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: March 29, 1986
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Large Cap Growth Fund
Independence Investment LLC M. Lapman/J. Forelli
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.. In 2003, the Fund returned 25.62% underperforming its benchmark, the
Russell 1000 Growth Index.
.. The Fund underperformed its benchmark primarily due to unfavorable stock
selection decisions, with sector allocation decisions modestly adding
value. Stock selection detracted especially within the technology sector.
.. The largest absolute performance contributors were exposures to companies
in the information technology and health care sectors. Within these
sectors, the largest contributors to performance were Intel, Cisco, Texas
Instruments, and Pfizer.
.. Conversely, Telecomm Service was the worst performing sector within the
Fund for the year. Specific stocks that detracted included Kraft, Kohl's
and Textron across various sectors.
.. The manager uses both fundamental equity research and quantitative
portfolio construction to identify stocks having both favorable valuations
and improving earnings growth prospects. The Fund is broadly diversified
across sectors with sector weights similar to the benchmark.
[CHART]
Line Chart
Historical Fund Return
$10,000
Investment made 12/31/93
(10-Year Period)
Large Cap Growth Fund Russell 1000(R) Growth Index
--------------------- ----------------------------
12/31/1993 $10,000 $10,290
1/31/1994 10,303 10,527
2/28/1994 9,984 10,336
3/31/1994 9,661 9,837
4/29/1994 9,851 9,883
5/31/1994 9,819 10,032
6/30/1994 9,672 9,736
7/29/1994 9,914 10,069
8/31/1994 10,261 10,630
9/30/1994 9,953 10,484
10/31/1994 10,048 10,732
11/30/1994 9,755 10,388
12/30/1994 9,901 10,563
1/31/1995 10,087 10,788
2/28/1995 10,469 11,240
3/31/1995 10,706 11,569
4/28/1995 10,970 11,823
5/31/1995 11,344 12,235
6/30/1995 11,534 12,707
7/31/1995 11,908 13,236
8/31/1995 11,999 13,251
9/29/1995 12,486 13,862
10/31/1995 12,343 13,871
11/30/1995 12,855 14,411
12/29/1995 13,034 14,493
1/31/1996 13,340 14,979
2/29/1996 13,497 15,253
3/29/1996 13,668 15,272
4/30/1996 13,898 15,674
5/31/1996 14,205 16,221
6/28/1996 14,189 16,244
7/31/1996 13,246 15,292
8/30/1996 13,669 15,687
9/30/1996 14,506 16,829
10/31/1996 14,613 16,930
11/29/1996 15,673 18,201
12/31/1996 15,416 17,844
1/31/1997 16,298 19,095
2/28/1997 16,419 18,965
3/31/1997 15,646 17,939
4/30/1997 16,473 19,130
5/30/1997 17,422 20,512
6/30/1997 18,112 21,332
7/31/1997 19,860 23,218
8/29/1997 18,871 21,860
9/30/1997 20,047 22,935
10/31/1997 19,239 22,087
11/28/1997 19,954 23,025
12/31/1997 20,178 23,283
1/31/1998 20,718 23,979
2/27/1998 22,678 25,783
3/31/1998 23,961 26,811
4/30/1998 24,143 27,181
5/29/1998 23,622 26,409
6/30/1998 24,795 28,026
7/31/1998 24,675 27,841
8/31/1998 20,811 23,662
9/30/1998 22,028 25,479
10/30/1998 23,688 27,528
11/30/1998 25,570 29,623
12/31/1998 28,151 32,295
1/29/1999 29,718 34,190
2/26/1999 28,287 32,628
3/31/1999 29,478 34,347
4/30/1999 29,913 34,392
5/28/1999 29,047 33,336
6/30/1999 31,211 35,670
7/30/1999 30,178 34,535
8/31/1999 30,350 35,098
9/30/1999 29,655 34,361
10/29/1999 31,393 36,955
11/30/1999 32,452 38,947
12/31/1999 34,927 42,998
1/31/2000 32,837 40,981
2/29/2000 33,874 42,985
3/31/2000 37,487 46,063
4/28/2000 36,214 43,870
5/31/2000 34,903 41,659
6/30/2000 36,922 44,817
7/31/2000 35,722 42,948
8/31/2000 39,208 46,835
9/29/2000 35,101 42,405
10/31/2000 34,057 40,399
11/30/2000 29,522 34,444
12/29/2000 28,680 33,355
1/31/2001 30,341 35,660
2/28/2001 25,487 29,605
3/30/2001 22,643 26,384
4/30/2001 25,757 29,722
5/31/2001 25,452 29,285
6/30/2001 24,921 28,605
7/31/2001 24,163 27,890
8/31/2001 22,415 25,609
9/28/2001 20,280 23,053
10/31/2001 21,509 24,263
