Annual Report
for John Hancock Variable Series Trust I
December 31, 2003
[LOGO] John Hancock
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Not FDIC Insured Not Bank Guaranteed May Lose Value
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Not a Deposit Not Insured by Any Federal Government Agency
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Inception: May 1,1996
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Small Cap Growth Fund
John Hancock Advisers, LLC A. Pandit/T. Norton
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.. In 2003, the Fund returned 27.88% underperforming its benchmark, the
Russell 2000 Growth Index.
.. The Fund underperformed its benchmark primarily due to unfavorable stock
selection, while sector allocation decisions also detracted. Stock
selection in the information technology sector was the biggest detractor,
followed by the health care sector. The overweight to energy was the
biggest detractor, followed by an underweight to information technology.
.. The Fund's exposure to information technology was the largest contributor
to absolute performance. The biggest detractor to absolute returns was the
Fund's exposure to the consumer staples sector, with all other sectors
having positive absolute returns.
.. The top and bottom contributors came from a variety of sectors. The biggest
contributors to performance were Engineered Support, Pharmaceutical
Research, Inc., and Lexar Media, Inc. The main detractors included Borland
Software and Triton Pcs Holdings.
.. The portfolio was on average overweight the consumer discretionary sector,
while underweight in the financials sector.
.. The manager employs bottom-up, fundamental research to identify companies
with rapid earnings growth combined with a dominant market niche and high
quality management. The Fund's sector allocations are broadly diversified
but are primarily driven by stock selection.
[CHART]
Line Chart
Historical Fund Return
$10,000
Investment made 5/1/96
(Fund Inception Date)
Small Cap Growth Fund Russell 2000(R) Growth Index
--------------------- ----------------------------
5/01/1996 $10,000.00 $10,000.00
5/31/1996 10,599.17 10,513.00
6/30/1996 10,294.35 9,829.66
7/31/1996 9,480.13 8,629.45
8/31/1996 10,298.31 9,268.03
9/30/1996 11,150.77 9,745.34
10/31/1996 10,169.74 9,325.31
11/30/1996 9,976.02 9,584.56
12/31/1996 9,950.35 9,771.46
1/31/1997 10,302.13 10,015.74
2/28/1997 9,637.66 9,410.79
3/31/1997 8,962.47 8,746.39
4/30/1997 8,762.88 8,644.93
5/31/1997 9,780.55 9,944.26
6/30/1997 10,513.55 10,281.38
7/31/1997 11,205.43 10,807.78
8/31/1997 11,571.21 11,132.02
9/30/1997 12,817.44 12,020.35
10/31/1997 11,834.46 11,297.93
11/30/1997 11,387.43 11,029.04
12/31/1997 11,369.73 11,035.65
1/31/1998 11,170.39 10,888.88
2/28/1998 12,061.95 11,850.37
3/31/1998 12,788.45 12,348.08
4/30/1998 12,730.11 12,423.41
5/31/1998 11,855.75 11,520.22
6/30/1998 12,365.90 11,637.73
7/31/1998 11,536.94 10,665.98
8/31/1998 8,965.63 8,204.27
9/30/1998 9,700.92 9,036.19
10/31/1998 10,229.85 9,507.87
11/30/1998 11,423.75 10,245.69
12/31/1998 13,017.10 11,172.92
1/31/1999 13,455.51 11,675.70
2/28/1999 12,383.65 10,607.37
3/31/1999 13,340.57 10,985.00
4/30/1999 13,872.71 11,954.97
5/31/1999 13,625.86 11,974.10
6/30/1999 14,903.15 12,605.14
7/31/1999 15,022.06 12,215.64
8/31/1999 14,919.53 11,758.77
9/30/1999 15,235.62 11,985.72
10/31/1999 16,337.24 12,292.55
11/30/1999 18,479.13 13,591.87
12/31/1999 22,179.09 15,986.76
1/31/2000 21,633.01 15,838.08
2/29/2000 27,927.54 19,523.61
3/31/2000 25,551.01 17,471.68
4/30/2000 21,938.96 15,707.04
5/31/2000 19,337.93 14,331.10
6/30/2000 23,397.89 16,182.68
7/31/2000 21,152.78 14,795.82
8/31/2000 23,672.80 16,352.34
9/30/2000 22,477.94 15,539.63
10/31/2000 20,010.12 14,277.81
11/30/2000 16,003.54 11,684.96
12/31/2000 17,425.36 12,400.08
1/31/2001 17,633.46 13,403.25
2/28/2001 15,433.43 11,565.66
3/31/2001 13,803.45 10,514.34
4/30/2001 15,698.64 11,801.30
5/31/2001 15,755.91 12,075.09
6/30/2001 16,042.64 12,404.74
7/31/2001 15,121.09 11,346.62
8/31/2001 14,224.44 10,637.45
9/30/2001 11,826.21 8,921.63
10/31/2001 13,088.50 9,779.89
11/30/2001 14,356.80 10,596.51
12/31/2001 15,227.42 11,256.68
1/31/2002 14,545.51 10,855.94
2/28/2002 13,656.66 10,153.56
3/31/2002 14,688.98 11,035.90
4/30/2002 14,230.89 10,797.53
5/31/2002 13,474.47 10,165.87
6/30/2002 12,526.24 9,303.81
7/31/2002 10,774.10 7,873.81
8/31/2002 10,816.88 7,869.87
9/30/2002 10,317.90 7,301.67
10/31/2002 10,702.17 7,671.13
11/30/2002 11,286.93 8,431.34
12/31/2002 10,666.88 7,849.58
1/31/2003 10,159.02 7,636.07
2/28/2003 9,878.20 7,432.19
3/31/2003 10,010.06 7,544.42
4/30/2003 10,713.68 8,258.12
5/31/2003 11,585.06 9,188.81
6/30/2003 11,814.96 9,366.15
7/31/2003 12,320.70 10,074.23
8/31/2003 13,232.99 10,615.22
9/30/2003 12,426.09 10,346.65
10/31/2003 13,376.86 11,240.60
11/30/2003 13,692.60 11,607.05
12/31/2003 13,641.24 11,659.28
Value on 12/31/03:
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$13,641 Small Cap Growth Fund
$11,659 Russell 2000 (R) Growth Index
MORNINGSTAR CATEGORY+:
.. Small Growth
MORNINGSTAR RISK+:
.. Average (VL/VUL)
.. Average (VA)
MORNINGSTAR RATING+:
.. *** (VL/VUL)
.. ** (VA)
TOP TEN HOLDINGS (as of December 31, 2003)
% of
Assets
------
Autodesk, Inc. 2.3%
Medicinesco 2.3%
General Probe, Inc. 2.3%
OSI Pharmaceuticals, Inc. 2.1%
Digital Insight Corp. 2.1%
ScanSource, Inc. 2.0%
Affiliated Managers Group, Inc. 2.0%
