
or 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 John Hancock V.A. Relative Value Fund of the John
Hancock Declaration Trust at December 31, 2002, the results of its
operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended 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
Boston, Massachusetts
February 7, 2003
Tax Information
UNAUDITED
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund paid, if any, during its
taxable year ended December 31, 2002.
The Fund has designated distributions to shareholders of $2,416 as
long-term capital gain dividend. These amounts were reported on the 2002
U.S. Treasury Department Form 1099-DIV.
With respect to the ordinary dividends paid by the Fund for the fiscal
year ended December 31, 2002, 100% of the dividends qualify for the
corporate dividends-received deduction.
If the Fund had distributions, the shareholders will be mailed a 2002
U.S. Treasury Department Form 1099-DIV in January 2003. This will
reflect the total of all distributions that are taxable for the calendar
year 2002.
TRUSTEES &
OFFICERS
This chart provides information about the Trustees and Officers who
oversee your John Hancock fund. Officers elected by the Trustees manage
the day-to-day operations of the Fund and execute policies formulated by
the Trustees.
INDEPENDENT TRUSTEES
NUMBER OF
NAME, AGE TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
Dennis S. Aronowitz, Born: 1931 1998 31
Professor of Law, Emeritus, Boston University School of
Law (as of 1996); Director, Brookline Bancorp.
Richard P. Chapman, Jr., Born: 1935 1998 31
President and Chief Executive Officer, Brookline
Bancorp. (lending) (since 1972); Chairman and
Director, Lumber Insurance Co. (insurance) (until
2000); Chairman and Director, Northeast Retirement
Services, Inc. (retirement administration) (since 1998).
William J. Cosgrove, Born: 1933 1998 31
Vice President, Senior Banker and Senior Credit Officer,
Citibank, N.A. (retired 1991); Executive Vice President,
Citadel Group Representatives, Inc.; Director, Hudson
City Bancorp; Trustee, Scholarship Fund for Inner City
Children (since 1986).
Richard A. Farrell 2, Born: 1932 1998 31
President, Farrell, Healer & Co., Inc. (venture capital
management firm) (since 1980) and General Partner of
the Venture Capital Fund of NE (since 1980); prior to
1980, headed the venture capital group at Bank of
Boston Corporation.
William F. Glavin 2, Born: 1932 1998 31
President Emeritus, Babson College (as of 1998);
Vice Chairman, Xerox Corporation (until 1989);
Director, Reebok, Inc. (since 1994) and Inco Ltd.
Patti McGill Peterson, Born: 1943 1998 39
Executive Director, Council for International Exchange
of Scholars (since 1998), Vice President, Institute of
International Education (since January 1998); Senior
Fellow, Cornell Institute of Public Affairs, Cornell
University (until 1997); President Emerita of Wells
College and St. Lawrence University; Director, Niagara
Mohawk Power Corporation (electric utility).
John A. Moore 2, Born: 1939 1998 39
President and Chief Executive Officer, Institute for
Evaluating Health Risks, (nonprofit institution)
(until 2001); Senior Scientist, Sciences International
(health research) (since 1998); Principal, Hollyhouse
(consulting) (since 2000); Director, CIIT (nonprofit
research) (since 2002).
John W. Pratt 1, Born: 1931 1998 31
Professor of Business Administration Emeritus,
Harvard University Graduate School of Business
Administration (as of 1998).
INTERESTED TRUSTEES 3
NAME, AGE NUMBER OF
POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
John M. DeCiccio, Born: 1948 2001 61
Trustee
Executive Vice President and Chief Investment Officer,
John Hancock Financial Services, Inc.; Director,
Executive Vice President and Chief Investment Officer,
John Hancock Life Insurance Company; Chairman of
the Committee of Finance of John Hancock Life
Insurance Company; Director, John Hancock
Subsidiaries, LLC ("Subsidiaries, LLC"), Hancock
Natural Resource Group, Independence Investment
LLC, Independence Fixed Income LLC, John Hancock
Advisers, LLC (the "Adviser") and The Berkeley
Financial Group, LLC ("The Berkeley Group"),
John Hancock Funds, LLC ("John Hancock Funds"),
Massachusetts Business Development Corporation;
Director, John Hancock Insurance Agency, Inc.
("Insurance Agency, Inc.") (until 1999).
Maureen R. Ford, Born: 1955 2000 61
Trustee, Chairman, President and Chief Executive
Officer, John Hancock Financial Services, Inc.,
John Hancock Life Insurance Company; Chairman,
Director, President and Chief Executive Officer,
the Adviser and The Berkeley Group; Chairman,
Director, President and Chief Executive Officer, John
Hancock Funds; Chairman, Director and Chief
Executive Officer, Sovereign Asset Management
Corporation ("SAMCorp."); Director, Independence
Investment LLC, Subsidiaries, LLC, Independence
Fixed Income LLC and Signature Services; Senior Vice
President, MassMutual Insurance Co. (until 1999).
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NAME, AGE
POSITION(S) HELD WITH FUND OFFICER
PRINCIPAL OCCUPATION(S) AND OF FUND
DIRECTORSHIPS DURING PAST 5 YEARS SINCE
William L. Braman, Born: 1953 2000
Executive Vice President and Chief Investment Officer
Executive Vice President and Chief Investment Officer, the
Adviser and each of the John Hancock funds; Director,
SAMCorp., Executive Vice President and Chief Investment
Officer, Barring Asset Management, London UK (until 2000).
Richard A. Brown, Born: 1949 2000
Senior Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, the
Adviser, John Hancock Funds, and The Berkeley Group; Second
Vice President and Senior Associate Controller, Corporate Tax
Department, John Hancock Financial Services, Inc. (until 2001).
Thomas H. Connors, Born: 1959 1998
Vice President and Compliance Officer
Vice President and Compliance Officer, the Adviser and each of
the John Hancock funds; Vice President, John Hancock Funds.
William H. King, Born: 1952 1998
Vice President and Treasurer
Vice President and Assistant Treasurer, the Adviser; Vice President
and Treasurer of each of the John Hancock funds; Assistant
Treasurer of each of the John Hancock funds (until 2001).
Susan S. Newton, Born: 1950 1998
Senior Vice President, Secretary and Chief Legal Officer
Senior Vice President, Secretary and Chief Legal Officer,
SAMCorp., the Adviser and each of the John Hancock funds,
John Hancock Funds and The Berkeley Group; Vice President,
Signature Services (until 2000); Director, Senior Vice President
and Secretary, NM Capital.
The business address for all Trustees and Officers is 101 Huntington
Avenue, Boston, Massachusetts 02199.
The Statement of Additional Information of the Fund includes additional
information about members of the board of Trustees of the Fund and is
available, without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his or
her successor is elected.
2 Member of Audit Committee.
3 Interested Trustee holds positions with the Fund's investment adviser,
underwriter and certain other affiliates.
JOHN HANCOCK FUNDS
DECLARATION TRUST
ANNUAL
REPORT
[LOGO] John Hancock
[Rings]
Worldwide Sponsor
John Hancock Funds, LLC
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
Mutual Funds
Institutional Services
Private Managed Accounts
Retirement Plans
This report is for the information of the shareholders of the
Hancock V.A. Relative Value Fund
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
8290A 12/02
2/03
ANNUAL
REPORT
John Hancock
V.A. Sovereign Investors Fund
A series of John Hancock Declaration Trust
12.31.02
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo at bottom left
center of page. A tag line below reads "JOHN HANCOCK FUNDS."]
FOR YOUR
INFORMATION
TRUSTEES
Dennis S. Aronowitz
Richard P. Chapman, Jr.
William J. Cosgrove
John M. DeCiccio
Richard A. Farrell*
Maureen R. Ford
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
CUSTODIAN
The Bank of New York
One Wall Street
New York, New York 10286
TRANSFER AGENT
John Hancock Signature Services, Inc.
529 Main Street
Charlestown, Massachusetts 02129
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
INSURANCE PRODUCTS ISSUER
John Hancock Life Insurance
Company, John Hancock Variable
Life Insurance Company*
200 Clarendon Street
Boston, Massachusetts 02117
*Not licensed in New York
FUND DISTRIBUTOR
John Hancock Funds, LLC
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
HOW TO
CONTACT US
On the Internet
www.jhancock.com
By regular mail
John Hancock Signature Services, Inc.
529 Main Street
Charlestown, Massachusetts 02129
Customer service representatives
1-800-225-5291
24-hour automated information
1-800-338-8080
WELCOME
[A photo of Maureen Ford, Chairman and CEO, flush right next to
first paragraph.]
Dear Shareholders,
Investors were probably never happier to close out a year than they were
in 2002, since it was the third consecutive year that the stock market
declined -- something that hadn't occurred in 60 years. Driving the fall
were fears of war, a weak economy, disappointing profits, rising oil
prices and a string of corporate scandals. All market sectors and
investment styles suffered. As a result, the broad Standard & Poor's 500
Index fell by 22.09% for the year, while the Dow Jones Industrial
Average lost 15.04% and the technology laden Nasdaq Composite Index lost
31.53%.
Despite a fourth-quarter rally, only 3.8% of U.S. stock mutual funds
made money last year, and the average U.S. stock fund lost 22.42%,
according to Lipper, Inc. Bond funds provided the only bright spot,
producing mostly positive results, with the average long-term bond fund
rising 7.9%. It was the third year in which bonds outperformed stocks
and gained ground, confirming yet again the importance of having a
portfolio well-diversified among stocks, bonds and cash.
In fact, the disparity between stock and bond results over the last
three years means that many investors' portfolios may have shifted
substantially in their mix between stocks and bonds. We recommend
working with your investment professional to rebalance your assets
according to your long-term goals.
After three down years, no one can predict when the bear market cycle
will turn. Currently, uncertainties abound, as the good news seen in
signs of improving economic and corporate data, and efforts by
Washington to stimulate the economy, are offset by the possibility of
war and other geopolitical risks.
While all these factors are beyond our control, investors can take
charge of how they maneuver through the inevitable bull and bear market
cycles. We've said it before, but it bears repeating: the key is to keep
a long-term perspective and work with your investment professional to
develop and maintain a properly diversified portfolio. We believe this
offers the best protection in the tough times and the best means to
reach your long-term goals.
Sincerely,
/S/ MAUREEN R. FORD
Maureen R. Ford,
Chairman and Chief Executive Officer
Table of contents
Managers' Report
page 4
A Look at Performance
page 5
Growth of $10,000
page 5
Fund's Investments
page 6
Financial Statements
page 11
Auditors' Opinion
page 17
Trustees & Officers
page 18
MANAGERS'
REPORT
[Photos of John Snyder, Barry Evans and Peter Schofield.]
John Hancock V.A. Sovereign Investors Fund
BY JOHN F. SNYDER, III, BARRY H. EVANS, CFA, AND PETER M. SCHOFIELD,
CFA, PORTFOLIO MANAGERS
An anemic economic recovery, lackluster earnings and high-profile
corporate scandals drove stock prices down throughout the year. There
were few safe havens as the downturn hit virtually every sector of the
market. With the Dow Jones Industrial Average down 15.04% and the
Standard & Poor's 500 Index down 22.09%, stocks posted their third
consecutive year of negative returns -- something that hasn't happened
in 60 years.
PERFORMANCE REVIEW
In this difficult market environment, John Hancock V.A. Sovereign
Investors Fund returned -21.29% at net asset value. By comparison, the
average variable annuity equity-income fund returned -16.75%, according
to Lipper, Inc.
LARGE CAPS SUFFER; CONSUMER STAPLES STRONG
The Fund's relative underperformance can be explained by its heavier
emphasis on large-capitalization stocks. Many of our large-cap names
were spared during the market's decline in 2001. As the end of a market
downturn gets closer, however, there's often indiscriminate selling.
That's what happened this year as many large-cap names fell in the last
stages of the market's capitulation. What's more, in the wake of
corporate scandals, many large-cap companies with complex balance sheets
suffered as investors began to question their accounting practices.
Citigroup and IBM were among the large-cap holdings that disappointed
us. A combination of legal problems, difficulties overseas and the weak
U.S. stock market took its toll on Citigroup. We believe, however, that
the company's fundamentals are very strong, especially compared with its
competitors. IBM has suffered from a lack of capital spending. In our
opinion, management has done a great job refocusing the business through
strategic divestitures and acquisitions. As a result, they've been able
to gain market share in an extremely challenging business environment.
On the flip side, our consumer staple stocks continued to perform
strongly throughout the year. In particular, Procter & Gamble and Avon
have been among the few companies that have met or exceeded their
earnings projections. At P&G, new management has successfully
streamlined the company's product line and in turn gained market share.
The story was similar for Avon as new management grew sales --
especially in international markets -- with several successful new
products.
NEW OPPORTUNITIES
In this challenging market environment, we've adhered to our long-term
investment strategy. The vast majority of the Fund's holdings remain in
"dividend performers" -- those companies that have raised their
dividends for at least 10 consecutive years. Our dividend performers'
investment philosophy keeps us squarely focused on high-quality
companies with reasonable valuations, steady earnings growth, strong
cash flow and market leadership.
[Table at bottom right hand column entitled "Top five holdings." The
first listing is Bank of America 5.1%, the second is Johnson & Johnson
4.3%, the third International Business Machines 3.9%, the fourth
ExxonMobil 3.4% and the fifth Citigroup 3.0%. A note below the table
reads "As a percentage of net assets on 12-31-02."]
Given the stock market's prolonged downturn, we've begun to see some
compelling values that meet our strict investment standards. The decline
has allowed us to add several new stocks to the portfolio that we've
long admired, but haven't been able to purchase because of their high
valuations. Omnicom -- one of the world's leading advertising agencies
- -- was hit hard as investors worried that advertising spending would dry
up in a slowing economy. The decline brought Omnicom's valuation down to
a level where we felt comfortable buying the stock. With a solid balance
sheet and strong client base throughout the world, we believe that
Omnicom will be one of the biggest beneficiaries of an increase in
advertising that will undoubtedly accompany a stronger economy.
State Street Corp. is another new addition. Being one of the largest
financial processors in the world, the market's downturn has taken a
toll on State Street's revenues. That's because when stock market
activity declines, so do processing needs. We've taken advantage of the
company's recent drop to add the stock to the portfolio. Looking ahead,
we believe the company will bounce back once the stock market turns
around.
OUTLOOK
This year ended with a stock market rally that has left many investors
wondering whether the downturn was over and stocks would finally turn
around in 2003. Investors remain skeptical, however, remembering all too
well the 2001 year-end rally, which quickly faded in 2002. As we look
ahead, we believe that stock prices will move higher this year. After
three straight years of losses, it would be unlikely for stocks to
decline four years in a row. That's happened only once, from 1929-1932
during the Depression, and the situation is far different today.
Although the economic recovery will gain momentum in 2003, we don't
expect to see a sharp rebound. Since low interest rates have allowed the
consumer to continue spending during this recession, there's not a
significant pent-up demand. In addition, excess capacity in the
industrial sector will continue to limit pricing power and keep pressure
on corporate earnings. As a result, it will be critical to own
high-quality companies with strong balance sheets, steady earnings
growth and the ability to leverage a gradual upturn in the economy.
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the
managers' views are subject to change as market and other conditions
warrant.
A LOOK AT
PERFORMANCE
For the period ended 12-31-02
Cumulative total returns
One year -21.29%
Five years -10.09%
Since inception (8-29-96) 25.05%
Average annual total returns
One year -21.29%
Five years -2.10%
Since inception (8-29-96) 3.59%
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.
GROWTH OF
$10,000
John Hancock V.A. Sovereign Investors Fund
8-29-96 -- 12-31-02
The chart to the left shows how much a $10,000 investment in the John
Hancock V.A. Sovereign Investors Fund would be worth, assuming all
distributions were rein vested 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
8-29-96 - 12-31-02, 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 $14,821 as of December 31, 2002. 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
$12,505 as of December 31, 2002.