11/30/2001 23,573 26,595
12/31/2001 23,650 26,544
1/31/2002 23,403 26,075
2/28/2002 22,453 24,993
3/30/2003 23,230 25,857
4/30/2002 21,775 23,747
5/31/2002 21,279 23,173
6/30/2002 19,445 21,029
7/31/2002 18,099 19,872
8/31/2002 18,162 19,932
9/28/2002 16,261 17,865
10/31/2002 17,627 19,503
11/30/2002 18,256 20,562
12/31/2002 17,070 19,142
1/31/2003 16,475 16,027
2/28/2003 16,473 15,599
3/30/2003 16,753 15,626
4/30/2003 17,857 17,001
5/31/2003 18,573 18,099
6/30/2003 18,670 18,325
7/31/2003 19,007 18,599
8/31/2003 19,572 18,889
9/28/2003 19,475 18,704
10/31/2003 20,690 19,848
11/30/2003 20,857 20,118
12/31/2003 21,444 21,357
Value on 12/31/03:
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$21,444 Large Cap Growth Fund
$24,138 Russell 1000(R) Growth Index
MORNINGSTAR
CATEGORY+:
.. Large Growth
MORNINGSTAR
RISK +:
.. Average (VL/VUL)
.. Average (VA)
MORNINGSTAR
RATING+:
.. *** (VL/VUL)
.. *** (VA)
TOP TEN HOLDINGS (as of December 31, 2003)
% of
Assets
------
General Electric Co. 6.0%
Pfizer, Inc. 5.6%
Microsoft Corp. 4.7%
Intel Corp. 4.7%
Cisco Systems, Inc. 3.5%
Texas Instruments, Inc. 2.5%
Home Depot, Inc. 2.5%
Dell, Inc. 2.0%
Amgen, Inc. 2.0%
Abbott Laboratories 2.0%
AVERAGE ANNUAL TOTAL RETURNS*
Large Cap Russell 1000(R)
Growth Fund Growth Index
----------- ---------------
1 Year 25.62% 29.76%
3 Years -9.24 -9.36
5 Years -5.30 -5.12
10 Years 7.93 9.21
SECTOR/INDUSTRY ALLOCATION (as of December 31, 2003)
% of
Assets
------
Information Technology 33.53%
Health Care 21.36%
Industrials 12.25%
Consumer Discretionary 11.61%
Financials 9.29%
Consumer Staples 8.90%
Energy 1.90%
Telecommunication
Services 0.75%
Materials 0.41%
* 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. 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. 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 921 VL/VUL subaccounts and 1,733 VA subaccounts in the
Morningstar Large 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 $22,309 of
securities loaned (Note B)) ................................... $ 577,366
Net unrealized appreciation of investments ....................... 42,412
Short-term investments at value .................................. 32,028
---------
Total investments .......................................... 651,806
Receivable for dividends ...................................... 532
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Total assets ..................................................... 652,338
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LIABILITIES
Payables for:
Investments purchased ......................................... 3,884
Fund shares purchased ......................................... 767
Collateral for securities on loan ............................. 23,022
Other liabilities ............................................. 264
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Total liabilities ................................................ 27,937
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Net assets ....................................................... $ 624,401
=========
Shares of beneficial interest outstanding ........................ 44,736
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Net asset value per share ........................................ $ 13.96
=========
Composition of net assets:
Capital paid-in ............................................... $ 945,639
Accumulated net realized loss on investments,
futures and foreign currency transactions .................. (363,650)
Net unrealized appreciation of investments .................... 42,412
--------
Net assets ....................................................... $ 624,401
=========
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 ....................................................... $ 1,789