Cost Plus, Inc. 1.9%
Hot Topic, Inc. 1.8%
Panera Bread Co. 1.8%
AVERAGE ANNUAL TOTAL RETURNS *
Russell
Small Cap 2000(R)
Growth Fund Growth Index
----------- ------------
1 Year 27.88% 48.53%
3 Years -7.84 -2.03
5 Years 0.94 0.86
Since Inception (5/1/96) 4.13 2.02
SECTOR/INDUSTRY ALLOCATION (as of December 31, 2003)
% of
Assets
------
Information Technology 35.80%
Health Care 22.49%
Consumer Discretionary 18.04%
Industrials 10.43%
Financials 7.47%
Energy 3.44%
Telecommunication
Services 1.39%
Materials 0.95%
* Total returns are for the period ended December 31, 2003. 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. Small-company investing entails special
risks as outlined in the prospectus. 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.
Performance would be lower if expenses and charges of the separate accounts
and products were reflected.
+ Source: MorningStar, Inc. Data as of 12/31/03. VL represents Variable Life
subaccounts, VUL represents Variable Universal Life subaccounts and VA
represents Variable Annuity subaccounts Hancock VL/VUL subaccounts were
rated against 338 VL/VUL subaccounts and 528 VA subaccounts in the
Morningstar Small Growth category. This represents the Morningstar 3 year
rating.
STATEMENT OF ASSETS AND LIABILITIES
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
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(000's Omitted)
ASSETS
Long term investments at cost (including $37,349 of
securities loaned (Note B)) ..................................... $119,666
Net unrealized appreciation of investments ......................... 24,996
Short-term investments at value .................................... 44,354
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Total investments ............................................ 189,016
Receivable for:
Investments sold ................................................ 142
Dividends ....................................................... 44
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Total assets ....................................................... 189,202
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LIABILITIES
Payables for:
Fund shares purchased ........................................... 1,098
Collateral for securities on loan ............................... 38,799
Other liabilities ............................................... 28
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Total liabilities .................................................. 39,925
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Net assets ......................................................... $149,277
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Shares of beneficial interest outstanding .......................... 14,349
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Net asset value per share .......................................... $ 10.40
========
Composition of net assets:
Capital paid-in ................................................. $223,754
Accumulated net realized loss on investments,
futures and foreign currency transactions .................... (99,473)
Net unrealized appreciation of investments ...................... 24,996
--------
Net assets ......................................................... $149,277
========
STATEMENT OF OPERATIONS
JOHN HANCOCK VARIABLE SERIES TRUST I
For the Year Ended December 31, 2003
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(000's Omitted)
INVESTMENT INCOME
Interest ..................................................... $ 57
Dividends .................................................... 252
Securities lending ........................................... 64
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Total investment income ............................................ 373
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EXPENSES
Investment advisory fee ...................................... 1,380
Auditors fees ................................................ 19
Custodian fees ............................................... 124
Legal fees ................................................... 20
Printing & mailing fees ...................................... 50
Trustees' fees ............................................... 4
Other fees ................................................... 6
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Total expenses ..................................................... 1,603
Less expenses reimbursed ...................................... (86)
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Net expenses ....................................................... 1,517
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Net investment loss ................................................ (1,144)
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REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss on investments ................................ (6,450)
Change in unrealized appreciation
on investments ............................................... 40,426
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Net realized and unrealized gain ................................... 33,976
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Net increase in net assets resulting from
operations ...................................................... $32,832
=======
See notes to financial statements.