FINANCIAL
STATEMENTS
Fund's Investments
Securities owned by the Fund on 12-31-02
SHARES ISSUER VALUE
COMMON STOCKS 96.47% $38,314,214
(Cost $39,095,548)
Advertising 1.09% $432,820
6,700 Omnicom Group, Inc. 432,820
Banks -- United States 14.57% 5,788,968
29,000 Bank of America Corp. 2,017,530
25,000 Bank of New York Co., Inc. (The) 599,000
34,225 Citigroup, Inc. 1,204,378
20,000 Mellon Financial Corp. 522,200
10,000 State Street Corp. 390,000
10,000 U.S. Bancorp 212,200
18,000 Wells Fargo & Co. 843,660
Beverages 1.17% 464,420
11,000 PepsiCo, Inc. 464,420
Chemicals 3.47% 1,377,240
16,000 Air Products & Chemicals, Inc. 684,000
12,000 Praxair, Inc. 693,240
Computers 10.64% 4,224,350
8,000 Automatic Data Processing, Inc. 314,000
66,000 Cisco Systems, Inc.* 864,600
40,000 Hewlett-Packard Co. 694,400
20,000 International Business Machines Corp. 1,550,000
15,500 Microsoft Corp.* 801,350
Cosmetics & Personal Care 2.71% 1,077,400
20,000 Avon Products, Inc. 1,077,400
Diversified Operations 7.29% 2,894,106
6,300 3M Co. 776,790
10,937 Emerson Electric Co. 556,146
46,800 General Electric Co. 1,139,580
6,500 Illinois Tool Works, Inc. 421,590
Finance 3.15% 1,251,183
7,000 American Express Co. 247,450
19,191 MBNA Corp. 365,013
16,000 Morgan Stanley Dean Witter & Co. 638,720
Food 1.32% 523,025
13,435 Kraft Foods, Inc. (Class A) 523,025
Insurance 7.39% 2,934,708
30,000 AFLAC, Inc. 903,600
17,093 American International Group, Inc. 988,830
12,000 Hartford Financial Services Group, Inc. (The) 545,160
33,933 Travelers Property Casualty Corp. (Class A)* 497,118
Media 1.37% 543,960
9,000 McGraw-Hill Cos., Inc. (The) 543,960
Medical 12.34% 4,901,333
21,000 Abbott Laboratories 840,000
13,000 Baxter International, Inc. 364,000
11,000 Cardinal Health, Inc. 651,090
32,000 Johnson & Johnson 1,718,720
10,000 Medtronic, Inc. 456,000
5,000 Merck & Co., Inc. 283,050
19,250 Pfizer, Inc. 588,473
Mortgage Banking 4.34% 1,722,040
13,000 Fannie Mae 836,290
15,000 Freddie Mac 885,750
Office 1.38% 549,720
9,000 Avery Dennison Corp. 549,720
Oil & Gas 8.73% 3,467,498
8,000 Anadarko Petroleum Corp. 383,200
20,000 BP Plc American Depositary Receipts
(ADR) (United Kingdom) 813,000
14,000 ChevronTexaco Corp. 930,720
38,368 Exxon Mobil Corp. 1,340,578
Retail 5.10% 2,026,450
10,000 Family Dollar Stores, Inc. 312,100
17,000 Lowe's Cos., Inc. 637,500
15,000 SYSCO Corp. 446,850
21,000 Target Corp. 630,000
Soap & Cleaning Preparations 2.79% 1,109,125
10,500 Colgate-Palmolive Co. 550,515
6,500 Procter & Gamble Co. 558,610
Telecommunications 1.95% 775,000
10,000 Nokia Oyj (ADR) (Finland) 155,000
16,000 Verizon Communications, Inc. 620,000
Tobacco 2.55% 1,013,250
25,000 Philip Morris Cos., Inc. 1,013,250
Utilities 3.12% 1,237,618
5,000 ALLTEL Corp. 255,000
10,000 BellSouth Corp. 258,700
26,703 SBC Communications, Inc. 723,918
ISSUER, DESCRIPTION, INTEREST PAR VALUE
MATURITY DATE RATE (000s OMITTED) VALUE
SHORT-TERM INVESTMENTS 8.16% $3,243,490
(Cost $3,243,490)
Joint Repurchase Agreement 3.05%
Investment in a joint repurchase agreement
transaction with UBS Warburg, Inc. -- Dated
12-31-02, due 01-02-03 (Secured by U.S.
Treasury Bond 8.500% due 02-15-20, U.S.
Treasury Notes 4.625% due 02-28-02 and 5.375%
due 06-30-03, U.S. Treasury Inflation Indexed
Notes 3.500% due 01-15-11 and 3.000% due
07-15-12) 1.15% $1,213 1,213,000
SHARES
Cash Equivalents 5.11%
AIM Cash Investment Trust** 2,030,490 2,030,490
TOTAL INVESTMENTS 104.63% $41,557,704
OTHER ASSETS AND LIABILITIES, NET (4.63%) ($1,840,043)
TOTAL NET ASSETS 100.00% $39,717,661
* Non-income producing security.
** Represents investment of security lending collateral.
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.
Statement of Assets and Liabilities
12-31-02
ASSETS
Investments at value (cost $42,339,038)
including $2,013,117 of securities loaned $41,557,704
Receivable for investments sold 172,046
Dividends and interest receivable 66,316
Other assets 1,244
Total assets 41,797,310
LIABILITIES
Due to custodian 1,110
Payable for securities on loan 2,030,490
Payable to affiliates 26,093
Other payables and accrued expenses 21,956
Total liabilities 2,079,649
NET ASSETS
Capital paid-in 53,102,309
Accumulated net realized loss
on investments (12,604,142)
Net unrealized depreciation
of investments (781,334)
Accumulated net investment income 828
Net assets $39,717,661
NET ASSET VALUE PER SHARE
Based on 3,505,657 shares of beneficial
interest outstanding -- unlimited number of
shares authorized with no par value $11.33
Statement of Operations
For the year ended 12-31-02
INVESTMENT INCOME
Dividends
(net of foreign withholding taxes of $1,140) $876,205
Interest
(including securities lending income of $430) 78,808
Total investment income 955,013
EXPENSES
Investment management fee 309,960
Auditing fee 18,000
Accounting and legal services fee 14,724
Custodian fee 12,458
Printing 5,578
Trustees' fee 3,645
Miscellaneous 2,234
Legal fee 549
Interest expense 461
Registration and filing fee 20
Total expenses 367,629
Net investment income 587,384
REALIZED AND UNREALIZED LOSS
Net realized loss on investments (7,329,394)
Change in unrealized appreciation
(depreciation) of investments (6,254,784)
Net realized and unrealized loss (13,584,178)
Decrease in net assets from operations ($12,996,794)
See notes to financial statements.
Statement of Changes in Net Assets
YEAR YEAR
ENDED ENDED
12-31-01 12-31-02
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income $1,021,555 $587,384
Net realized loss (3,019,394) (7,329,394)
Change in net unrealized
appreciation (depreciation) (1,296,552) (6,254,784)
Decrease in net assets resulting
from operations (3,294,391) (12,996,794)
Distributions to shareholders
From net investment income (1,041,147) (586,103)
(1,041,147) (586,103)
From Fund share transactions 13,462,214 (11,154,216)
NET ASSETS
Beginning of period 55,328,098 64,454,774
End of period 1 $64,454,774 $39,717,661
1 Includes distributions in excess of net investment income of $499 and
accumulated net investment income of $828, respectively.
Financial Highlights
12-31-98 12-31-99 12-31-00 12-31-01 12-31-02
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $13.59 $15.61 $15.96 $15.69 $14.57
Net investment income 1 0.27 0.24 0.21 0.24 0.15
Net realized and unrealized gain (loss)
on investments 2.00 0.35 (0.27) (1.12) (3.24)
Total from investment operations 2.27 0.59 (0.06) (0.88) (3.09)
Less distributions
From net investment income (0.25) (0.24) (0.21) (0.24) (0.15)
Tax return of capital -- -- 2 -- -- --
(0.25) (0.24) (0.21) (0.24) (0.15)
Net asset value, end of period $15.61 $15.96 $15.69 $14.57 $11.33
Total return 3 (%) 16.88 3.84 (0.33) (5.56) (21.29)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $34 $50 $55 $64 $40
Ratio of expenses to average net assets % 0.74 0.70 0.72 0.70 0.71
Ratio of net investment income
to average net assets % 1.88 1.57 1.37 1.63 1.14
Portfolio turnover % 19 26 46 77 41
1 Based on the average of the shares outstanding.
2 Less than $0.01 per share.
3 Assumes dividend reinvestment.
See notes to financial statements.
NOTES TO
FINANCIAL STATEMENTS
NOTE A
Accounting policies
John Hancock V.A. Sovereign Investors Fund (the "Fund") is a diversified
series of John Hancock Declaration Trust ("the Trust"), an open-end
investment management company registered under the Investment Company
Act of 1940. The Trust, organized as a Massachusetts business trust in
1995, consists of five different series at December 31, 2002. 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 Fund 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 Fund
in proportion to the voting instructions received.
The investment objective of the Fund is to seek long-term growth of
capital and income without assuming undue market risks. The Fund
currently has one class of shares with equal rights as to voting,
redemption, dividends and liquidation.
Significant accounting policies of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio 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. The
cash collateral was invested in a short-term instrument. Investments in
AIM Cash Investment Trust are valued at their net asset value each
business day.
Joint repurchase agreement
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies
having a management contract with John Hancock Advisers, LLC (the
"Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
LLC, 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 Fund's custodian bank receives
delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
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.
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.
Bank borrowings
The Fund is 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 Fund has
entered into a syndicated line of credit agreement with various banks.
This agreement enables the Fund to participate with other funds managed
by the Adviser in an unsecured line of credit with banks, which permit
borrowings of up to $475 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 Fund
had no borrowing activity under the line of credit during the year ended
December 31, 2002.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the
Fund 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 Fund 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. On
December 31, 2002, the Fund loaned securities having a market value of
$2,013,117 collateralized by cash in the amount of $2,030,490.
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income that is distributed to
shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund has $12,468,694 of a capital
loss carryforward available, to the extent provided by regulations, to
offset future net realized capital gains. To the extent that such
carryforward is used by the Fund, no capital gain distributions will be
made. The Fund's carryforwards expire as follows: December 31, 2006 --
$157,877, December 31, 2007 -- $101,159, December 31, 2008 --
$1,206,695, December 31, 2009 -- $3,153,775, and December 31, 2010 --
$7,849,188. Net capital losses of $98,574 that are attributable to
security transactions occurred after October 31, 2002, are treated as
arising on January 1, 2003, the first day of the Fund's 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 Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions to shareholders from net investment
income and net realized gains on the ex-dividend date. During the year
ended December 31, 2002, the tax character of distributions paid was as
follows: ordinary income $586,103.
As of December 31,2002, the components of distributable earnings on a
tax basis included $1,450 of undistributed ordinary income. Such
distributions and distributable earnings, on a tax basis, are determined
in conformity with income tax regulations, which may differ from
accounting principles generally accepted in the United States of
America. Distributions in excess of tax basis earnings and profits, if
any, are reported in the Fund's financial statements as a return of
capital.
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
Fund. Actual results could differ from these estimates.
NOTE B
Management fee and transactions with affiliates and others
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a monthly management
fee to the Adviser at an annual rate of 0.60% of the Fund's average
daily net asset value.
The Adviser has agreed to limit the Fund's expenses, excluding the
management fee to 0.25% of the Fund's average daily net assets, at least
until April 30, 2003. There was no expense reduction for the year ended
December 31, 2002. The Adviser reserves the right to terminate this
limitation in the future.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
year was at an annual rate of approximately 0.03% of the average net
assets of the Fund.
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 Fund. The compensation of unaffiliated Trustees is borne by the
Fund. 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 Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's 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 Fund.
NOTE C
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding
dollar value. The Fund has an unlimited number of shares authorized with
no par value.
YEAR ENDED 12-31-01 YEAR ENDED 12-31-02
SHARES AMOUNT SHARES AMOUNT
Shares sold 1,610,786 $23,800,498 134,022 $1,666,677
Distributions reinvested 73,840 1,041,147 47,254 586,103
Repurchased (788,014) (11,379,431) (1,097,904) (13,406,996)
NET INCREASE (DECREASE) 896,612 $13,462,214 (916,628) ($11,154,216)
NOTE D
Investment transactions
Purchases and proceeds from sales of securities, other than short-term
securities and obligations of the U.S. government, during the year ended
December 31, 2002, aggregated $20,199,560 and $29,960,775, respectively.
The cost of investments owned on December 31, 2002, including short-term
investments, for federal income tax purposes was $42,375,912. Gross
unrealized appreciation and depreciation of investments aggregated
$3,926,521 and $4,744,729, respectively, resulting in net unrealized
depreciation of $818,208. The difference between book basis and tax
basis net unrealized appreciation of investments is attributable
primarily to the tax deferral of losses on wash sales.
NOTE E
Reclassification of accounts
During the year ended December 31, 2002, the Fund reclassified amounts
to reflect a decrease in accumulated net realized loss on investments of
$141, an increase in accumulated net investment income of $46 and a
decrease in capital paid-in of $187. This represents the amount
necessary to report these balances on a tax basis, excluding certain
temporary differences, as of December 31, 2002. Additional adjustments
may be needed in subsequent reporting periods. These reclassifications,
which have no impact on the net asset value of the Fund, are primarily
attributable to certain differences in the computation of distributable
income and capital gains under federal tax rules versus accounting
princip les generally accepted in the United States of America, book and
tax differences in accounting for deferred compensation. The calculation
of net investment income per share in the financial highlights excludes
these adjustments.
Report of Ernst & Young LLP, Independent Auditors
To the Contract Owners and Trustees of
John Hancock Declaration Trust,
We have audited the accompanying statement of assets and liabilities of
John Hancock V. A. Sovereign Investors Fund (the "Fund"), one of the
portfolios constituting John Hancock Declaration Trust, including the
schedule of investments, as of December 31, 2002, and the related
statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the
responsibility of the Fund'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. Our procedures included confirmation of securities owned as
of December 31, 2002, by correspondence with the custodian and brokers,
or 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 John Hancock V. A. Sovereign Investors Fund of the
John Hancock Declaration Trust at December 31, 2002, the results of its
operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended 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
Boston, Massachusetts
February 7, 2003
Tax Information
UNAUDITED
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund paid, if any, during its
taxable year ended December 31, 2002.
With respect to the ordinary dividends paid by the Fund for the fiscal
year ended December 31, 2002, 100% of the dividends qualify for the
corporate dividends-received deduction.
If the Fund had distributions, the shareholders will be mailed a 2002
U.S. Treasury Department Form 1099-DIV in January 2003. This will
reflect the total of all distributions that are taxable for the calendar
year 2002.
TRUSTEES &
OFFICERS
This chart provides information about the Trustees and Officers who
oversee your John Hancock fund. Officers elected by the Trustees manage
the day-to-day operations of the Fund and execute policies formulated by
the Trustees.
INDEPENDENT TRUSTEES
NUMBER OF
NAME, AGE TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
Dennis S. Aronowitz, Born: 1931 1996 31
Professor of Law, Emeritus, Boston University School of
Law (as of 1996); Director, Brookline Bancorp.
Richard P. Chapman, Jr., Born: 1935 1996 31
President and Chief Executive Officer, Brookline
Bancorp. (lending) (since 1972); Chairman and
Director, Lumber Insurance Co. (insurance) (until
2000); Chairman and Director, Northeast Retirement
Services, Inc. (retirement administration) (since 1998).
William J. Cosgrove, Born: 1933 1996 31
Vice President, Senior Banker and Senior Credit Officer,
Citibank, N.A. (retired 1991); Executive Vice President,
Citadel Group Representatives, Inc.; Director, Hudson
City Bancorp; Trustee, Scholarship Fund for Inner City
Children (since 1986).
Richard A. Farrell 2, Born: 1932 1996 31
President, Farrell, Healer & Co., Inc. (venture capital
management firm) (since 1980) and General Partner of
the Venture Capital Fund of NE (since 1980); prior to
1980, headed the venture capital group at Bank of
Boston Corporation.
William F. Glavin 2, Born: 1932 1996 31
President Emeritus, Babson College (as of 1998);
Vice Chairman, Xerox Corporation (until 1989);
Director, Reebok, Inc. (since 1994) and Inco Ltd.
Patti McGill Peterson, Born: 1943 1996 39
Executive Director, Council for International Exchange
of Scholars (since 1998), Vice President, Institute of
International Education (since January 1998); Senior
Fellow, Cornell Institute of Public Affairs, Cornell
University (until 1997); President Emerita of Wells
College and St. Lawrence University; Director, Niagara
Mohawk Power Corporation (electric utility).
John A. Moore 2, Born: 1939 1996 39
President and Chief Executive Officer, Institute for
Evaluating Health Risks, (nonprofit institution)
(until 2001); Senior Scientist, Sciences International
(health research) (since 1998); Principal, Hollyhouse
(consulting) (since 2000); Director, CIIT (nonprofit
research) (since 2002).