Dividends ...................................................... 5,698
Securities lending ............................................. 19
---------
Total investment income ........................................... 7,506
---------
EXPENSES
Investment advisory fee ........................................ 4,348
Auditors fees .................................................. 76
Custodian fees ................................................. 125
Fidelity Bond fees ............................................. 1
Legal fees ..................................................... 40
Printing & mailing fees ........................................ 76
Trustees' fees ................................................. 17
Other fees ..................................................... 22
---------
Total expenses .................................................... 4,705
Less custodian expense reduction offset by
commission recapture arrangement
(Note C) .................................................... (9)
---------
Net expenses ...................................................... 4,696
---------
Net investment income ............................................. 2,810
---------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss on investments ............................... (28,345)
Change in unrealized appreciation on
investments ................................................. 144,822
---------
Net realized and unrealized gain .................................. 116,477
---------
Net increase in net assets resulting from
operations ..................................................... $ 119,287
=========
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 income ............................................ $ 2,810 $ 2,023
Net realized loss ................................................ (28,345) (121,609)
Change in net unrealized appreciation (depreciation) ............. 144,822 (90,461)
-------- ---------
Net increase (decrease) in net assets resulting from
operations ................................................. 119,287 (210,047)
Distributions to shareholders from:
Net investment income ............................................ (2,834) (2,023)
Realized gains ................................................... (830)
-------- ---------
Decrease in net assets resulting from distributions ........... (3,664) (2,023)
From fund share transactions:
Proceeds from shares sold ........................................ 78,014 76,521
Shares issued in reorganization .................................. 12,462
Distributions reinvested ......................................... 3,664 2,023
Payment for shares redeemed ...................................... (81,990) (140,761)
-------- ---------
Increase (decrease) in net assets from fund share
transactions. .............................................. 12,150 (62,217)
-------- ---------
NET INCREASE (DECREASE) IN NET ASSETS ............................... 127,773 (274,287)
NET ASSETS
Beginning of Period .............................................. 496,628 770,915
-------- ---------
End of Period .................................................... $624,401 $ 496,628
======== =========
Analysis of fund share transactions:
Sold ............................................................. 5,685 5,775
Issued in reorganization ......................................... 1,083
Reinvested ....................................................... 285 155
Redeemed ......................................................... (6,731) (11,115)
-------- ---------
Net increase (decrease) in fund shares outstanding .................. 322 (5,185)
======== =========
See notes to financial statements.