STATEMENT OF CHANGES IN NET ASSETS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
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(000's Omitted)
Year Ended Year Ended
December 31, December 31,
2003 2002
------------ ------------
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment loss ................................................... $ (1,144) $ (1,224)
Net realized loss ..................................................... (6,450) (35,969)
Change in net unrealized appreciation (depreciation) .................. 40,426 (17,803)
-------- --------
Net increase (decrease) in net assets resulting from operations .... 32,832 (54,996)
Distributions to shareholders from:
Realized gains ........................................................ (2,029)
--------
Decrease in net assets resulting from distributions (2,029)
From fund share transactions:
Proceeds from shares sold ............................................. 49,341 60,295
Distributions reinvested .............................................. 2,029
Payment for shares redeemed ........................................... (53,619) (73,977)
-------- --------
Decrease in net assets from fund share transactions ................ (2,249) (13,682)
-------- --------
NET INCREASE (DECREASE) IN NET ASSETS .................................... 28,554 (68,678)
NET ASSETS
Beginning of Period ................................................... 120,723 189,401
-------- --------
End of Period ......................................................... $149,277 $120,723
======== ========
Analysis of fund share transactions:
Sold .................................................................. 5,339 6,154
Reinvested ............................................................ 197
Redeemed .............................................................. (5,826) (7,603)
-------- --------
Net decrease in fund shares outstanding .................................. (290) (1,449)
======== ========
See notes to financial statements.
FINANCIAL HIGHLIGHTS
JOHN HANCOCK VARIABLE SERIES TRUST I
- --------------------------------------------------------------------------------
Selected data for each share of beneficial interest outstanding throughout the
period indicated:
Small Cap Growth Fund
--------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Net Assets Value at Beginning of Period ................. $ 8.25 $ 11.77 $ 13.47 $ 19.12 $ 12.99
Income from Investment Operations:
Net Investment Loss .................................. (0.09) (0.11) (0.08) (0.02) (0.21)
Net Realized and Unrealized Gain (Loss) on
Investments(a) .................................... 2.38 (3.41) (1.62) (4.16) 9.06
-------- -------- -------- -------- --------
Total From Investment Operations ..................... 2.29 (3.52) (1.70) (4.18) 8.85
Less Distributions:
Distribution from Net Realized Gains on
Investments ....................................... (0.14) (0.12) (2.72)
Distribution from Capital Paid-in .................... (1.35)
-------- -------- --------
Total Distributions .................................. (0.14) (1.47) (2.72)
-------- -------- -------- -------- --------
Net Assets Value at End of Period ....................... $ 10.40 $ 8.25 $ 11.77 $ 13.47 $ 19.12
======== ======== ======== ======== ========
Total Investment Return(b) .............................. 27.88% (29.95)% (12.61)% (21.43)% 70.38%
Ratios/Supplemental Data:
Ratio of Operating Expenses to Average Net Assets .... 1.15%(d) 1.13% 0.91%(d) 0.82% 0.89%
Ratio of Net Investment Loss to Average Net Assets ... (0.87)% (0.83)% (0.55)% (0.50)% (0.70)%
Portfolio Turnover Rate .............................. 108.43% 77.38% 91.48%(c) 97.73% 113.11%
Net Assets End of Period (000s Omitted) ................. $149,277 $120,723 $189,401 $234,542 $179,570
(a) The amount shown at this caption for each 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 shares in relation to the fluctuating
market values of the portfolio.
(b) The performance 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) Excludes merger activity.
(d) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made the expense ratio would have been 1.22% and .94% for the years
ended December 31, 2003 and 2001, respectively.