John W. Pratt, Born: 1931 1996 31
Professor of Business Administration Emeritus,
Harvard University Graduate School of Business
Administration (as of 1998).
INTERESTED TRUSTEES 3
NAME, AGE NUMBER OF
POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
John M. DeCiccio, Born: 1948 2001 61
Trustee
Executive Vice President and Chief Investment Officer,
John Hancock Financial Services, Inc.; Director,
Executive Vice President and Chief Investment Officer,
John Hancock Life Insurance Company; Chairman of
the Committee of Finance of John Hancock Life
Insurance Company; Director, John Hancock
Subsidiaries, LLC ("Subsidiaries, LLC"), Hancock
Natural Resource Group, Independence Investment
LLC, Independence Fixed Income LLC, John Hancock
Advisers, LLC (the "Adviser") and The Berkeley
Financial Group, LLC ("The Berkeley Group"),
John Hancock Funds, LLC ("John Hancock Funds"),
Massachusetts Business Development Corporation;
Director, John Hancock Insurance Agency, Inc.
("Insurance Agency, Inc.") (until 1999).
Maureen R. Ford, Born: 1955 2000 61
Trustee, Chairman, President and Chief Executive
Officer, John Hancock Financial Services, Inc.,
John Hancock Life Insurance Company; Chairman,
Director, President and Chief Executive Officer,
the Adviser and The Berkeley Group; Chairman,
Director, President and Chief Executive Officer, John
Hancock Funds; Chairman, Director and Chief
Executive Officer, Sovereign Asset Management
Corporation ("SAMCorp."); Director, Independence
Investment LLC, Subsidiaries, LLC, Independence
Fixed Income LLC and Signature Services; Senior Vice
President, MassMutual Insurance Co. (until 1999).
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NAME, AGE
POSITION(S) HELD WITH FUND OFFICER
PRINCIPAL OCCUPATION(S) AND OF FUND
DIRECTORSHIPS DURING PAST 5 YEARS SINCE
William L. Braman, Born: 1953 2000
Executive Vice President and Chief Investment Officer
Executive Vice President and Chief Investment Officer, the
Adviser and each of the John Hancock funds; Director,
SAMCorp., Executive Vice President and Chief Investment
Officer, Barring Asset Management, London UK (until 2000).
Richard A. Brown, Born: 1949 2000
Senior Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, the
Adviser, John Hancock Funds, and The Berkeley Group; Second
Vice President and Senior Associate Controller, Corporate Tax
Department, John Hancock Financial Services, Inc. (until 2001).
Thomas H. Connors, Born: 1959 1996
Vice President and Compliance Officer
Vice President and Compliance Officer, the Adviser and each of
the John Hancock funds; Vice President, John Hancock Funds.
William H. King, Born: 1952 1996
Vice President and Treasurer
Vice President and Assistant Treasurer, the Adviser; Vice President
and Treasurer of each of the John Hancock funds; Assistant
Treasurer of each of the John Hancock funds (until 2001).
Susan S. Newton, Born: 1950 1996
Senior Vice President, Secretary and Chief Legal Officer
Senior Vice President, Secretary and Chief Legal Officer,
SAMCorp., the Adviser and each of the John Hancock funds,
John Hancock Funds and The Berkeley Group; Vice President,
Signature Services (until 2000); Director, Senior Vice President
and Secretary, NM Capital.
The business address for all Trustees and Officers is 101 Huntington
Avenue, Boston, Massachusetts 02199.
The Statement of Additional Information of the Fund includes additional
information about members of the board of Trustees of the Fund and is
available, without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his or
her successor is elected.
2 Member of Audit Committee.
3 Interested Trustee holds positions with the Fund's investment adviser,
underwriter and certain other affiliates.
JOHN HANCOCK FUNDS
DECLARATION TRUST
ANNUAL
REPORT
[LOGO] John Hancock
[Rings]
Worldwide Sponsor
John Hancock Funds, LLC
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
Mutual Funds
Institutional Services
Private Managed Accounts
Retirement Plans
This report is for the information of the shareholders of the
Hancock V.A. Sovereign Investors Fund
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
8150A 12/02
2/03
ANNUAL
REPORT
John Hancock
V.A. Strategic Income Fund
A series of John Hancock Declaration Trust
12.31.02
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo at bottom left
center of page. A tag line below reads "JOHN HANCOCK FUNDS."]
FOR YOUR
INFORMATION
TRUSTEES
Dennis S. Aronowitz
Richard P. Chapman, Jr.
William J. Cosgrove
John M. DeCiccio
Richard A. Farrell*
Maureen R. Ford
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
CUSTODIAN
The Bank of New York
One Wall Street
New York, New York 10286
TRANSFER AGENT
John Hancock Signature Services, Inc.
529 Main Street
Charlestown, Massachusetts 02129
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
INSURANCE PRODUCTS ISSUER
John Hancock Life Insurance
Company, John Hancock Variable
Life Insurance Company*
200 Clarendon Street
Boston, Massachusetts 02117
*Not licensed in New York
FUND DISTRIBUTOR
John Hancock Funds, LLC
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
HOW TO
CONTACT US
On the Internet
www.jhancock.com
By regular mail
John Hancock Signature Services, Inc.
529 Main Street
Charlestown, Massachusetts 02129
Customer service representatives
1-800-225-5291
24-hour automated information
1-800-338-8080
WELCOME
[A photo of Maureen Ford, Chairman and CEO, flush right next to
first paragraph.]
Dear Shareholders,
Investors were probably never happier to close out a year than they were
in 2002, since it was the third consecutive year that the stock market
declined -- something that hadn't occurred in 60 years. Driving the fall
were fears of war, a weak economy, disappointing profits, rising oil
prices and a string of corporate scandals. All market sectors and
investment styles suffered. As a result, the broad Standard & Poor's 500
Index fell by 22.09% for the year, while the Dow Jones Industrial
Average lost 15.04% and the technology laden Nasdaq Composite Index lost
31.53%.
Despite a fourth-quarter rally, only 3.8% of U.S. stock mutual funds
made money last year, and the average U.S. stock fund lost 22.42%,
according to Lipper, Inc. Bond funds provided the only bright spot,
producing mostly positive results, with the average long-term bond fund
rising 7.9%. It was the third year in which bonds outperformed stocks
and gained ground, confirming yet again the importance of having a
portfolio well-diversified among stocks, bonds and cash.
In fact, the disparity between stock and bond results over the last
three years means that many investors' portfolios may have shifted
substantially in their mix between stocks and bonds. We recommend
working with your investment professional to rebalance your assets
according to your long-term goals.
After three down years, no one can predict when the bear market cycle
will turn. Currently, uncertainties abound, as the good news seen in
signs of improving economic and corporate data, and efforts by
Washington to stimulate the economy, are offset by the possibility of
war and other geopolitical risks.
While all these factors are beyond our control, investors can take
charge of how they maneuver through the inevitable bull and bear market
cycles. We've said it before, but it bears repeating: the key is to keep
a long-term perspective and work with your investment professional to
develop and maintain a properly diversified portfolio. We believe this
offers the best protection in the tough times and the best means to
reach your long-term goals.
Sincerely,
/S/ MAUREEN R. FORD
Maureen R. Ford,
Chairman and Chief Executive Officer
Table of contents
Managers' Report
page 4
A Look at Performance
page 5
Growth of $10,000
page 5
Fund's Investments
page 6
Financial Statements
page 11
Auditors' Opinion
page 17
Trustees & Officers
page 18
BY FREDERICK L. CAVANAUGH, JR., AND DANIEL S. JANIS, III, PORTFOLIO MANAGERS
John Hancock V.A. Strategic Income Fund
MANAGERS'
REPORT
[Photos of Fred Cavanaugh and Dan Janis.]
Global bond markets turned in strong gains in 2002, although various
sectors of the market performed far better than others. Among the
top-performing fixed-income investments were foreign bonds, which
benefited from both the global economic weakness that caused interest
rates to fall and bond prices to rise, and the depreciation of the U.S.
dollar compared with other major foreign currencies.
U.S. Treasuries also performed well because of stock market volatility
and strong demand for relatively safe investments. Falling interest
rates also helped. That said, U.S. Treasury bonds and notes struggled in
the fourth quarter as stocks rallied in response to a brief subsiding in
war worries, the Republican mid-term election victories and a one-half
percentage point cut in interest rates, which many felt could result in
stronger economic conditions and higher inflation in 2003.
High-yield corporate bonds took the opposite track, struggling in the
first three quarters of 2002, but rebounding in the final quarter.
High-yield bonds suffered in response to weak economic conditions.
High-yield corporates are heavily dependent on corporate financial
health and as such, are more correlated to the stock market's
performance. More importantly, however, investors became increasingly
skittish and risk-averse amid the financial scandals that engulfed
companies such as Enron, Global Crossing, Adelphia Communications and
WorldCom. But in the final months of the year, high-yield bond prices
rallied with the stock market.
FUND PERFORMANCE
For the 12 months ended December 31, 2002, John Hancock V.A. Strategic
Income Fund posted a total return of 7.87% at net asset value. This
compared with the 8.47% return of the average variable annuity general
bond fund.
FOCUS ON QUALITY HELPS
The Fund did well as the result of our asset allocation decisions, which
resulted in the portfolio's gradually shifting toward higher-quality
securities. We benefited from our increased stake in foreign government
bonds, as well as from our relatively light exposure to high-yield
corporates. Among foreign government bonds, our holdings in European
government bonds, which we added to throughout the period, performed
quite well. Bonds issued by Germany, Spain and Italy were attractive
based on our expectations of interest-rate cuts amid growing economic
weakness. Although the European Central Bank didn't cut rates until late
in the period, the bonds in those countries generally rallied in
anticipation of the cuts. We also focused on high-quality bonds issued
by other developed countries, including Canada and New Zealand.
[Table at bottom right hand column entitled "Top five industry
groups." The first listing is Foreign governments 50%, the second is
U.S. government 17%, the third Leisure 6%, the fourth Media 5% and the
fifth Oil & gas 5%. A note below the table reads "As a percentage of
net assets on 12-31-02."]
Some of our purchases of foreign government bonds came as the result of
our selling emerging-market bonds, which we felt had reached their full
value. Others came from selling U.S. Treasury securities. While the Fund
benefited from its stake in Treasury bonds early on, we sold some
because we became more pessimistic about the U.S. dollar as the period
progressed. The dollar seemed to us at the time to be overvalued, and we
worried about the potential for further declines because of the record
trade deficit and concerns that foreigners' interest in our stock and
bond markets would wane given all the recent volatility. As the dollar
continued to weaken, that positioning served the portfolio well.
HIGH-QUALITY HIGH YIELD
Our focus on the higher-quality names within the high-yield corporate
bond sector also aided performance. Among the top-performing holdings
were some oil companies, whose prices were driven higher in part by the
prospects of rising energy prices in light of the oil workers strike in
Venezuela and a potential U.S. war with Iraq. For similar reasons, our
holdings in other energy companies -- such as Chesapeake Energy -- also
did well. Mexico's leading television broadcaster, Grupo Televisa,
continued to gain market share in the Mexican TV market and benefited
from the continued solid performance of Univision and Innova, in which
Televisa owns equity stakes. Innova, the Mexican platform for Sky
International satellite television programming, also performed well by
turning cash flow positive and continuing to take market share from its
primary competitor, DirecTV Latin America.
On the flip side, our holdings in paper company Corporacion Durango
weakened when sales declined due to a boiler explosion at the company's
Georgia paper mill. Coal company Horizon Natural Resources filed for
bankruptcy, which obviously was a disappointment.
OUTLOOK
For now, we plan to maintain our high-quality focus. But we have begun
to gradually increase our historically low exposure to high-yield
corporate bonds and plan to continue to do so once we're more
comfortable with the strength of economic activity, corporate earnings
and the geopolitical situation.
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the
managers' views are subject to change as market and other conditions
warrant.
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 12-31-02
Cumulative total returns
One year 7.87%
Five years 25.75%
Since inception (8-29-96) 49.62%
Average annual total returns
One year 7.87%
Five years 4.69%
Since inception (8-29-96) 6.56%
Yield
SEC 30-Day Yield 5.88%
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.
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. See the prospectus for details.
GROWTH OF
$10,000
John Hancock V.A. Strategic Income Fund
8-29-96 -- 12-31-02
The chart to the left 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 three indexes:
Merrill Lynch AAA U.S. Treasury/Agency Master Index, an index of
fixed-rate U.S. Treasury and agency securities
Merrill Lynch High Yield Master II Index, an index of Yankee and high
yield bonds
Salomon Smith Barney World Government Bond Index, an index of bonds
issued by governments in the U.S., Europe and Asia
It is not possible to invest in an index.
Line chart with the heading John Hancock V.A. Strategic Income Fund
8-29-96 - 12-31-02, representing the growth of a hypothetical $10,000
investment over the life of the fund. Within the chart are four lines.
The first line represents the Merrill Lynch AAA U.S. Treasury/Agency
Master Index and is equal to $16,634 as of December 31, 2002. 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 $14,963 as of December 31, 2002. The
fourth bar represents the Salomon Smith Barney World Government Bond
Index and is equal to $13,670 as of December 31, 2002. The fifth bar
represents the Merrill Lynch High Yield Master II Index and is equal
to $12,342 as of December 31, 2002.