FINANCIAL HIGHLIGHTS
JOHN HANCOCK VARIABLE SERIES TRUST I
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Selected data for each share of beneficial interest outstanding throughout the
period indicated:
Large Cap Growth Fund
-----------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- ---------- ----------
Net Assets Value at Beginning of Period .................. $ 11.18 $ 15.54 $ 18.89 $ 27.33 $ 26.19
Income from Investment Operations:
Net Investment Income ................................. 0.06 0.04 0.04 0.03 0.09
Net Realized and Unrealized Gain (Loss) on
Investments(a) ..................................... 2.80 (4.36) (3.36) (4.89) 6.03
-------- -------- -------- ---------- ----------
Total From Investment Operations ...................... 2.86 (4.32) (3.32) (4.86) 6.12
Less Distributions:
Distribution from Net Investment Income ............... (0.06) (0.04) (0.03) (0.04) (0.09)
Distribution from Net Realized Gains on
Investments ......................................... (0.02) (2.69) (4.89)
Distribution from Excess of Net Investment Income/Gains (0.78)
Distribution from Capital Paid-in ..................... (0.07)
-------- -------- -------- ---------- ----------
Total Distributions ................................... (0.08) (0.04) (0.03) (3.58) (4.98)
-------- -------- -------- ---------- ----------
Net Assets Value at End of Period ........................ $ 13.96 $ 11.18 $ 15.54 $ 18.89 $ 27.33
======== ======== ======== ========== ==========
Total Investment Return(b) ............................... 25.62% (27.82)% (17.54)% (17.89)% 24.07%
Ratios/Supplemental Data:
Ratio of Operating Expenses to Average Net Assets ..... 0.86%(d) 0.55% 0.41% 0.46% 0.39%
Ratio of Net Investment Income to Average Net Assets .. 0.51% 0.33% 0.23% 0.10% 0.33%
Portfolio Turnover Rate ............................... 99.47%(c) 95.04 63.96% 89.30% 37.42%
Net Assets End of Period (000s Omitted) .................. $624,401 $496,628 $770,915 $1,146,787 $1,382,473
(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) The Fund is required to calculate an expense ratio without taking into
consideration any expense reductions related to expense offset
arrangements.
SCHEDULE OF INVESTMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
LARGE CAP GROWTH FUND
Market
Name of Issuer Shares Value
-------------- --------- -------
(000's)
COMMON STOCK
Aerospace & Defense - 0.8%
Boeing Co. * .......................................... 111,300 $ 4,690
Air Freight & Couriers - 0.4%
United Parcel Service, Inc. - Cl. B ................... 30,000 2,237
Beverages - 2.5%
Anheuser-Busch Cos., Inc. ............................. 100,000 5,268
PepsiCo, Inc. * ....................................... 223,800 10,434
-------
15,702
Biotechnology - 2.0%
Amgen, Inc. * ......................................... 198,900 12,292
Chemicals - 0.4%
Rohm & Haas Co ........................................ 58,900 2,516
Commercial Services & Supplies - 0.4%
Ceridian Corp. * ...................................... 113,400 2,375
Communications Equipment - 3.9%
Cisco Systems, Inc. * ................................. 900,000 21,861
Comverse Technology, Inc. * ........................... 140,600 2,473
-------
24,334
Computers & Peripherals - 9.6%
Dell, Inc. * .......................................... 367,400 12,477
EMC Corp. * ........................................... 767,600 9,917
Intel Corp. ........................................... 900,000 28,980
International Business Machines Corp. ................. 60,700 5,626
Network Appliance, Inc. * ............................. 142,000 2,915
-------
59,915
Diversified Financials - 4.4%
Capital One Financial Corp. ........................... 55,100 3,377
Citigroup, Inc. * ..................................... 136,900 6,645
Goldman Sachs Group, Inc. ............................. 69,000 6,812
Merrill Lynch & Co., Inc. * ........................... 128,500 7,537
Wells Fargo & Co. * ................................... 55,900 3,292
-------
27,663
Diversified Telecommunication Services - 0.7%
Nextel Communications, Inc. - Cl. A * ................. 165,100 4,633
Electrical Equipment - 1.6%
United Technologies Corp. * ........................... 107,900 10,226
Electronic Equipment & Instruments - 0.6%
Sanmina Corp. * ....................................... 273,200 3,445
Energy Equipment & Services - 0.7%
Halliburton Co. * ..................................... 167,700 4,360
Food & Drug Retailing - 0.5%
Whole Foods Market, Inc. * ............................ 42,100 2,826
Health Care Equipment & Supplies - 3.4%
Boston Scientific Corp. * ............................. 135,800 4,992