SCHEDULE OF INVESTMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
SMALL CAP GROWTH FUND
Market
Name of Issuer Shares Value
-------------- ------- -------
(000's)
COMMON STOCK
Aerospace & Defense - 1.1%
Engineered Support Systems, Inc. * ..................... 29,750 $1,638
Air Freight & Couriers - 1.9%
Forward Air Corp. * .................................... 39,250 1,079
United Technologies Worldwide, Inc. .................... 44,250 1,679
------
2,758
Airlines - 1.2%
Airtran Holdings, Inc. * ............................... 102,200 1,216
America West Holdings Corp. - Cl. B * .................. 51,850 643
------
1,859
Automobiles - 1.4%
Borg-Warner Automotive, Inc. ........................... 23,850 2,029
Banks - 4.4%
East West Bancorp, Inc. * .............................. 32,800 1,761
New North Nova Corp. Pennsylvania * .................... 35,384 1,254
Southwest Bancorporation of Texas, Inc. * .............. 32,700 1,271
Texas Regional Bancshares, Inc. ........................ 28,480 1,054
UCBH Holdings, Inc. .................................... 32,650 1,272
------
6,612
Biotechnology - 5.5%
Ciphergen Biosystems, Inc. * ........................... 66,750 750
General Probe, Inc. * .................................. 90,500 3,301
ILEX Oncology, Inc. * .................................. 72,500 1,541
Xoma, Ltd. * ........................................... 397,900 2,626
------
8,218
Chemicals - 0.9%
Airgas, Inc. * ......................................... 64,000 1,375
Commercial Services & Supplies - 6.5%
Corporate Executive Board Co. * ........................ 27,300 1,274
Factset Research Systems, Inc. ......................... 47,200 1,804
Global Payments, Inc. .................................. 15,900 749
Overnite Corp. * ....................................... 46,950 1,068
Stericycle, Inc. * ..................................... 30,250 1,413
Visx, Inc. * ........................................... 88,850 2,057
Waste Connections, Inc. * .............................. 36,250 1,369
------
9,734
Communications Equipment - 4.9%
Advanced Fibre Communications, Inc. * .................. 54,100 1,090
Foundry Networks, Inc. * ............................... 93,600 2,561
McData Corp. * ......................................... 112,650 1,074
Remec, Inc. ............................................ 129,750 1,091
Tekelec, Inc. * ........................................ 93,600 1,455
------
7,271
Computers & Peripherals - 2.9%
Digital River, Inc. * .................................. 65,700 1,452
ScanSource, Inc. * ..................................... 63,900 2,915
------
4,367
Diversified Financials - 1.9%
Affiliated Managers Group, Inc. * ...................... 40,850 $2,843
Diversified Telecommunication Services - 1.3%
Crown Castle International Corp. * ..................... 181,800 2,005
Electronic Equipment & Instruments - 3.8%
Advanced Energy Industries, Inc. * ..................... 10,950 285
Caliper Technologies Corp. * ........................... 127,050 836
Checkpoint Systems, Inc. ............................... 7,700 146
Imax Corp. * ........................................... 119,600 946
Itron, Inc. * .......................................... 82,600 1,516
Ixia * ................................................. 11,050 129
Trimble Navigation, Ltd. ............................... 49,700 1,851
------
5,709
Energy Equipment & Services - 1.6%
Hydril Co. * ........................................... 45,000 1,077
West Hampshire Energy Services, Inc. * ................. 83,750 1,357
------
2,434
Finance - 0.0%
Nelnet, Inc. - Cl. A * ................................. 1,900 43
Health Care Equipment & Supplies - 4.1%
Advanced Neuromodulation Systems ....................... 26,924 1,238
American Medical Systems Holdings * .................... 65,600 1,430
Integra Lifesciences Corp. * ........................... 27,450 786
Kyphon, Inc. * ......................................... 59,950 1,489
Respironics, Inc. * .................................... 25,350 1,143
------
6,086
Health Care Providers & Services - 2.1%
Advisory Co. * ......................................... 37,600 1,313
eResearch Technology, Inc. * ........................... 35,175 894
Renal Care Group, Inc. * ............................... 22,450 925
------
3,132
Hotels Restaurants & Leisure - 4.1%
Cumulus Media, Inc. - Cl. A * .......................... 57,461 1,264
Panera Bread Co. - Cl. A * ............................. 67,400 2,665
Rare Hospitality International, Inc. * ................. 32,150 786
Redeemable Robingourmet Burgers, Inc. .................. 45,050 1,371
------
6,086
Insurance - 0.9%
Arch Capital Group, Ltd. * ............................. 33,000 1,315
Internet Software & Services - 5.1%
Avocent Corp. * ........................................ 55,746 2,036
Digital Insight Corp. * ................................ 123,750 3,082
Packeteer, Inc. * ...................................... 33,350 566
Websense, Inc. * ....................................... 65,400 1,912
------
7,596
Machinery - 2.5%