FINANCIAL
STATEMENTS
Fund's Investments
Securities owned by the Fund on 12-31-02
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
BONDS 98.20% $71,460,901
(Cost $69,709,227)
Advertising 0.17% $120,055
Go Outdoor Systems Holding S.A.,
Sr Sub Note (France)
07-15-09 (E) 10.500 B- 100 120,055
Agricultural Operations 0.00% 3,402
Iowa Select Farms L.P./ISF Finance, Inc.,
Jr Sec Sub Note, Payment-In-Kind,
12-01-06 (R) 10.750 Ca 6 3,402
Automobile/Trucks 0.03% 20,500
J.B. Poindexter & Co., Inc.,
Sr Note 05-15-04 12.500 B- 25 20,500
Banks -- United States 0.30% 218,846
Colonial Bank,
Sub Note 06-01-11 9.375 BBB- 200 218,846
Building 0.49% 358,041
Amatek Industries Property Ltd.,
Sr Sub Note (Australia)
02-15-08 12.000 CCC+ 25 27,000
Celulosa Arauco y Constitucion S.A.,
Bond (Chile) 09-13-11 7.750 BBB+ 300 331,041
Chemicals 0.33% 241,475
American Pacific Corp.,
Sr Note 03-01-05 9.250 BB- 30 30,600
Huntsman ICI Holdings LLC,
Sr Disc Note 12-31-09 Zero B+ 75 16,875
Nova Chemicals Corp.,
Sr Note (Canada) 05-15-06 7.000 BB+ 200 194,000
Consumer Products Misc. 0.01% 5,000
Diamond Brands Operating Corp.,
Sr Sub Note 04-15-08 (B) 10.125 D 100 5,000
Containers 1.44% 1,050,609
BWAY Corp.,
Sr Sub Note 10-15-10 (R) 10.000 B- 75 77,813
Kappa Beheer B.V.,
Gtd Sr Sub Note (Netherlands)
07-15-09 (E) 10.625 B 75 80,250
Sr Sub Bond (Netherlands)
07-15-09 10.625 B 150 167,646
Owens-Brockway Glass
Container, Inc.,
Sr Sec Note 02-15-09 8.875 BB 280 288,400
Riverwood International Corp.,
Gtd Sr Sub Note 04-01-08 10.875 CCC+ 300 301,500
Vicap S.A. de C.V.,
Gtd Sr Note (Mexico) 05-15-07 11.375 B+ 150 135,000
Cosmetics & Personal Care 0.01% 7,500
Global Health Sciences, Inc.,
Gtd Sr Note 05-01-08 (B) 11.000 D 75 7,500
Electronics 0.22% 159,000
UCAR Finance, Inc.,
Gtd Sr Note 02-15-12 10.250 B 200 159,000
Energy 0.18% 131,890
Great Lakes Acquisition Corp.,
Sr Disc Deb, Step Coupon
(13.125%, 05-15-03)
05-15-09 (A) Zero B- 200 90,000
Great Lakes Carbon Corp.,
Gtd Sr Sub Note 05-15-08 10.250 B- 59 41,890
Food 0.42% 308,060
Dean Foods Co.,
Sr Note 08-01-07 8.150 BB- 200 210,500
Del Monte Corp.,
Sr Sub Note 12-15-12 (R) 8.625 B 63 64,260
RAB Holdings, Inc.,
Sr Note 05-01-08 (R) 13.000 Ca 120 33,300
Government -- Foreign 50.36% 36,648,337
Australia, Government of,
Bond (Australia) 04-15-15 # 6.250 Aaa 1,000 606,373
Bonos Y Oblig Del Estado,
Bond (Spain) 07-30-04 (E) 4.500 AA+ 500 538,792
Bond (Spain) 10-31-11 (E) 5.350 AA+ 1,420 1,612,979
Bond (Spain) 07-30-12 (E) 5.000 AA+ 500 554,187
Bundesrepublik Deutschland,
Bond (Denmark) 07-04-12 (E) 5.000 AAA 1,200 1,334,872
Buoni Poliennali Del Tes,
Bond (Italy) 08-01-11 (E) 5.250 AA 865 974,021
Bond (Italy) 05-01-31 (E) 6.000 AA 700 852,318
Canada, Government of,
Bond (Canada) 02-01-03 # 11.750 AAA 1,000 637,074
Bond (Canada) 09-01-05 # 6.000 AAA 1,000 674,744
Bond (Canada) 12-01-05 # 8.750 AAA 1,900 1,377,398
Bond (Canada) 12-01-06 # 7.000 AAA 2,300 1,635,373
Bond (Canada) 09-01-07 # 4.500 AAA 280 181,225
Bond (Canada) 06-01-08 # 6.000 AAA 500 344,452
Bond (Canada) 06-01-09 # 5.500 AAA 2,500 1,680,798
Bond (Canada) 06-01-10 # 5.500 AA+ 1,675 1,121,830
Bond (Canada) 06-01-11 # 6.000 AAA 2,550 1,756,462
Bond (Canada) 06-01-29 # 5.750 AA+ 3,425 2,283,984
Chile, Republic of,
Note (Chile) 01-11-12 7.125 A- 600 674,461
Colombia, Republic of,
Bond (Colombia) 02-25-20 11.750 BB 400 428,000
Note (Colombia) 04-09-11 9.750 BBB 700 722,979
Germany, Federal Republic of,
Bond (Germany) 01-04-12 (E) 5.000 AAA 950 1,057,572
Mexican, United States,
Bond (Mexico) 09-15-16 11.375 BBB- 200 268,000
Note (Mexico) 01-14-11 8.375 BB+ 800 904,000
Note (Mexico) 08-15-31 8.300 BBB- 600 633,000
Unsub Note (Mexico) 03-13-08 7.375 BBB- 390 437,681
New Zealand, Government of,
Bond (New Zealand) 11-15-06 # 8.000 AAA 3,450 1,938,089
Bond (New Zealand) 11-15-11 # 6.000 AAA 2,525 1,314,809
Norway, Government of,
Bond (Norway) 11-30-04 # 5.750 AAA 9,500 1,382,668
Panama, Republic of,
Bond (Panama) 02-08-11 9.625 BB 700 764,750
Bond (Panama) 01-16-23 9.375 BB 150 154,500
Peru, Republic of,
Note (Peru) 01-15-08 9.125 BB- 275 277,750
Russia, Federation of,
Unsub Note (Russia) 06-26-07 10.000 BB 1,715 1,952,956
Unsub Note (Russia) 03-31-10 8.250 B 725 767,050
Unsub Note (Russia) 07-24-18 11.000 BB 1,350 1,620,000
Unsub Note (Russia) 06-24-28 12.750 B 600 798,000
Sweden, Government of,
Bond (Sweden) 05-05-03 # 10.250 AAA 3,500 410,514
Bond (Sweden) 01-15-04 # 5.000 AAA 3,700 430,371
Bond (Sweden) 02-09-05 # 6.000 AAA 4,500 539,161
Bond (Sweden) 08-15-07 # 8.000 AAA 5,000 665,144
Venezuela, Republic of,
Bond (Venezuela) 09-15-27 9.250 CCC+ 500 340,000
Government -- U.S. 17.14% 12,468,927
United States Treasury,
Bond 08-15-05 6.500 AAA 400 447,406
Bond 08-15-05 10.750 AAA 400 490,328
Bond 02-15-16 9.250 AAA 615 912,602
Bond 08-15-19 8.125 AAA 3,265 4,547,789
Note 08-15-04 7.250 AAA 2,240 2,450,262
Note 05-15-05 6.500 AAA 1,300 1,443,051
Note 08-15-07 6.125 AAA 940 1,080,927
Note 08-15-11 5.000 AAA 1,000 1,096,562
Government -- U.S. Agencies 1.79% 1,300,000
Government National
Mortgage Assn.,
30 Yr Pass Thru Ctf 01-01-32 6.000 AAA 1,250 1,300,000
Leisure 6.43% 4,678,705
AMC Entertainment, Inc.,
Sr Sub Note 02-01-11 9.500 CCC+ 300 295,500
Chukchansi Economic
Development Authority,
Sr Note 06-15-09 (R) 14.500 Caa1 125 125,000
Coast Hotels and Casinos, Inc.,
Sr Sub Deb 04-01-09 9.500 B 300 321,000
Fitzgeralds Gaming Corp.,
Gtd Sr Sec Note Ser B
12-15-04 (B) 12.250 D 50 2,500
HMH Properties, Inc.,
Sr Note Ser B 08-01-08 7.875 BB- 100 97,000
Hockey Co. (The)/Sport Maska, Inc.,
Unit (Sr Sec Note & Sr Sec Note)
(Canada) 04-15-09 11.250 B 410 418,200
Isle of Capri Casinos, Inc,
Sr Sub Note 03-15-12 9.000 B 300 312,000
Jacobs Entertaiment, Inc.,
Sr Sec Note 02-01-09 11.875 B 300 310,500
Jupiters Ltd.,
Sr Note (Australia) 03-01-06 8.500 BB+ 300 303,000
Majestic Investor Holding LLC/
Majestic Investor Capital Co.,
Gtd Sr Sec Note 11-30-07 11.653 B 300 277,500
Mandalay Resort Group,
Sr Sub Note 02-15-10 9.375 BB- 100 107,500
Mohegan Tribal Gaming Authority,
Sr Sub Note 04-01-12 8.000 BB- 400 417,000
Penn National Gaming, Inc.,
Sr Sub Note 03-01-08 11.125 B- 225 246,375
Station Casinos, Inc.,
Sr Note 02-15-08 8.375 BB- 200 212,500
Sun International Hotels Ltd.,
Gtd Sr Sub Note (Bahamas)
08-15-11 8.875 B+ 65 66,300
Turning Stone Casino
Resort Enterprise,
Sr Note 12-15-10 (R) 9.125 B+ 200 204,500
Waterford Gaming LLC
Sr Note 03-15-10 (R) 9.500 B+ 438 453,330
Wheeling Island Gaming, Inc.,
Sr Note 12-15-09 10.125 B+ 200 206,000
Wynn Las Vegas LLC,
2nd Mtg Note 11-01-10 12.000 CCC+ 300 303,000
Linen Supply & Related 0.33% 235,969
Coinmach Corp.,
Sr Note 02-01-10 9.000 B 225 235,969
Machinery 0.01% 7,500
Glasstech, Inc.,
Sr Note Ser B 07-01-04 (B) 12.750 D 25 7,500
Media 5.41% 3,936,632
Allbritton Communications Co.,
Sr Sub Note 12-15-12 (R) 7.750 B- 200 200,250
Antenna TV S.A.,
Sr Note (Greece) 07-01-08 (E) 9.750 BB- 50 39,877
Callahan Nordrhein-Westfalen
GmbH,
Sr Note (Germany)
07-15-11 (E) 14.125 B- 320 10,075
Corus Entertainment, Inc.,
Sr Sub Note (Canada) 03-01-12 8.750 B+ 160 169,400
CSC Holdings, Inc.,
Sr Sub Deb 05-15-16 10.500 B+ 200 198,250
Sr Sub Deb 04-01-23 9.875 B+ 100 89,125
Garden State Newspapers, Inc.,
Sr Sub Note Ser B 10-01-09 8.750 B+ 200 203,000
Sr Sub Note 07-01-11 8.625 B+ 335 338,350
Grupo Televisa SA,
Bond (Mexico) 03-11-32 8.500 BBB- 350 332,500
Note (Mexico) 09-13-11 8.000 BBB- 300 312,750
Hollinger International
Publishing, Inc.,
Sr Note 12-15-10 (R) 9.000 B 300 302,625
Innova S. de R.L.,
Sr Note (Mexico) 04-01-07 12.875 B- 600 522,000
Paxson Communications Corp.,
Gtd Sr Sub Note 07-15-08 10.750 B- 205 202,181
Pegasus Communications Corp.,
Sr Note Ser B 08-01-07 12.500 CCC+ 435 230,550
Rogers Cablesystems Ltd.,
Sr Sec Deb (Canada)
01-15-14 # 9.650 BBB- 495 300,798
Sinclair Broadcast Group, Inc.,
Gtd Sr Sub Note 03-15-12 8.000 B 375 390,938
Sr Sub Note 12-15-11 8.750 B 50 53,813
Sirius Satellite Radio, Inc.,
Sr Disc Note 12-01-07 15.000 CCC- 110 40,150
Medical 0.67% 490,125
Advanced Medical Optics, Inc.,
Sr Sub Note 07-15-10 9.250 B 300 309,000
Select Medical Corp.,
Sr Sub Note 06-15-09 9.500 B 175 181,125
Metal 0.58% 419,625
Freeport-McMoRan Copper &
Gold, Inc.,
Sr Note 11-15-06 7.500 B- 75 69,375
Golden Northwest Aluminum, Inc.,
1st Mtg Note 12-15-06 12.000 CC 25 2,000
Great Central Mines Ltd.,
Sr Note (Australia) 04-01-08 8.875 BBB- 350 348,250
Oil & Gas 4.64% 3,376,508
Chesapeake Energy Corp.,
Sr Note 04-01-11 8.125 B+ 300 309,000
Sr Note 01-15-15 (R) 7.750 B+ 200 199,000
Comstock Resources, Inc.,
Gtd Sr Note 05-01-07 11.250 B- 350 371,000
Key Energy Services, Inc.,
Sr Sub Note Ser B 01-15-09 14.000 B+ 68 77,520
Mariner Energy, Inc.,
Sr Sub Note Ser B 08-01-06 10.500 C 10 9,700
OAO Siberian Oil Co.,
Bond (Russia) 02-13-07 11.500 Ba3 335 350,913
Ocean Rig Norway A.S.,
Sr Sec Note (Norway) 06-01-08 10.250 CCC 255 229,500
Parker Drilling Co.,
Gtd Sr Note 11-15-09 10.125 B+ 300 309,000
Pemex Project Funding Master Trust,
Bond 12-15-14 (Mexico) (R) 7.375 BBB- 225 230,625
Note (Mexico) 02-15-08 8.500 BB+ 400 446,000
Note (Mexico) 02-01-09 (R) 7.875 BBB- 350 376,250
Western Oil Sands, Inc.,
Sr Sec Note (Canada)
05-01-12 8.375 BB+ 150 149,250
XTO Energy, Inc.,
Sr Note 04-15-12 7.500 BB 300 318,750
Paper & Paper Products 1.63% 1,184,605
APP China Group Ltd.,
Sr Disc Note (Indonesia)
03-15-10 (B) (R) 14.000 D 250 70,000
APP Finance (VII) Mauritius Ltd.,
Gtd Note (Indonesia)
04-30-03 (B) (R) 3.500 D 10 1,100
Corporacion Durango S.A. de C.V.,
Sr Note (Mexico) 08-01-06 13.125 B- 631 224,005
Longview Fibre Co.,
Sr Sub Note 01-15-09 10.000 B+ 250 262,500
MDP Acquisitions Plc,
Sr Note (Ireland) 10-01-12 (R) 9.625 B 200 208,000
Stone Container Corp.,
Sr Note 02-01-11 9.750 B 200 214,000
Sr Note 07-01-12 8.375 B 200 205,000
Retail 0.00% 13
Imperial Home Decor Group, Inc.,
Gtd Sr Sub Note 03-15-08 11.000 C 125 13
Steel 0.05% 38,960
Gulf States Steel, Inc. of Alabama,
1st Mtg Bond 04-15-03 (B) 13.500 Caa3 100 10
LTV Corp. (The),
Gtd Sr Sub Note 11-15-09 (B) 11.750 Ca 50 0
Metallurg Holdings, Inc.,
Sr Disc Note, Step Coupon
(12.75%, 07-15-03)
07-15-08 (A) Zero CCC 50 17,500
Metallurg, Inc.,
Gtd Sr Note Ser B 12-01-07 11.000 CCC+ 30 21,450
NSM Steel, Inc./NSM Steel Ltd.,
Gtd Sr Sub Mtg Note Ser B
02-01-08 (B) (R) 12.250 D 75 0
Telecommunications 2.53% $1,841,813
AT&T Broadband Corp.,
Gtd Note 03-15-13 8.375 BBB 260 295,339
Crown Castle International Corp.,
Sr Disc Note, Step Coupon
11-15-07 10.625 B 90 81,000
Grupo Iusacell S.A. de C.V.,
Sr Note (Mexico) 12-01-06 14.250 CCC- 300 75,000
Ionica PLC,
Sr Disc Note, Step Coupon
(United Kingdom) 05-01-07 15.000 Ca 200 0
MetroNet Communications Corp.,
Sr Disc Note, Step Coupon
(Canada) 11-01-07 10.750 D 200 32,000
Sr Note (Canada) 08-15-07 12.000 D 50 7,500
Mobile Telesystems Finance S.A.,
Gtd Bond (Luxembourg)
12-21-04 10.950 B+ 250 262,500
Nextel Partners, Inc.,
Sr Disc Note, Step Coupon
(14.00%, 02-01-04)
02-01-09 (A) Zero CCC+ 405 303,750
PanAmSat Corp.,
Gtd Sr Note 02-01-12 8.500 B- 300 286,500
PTC International Finance B.V.,
Gtd Sr Sub Disc Note,
Step Coupon (Netherlands)
07-01-07 10.750 B+ 90 93,600
PTC International Finance II S.A.,
Sr Sub Note (Luxembourg)
12-01-09 (E) 11.250 B+ 125 139,049
TeleCorp PCS, Inc.,
Sr Sub Disc Note,
Step Coupon (11.625%,
04-15-04) 04-15-09 (A) Zero BBB 118 111,215
Tritel PCS, Inc.,
Gtd Note, Step Coupon
(12.75%, 05-15-04) 05-15-09 Zero BBB 52 48,360
VoiceStream Wireless Corp.,
Sr Note 09-15-09 11.500 BBB+ 100 106,000
Textile 0.06% 45,000
Coyne International
Enterprises Corp.,
Sr Sub Note 06-01-08 11.250 Caa1 75 45,000
Steel Heddle Group, Inc.,
Sr Disc Deb, Step Coupon
(13.75%, 06-01-03)
06-01-09 (A) (B) Zero Caa2 200 0
Steel Heddle Manufacturing Co.,
Gtd Sr Sub Note Ser B
06-01-08 (B) 10.625 Caa1 50 0
Transportation 0.84% 612,669
Cenargo International Plc,
1st Mtg Note (United Kingdom)
06-15-08 9.750 B+ 20 8,440
CHC Helicopter Corp.,
Sr Sub Note (Canada)
07-15-07 (E) 11.750 B 130 148,704
Fine Air Services, Inc.,
Sr Note 06-01-08 (B) 9.875 D 210 0
North American Van Lines, Inc.,
Sr Sub Note 12-01-09 13.375 B- 350 340,375
Pacific & Atlantic Holdings, Inc.,
Sr Sec Note (Greece)
12-31-07 (R) 10.500 CC 25 10,025
Petroleum Helicopters, Inc.,
Gtd Sr Note Ser B 05-01-09 9.375 BB- 100 105,125
Utilities 1.53% 1,113,385
Illinois Power Corp.,
1st Mtg Bond 12-15-10 (R) 11.500 B 300 288,000
Midland Funding Corp. II,
Deb Ser A 07-23-05 11.750 BB- 200 204,000
Deb Ser B 07-23-06 13.250 BB- 150 155,250
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico)
11-15-09 (R) 9.625 BBB- 158 178,434
Niagara Mohawk Power Corp.,
Sec Fac Bond 01-01-18 8.770 A 141 147,557
Salton Sea Funding Corp.,
Gtd Note Ser F 11-30-18 7.475 BB 98 90,924
Sr Sec Note Ser C 05-30-10 7.840 BB 50 49,220
Waste Disposal Service & Equip. 0.60% 437,750
Allied Waste North America, Inc.,
Gtd Sr Sec Note 09-01-12 (R) 9.250 BB- 185 189,625
Gtd Sr Sub Note Ser B
08-01-09 10.000 B+ 250 248,125
SHARES ISSUER VALUE
COMMON STOCKS 0.97% $702,907
(Cost $1,781,169)
Consumer Products 0.02% 16,206
3,448 Indesco International, Inc.** 16,206
Energy 0.00% 85
8,476 Horizon Natural Resources Co.** 85
Food 0.01% 5,303
1,046 Pathmark Stores, Inc.** 5,303
Leisure 0.00% 303
101 Sunterra Corp.** 303
Metal 0.72% 520,896
6,000 Barrick Gold Corp. (Canada) 92,460
3,700 Newmont Mining Corp. 107,411
15,000 Pan American Silver Corp. (Canada)** 117,600
12,860 TVX Gold (Canada) # ** 203,425
Oil & Gas 0.18% 129,600
1,872 Chesapeake Energy Corp. ** 14,489
28,850 Grey Wolf, Inc.** 115,111
Retail 0.01% 4,877
660 SpinCycle, Inc.** 4,877
Telecommunications 0.03% 25,637
2,417 International Wireless Communications
Holdings, Inc. ** 0
255 Metrocall Holdings, Inc.** 64
989 NII Holdings, Inc. (Class B)** 11,621
2,383 PFB Telecom B.V., Class B (Germany) ** 241
2,696 PFB Telecom B.V., Class B (United Kingdom) ** 0
20,345 Versatel Telecom International NV, American
Depositary Receipt (ADR) (Netherlands)** 6,192
2,059 Versatel Telecom International NV,
ADR (Netherlands)** 7,519
WARRANTS 0.00% $1,428
(Cost $28,467)
Leisure 0.00% $8
152 Sunterra Corp., Warrant** 8
Manufacturing 0.00% 212
212 HF Holdings, Inc., Warrant** 212
Media 0.00% 0
50 ONO Finance Plc, Warrant
(United Kingdom) (E) (R)** 0
100 ONO Finance Plc, Warrant
(United Kingdom) (R)** 0
Oil & Gas 0.00% 15
15 Chesapeake Energy Corp., Warrant** 15
1,361 Chesapeake Energy Corp., Warrant** 0
Paper & Paper Products 0.00% 0
250 Asia Pulp & Paper Co. Ltd., Warrant (R)** 0
Retail 0.00% 0
35,000 Hills Stores Co., Warrant** 0
740 Pathmark Stores, Inc., Warrant** 570
Steel 0.00% 1
63,309 Nakornthai Strip Mill Plc, Warrant (Thailand) (R)** 1
Telecommunications 0.00% 622
250 Allegiance Telecom, Inc., Warrant** 250
100 Comunicacion Celular S.A., Warrant (Colombia)** 1
100 Loral Space & Communications Ltd., Warrant** 1
740 Loral Space & Communications Ltd., Warrant** 370
111 Versatel Telecom International NV, Warrant
(Netherlands)** 0
PREFERRED STOCKS 0.38% $274,090
(Cost $656,527)
Media 0.26% 190,000
2,000 CSC Holdings, Inc., 11.75%, Ser H,
Preferred Stock 190,000
Paper & Paper Products 0.12% 84,050
4,100 Smurfit-Stone Container Corp., 7.00%,
Ser A, Preferred Stock 84,050
Telecommunications 0.00% 40
220 Metrocall Holdings, Inc., 15.00%,
Ser A, Preferred Stock 13
2,682 XO Communications, Inc., 14.00%,
Preferred Stock 27
Transportation 0.00% 0
1,400 Pacific & Atlantic Holdings, Inc., 7.50%,
Preferred Stock (Greece)** 0
ISSUER, DESCRIPTION, INTEREST PAR VALUE
MATURITY DATE RATE (000S OMITTED) VALUE
SHORT-TERM INVESTMENTS 0.42% $307,000
(Cost $307,000)
Joint Repurchase Agreement 0.42%
Investment in a joint repurchase agreement
transaction with UBS Warburg, Inc. Dated
12-31-02, due 01-02-03 (Secured by U.S.