Guidant Corp .......................................... 86,000 5,177
Medtronic, Inc. * ..................................... 43,000 2,091
St. Jude Medical, Inc. * .............................. 58,600 3,595
Zimmer Holdings, Inc. * ............................... 80,500 $ 5,667
-------
21,522
Health Care Providers & Services - 3.6%
Anthem, Inc. * ........................................ 100,900 7,567
PacifiCare Health Systems, Inc. * ..................... 81,200 5,489
UnitedHealth Group, Inc. * ............................ 55,000 3,200
Wellpoint Health Networks, Inc. * ..................... 61,900 6,004
-------
22,260
Hotels Restaurants & Leisure - 0.4%
International Game Technology * ....................... 77,300 2,760
Household Products - 1.5%
Procter & Gamble Co. * ................................ 96,100 9,598
Industrial Conglomerates - 9.0%
3M Co. ................................................ 140,000 11,904
General Electric Co. * ................................ 1,192,000 36,928
Tyco International, Ltd. * ............................ 278,700 7,386
-------
56,218
Insurance - 3.1%
American International Group, Inc. * .................. 82,400 5,461
Everest Re Group, Ltd ................................. 35,400 2,995
Hartford Financial Services Group,
Inc. * .............................................. 49,400 2,916
Metlife, Inc. * ....................................... 150,000 5,051
Progressive Corp. ..................................... 38,300 3,201
-------
19,624
Internet & Catalog Retail - 0.4%
eBay, Inc. * .......................................... 34,600 2,235
IT Consulting & Services - 2.3%
Accenture, Ltd. - Cl. A * ............................. 301,200 7,928
Computer Sciences Corp. * ............................. 73,000 3,229
Electronic Data Systems Corp. * ....................... 67,200 1,649
SunGard Data Systems, Inc. * .......................... 44,300 1,227
-------
14,033
Machinery - 0.4%
Danaher Corp. * ....................................... 27,700 2,541
Media - 4.7%
Clear Channel Communications, Inc. .................... 52,400 2,454
Comcast Corp. - Cl. A ................................. 269,200 8,849
Interactive Corp ...................................... 113,800 3,861
Omnicom Group, Inc .................................... 51,000 4,454
The Walt Disney Co. * ................................. 186,300 4,346
Time Warner, Inc. * ................................... 296,000 5,325
-------
29,289
Multiline Retail - 2.3%
BJ's Wholesale Club, Inc. * ........................... 138,300 3,175
Wal-Mart Stores, Inc. * ............................... 209,500 11,114
-------
14,289
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
LARGE CAP GROWTH FUND
Market
Name of Issuer Shares Value
-------------- --------- --------
(000's)
COMMON STOCK - Continued
Oil & Gas - 1.2%
Murphy Oil Corp ................................... 61,000 $ 3,984
Newfield Exploration Co. * ........................ 77,600 3,456
--------
7,440
Personal Products - 0.9%
Avon Products,Inc ................................. 86,800 5,858
Pharmaceuticals - 12.2%
Abbott Laboratories * ............................. 260,200 12,125
Johnson & Johnson ................................. 218,500 11,288
Merck & Co., Inc. * ............................... 170,100 7,859
Pfizer, Inc. * .................................... 985,800 34,828
Watson Pharmaceuticals, Inc. * .................... 95,700 4,402
Wyeth * ........................................... 137,200 5,824
--------
76,326
Semiconductor Equipment & Products - 6.6%
Analog Devices, Inc. * ............................ 80,300 3,666
Applied Materials, Inc. * ......................... 295,700 6,638
Maxim Integrated Products, Inc. * ................. 56,400 2,809
Novellus Systems, Inc. * .......................... 151,000 6,349
QLogic Corp. * .................................... 124,600 6,429
Texas Instruments, Inc. * ......................... 527,900 15,510
--------
41,401
Software - 8.2%
Electronic Arts, Inc. * ........................... 170,300 8,137
Mercury Interactive Corp. * ....................... 57,100 2,778
Microsoft Corp. * ................................. 1,056,800 29,104
Symantec Corp. * .................................. 79,800 2,765
Veritas Software Corp. * .......................... 218,200 8,108
--------
50,892
Specialty Retail - 5.1%
Best Buy Co., Inc. * .............................. 63,300 3,307
Home Depot, Inc. * ................................ 432,700 15,357
Kohl's Corp. * .................................... 60,000 2,696
Lowe's Cos., Inc. * ............................... 89,400 4,952