Clarcor, Inc. * ........................................ 28,000 1,235
ESCO Technologies, Inc. * .............................. 28,100 1,226
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
SMALL CAP GROWTH FUND
Market
Name of Issuer Shares Value
-------------- ------- --------
(000's)
COMMON STOCK - Continued
Machinery - Continued
Graco, Inc. * ......................................... 31,000 $ 1,243
--------
3,704
Media - 2.1%
Getty Images, Inc. * .................................. 8,000 401
Interactive Data Corp. * .............................. 8,800 146
Macrovision Corp. * ................................... 71,500 1,615
Tivo, Inc. * .......................................... 126,700 938
--------
3,100
Multiline Retail - 2.4%
Cost Plus, Inc. * ..................................... 66,600 2,731
Pacific Sunwear of California, Inc. * ................. 38,474 812
--------
3,543
Oil & Gas - 1.7%
Evergreen Resources, Inc. * ........................... 30,200 982
Remington Oil & Gas Corp. * ........................... 79,150 1,558
--------
2,540
Pharmaceuticals - 8.2%
Atrix Labs, Inc. * .................................... 105,650 2,540
Eon Labs, Inc. * ...................................... 13,950 711
Esperion Therapeutics * ............................... 39,650 1,372
Impax Laboratories, Inc. * ............................ 78,150 1,124
Medicinesco ........................................... 114,150 3,363
OSI Pharmaceuticals, Inc. * ........................... 96,050 3,094
--------
12,204
Semiconductor Equipment & Products - 6.8%
Artisan Components, Inc. .............................. 113,700 2,331
Atmi, Inc. * .......................................... 21,500 498
Conexant Systems, Inc. * .............................. 253,250 1,259
FEI Co. * ............................................. 70,800 1,593
LTX Corp. * ........................................... 135,350 2,034
Semtech Corp. * ....................................... 50,300 1,143
Skyworks Solutions, Inc. .............................. 154,300 1,342
--------
10,200
Software - 9.6%
Autodesk, Inc. * ...................................... 137,900 3,390
Barra, Inc. ........................................... 35,100 1,246
Borland Software Corp. * .............................. 39,700 386
EPIQ Systems, Inc. * .................................. 8,400 144
Hyperion Solutions Corp. * ............................ 59,550 1,795
Informatica Corp. ..................................... 147,450 1,519
Kronos, Inc. * ........................................ 3,800 150
Macromedia, Inc. * .................................... 64,700 1,154
Open Solutions, Inc. * ................................ 700 12
Progress Software Corp. * ............................. 63,100 1,291
Safenet, Inc. * ....................................... 4,200 129
Tradestation Group, Inc. .............................. 53,350 473
Transaction Systems Architects, Inc. - Cl. A * ........ 24,350 551
Verint Systems, Inc. * ................................ 89,200 $ 2,012
--------
14,252
Specialty Retail - 7.2%
AC Moore Arts & Crafts, Inc. * ........................ 41,700 803
Aeropostale * ......................................... 76,500 2,098
AnnTaylor Stores Corp. ................................ 24,700 963
Dicks Sporting Goods, Inc. ............................ 31,750 1,545
Hollywood Entertainment Corp. * ....................... 70,800 973
Hot Topic, Inc. * ..................................... 90,673 2,671
Select Comfort Corp. * ................................ 69,700 1,726
--------
10,779
Textiles & Apparel - 0.8%
Quiksilver, Inc. * .................................... 69,400 1,230
--------
TOTAL COMMON STOCK- 96.9% 144,662
Par
Value
-------
(000's)
INVESTMENT COMPANIES HELD
AS COLLATERAL ON LOANED
SECURITIES - 26.0%
State Street Navigator Securities Lending
Portfolio .......................................... $38,799 38,799
SHORT-TERM INVESTMENTS - 3.7%
Investment in joint trading account
(Note B)
1.061% due 01/02/04 ................................ 5,555 5,555
------- --------
TOTAL INVESTMENTS- ........................... 126.6% 189,016
Payables, less cash and receivables- ............ (26.6)% (39,739)
------- --------
NET ASSETS- ............................... 100.0% $149,277
======= ========
* Non-income producing security.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST 1
December 31, 2003
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE A--ORGANIZATION
John Hancock Small Cap Growth Fund (the "Fund") is a diversified series of
John Hancock Variable Series Trust I (the "Trust"), an open-end investment
management company registered under the Investment Company Act of 1940. The
Trust is organized as a Massachusetts business trust and consists of thirty
different funds as of December 31, 2003. The results of this Fund are included
in this report. The results of the other Funds in the Trust are presented under
separate cover. 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
Account UV ("JHVLAUV"), 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: 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.