Treasury Bond 8.500% due 02-15-20, U.S.
Treasury Notes 4.625% due 02-28-02 and 5.375%
due 06-30-03, U.S. Treasury Inflation Indexed
Notes 3.500% due 01-15-11 and 3.000%
due 07-15-12) 1.15% $307 $307,000
TOTAL INVESTMENTS 99.97% $72,746,326
OTHER ASSETS AND LIABILITIES, NET 0.03% $24,059
TOTAL NET ASSETS 100.00% $72,770,385
* Credit ratings are unaudited and rated by Moody's Investors Service
or John Hancock Advisers, LLC 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 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 $3,215,540 or 4.42% of
the Fund's net assets as of December 31, 2002.
Parenthetical disclosure of a foreign country in the security
description represents country of foreign issuer, however, security is
U. S. dollar-denominated, unless indicated otherwise.
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
VALUE
AS A PERCENTAGE
COUNTRY DIVERSIFICATION OF FUND'S NET ASSETS
Australia 1.77%
Bahamas 0.09
Canada 18.59
Chile 1.38
Colombia 1.58
Denmark 1.83
France 0.16
Germany 1.47
Greece 0.07
Indonesia 0.10
Ireland 0.29
Italy 2.51
Luxembourg 0.55
Mexico 6.97
Netherlands 0.49
New Zealand 4.47
Norway 2.22
Panama 1.26
Peru 0.38
Russia 7.54
Spain 3.72
Sweden 2.81
Thailand 0.00
United Kingdom 0.01
United States 39.24
Venezuela 0.47
Total bonds 99.97%
TOTAL INVESTMENTS
VALUE
AS A PERCENTAGE
QUALITY DISTRIBUTION OF FUND'S NET ASSETS
AAA 43.61%
AA 10.91
A 1.13
BBB 7.22
BB 13.83
B 18.01
CCC 3.23
CC 0.07
C 0.01
D 0.18
Total bonds 98.20%
See notes to financial statements.
Statement of Assets and Liabilities
12-31-02
ASSETS
Investments at value (cost $72,482,390) $72,746,326
Cash 59
Foreign cash at value (cost $2) 2
Cash segregated for futures contracts 156,195
Receivable for investments sold 24,306
Receivable for shares sold 4,347
Receivable for forward foreign currency
exchange contracts 21,245
Receivable for futures variation margin 19,470
Dividends and interest receivable 1,441,199
Other assets 2,142
Total assets 74,415,291
LIABILITIES
Dividends payable 13,033
Payable for investments purchased 1,294,219
Payable for shares repurchased 581
Payable for forward foreign currency
exchange contracts 257,129
Payable to affiliates 45,756
Other payables and accrued expenses 34,188
Total liabilities 1,644,906
NET ASSETS
Capital paid-in 78,895,417
Accumulated net realized loss on investments,
futures and foreign currency transactions (6,219,068)
Net unrealized depreciation of investments,
futures and translation of assets and
liabilities in foreign currencies (130,039)
Distributions in excess
of net investment income 224,075
Net assets $72,770,385
NET ASSET VALUE PER SHARE
(Based on 8,398,118 shares of beneficial
interest outstanding -- unlimited number of
shares authorized with no par value) $8.67
Statement of Operations
For the year ended 12-31-02
INVESTMENT INCOME
Interest
(net of foreign withholding taxes of $5,528) $5,021,882
Dividends
(net of foreign withholding taxes of $99) 21,349
Total investment income 5,043,231
EXPENSES
Investment management fee 427,298
Custodian fee 82,968
Accounting and legal services fee 21,464
Auditing fee 19,480
Printing 11,725
Trustees' fee 4,328
Miscellaneous 4,176
Legal fee 677
Interest expense 249
Registration and filing fee 20
Total expenses 572,385
Net investment income 4,470,846
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on
Investments (2,329,378)
Foreign currency transactions (697,942)
Futures contracts (319,451)
Change in unrealized appreciation
(depreciation) of
Investments 4,593,617
Translation of assets and liabilities
in foreign currencies (215,831)
Futures contracts (175,146)
Net realized and unrealized gain 855,869
Increase in net assets from operations $5,326,715
See notes to financial statements.
Statement of Changes in Net Assets
YEAR YEAR
ENDED ENDED
12-31-01 12-31-02
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income $3,568,274 $4,470,846
Net realized loss (1,354,183) (3,346,771)
Change in net unrealized
appreciation (depreciation) 64,757 4,202,640
Increase in net assets resulting
from operations 2,278,848 5,326,715
Distributions to shareholders
From net investment income (3,986,158) (5,159,826)
From Fund share transactions 36,129,909 3,709,098
NET ASSETS
Beginning of period 34,471,799 68,894,398
End of period 1 $68,894,398 $72,770,385
1 Includes distributions in excess of net investment income of $654,097
and $224,075, respectively.
Financial Highlights
12-31-98 12-31-99 12-31-00 12-31-01 1 12-31-02 1
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.47 $10.10 $9.77 $8.97 $8.64
Net investment income 2 0.85 0.80 0.83 0.65 0.53
Net realized and unrealized gain (loss)
on investments (0.35) (0.33) (0.71) (0.26) 0.11
Total from investment operations 0.50 0.47 0.12 0.39 0.64
Less distributions
From net investment income (0.85) (0.80) (0.83) (0.72) (0.61)
From net realized gain (0.02) -- (0.09) -- --
(0.87) (0.80) (0.92) (0.72) (0.61)
Net asset value, end of period $10.10 $9.77 $8.97 $8.64 $8.67
Total return 3 (%) 4.92 4 4.82 4 1.40 4.58 7.87
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $15 $22 $34 $69 $73
Ratio of expenses to average net assets % 0.85 0.85 0.76 0.71 0.80
Ratio of adjusted expenses
to average net assets 5 % 0.93 0.87 -- -- --
Ratio of net investment income
to average net assets % 8.19 8.06 8.91 7.16 6.28
Portfolio turnover% 92 53 6 53 101 6 73
1 As required effective January 1, 2001 the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies, as revised, and began amortizing premiums on debt securities.
The effect of this change for the yea
2 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment.
4 Total returns would have been lower had certain expenses not been
reduced during the periods shown.
5 Does not take into consideration expense reductions during the periods
shown.
6 Excludes merger activity.
See notes to financial statements.
NOTES TO
FINANCIAL STATEMENTS
NOTE A
Accounting policies
John Hancock V.A. Strategic Income Fund (the "Fund") is a diversified
series of John Hancock Declaration Trust ("the Trust"), an open-end
investment management company registered under the Investment Company
Act of 1940. The Trust, organized as a Massachusetts business trust in
1995, consists of five different series at December 31, 2002. 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 Fund 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 Fund
in proportion to the voting instructions received.
The investment objective of the Fund is to seek a high level of current
income. The Fund has one class of shares with equal rights as to voting,
redemption, dividends and liquidation.
Significant accounting policies of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio 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 Fund, along with other registered investment companies
having a management contract with John Hancock Advisers, LLC (the
"Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
LLC, 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 Fund's custodian bank receives
delivery of the underlying securities for the joint account on the
Fund's 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 Fund. 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 Fund does 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 Fund's 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 rates.
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 Fund accretes discount and amortizes 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.
Bank borrowings
The Fund is 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 Fund has
entered into a syndicated line of credit agreement with various banks.
This agreement enables the Fund to participate with other funds managed
by the Adviser in an unsecured line of credit with banks, which permits
borrowings of up to $475 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 Fund
had no borrowing activity under the line of credit during the year ended
December 31, 2002.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the
Fund 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 Fund 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.
There were no securities loaned on December 31, 2002.
Financial futures contracts
The Fund may buy and sell financial futures contracts. Buying futures
tends to increase the Fund's exposure to the underlying instrument.
Selling futures tends to decrease the Fund's exposure to the underlying
instrument or hedge other Fund's instruments. At the time the 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 Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes 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 Fund 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
Fund's gains and/or losses can be affected as a result of futures
contracts.
At December 31, 2002, the Fund had deposited $156,195 in a segregated
account to cover margin requirements on open futures contracts.
The Fund had the following open financial futures contracts on December
31, 2002:
NUMBER OF
OPEN CONTRACTS CONTRACTS POSITION EXPIRATION DEPRECIATION
- ----------------------------------------------------------------------------
U.S. 10 Year Treasury Note 89 Short March 03 ($175,146)
Forward foreign currency exchange contracts
The 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
Fund's daily net assets. The Fund records realized gains and losses at
the time the forward foreign currency exchange contract is closed out.
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 Fund's statement of
assets and liabilities.
The Fund may also purchase and sell forward contracts to facilitate the
settlement of foreign currency-denominated portfolio transactions, under
which it intends 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 Fund had the following open forward foreign currency exchange
contracts on December 31, 2002:
PRINCIPAL
AMOUNT UNREALIZED
COVERED BY EXPIRATION APPRECIATION
CURRENCY CONTRACT MONTH (DEPRECIATION)
- ----------------------------------------------------------------
BUY
Euro 500,000 Feb 03 $21,245
SELLS
Euro 3,917,000 Feb 03 ($224,459)
Pound Sterling 609,000 Feb 03 (32,670)
($257,129)
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income that is distributed to
shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund has $6,668,699 of a capital
loss carryforward available, to the extent provided by regulations, to
offset future net realized capital gains. To the extent that such
carryforward is used by the Fund, no capital gain distributions will be
made. The Fund's carryforwards expire as follows: December 31, 2006 --
$4,130, December 31, 2007 -- $136,493, December 31, 2008 -- $1,506,009
and December 31, 2009 -- $1,757,056 and December 31, 2010 -- $3,265,011.
Availability of a certain amount of these loss carryforwards, which were
acquired by the Fund from the mergers of the V.A. World Bond Fund on
March 26, 1999 and the V.A. High Yield Bond Fund on December 14, 2001,
may be limited in a given year. Additionally, net capital losses of
$588,881 and net foreign currency losses of $22,114 are attributable to
security transactions incurred after October 31, 2002 and are treated as
arising on the first day (January 1, 2003) of the fund's 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 Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions to shareholders from net investment
income and net realized gains on the ex-dividend date. The Fund's net
investment income is declared daily as dividends to shareholders of
record as of the close of business on the preceding day, and distributed
monthly. During the year ended December 31, 2002, the tax character of
distributions paid was as follows: ordinary income $4,529,489 and return
of capital $630,337.
As of December 31, 2002, there were no distributable earnings on a tax
basis. Such distributions and distributable earnings, on a tax basis,
are determined in conformity with income tax regulations, which may
differ from accounting principles generally accepted in the United
States of America. Distributions in excess of tax basis earnings and
profits, if any, are reported in the Fund's financial statements as a
return of capital.
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
Fund. Actual results could differ from these estimates.
NOTE B
Management fee and transactions with affiliates and others
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a monthly management
fee to the to the Adviser at an annual rate of 0.60% of the Fund's
average daily net asset value.
The Adviser has agreed to limit the Fund's expenses, excluding the
management fee, to 0.25% of the Fund's average daily net assets, at
least until April 30, 2003. There was no expense reduction for the year
ended December 31, 2002. The Adviser reserves the right to terminate
this limitation in the future.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
year was at an annual rate of approximately 0.03% of the average net
assets of the Fund.
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 Fund. The compensation of unaffiliated Trustees is borne by the
Fund. 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 Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's 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 Fund.
NOTE C
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding
dollar value.
YEAR ENDED 12-31-01 YEAR ENDED 12-31-02
SHARES AMOUNT SHARES AMOUNT
Shares sold 4,745,566 $41,571,562 1,492,861 $12,603,802
Distributions reinvested 402,919 3,482,022 649,945 5,146,792
Issued in reorganization 454,719 3,986,158 -- --
Repurchased (1,475,346) (12,909,833) (1,714,317) (14,041,496)
NET INCREASE 4,127,858 $36,129,909 428,489 $3,709,098
NOTE D
Investment transactions
Purchases and proceeds from sales or maturities of securities other than
short-term securities and obligations of the U.S. government, during the
year ended December 31, 2002, aggregated $55,009,764 and $38,113,853,
respectively, and purchases and proceeds from maturities sales of
obligations of the U.S. government aggregated $5,975,000 and
$11,720,000, respectively, during the year ended December 31, 2002.
The cost of investments owned on December 31, 2002, including short-term
investments, for federal income tax purposes was $72,850,532. Gross
unrealized appreciation and depreciation of investments aggregated
$4,898,700 and $5,002,906, respectively, resulting in net unrealized
depreciation of $104,206. The difference between book basis and tax
basis net unrealized appreciation of investments is attributable
primarily to the tax deferral of losses on wash sales and the tax
adjustment for the amortization of bond premium.
NOTE E
Reclassification of accounts
During the year ended December 31, 2002, the Fund reclassified amounts
to reflect an increase in accumulated net realized loss on investments
of $747,227, an increase in accumulated net investment income of
$1,567,152 and a decrease in capital paid-in of $819,925. This
represents the amount necessary to report these balances on a tax basis,
excluding certain temporary differences, as of December 31, 2002.
Additional adjustments may be needed in subsequent reporting periods.
These reclassifications, which have no impact on the net asset value of
the Fund, are primarily attributable to foreign currency gains and
losses, amortization of bond premiums and certain differences in the
computation of distributable income and capital gains under federal tax
rules versus accounting principles generally accepted in the United
States of America. The calculation of net investment income (loss) per
share in the financial highlights excludes these adjustments.
NOTE F
Change in accounting principle
Effective January 1, 2001 the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies, as revised,
relating to the amortization of premiums and accretion of discounts on
debt securities. The cumulative effect of this accounting change had no
impact on the total net assets of the Fund, but resulted in a $230,438
reduction in the cost of investments and a corresponding decrease in net
unrealized depreciation of investments, based on securities held as of
December 31, 2000.
The effect of this change for the year ended December 31, 2001 was to
decrease net investment income by $417,884, increase unrealized
depreciation of investments by $47,891 and decrease net realized loss on
investments by $465,775.
The effect of this change for the year ended December 31, 2002 was to
decrease net investment income by $572,194, decrease unrealized
depreciation of investments by $181,307 and decrease net realized loss
on investments by $390,887.
The statement of changes in net assets and the financial highlights for
prior periods have not been restated to reflect this change in
presentation.
NOTE G
Reorganization
On December 5, 2001, the shareholders of the John Hancock V.A. High
Yield Bond Fund ("V.A. High Yield Bond Fund") approved a plan of
reorganization between V.A. High Yield Bond Fund and the Fund, providing
for the transfer of substantially all of the assets and liabilities of
the V.A. High Yield Bond fund to the Fund in exchange solely for the
shares of beneficial interest in the Fund. The acquisition was accounted
for as a tax-free exchange of 402,919 shares of the Fund for the net
assets of V.A. High Yield Bond Fund, which amounted to $3,482,022,
including $2,437,674 of unrealized depreciation of investments, after
the close of business on December 14, 2001.
Report of Ernst & Young LLP, Independent Auditors
To the Contract Owners and Trustees of
John Hancock V.A. Strategic Income Fund
We have audited the accompanying statement of assets and liabilities of
John Hancock V.A. Strategic Income Fund (the "Fund"), one of the
portfolios constituting John Hancock Declaration Trust, including the
schedule of investments, as of December 31, 2002, and the related
statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the
responsibility of the Fund'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. Our procedures included confirmation of securities owned as
of December 31, 2002, by correspondence with the custodian and brokers,
or 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 John Hancock V.A. Strategic Income Fund, the
results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended 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
Boston, Massachusetts
February 7, 2003
Tax Information
UNAUDITED
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund paid, if any, during its
taxable year ended December 31, 2002.
With respect to the ordinary dividends paid by the Fund for the fiscal
year ended December 31, 2002, 0.32% of the dividends qualify for the
corporate dividends-received deduction.
If the Fund paid dividends for the fiscal year, shareholders will be
mailed a 2002 U.S. Treasury Department Form 1099-DIV in January 2003.
This will reflect the total of all distributions that are taxable for
calendar year 2002.
TRUSTEES &
OFFICERS
This chart provides information about the Trustees and Officers who
oversee your John Hancock fund. Officers elected by the Trustees manage
the day-to-day operations of the Fund and execute policies formulated by
the Trustees.
INDEPENDENT TRUSTEES
NUMBER OF
NAME, AGE TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
Dennis S. Aronowitz, Born: 1931 1996 31
Professor of Law, Emeritus, Boston University School of
Law (as of 1996); Director, Brookline Bancorp.
Richard P. Chapman, Jr., Born: 1935 1996 31
President and Chief Executive Officer, Brookline
Bancorp. (lending) (since 1972); Chairman and
Director, Lumber Insurance Co. (insurance) (until
2000); Chairman and Director, Northeast Retirement
Services, Inc. (retirement administration) (since 1998).
William J. Cosgrove, Born: 1933 1996 31
Vice President, Senior Banker and Senior Credit Officer,
Citibank, N.A. (retired 1991); Executive Vice President,
Citadel Group Representatives, Inc.; Director, Hudson
City Bancorp; Trustee, Scholarship Fund for Inner City
Children (since 1986).
Richard A. Farrell 2, Born: 1932 1996 31
President, Farrell, Healer & Co., Inc. (venture capital
management firm) (since 1980) and General Partner of
the Venture Capital Fund of NE (since 1980); prior to
1980, headed the venture capital group at Bank of
Boston Corporation.
William F. Glavin 2, Born: 1932 1996 31
President Emeritus, Babson College (as of 1998);
Vice Chairman, Xerox Corporation (until 1989);
Director, Reebok, Inc. (since 1994) and Inco Ltd.
Patti McGill Peterson, Born: 1943 1996 39
Executive Director, Council for International Exchange
of Scholars (since 1998), Vice President, Institute of
International Education (since January 1998); Senior
Fellow, Cornell Institute of Public Affairs, Cornell
University (until 1997); President Emerita of Wells
College and St. Lawrence University; Director, Niagara
Mohawk Power Corporation (electric utility).
John A. Moore 2, Born: 1939 1996 39
President and Chief Executive Officer, Institute for
Evaluating Health Risks, (nonprofit institution)
(until 2001); Senior Scientist, Sciences International
(health research) (since 1998); Principal, Hollyhouse
(consulting) (since 2000); Director, CIIT (nonprofit
research) (since 2002).
John W. Pratt, Born: 1931 1996 31
Professor of Business Administration Emeritus,
Harvard University Graduate School of Business
Administration (as of 1998).
INTERESTED TRUSTEES 3
NAME, AGE NUMBER OF
POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
John M. DeCiccio, Born: 1948 2001 61
Trustee
Executive Vice President and Chief Investment Officer,
John Hancock Financial Services, Inc.; Director,
Executive Vice President and Chief Investment Officer,
John Hancock Life Insurance Company; Chairman of
the Committee of Finance of John Hancock Life
Insurance Company; Director, John Hancock
Subsidiaries, LLC ("Subsidiaries, LLC"), Hancock
Natural Resource Group, Independence Investment
LLC, Independence Fixed Income LLC, John Hancock
Advisers, LLC (the "Adviser") and The Berkeley
Financial Group, LLC ("The Berkeley Group"),
John Hancock Funds, LLC ("John Hancock Funds"),
Massachusetts Business Development Corporation;
Director, John Hancock Insurance Agency, Inc.
("Insurance Agency, Inc.") (until 1999).
Maureen R. Ford, Born: 1955 2000 61
Trustee, Chairman, President and Chief Executive
Officer, John Hancock Financial Services, Inc.,
John Hancock Life Insurance Company; Chairman,
Director, President and Chief Executive Officer,
the Adviser and The Berkeley Group; Chairman,
Director, President and Chief Executive Officer, John
Hancock Funds; Chairman, Director and Chief
Executive Officer, Sovereign Asset Management
Corporation ("SAMCorp."); Director, Independence
Investment LLC, Subsidiaries, LLC, Independence
Fixed Income LLC and Signature Services; Senior Vice
President, MassMutual Insurance Co. (until 1999).
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NAME, AGE
POSITION(S) HELD WITH FUND OFFICER
PRINCIPAL OCCUPATION(S) AND OF FUND
DIRECTORSHIPS DURING PAST 5 YEARS SINCE
William L. Braman, Born: 1953 2000
Executive Vice President and Chief Investment Officer
Executive Vice President and Chief Investment Officer, the
Adviser and each of the John Hancock funds; Director,
SAMCorp., Executive Vice President and Chief Investment
Officer, Barring Asset Management, London UK (until 2000).
Richard A. Brown, Born: 1949 2000
Senior Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, the
Adviser, John Hancock Funds, and The Berkeley Group; Second
Vice President and Senior Associate Controller, Corporate Tax
Department, John Hancock Financial Services, Inc. (until 2001).
Thomas H. Connors, Born: 1959 1996
Vice President and Compliance Officer
Vice President and Compliance Officer, the Adviser and each of
the John Hancock funds; Vice President, John Hancock Funds.
William H. King, Born: 1952 1996
Vice President and Treasurer
Vice President and Assistant Treasurer, the Adviser; Vice President
and Treasurer of each of the John Hancock funds; Assistant
Treasurer of each of the John Hancock funds (until 2001).
Susan S. Newton, Born: 1950 1996
Senior Vice President, Secretary and Chief Legal Officer
Senior Vice President, Secretary and Chief Legal Officer,
SAMCorp., the Adviser and each of the John Hancock funds,
John Hancock Funds and The Berkeley Group; Vice President,
Signature Services (until 2000); Director, Senior Vice President
and Secretary, NM Capital.
The business address for all Trustees and Officers is 101 Huntington
Avenue, Boston, Massachusetts 02199.
The Statement of Additional Information of the Fund includes additional
information about members of the board of Trustees of the Fund and is
available, without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his or
her successor is elected.
2 Member of Audit Committee.
3 Interested Trustee holds positions with the Fund's investment adviser,
underwriter and certain other affiliates.
JOHN HANCOCK FUNDS
DECLARATION TRUST
ANNUAL
REPORT
[LOGO] John Hancock
[Rings]
Worldwide Sponsor
John Hancock Funds, LLC
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
Mutual Funds
Institutional Services
Private Managed Accounts
Retirement Plans
This report is for the information of the shareholders of the
John Hancock V.A. Strategic Income Fund
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
8230A 12/02
2/03
Not all of the funds described in this report are available on every
product. Please refer to the prospectus for additional information about
the investment options on your variable product.
These reports may be used as sales literature when preceded or accompanied
by the funds' current prospectus, which details charges, investment
objectives and operating policies.
John Hancock Variable Insurance Products are issued by John Hancock Life
Insurance Company or its subsidiary, John Hancock Variable Life Insurance
Company (not licensed in New York), Boston, MA 02117 and are distributed by
Signator Investors, Inc., 197 Clarendon Street, John Hancock Place, Boston,
MA 02116.
DECAREP 12/02
ANNUAL
REPORT
John Hancock
V.A. Technology Fund
A series of John Hancock Declaration Trust
12.31.02
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo at bottom left
center of page. A tag line below reads "JOHN HANCOCK FUNDS."]
FOR YOUR
INFORMATION
TRUSTEES
Dennis S. Aronowitz
Richard P. Chapman, Jr.
William J. Cosgrove
John M. DeCiccio
Richard A. Farrell*
Maureen R. Ford
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
CUSTODIAN
The Bank of New York
One Wall Street
New York, New York 10286
TRANSFER AGENT
John Hancock Signature Services, Inc.
529 Main Street
Charlestown, Massachusetts 02129
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
SUB-INVESTMENT ADVISER
American Fund Advisors, Inc.
1415 Kellum Place
Garden City, New York 11530
INSURANCE PRODUCTS ISSUER
John Hancock Life Insurance
Company, John Hancock Variable
Life Insurance Company*
200 Clarendon Street
Boston, Massachusetts 02117
*Not licensed in New York
FUND DISTRIBUTOR
John Hancock Funds, LLC
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
HOW TO
CONTACT US
On the Internet
www.jhancock.com
By regular mail
John Hancock Signature Services, Inc.
529 Main Street
Charlestown, Massachusetts 02129
Customer service representatives
1-800-225-5291
24-hour automated information
1-800-338-8080
WELCOME
[A photo of Maureen Ford, Chairman and CEO, flush right next to
first paragraph.]
Dear Shareholders,
Investors were probably never happier to close out a year than they were
in 2002, since it was the third consecutive year that the stock market
declined -- something that hadn't occurred in 60 years. Driving the fall
were fears of war, a weak economy, disappointing profits, rising oil
prices and a string of corporate scandals. All market sectors and
investment styles suffered. As a result, the broad Standard & Poor's 500
Index fell by 22.09% for the year, while the Dow Jones Industrial
Average lost 15.04% and the technology laden Nasdaq Composite Index lost
31.53%.
Despite a fourth-quarter rally, only 3.8% of U.S. stock mutual funds
made money last year, and the average U.S. stock fund lost 22.42%,
according to Lipper, Inc. Bond funds provided the only bright spot,
producing mostly positive results, with the average long-term bond fund
rising 7.9%. It was the third year in which bonds outperformed stocks
and gained ground, confirming yet again the importance of having a
portfolio well-diversified among stocks, bonds and cash.
In fact, the disparity between stock and bond results over the last
three years means that many investors' portfolios may have shifted
substantially in their mix between stocks and bonds. We recommend
working with your investment professional to rebalance your assets
according to your long-term goals.
After three down years, no one can predict when the bear market cycle
will turn. Currently, uncertainties abound, as the good news seen in
signs of improving economic and corporate data, and efforts by
Washington to stimulate the economy, are offset by the possibility of
war and other geopolitical risks.
While all these factors are beyond our control, investors can take
charge of how they maneuver through the inevitable bull and bear market
cycles. We've said it before, but it bears repeating: the key is to keep
a long-term perspective and work with your investment professional to
develop and maintain a properly diversified portfolio. We believe this
offers the best protection in the tough times and the best means to
reach your long-term goals.
Sincerely,
/S/ MAUREEN R. FORD
Maureen R. Ford,
Chairman and Chief Executive Officer
Table of contents
Managers' Report
page 4
A Look at Performance
page 5
Growth of $10,000
page 5
Fund's Investments
page 6
Financial Statements
page 8
Auditors' Opinion
page 13
Trustees & Officers
page 14
MANAGERS'
REPORT
[Photos of Barry Gordon, Marc Klee and Alan Loewenstein.]
John Hancock V.A. Technology Fund
BY BARRY J. GORDON, MARC H. KLEE, CFA, AND ALAN LOEWENSTEIN, CFA,
PORTFOLIO MANAGERS
Weak economic conditions and investor uncertainty caused by heightened
geopolitical concerns and corporate scandals resulted in crushing
declines for all but a few technology stocks in 2002, continuing the
unprecedented downturn the group has experienced since early 2000. Tech
companies are cyclical growth enterprises and as such, their fortunes
rise and fall in response to economic tides. While some external factors
can and do come into play at various times -- such as the rush to
purchase new equipment prior to Y2K -- the purchase of technology
products and services can and will be deferred during economic weakness.
This reflects the knowledge of both corporations and individuals that
technology users will be able to function for some time even with
equipment that may not be "state of the art." Given the past year's
weakening global economy, it wasn't at all surprising that businesses
around the world routinely cut back capital expenditures and
dramatically tightened their purse strings by postponing or abandoning
new information technology projects. Even though companies could borrow
money cheaply thanks to low interest rates, they became very
short-sighted, requiring that paybacks on technology be measured in
months, rather than years, before they would spend discretionary
dollars. One bright spot was the consumer, who kept on spending even as
the economy weakened.
FUND PERFORMANCE
For the 12-month period ended December 31, 2002, John Hancock V.A.
Technology Fund posted a total return of -46.83%, compared with the
- -43.01% return of the average open-end science and technology fund, and
the -30.91% return of the average variable annuity specialty
miscellaneous fund, according to Lipper, Inc.
SEMICONDUCTOR AND EQUIPMENT STOCKS STUMBLE
Heading into 2002, there was a growing belief that the extraordinary
actions taken by the Federal Reserve after the events of September 11,
2001 would lead to an economic recovery by mid-2002. Since technology is
capital-spending intensive and therefore is reliant upon cash flow
generation, the thinking was that a revival in the tech sector would
occur one or two quarters after corporations started to see cash flows
improve -- meaning by the second half of the year. Given our
expectations of improving economic conditions, we favored stocks of
"early cyclical" companies, such as semiconductors and
semiconductor-capital equipment, early in the period. But when a healthy
economic rebound failed to materialize, there were growing concerns that
reduced corporate spending would hurt sales and that consumer spending
on electronics would eventually decline. Among our semiconductor-related
holdings that were hardest-hit were Integrated Device Technology,
Cypress Semiconductor and Micron Technology.