Short-term investments, with a maturity not to exceed 60 days, are valued
at amortized cost, which approximates market value.
Investment securities for which no current market quotations are readily
available, including certain foreign securities, when held by the Fund, 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 Fund may enter into repurchase agreements which
are contracts under which the 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 Fund's cost plus interest). The 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. The Fund will not invest more than 10% of its net assets in
repurchase agreements maturing in more than 7 days.
Joint trading account: Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the order permits the Fund 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, 2003 are as follows:
Name of Issuer Market Value
- -------------- ------------
Alpine Securitization Corp., 1.12%, due 01/07/04 $29,995
Alpine Securitization Corp., 1.12%, due 01/06/04 19,998
Barclays US Fund, 1.10%, due 01/05/04 29,997
Cargill Asia Pacific, 1.06%, due 01/02/04 20,000
Cargill Asia Pacific, 1.05%, due 01/02/04 25,000
Danske Corp., 1.07%, due 01/05/04 49,996
Greenwich CPL Holding Funding, 0.95%, due 01/02/04 17,654
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE B--ACCOUNTING POLICIES--Continued
Name of Issuer Market Value
- -------------- ------------
Merrill Lynch & Co., Inc., 1.04%, due 01/05/04 $ 18,838
Merrill Lynch & Co., Inc., 1.05%, due 01/06/04 31,156
Mortgage Int. Networking, 0.98%, due 01/02/04 50,000
Three Pillars Funding Corp., 1.08%, due 01/06/04 49,994
UBS Finance LLC, 1.02%, due 01/02/04 3,917
UBS Finance LLC, 1.05%, due 01/02/04 4,088
UBS Finance LLC, 0.96%, due 01/02/04 35,000
--------
Joint Trading Account Totals $385,633
========
Expenses: Expenses directly attributable to the Fund are charged to the
Fund. Expenses not directly attributed to the Fund are allocated on the basis of
relative net assets of the Fund.
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 syndicated line of credit agreements with State Street Bank and
Trust Company ("SSBT"), the Trust's record keeper and custodian and the Bank of
New York. These agreements enable the Fund to participate in an unsecured line
of credit, which permits borrowings up to $125 and $75 million, respectively.
Interest is charged to the Fund, based on its borrowing. In addition, a
commitment fee is charged to the Fund based on the average daily unused portion
of the line of credit and is allocated among the participating Funds in the
Trust. Interest expense paid under the line of credit is included under the
caption "Other fees" in the Statement of Operations.
The Fund had borrowings under the line of credit during the year ended
December 31, 2003 as follows:
Average Daily Loan Balance
During the Period for which Weighted Average
Loans were Outstanding Interest Rate Interest Expense
- --------------------------- ---------------- ----------------
$278 1.58% $--
Securities lending: The Fund has entered into an agreement with SSBT to
lend its securities to certain qualified brokers who pay the Fund's negotiated
lender fees. This loan is 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, 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. At December 31, 2003, the market
value of the securities loaned and the market value of the collateral for the
Fund was as follows:
Value of Securities Loaned Value of Collateral
- -------------------------- -------------------
$37,349 $38,799
Financial futures contracts: The Fund 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 Fund as
unrealized gains or losses.
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE B--ACCOUNTING POLICIES--Continued
When the contracts are closed, the Fund recognizes a gain or a 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 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, 2003, the Fund had no open
financial futures contracts.
Forward foreign currency contracts: The Fund may use forward foreign
currency contracts to facilitate transactions in foreign securities and to
manage the Fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the Fund's investments against currency fluctuations. Neither type of
forward foreign currency transaction will eliminate fluctuations in the prices
of the Fund's 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. At December 31, 2003, the Fund had
no open forward foreign currency contracts.
Federal income taxes: The Fund 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, 2003, the Fund had approximate net tax basis capital
loss carryforwards, which may be applied against any net taxable gains, as
follows: $2,089, $10,299, $43,738, $35,469 and $7,507 which expire in 2007,
2008, 2009, 2010 and 2011, respectively.
Included in the above, certain losses may be limited under sections 382 -
384 of the Internal Revenue Code, as amended.
In addition, from the period November 1, 2003 through December 31, 2003,
the Fund incurred no net realized capital losses.
Dividends, Interest and Distributions: Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis. Realized
gains and losses from security transactions are determined on the basis of
identified cost.
Dividends of net investment income will be declared and distributed monthly
by the Fund. The 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.