[Table at bottom right hand column entitled "Top five holdings." The
first listing is Dell Computer 5.4%, the second is Microsoft 4.7%, the
third Cisco Systems 3.9%, the fourth Citrix Systems 3.6% and the fifth
Nokia 3.3%. A note below the table reads "As a percentage of net
assets on 12-31-02."]
A SHIFT TOWARD SOFTWARE
In recent months, we have moderated our strategy in response to
weaker-than-expected economic conditions. We repositioned the portfolio
on a bottom-up basis to look for companies that we think are relatively
well-positioned for a more modest recovery. While economic strength
ultimately is critical for the entire sector, the types of companies
we've targeted are better able to absorb a prolonged period of sluggish
activity. In particular, we have reduced our holdings in semiconductor
and related capital equipment companies in favor of software and
hardware (especially personal computer-related) companies, initiating or
adding to holdings such as Seibel Systems, Microsoft and
Hewlett-Packard.
BRIGHT SPOTS
Despite the breadth of the 2002 tech stock rout, the portfolio did have
its share of winners during the year. One of the best-performing
holdings was Western Digital, the profitable maker of disk drives that
go into personal computers, as well as gaming products such as
Microsoft's X-Box. The stock benefited from strong consumer demand and
the company's efforts to cut costs and boost production efficiencies.
Some Internet-related companies also came roaring back this year. The
stock price of Amazon.com, the world's largest online retailer, surged
on news that sales and revenues increased and that it had seemingly
stemmed its losses. Yahoo and E-Bay each jumped on better-than-expected
earnings and sales.
Although the makers of computers suffered, they generally held up better
than the tech sector as a whole. Dell, the Fund's largest holding and a
leading PC manufacturer, was one of our best performers, helped by
strong execution and continued expansion into overseas markets. IBM held
in a lot better than the hardware group as a whole, as investors moved
in to take advantage of the stock's historically low valuation.
OUTLOOK
Although technology stocks have sorely tried investors' patience over
the last three years, we're cautiously optimistic about their prospects.
We believe an economic recovery eventually will take hold and ultimately
boost corporate tech spending. What's more, most tech companies have
slashed costs, which should help their bottom lines when growth resumes.
And current tech stock valuations are very attractive, especially given
the high cash positions many of these companies currently enjoy. If the
sector's fundamentals improve, large institutional investors will likely
start buying again, and that renewed interest could help stock prices
move higher.
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the
managers' views are subject to change as market and other conditions
warrant.
Sector investing is subject to greater risks than the market as a whole.
A LOOK AT
PERFORMANCE
For the period ended 12-31-02
Cumulative total returns
One year -46.83%
Since inception (5-1-00) -78.16%
Average annual total returns
One year -46.83%
Since inception (5-1-00) -43.45%
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.
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. See the prospectus for details.
GROWTH OF
$10,000
John Hancock V.A. Technology Fund
5-1-00 -- 12-31-02
The chart to the left 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 two indexes:
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
Russell 3000 Technology Index, is a capitalization-weighted index
composed of companies that serve the electronics and computer industries
It is not possible to invest in an index.
Line chart with the heading John Hancock V.A. Technology Fund 5-1-00 -
12-31-02, 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 Standard & Poor's 500 Index and is equal to $6,290
as of December 31, 2002. The second line represents the Russell 3000
Technology Index and is equal to $2,456 as of December 31, 2002. The
third 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 $2,184 as of December 31, 2002.
FINANCIAL
STATEMENTS
Fund's Investments
Securities owned by the Fund on 12-31-02
SHARES ISSUER VALUE
COMMON STOCKS 95.79% $11,665,591
(Cost $22,127,239)
Computer -- Graphics 1.18% $143,744
12,192 Cadence Design Systems, Inc.* 143,744
Computer -- Internet Security 4.48% 546,175
24,000 Networks Associates, Inc.* 386,160
3,950 Symantec Corp.* 160,015
Computer -- Internet Services 6.28% 764,349
15,000 Amazon.com, Inc.* 283,350
25,000 Ariba, Inc.* 62,000
3,950 eBay, Inc* 267,889
22,000 Inktomi Corp.* 35,200
28,000 Pinnacor, Inc.* 34,160
5,000 Yahoo! Inc.* 81,750
Computer -- Memory Devices 5.56% 677,775
45,000 EMC Corp.* 276,300
3,350 Emulex Corp.* 62,142
4,826 Seagate Technology* (Cayman Islands) 51,783
45,000 Western Digital Corp.* 287,550
Computer -- Micro/Macro 10.21% 1,242,890
24,500 Dell Computer Corp.* 655,130
16,000 Hewlett-Packard Co. 277,760
4,000 International Business Machines Corp. 310,000
Computer -- Networking 3.87% 471,600
36,000 Cisco Systems, Inc.* 471,600
Computer -- Services 2.44% 297,000
30,000 Unisys Corp.* 297,000
Computer -- Software 22.16% 2,698,948
33,000 BEA Systems, Inc.* 378,510
14,000 Borland Software Corp.* 172,200
35,000 Citrix Systems, Inc.* 431,200
16,250 i2 Technologies, Inc.* 18,687
13,350 Mercury Interactive Corp.* 395,828
11,000 Microsoft Corp.* 568,700
30,550 Parametric Technology Corp.* 76,986
26,100 Rational Software Corp.* 271,179
8,000 SAP AG, American Depositary Receipt
(ADR) (Germany) 156,000
12,000 SeeBeyond Technology Corp.* 29,160
18,250 Siebel Systems, Inc.* 136,510
52,150 Vignette Corp.* 63,988
Electronics -- Components Misc. 3.97% 482,975
42,500 Flextronics International Ltd.* (Singapore) 348,075
38,000 Solectron Corp.* 134,900
Electronics -- Semiconductor Components 20.10% 2,447,790
36,000 Amkor Technology, Inc.* 171,360
27,000 Applied Materials, Inc.* 351,810
10,000 ASM Lithography Holding N.V.* (Netherlands) 83,600
8,000 Broadcom Corp. (Class A)* 120,480
36,000 Cypress Semiconductor Corp.* 205,920
29,000 Integrated Device Technology, Inc.* 242,730
10,000 KLA - Tencor Corp.* 353,700
24,000 Micron Technology, Inc. 233,760
16,000 MKS Instruments, Inc.* 262,880
20,000 RF Micro Devices, Inc.* 146,600
39,000 Taiwan Semiconductor Manufacturing Co. Ltd.*
(ADR) (Taiwan) 274,950
Fiber Optics 2.96% 360,605
33,000 Aeroflex, Inc.* 227,700
35,900 Finisar Corp.* 34,105
40,000 JDS Uniphase Corp.* 98,800
Media -- Cable TV 2.37% 288,200
22,000 AOL Time Warner, Inc.* 288,200
Telecom -- Equipment 6.70% 815,890
10,000 Lucent Technologies, Inc. 12,600
26,000 Nokia Corp. (ADR) (Finland) 403,000
11,000 QUALCOMM, Inc.* 400,290
Telecom -- Services 3.51% 427,650
37,000 AT&T Wireless Services, Inc.* 209,050
12,000 Nextel Communications, Inc. (Class A)* 138,600
40,000 Primus Telecommunications Group, Inc. * 80,000
RIGHTS 0.00% 0
(Cost $0)
5,200 Seagate Technology, Inc.* 0
ISSUER, DESCRIPTION, INTEREST PAR VALUE
MATURITY DATE RATE (000s OMITTED) VALUE
SHORT-TERM INVESTMENTS 16.41% $1,997,919
(Cost $1,997,919)
Joint Repurchase Agreement 5.02%
Investment in a joint repurchase agreement
transaction with UBS Warburg, Inc. -- Dated
12-31-02, due 01-02-03 (Secured by U.S.
Treasury Bond 8.500%, due 02-15-20, U.S.
Treasury Inflation Indexed Notes, 3.000% thru
3.500%, due 01-15-11 thru 07-15-12, and U.S.
Treasury Notes, 4.625% thru 5.375%,
due 02-28-02 thru 06-30-03) 1.15% $611 611,000
SHARES
Cash Equivalents 11.39%
AIM Cash Investment Trust** 1,386,919 1,386,919
TOTAL INVESTMENTS 112.20% $13,663,510
OTHER ASSETS AND LIABILITIES, NET (12.20%) ($1,485,913)
TOTAL NET ASSETS 100.00% $12,177,597
* Non-income producing security.
** Represents investment of security lending collateral.
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
December 31, 2002 (unaudited)
VALUE AS A %
COUNTRY DIVERSIFICATION OF FUND NET ASSETS
Cayman Islands 0.42%
Finland 3.31
Germany 1.28
Netherlands 0.69
Singapore 2.86
Taiwan 2.26
United States 101.38
Total investments 112.20%
See notes to financial statements.
Statement of Assets and Liabilities
12-31-02
ASSETS
Investments at value (cost $24,125,158,
including $1,355,468 of securities loaned) $13,663,510
Receivable for investments sold 47,428
Cash 928
Receivable for shares sold 22,488
Dividends and interest receivable 1,300
Other assets 193
Total assets 13,735,847
LIABILITIES
Payable for investments purchased 130,376
Payable for shares repurchased 58
Payable for securities on loan 1,386,919
Payable to affiliates 9,525
Other payables and accrued expenses 31,372
Total liabilities 1,558,250
NET ASSETS
Capital paid-in 36,636,736
Accumulated net realized loss on investments
and written options (13,997,380)
Net unrealized depreciation of investments (10,461,648)
Accumulated net investment loss (111)
Net assets $12,177,597
NET ASSET VALUE PER SHARE
Based on 5,589,617 shares of beneficial
interest outstanding -- unlimited number of
shares authorized with no par value $2.18
Statement of Operations
For the period ended 12-31-02
INVESTMENT INCOME
Interest $27,603
Dividends (net of foreign withholding
taxes of $923) 15,376
Securities lending income 10,110
Total investment income 53,089
EXPENSES
Investment management fee 127,778
Custodian fee 12,094
Auditing fee 12,000
Printing 6,576
Accounting and legal services fee 3,371
Miscellaneous 1,979
Trustees' fee 1,271
Interest expense 289
Legal fee 242
Registration and filing fee 25
Total expenses 165,625
Net investment loss (112,536)
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on
Investments (9,010,321)
Written options 50,866
Change in unrealized appreciation
(depreciation) of Investments (1,473,183)
Written options (8,315)
Net realized and unrealized loss (10,440,953)
Decrease in net assets from operations ($10,553,489)
See notes to financial statements.
Statement of Changes in Net Assets
YEAR YEAR
ENDED ENDED
12-31-01 12-31-02
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment loss ($80,331) ($112,536)
Net realized loss (4,844,378) (8,959,455)
Change in net unrealized appreciation
(depreciation) (5,091,058) (1,481,498)
Decrease in net assets resulting
from operations (10,015,767) (10,553,489)
Distributions to shareholders
From net investment income (1,272) --
From Fund share transactions 17,904,330 801,751
NET ASSETS
Beginning of period 14,042,044 21,929,335
End of period 1 $21,929,335 $12,177,597
1 Includes accumulated net investment loss of $46 and $111, respectively.
Financial Highlights
12-31-00 1 12-31-01 12-31-02
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 $7.33 $4.10
Net investment income (loss) 2 0.03 (0.02) (0.02)
Net realized and unrealized loss on investments (2.69) (3.21) (1.90)
Total from investment operations (2.66) (3.23) (1.92)
From net investment income (0.01) -- 3 --
Net asset value, end of period $7.33 $4.10 $2.18
Total return 4 (%) (26.56) 5,6 (44.06) 6 (46.83)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $14 $22 $12
Ratio of expenses to average net assets 1.05 7 1.05 1.04
Ratio of adjusted expenses to average net assets 8 1.99 7 1.08 --
Ratio of net investment income (loss) to average
net assets 0.62 7 (0.45) (0.70)
Portfolio turnover 75 29 47
1 Began operations on 5-1-00.
2 Based on the average of the shares outstanding.
3 Less than $0.01 per share.
4 Assumes dividend reinvestment.
5 Not annualized.
6 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.
NOTES TO
FINANCIAL STATEMENTS
NOTE A
Accounting policies
John Hancock V.A. Technology Fund (the "Fund") is a diversified series
of John Hancock Declaration Trust ("the Trust"), an open-end investment
management company registered under the Investment Company Act of 1940.
The Trust, organized as a Massachusetts business trust in 1995, consists
of five different series at December 31, 2002. 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 Fund
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 Fund in proportion to the
voting instructions received.
The investment objective of the Fund is to seek long-term growth of
capital. The Fund has one class of shares with equal rights as to
voting, redemption, dividends and liquidation.
Significant accounting policies of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio 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.
Investments in AIM Cash Investment Trust are valued at their net asset
value each business day.
Joint repurchase agreement
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies
having a management contract with John Hancock Advisers, LLC (the
"Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
LLC, 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 Fund's custodian bank receives
delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
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.
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.
Bank borrowings
The Fund is 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 Fund has
entered into a syndicated line of credit agreement with various banks.
This agreement enables the Fund to participate with other funds managed
by the Adviser in an unsecured line of credit with banks, which permit
borrowings of up to $475 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 Fund
had no borrowing activity under the line of credit during the year ended
December 31, 2002.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the
Fund 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 Fund 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. On
December 31, 2002, the Fund loaned securities having a market value of
$1,355,468 collateralized by cash in the amount of $1,386,919. The cash
collateral was invested in a short-term instrument.
Options
The 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 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 Fund may use option contracts to manage its exposure to the price
volatility of financial instruments. Writing puts and buying calls will
tend to increase the Fund's exposure to the underlying instrument and
buying puts and writing calls will tend to decrease the Fund's exposure
to the underlying instrument, or hedge other Fund 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 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 the 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 Fund will continuously monitor
the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Fund's
year-end statements of assets and liabilities. The Fund had no
outstanding written options on December 31, 2002.
NUMBER OF
OPTIONS CONTRACTS PREMIUMS RECEIVED
Outstanding, beginning of period 70 $12,570
Written 200 21,563
Expired (270) (34,133)
Outstanding, end of period 0 $0
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income that is distributed to
shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund has $12,906,836 of a capital
loss carryforward available, to the extent provided by regulations, to
offset future net realized capital gains. To the extent that such
carryforward is used by the Fund, no capital gain distributions will be
made. The Fund's carryforwards expire as follows: December 31, 2008 --
$14,000, December 31, 2009 -- $3,708,037 and December 31, 2010 --
$9,184,799. Additionally, net capital losses of $825,922, attributable
to security transactions incurred after October 31, 2002 are treated as
arising on the first day (January 1, 2003) of the Fund's 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 Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions to shareholders from net investment
income and net realized gains on the ex-dividend date.
As of December 31, 2002, there were no distributable earnings on a tax
basis. Such distributions and distributable earnings, on a tax basis,
are determined in conformity with income tax regulations, which may
differ from accounting principles generally accepted in the United
States of America. Distributions in excess of tax basis earnings and
profits, if any, are reported in the Fund's financial statements as a
return of capital.
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
Fund. Actual results could differ from these estimates.
NOTE B
Management fee and transactions with affiliates and others
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a monthly management
fee to the to the Adviser at an annual rate of 0.80% of the Fund's
average daily net asset value. The Adviser has a subadvisory agreement
with American Fund Advisors, Inc. The Fund is not responsible for
payment of the subadvisory fees.
The Adviser has agreed to limit the Fund's expenses, excluding the
management fee to 0.25% of the Fund's average daily net assets, at least
until April 30, 2003. There was no expense reduction for the year ended
December 31, 2002. The Adviser reserves the right to terminate this
limitation in the future.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
year was at an annual rate of approximately 0.02% of the average net
assets of the Fund.
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 Fund. The compensation of unaffiliated Trustees is borne by the
Fund. 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 Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's 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 Fund.
NOTE C
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding
dollar value.
YEAR ENDED 12-31-01 YEAR ENDED 12-31-02
SHARES AMOUNT SHARES AMOUNT
Shares sold 4,108,680 $21,017,046 3,610,219 $9,245,936
Distributions reinvested 296 1,272 -- --
Repurchased (677,090) (3,113,988) (3,368,742) (8,444,185)
NET INCREASE 3,431,886 $17,904,330 241,477 $801,751
NOTE D
Investment transactions
Purchases and proceeds from sales or maturities of securities other than
short-term securities and obligations of the U.S. government, during the
year ended December 31, 2002, aggregated $8,624,059 and $6,787,298,
respectively.