NOTE C--INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
On February 5, 2003, the Board of Trustees of the Trust renewed its
Investment Advisory Agreement with John
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE C--INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES--Continued
Hancock. For its services, John Hancock receives monthly compensation at the
rate of 1.05% on an annual basis of the Fund's net assets.
In the event that normal operating expenses of the Fund, exclusive of
investment advisory fees, taxes, interest, brokerage commissions and
extraordinary expenses, shall exceed 0.10% of the Fund's daily net asset value,
John Hancock and JHVLICO will reimburse the Fund for such excess. Accordingly,
for the year ended December 31, 2003, the reimbursements paid from John Hancock
and JHVLICO were $86 to the Fund.
John Hancock has entered into a Sub-Advisory Agreement with John Hancock
Advisers, with respect to the Fund. John Hancock Advisers is an affiliate of
John Hancock, and under its supervision, is responsible for the day-to-day
investment management of the Fund.
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, JHVLAUV, JHVAAV, JHVAAU, JHVAAH, JHVAAJF, PPM-1, 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 the Fund for
the year ended December 31, 2003 were as follows:
Purchases Sales and Maturities
- --------- --------------------
$138,858 $145,823
The identified cost of investments owned by the Fund (including earned discount
on corporate short-term notes, commercial paper and collateral held for
securities lending) and their respective gross unrealized appreciation and
depreciation for Federal income tax purposes at December 31, 2003 were as
follows:
Identified Unrealized Unrealized Net Unrealized
Cost Appreciation Depreciation Appreciation
- ---------- ------------ ------------ --------------
$164,391 $28,438 $(3,813) $24,625
Distribution of Income and Gains: Distributions of net investment income,
if any, are made at least 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 its federal
income tax returns.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations. 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. These differences primarily
relate to certain securities sold at a loss. Additionally, as a result, net
investment income (loss) and net realized gain (loss) or investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE D--INVESTMENT TRANSACTIONS--Continued
At December 31, 2003, the Fund's components of distributable earnings on a
tax basis were as follows:
Undistributed Undistributed
Ordinary Net Long-Term Capital Loss Net Unrealized
Income Capital Gain Carryforwards Appreciation
- ------------- ------------- ------------- --------------
$-- $-- $99,102 $24,625
In addition, the tax character of distributions paid by the Fund are
summarized as follows:
Distributions from Distributions from
Year Ordinary Income Long-Term Capital Gain Return of Capital
- ---- ------------------ ---------------------- -----------------
2003 $-- $-- $2,029
2002 -- -- --
NOTE E--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 1-800-576-2227.
The following table provides information about the members of the Board of
Trustees and the officers of the Trust:
Disinterested Trustees
Positions Held Principal Occupation(s)
Name, Address and Age With Trust During Past Five Years
- -------------------------------- -------------- -----------------------------------
Elizabeth G. Cook (age 66) Trustee Expressive Arts Therapist, Dana-
c/o John Hancock Variable Series Farber Cancer Institute; President,
Trust I The Advertising Club of Greater
John Hancock Place Boston
Boston, Massachusetts 02117
Diane C. Kessler (age 57) Trustee Executive Director, Massachusetts
c/o John Hancock Variable Series Council of Churches
Trust I
John Hancock Place
Boston, Massachusetts 02117
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
NOTE E--BOARD OF TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED)--Continued
Disinterested Trustees--Continued
Positions Held Principal Occupation(s)
Name, Address and Age With Trust During Past Five Years
- -------------------------------- ------------------------ ------------------------------------
Robert Verdonck (age 58) Trustee 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 58) Trustee Associate Professor and Graduate
c/o John Hancock Variable Series Dean, The Graduate School of the
Trust I Wallace G. Carroll School of
John Hancock Place Management, Boston College
Boston, Massachusetts 02117
Trustees Affiliated with the Trust and Officers of the Trust
Positions Held Principal Occupation(s)
Name, Address and Age With Trust During Past Five Years
- -------------------------------- ------------------------ ------------------------------------
Michele G. Van Leer* (age 46) Chairman and Trustee Senior Vice President, Product
John Hancock Place Management, John Hancock Life
Boston, Massachusetts 02117 Insurance Company; Vice Chairman,
President & Director, John Hancock
Variable Life Insurance Company
Kathleen F. Driscoll* (age 47) Vice Chairman, President Senior Vice President, Signator
John Hancock Place and Trustee Brokerage, John Hancock Life
Boston, Massachusetts 02117 Insurance Company; Vice President
Corporate Communications, John
Hancock Life Insurance Company
Jude A. Curtis (age 45) Compliance Officer Vice President and Chief Investment
John Hancock Place Compliance Officer, John Hancock
Boston, Massachusetts 02117 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)
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
NOTE E--BOARD OF TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED)--Continued
Trustee Affiliated with the Trust and Officers of the Trust--Continued
Positions Held Principal Occupation(s)
Name, Address and Age With Trust During Past Five Years
- -------------------------------- ------------------------ ------------------------------------
Janet Wang (age 35) Assistant Compliance Compliance Specialist, John
John Hancock Place Officer Hancock Life Insurance Company
Boston, Massachusetts 02117
Raymond F. Skiba (age 58) Treasurer Director of Fund Operations, John
John Hancock Place Hancock Life Insurance Company
Boston, Massachusetts 02117
Gladys C. Millan (age 57) Assistant Treasurer Manager of Fund Operations, John
John Hancock Place Hancock Life Insurance Company
Boston, Massachusetts 02117
Karen Q. Visconti (age 50) Secretary Director, Product & Market
John Hancock Place Management, John Hancock Life
Boston, Massachusetts 02117 Insurance Company
Arnold R. Bergman (age 53) Assistant Secretary Senior Counsel, Law Department,
John Hancock Place John Hancock Life Insurance
Boston, Massachusetts 02117 company; formerly Vice President,
General Counsel and Secretary, First
Variable Life Insurance Company
*Trustee who is an "interested person" as defined in the 1940 Act, due to
her position with John Hancock Life Insurance Company (or its affiliates), the
ultimate controlling parent of the investment advisor.
Because the Trust does not hold regular annual shareholders meetings, each
Trustee holds office for an indefinite term until his successor is duly elected
and qualified or until he dies, retires, resigns, is removed or becomes
disqualified. None of the Trustees is a director of other complexes except noted
above.
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 statement of assets and liabilities,
including the schedule of investments, of the Small Cap Growth Fund (a portfolio
included in the series of John Hancock Variable Series Trust I {the "Trust"}) as
of December 31, 2003, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. 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. 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, 2003, by correspondence with the custodian. 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 the
Small Cap Growth Fund of John Hancock Variable Series Trust I at December 31,
2003, 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 five years in the period then ended, in conformity
with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 6, 2004
Officers and Trustees Investment Adviser
Michele G. Van Leer, John Hancock Life Insurance Company
Chairman of the Board of Trustees John Hancock Place
Kathleen F. Driscoll, P.O. Box 111
President and Vice Chairman Boston, MA 02117
of the Board of Trustees
Elizabeth G. Cook, Trustee
Reverend Diane C. Kessler, Trustee
Hassell H. McClellan, Trustee Independent Auditors
Robert F. Verdonck, Trustee Ernst & Young LLP
Karen Q. Visconti, Secretary 200 Clarendon Street
Arnold R. Bergman, Assistant Secretary Boston, MA 02116
Raymond F. Skiba, Treasurer
Gladys C. Millan, Assistant Treasurer
Ronald J. Bocage, Chief Legal Officer
Jude A. Curtis, Compliance Officer
Janet Wang, Assistant Compliance Officer
Sub-Investment Advisers
Capital Guardian Trust Company Pacific Investment Management Company LLC
Los Angeles, CA 90071 Newport Beach, CA 92660
Declaration Management & Research LLC RREEF America LLC
McLean, VA 22102 Chicago, IL 60611
Fidelity Management & Research Company SSgA Funds Management, Inc.
Boston, MA 02109 Boston, MA 02110
Goldman Sachs Asset Management, LP Standish Mellon Asset
New York, NY 10005 Management Company LLC
Pittsburgh, PA 15258
Independence Investment LLC T. Rowe Price Associates, Inc.
Boston, MA 02109 Baltimore, MD 21202
John Hancock Advisers, LLC T. Rowe Price International, Inc.
Boston, MA 02199 Baltimore, MD 21202
Morgan Stanley Investment Management Inc. Wellington Management Company, LLP
New York, NY 10020 Boston, MA 02109
The John Hancock Variable Series Trust I consists of funds used as investment
options for various John Hancock variable life and variable annuity contracts.
Investors are not able to invest directly in the John Hancock Variable Series
Trust I.
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.
All of the funds (except bond funds and equity index 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.
Please refer to the prospectus for your product for additional information about
the investment options available. Variable life insurance and variable annuities
are sold by prospectus. These reports may be used as sales literature when
preceeded or accompanied by the funds' prospectus, which detail charges,
investment objectives, and operating policies.
Insurance products are issued by John Hancock Life Insurance Company, or John
Hancock Variable Life Insurance Company* (*not licensed in New York), Boston, MA
02117. Securities products are distributed by Signator Investors, Inc., Member
NASD, SIPC, 197 Clarendon Street, Boston, MA 02116.
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