The cost of investments owned on December 31, 2002, including short-term
investments, for federal income tax purposes was $24,389,780. Gross
unrealized appreciation and depreciation of investments aggregated
$506,161 and $11,232,431, respectively, resulting in net unrealized
depreciation of $10,726,270. The difference between book basis and tax
basis net unrealized appreciation of investments is attributable
primarily to the tax deferral of losses on wash sales.
NOTE E
Reclassification of accounts
During the year ended December 31, 2002, the Fund reclassified amounts
to reflect a decrease in accumulated net realized loss on investments of
$48, a decrease in accumulated net investment loss of $112,471 and a
decrease in capital paid-in of $112,519. This represents the amount
necessary to report these balances on a tax basis, excluding certain
temporary differences, as of December 31, 2002. Additional adjustments
may be needed in subsequent reporting periods. These reclassifications,
which have no impact on the net asset value of the Fund, are primarily
attributable to net operating loss and the computation of distributable
income and capital gains under federal tax rules versus accounting
principles generally accepted in the United States of America.
Report of Ernst & Young LLP, Independent Auditors
To the Contract Owners and Trustees of
John Hancock V.A. Technology Fund,
We have audited the accompanying statement of assets and liabilities of
John Hancock V.A. Technology Fund (the "Fund"), one of the portfolios
constituting John Hancock Declaration Trust, including the schedule of
investments, as of December 31, 2002, and the related statement of
operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of
the Fund'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. Our procedures included confirmation of securities owned as
of December 31, 2002, by correspondence with the custodian and brokers,
or 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 John Hancock V.A. Technology Fund, the results of
its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended 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
Boston, Massachusetts
February 7, 2003
Tax Information
UNAUDITED
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund paid, if any, during its
taxable year ended December 31, 2002.
With respect to the ordinary dividends paid by the Fund for the fiscal
year ended December 31, 2002, none of the dividends qualify for the
corporate dividends-received deduction.
If the Fund paid dividends for the fiscal year, shareholders will be
mailed a 2002 U.S. Treasury Department Form 1099-DIV in January 2003.
This will reflect the total of all distributions that are taxable for
calendar year 2002.
TRUSTEES &
OFFICERS
This chart provides information about the Trustees and Officers who
oversee your John Hancock fund. Officers elected by the Trustees manage
the day-to-day operations of the Fund and execute policies formulated by
the Trustees.
INDEPENDENT TRUSTEES
NUMBER OF
NAME, AGE TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
Dennis S. Aronowitz, Born: 1931 2000 31
Professor of Law, Emeritus, Boston University School of
Law (as of 1996); Director, Brookline Bancorp.
Richard P. Chapman, Jr., Born: 1935 2000 31
President and Chief Executive Officer, Brookline
Bancorp. (lending) (since 1972); Chairman and
Director, Lumber Insurance Co. (insurance) (until
2000); Chairman and Director, Northeast Retirement
Services, Inc. (retirement administration) (since 1998).
William J. Cosgrove, Born: 1933 2000 31
Vice President, Senior Banker and Senior Credit Officer,
Citibank, N.A. (retired 1991); Executive Vice President,
Citadel Group Representatives, Inc.; Director, Hudson
City Bancorp; Trustee, Scholarship Fund for Inner City
Children (since 1986).
Richard A. Farrell 2, Born: 1932 2000 31
President, Farrell, Healer & Co., Inc. (venture capital
management firm) (since 1980) and General Partner of
the Venture Capital Fund of NE (since 1980); prior to
1980, headed the venture capital group at Bank of
Boston Corporation.
William F. Glavin 2, Born: 1932 2000 31
President Emeritus, Babson College (as of 1998);
Vice Chairman, Xerox Corporation (until 1989);
Director, Reebok, Inc. (since 1994) and Inco Ltd.
Patti McGill Peterson, Born: 1943 2000 39
Executive Director, Council for International Exchange
of Scholars (since 1998), Vice President, Institute of
International Education (since January 1998); Senior
Fellow, Cornell Institute of Public Affairs, Cornell
University (until 1997); President Emerita of Wells
College and St. Lawrence University; Director, Niagara
Mohawk Power Corporation (electric utility).
John A. Moore 2, Born: 1939 2000 39
President and Chief Executive Officer, Institute for
Evaluating Health Risks, (nonprofit institution)
(until 2001); Senior Scientist, Sciences International
(health research) (since 1998); Principal, Hollyhouse
(consulting) (since 2000); Director, CIIT (nonprofit
research) (since 2002).
John W. Pratt, Born: 1931 2000 31
Professor of Business Administration Emeritus,
Harvard University Graduate School of Business
Administration (as of 1998).
INTERESTED TRUSTEES 3
NAME, AGE NUMBER OF
POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
John M. DeCiccio, Born: 1948 2001 61
Trustee
Executive Vice President and Chief Investment Officer,
John Hancock Financial Services, Inc.; Director,
Executive Vice President and Chief Investment Officer,
John Hancock Life Insurance Company; Chairman of
the Committee of Finance of John Hancock Life
Insurance Company; Director, John Hancock
Subsidiaries, LLC ("Subsidiaries, LLC"), Hancock
Natural Resource Group, Independence Investment
LLC, Independence Fixed Income LLC, John Hancock
Advisers, LLC (the "Adviser") and The Berkeley
Financial Group, LLC ("The Berkeley Group"),
John Hancock Funds, LLC ("John Hancock Funds"),
Massachusetts Business Development Corporation;
Director, John Hancock Insurance Agency, Inc.
("Insurance Agency, Inc.") (until 1999).
Maureen R. Ford, Born: 1955 2000 61
Trustee, Chairman, President and Chief Executive
Officer, John Hancock Financial Services, Inc.,
John Hancock Life Insurance Company; Chairman,
Director, President and Chief Executive Officer,
the Adviser and The Berkeley Group; Chairman,
Director, President and Chief Executive Officer, John
Hancock Funds; Chairman, Director and Chief
Executive Officer, Sovereign Asset Management
Corporation ("SAMCorp."); Director, Independence
Investment LLC, Subsidiaries, LLC, Independence
Fixed Income LLC and Signature Services; Senior Vice
President, MassMutual Insurance Co. (until 1999).
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NAME, AGE
POSITION(S) HELD WITH FUND OFFICER
PRINCIPAL OCCUPATION(S) AND OF FUND
DIRECTORSHIPS DURING PAST 5 YEARS SINCE
William L. Braman, Born: 1953 2000
Executive Vice President and Chief Investment Officer
Executive Vice President and Chief Investment Officer, the
Adviser and each of the John Hancock funds; Director,
SAMCorp., Executive Vice President and Chief Investment
Officer, Barring Asset Management, London UK (until 2000).
Richard A. Brown, Born: 1949 2000
Senior Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, the
Adviser, John Hancock Funds, and The Berkeley Group; Second
Vice President and Senior Associate Controller, Corporate Tax
Department, John Hancock Financial Services, Inc. (until 2001).
Thomas H. Connors, Born: 1959 2000
Vice President and Compliance Officer
Vice President and Compliance Officer, the Adviser and each of
the John Hancock funds; Vice President, John Hancock Funds.
William H. King, Born: 1952 2000
Vice President and Treasurer
Vice President and Assistant Treasurer, the Adviser; Vice President
and Treasurer of each of the John Hancock funds; Assistant
Treasurer of each of the John Hancock funds (until 2001).
Susan S. Newton, Born: 1950 2000
Senior Vice President, Secretary and Chief Legal Officer
Senior Vice President, Secretary and Chief Legal Officer,
SAMCorp., the Adviser and each of the John Hancock funds,
John Hancock Funds and The Berkeley Group; Vice President,
Signature Services (until 2000); Director, Senior Vice President
and Secretary, NM Capital.
The business address for all Trustees and Officers is 101 Huntington
Avenue, Boston, Massachusetts 02199.
The Statement of Additional Information of the Fund includes additional
information about members of the board of Trustees of the Fund and is
available, without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his or
her successor is elected.
2 Member of Audit Committee.
3 Interested Trustee holds positions with the Fund's investment adviser,
underwriter and certain other affiliates.
JOHN HANCOCK FUNDS
DECLARATION TRUST
ANNUAL REPORT
[LOGO] John Hancock
[Rings]
Worldwide Sponsor
John Hancock Funds, LLC
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
Mutual Funds
Institutional Services
Private Managed Accounts
Retirement Plans
This report is for the information of the shareholders of the John
Hancock V.A. Technology Fund.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
8190A 12/02
2/03
PART C OTHER INFORMATION
Item 15. Indemnification
In response to this item and the requirements of Rule 484 under the Securities
Act of 1933, Registrant hereby incorporates by reference its response to item 25
in Post-Effective Amendment No. 31 to its Form N-1A registration statement (File
No. 33-2081) filed on May 1, 2001.
Item 16. Exhibits
(1) Declaration of Trust of John Hancock Variable Series Trust I, dated February
21, 1988, incorporated by reference to Pre-Effective Amendment No. 2 on Form
N-14 (File No. 333- 47686) Filed on December 6, 2000.
(2) By-Laws of John Hancock Variable Series Trust I, adopted April 12, 1988, and
amended and restated as of September 27, 2000, incorporated by reference to
Pre-Effective Amendment No. 2 on Form N-14 (File No. 333- 47686) Filed on
December 6, 2000.
(3) Not Applicable.
(4) Form of Plan and Agreement of Reorganization (FILED HEREWITH).
(5) Not Applicable.
(6) (1) Investment Management Agreement by and between John Hancock Variable
Series Trust I, and John Hancock Life Insurance Company dated April 12, 1988
relating to the Stock Fund, Money Market Fund, Aggressive Stock Fund, and Total
Return Fund, is incorporated herein by reference to Post-Effective Amendment No.
4 to the Registrant's Registration Statement on Form N-1A filed with the
Commission in April, 1989.
(6) (2) Amendment No. 1 dated May 1, 1997 to Investment Management Agreements by
and between John Hancock Variable Series Trust I, and John Hancock Life
Insurance Company, dated April 12, 1988, April 12, 1988, April 15, 1994 and
March 14, 1996, respectively, is incorporated herein by reference, to
Post-Effective Amendment No. 16 to the Registrant's Registration Statement on
Form N-1A filed with the Commission on May 1, 1997.
(6) (3) Amendment dated April 23, 1999 to Investment Management Agreements by
and between John Hancock Variable Series Trust I, and John Hancock Life
Insurance Company, dated April 12, 1988, April 12, 1988, April 15, 1994 and
March 14, 1996, and April 14, 1998, respectively, incorporated by reference to
Post-Effective Amendment No. 33 to this Registration Statement, File Nos.
33-2081 and 811-04490, filed on April 12, 2002.
(6) (4) Amendment No. 3 dated November 1, 2000 to Investment Management
Agreement by and between John Hancock Variable Series Trust I, and John Hancock
Life Insurance Company, dated April 12, 1988, relating to the Growth & Income
Fund (formerly "Stock Portfolio"), Active Bond Fund (formerly "Bond Portfolio"),
Money Market Fund (formerly "Money Market Portfolio"), Large Cap Growth Fund
(formerly "Aggressive Stock Portfolio"), and Managed Fund (formerly "Total
Return Portfolio"), incorporated by reference to Post-Effective Amendment No. 33
to this Registration Statement, File Nos. 33-2081 and 811-04490, filed on April
12, 2002.
(6) (5) Sub-Investment Management Agreement, dated November 1, 2000, among John
Hancock Variable Series Trust I, Independence Investment Management, LLC
(formerly known as "Independence Investment Associates, Inc."), and John Hancock
Life Insurance Company relating to the Growth & Income Fund, incorporated by
reference to Post-Effective Amendment No. 33 to this Registration Statement,
File Nos. 33-2081 and 811-04490, filed on April 12, 2002.
(6) (6) Sub-Investment Management Agreement, dated November 1, 2000, among John
Hancock Variable Series Trust I, Putnam Investments (formerly known as "Putnam
Investment Management, Inc."), and John Hancock Life Insurance Company relating
to the Growth & Income Fund, incorporated by reference to Post-Effective
Amendment No. 33 to this Registration Statement, File Nos. 33-2081 and
811-04490, filed on April 12, 2002.
(6) (7) Sub-Investment Management Agreement, dated April 29, 1988, among John
Hancock Variable Series Trust I, Independence Investment Associates Inc., and
John Hancock Life Insurance Company, relating to the Large Cap Growth Fund,
incorporated herein by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form N-1A filed with the Commission in
April, 1988.
(6) (8) Sub-Investment Management Agreement, dated May 1, 1995, among John
Hancock Variable Series Trust I, John Hancock Advisers, LLC (formerly known as
John Hancock Advisers, Inc.), and John Hancock Life Insurance Company, related
to the Active Bond Fund, incorporated herein by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form N-1A filed
with the Commission on April 29, 1995.
(6) (9) Amendment Number 1, dated November 1, 2000, to the Sub-Investment
Management Agreement, dated May 1, 1995, among John Hancock Variable Series
Trust I, John Hancock Advisers, LLC (formerly known as John Hancock Advisers,
Inc.), and John Hancock Life Insurance Company, related to the Active Bond Fund,
incorporated by reference to Post-Effective Amendment No. 33 to this
Registration Statement, File Nos. 33-2081 and 811-04490, filed on April 12,
2002.
(7) Underwriting and Indemnity Agreement among John Hancock Variable Series
Trust I, Signator Investors, Inc., (formerly named John Hancock Distributors,
Inc.), and John Hancock Life Insurance Company, incorporated by reference to
Post-Effective Amendment No. 14 to the Trust's Form N-1A registration statement
(File No. 33-2081), filed on February 28, 1997.
(8) Not Applicable.
(9) (a) Form of Amendment dated as of December 21, 2000 to Custodian Agreement
dated January 30, 1995, as amended, between John Hancock Variable Series Trust I
and State Street Bank and Trust Company, to reflect new names and new
sub-advisors for multiple Funds as well as the deletion of International
Opportunities II, is incorporated by reference to this File No. 33-2081, Filed
on PEA No. 30 on February 21, 2001.
(10) Not Applicable.
(11)(a) Opinion of Counsel as to Legality of Securities for Active Bond Fund,
Growth & Income Fund and Large Cap Growth Fund (FILED HEREWITH).
(11)(b) Opinion of Counsel to be filed by amendment for Financial Industries
Fund.
(12) Form of opinion as to tax matters and consent (FILED HEREWITH).
(13) Not Applicable.
(14) Consent of Independent Public Accountants to the incorporation by reference
of their opinion into the Statement of Additional Information (FILED HEREWITH).
(15) Not Applicable.
(16) Powers of Attorney for Elizabeth G. Cook, Kathleen F. Driscoll, Diane C.
Kessler, Michele G. Van Leer, Hassell H. McClellan, and Robert F. Verdonck,
(FILED HEREWITH).
(17) Code of Ethics, adopted by the John Hancock Variable Series Trust I, its
Investment Adviser and Principal Underwriter, revised July 2001, is incorporated
by reference to this File No. 33-2081.
(18) Not Applicable.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus 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) of the Securities Act of 1933, the reoffering
prospectus will contain the information called for by the C-2 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 Securities Act of 1933, 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, AS AMENDED, AND THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS
AMENDMENT TO THE 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 21ST DAY OF FEBRUARY, 2003.
John Hancock Variable Series Trust I
By: /s/ Michele G. Van Leer
-----------------------
Michele G. Van Leer, Chairman and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST-EFFECTIVE
AMENDMENT TO ITS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE DATE
By: /s/ Raymond F. Skiba FEBRUARY 21, 2003
--------------------
Raymond F. Skiba
Treasurer (Principal Financial
and Accounting Officer)
By: /s/ Michele G. Van Leer FEBRUARY 21, 2003
-----------------------
Michele G. Van Leer
Chairman and Chief Executive Officer
For herself and as attorney-in-fact for:
Elizabeth G. Cook, Trustee
Diane C. Kessler, Trustee
Robert F. Verdonck, Trustee
Hassell H. McClellan, Trustee
Kathleen F. Driscoll, Trustee
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it meets all the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Boston and Commonwealth of Massachusetts, on the 21st of FEBRUARY,
2003.
John Hancock Variable Series Trust I
(Registrant)
By: /s/ Michele G. Van Leer
-----------------------
Michele G. Van Leer
Chairman and Chief Executive Officer
Attest: /s/ KAREN Q. VISCONTI
-----------------------
Karen Q. Visconti
Secretary