Staples, Inc. * ................................... 112,600 3,074
Tiffany & Co. * ................................... 53,700 2,427
--------
31,813
Textiles & Apparel - 0.9%
Coach, Inc. * ..................................... 88,700 3,349
Nike, Inc. - Cl. B ................................ 36,900 2,526
--------
5,875
Tobacco - 1.1%
Altria Group, Inc ................................. 126,300 6,873
Trading Companies & Distributors - 1.8%
CDW Corp .......................................... 197,300 11,396
U.S. Government Agencies - 1.7%
Federal National Mortgage Assoc. * ................ 137,500 10,321
--------
TOTAL COMMON STOCK- ............................ 99.3% 619,778
INVESTMENT COMPANIES HELD AS COLLATERAL ON LOANED
SECURITIES - 3.7%
State Street Navigator Securities
Lending Portfolio .............................. $ 23,022 $ 23,022
SHORT-TERM INVESTMENTS - 1.4%
Investment in joint trading account
(Note B)
1.061% due 01/02/04 ............................ 9,006 9,006
--------- --------
TOTAL INVESTMENTS- .................... 104.4% 651,806
Payables, less cash and receivables- ........ (4.4)% (27,405)
--------- --------
NET ASSETS- ........................ 100.0% $624,401
========= ========
* Non-income producing security.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE A--ORGANIZATION
John Hancock Large 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
Merrill Lynch & Co., Inc., 1.04%, due 01/05/04 18,838
Merrill Lynch & Co., Inc., 1.05%, due 01/06/04 31,156
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
- -------------- ------------
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. For the year ended December
31, 2003, the Fund had no bank borrowings.
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
- -------------------------- -------------------
$22,309 $23,022
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.
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.
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE B--ACCOUNTING POLICIES--Continued
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: $197,757, $128,244 and $35,226 which expire in 2009, 2010 and 2011,
respectively.
Certain of the above 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. Dividend
income for the Fund is shown net of foreign taxes withheld of $12. 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 Hancock. For its services, John Hancock
receives monthly compensation at the following rate on an annual basis of the
Fund's net assets:
Between
$500 Million and Excess Over
First $500 Million $1 Billion $1 Billion
- ------------------ ---------------- -----------
0.80% 0.75% 0.70%
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
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. For the year
ended December 31, 2003, there were no reimbursements paid to the Fund.
The Fund entered into a commission recapture program, which enables it to
pay some of its operational expenses by recouping a portion of the commissions
it pays to a broker that is not a related party of the Fund. Expenses paid
through this program may include costs of custodial, transfer agency or
accounting services. The impact of this arrangement was a reduction of $9.
John Hancock has entered into a Sub-Advisory Agreement with Independence
Investment LLC, with respect to the Fund. Independence Investment LLC 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
- --------- --------------------
$493,924 $482,979
The identified cost of investments owned by the Fund (including earned
discount on corporate short-term notes, commercial paper and collateral 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
- ---------- ------------ ------------ --------------
$611,816 $66,331 $(26,341) $39,990
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 return.
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
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE D--INVESTMENT TRANSACTIONS--Continued
States of America. 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) 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 its capital accounts without impacting the net asset value of the
fund.
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
- ------------- ------------- ------------- --------------
$-- $-- $361,227 $39,990
In addition, the tax character of distributions paid by the Fund are
summarized as follows:
Distributions
from Ordinary Distributions from
Year Income Long-Term Capital Gain Return of Capital
- ---- ------------- ---------------------- -----------------
2003 $1,489 $-- $2,175
2002 2,023 -- --
NOTE E--COMBINATION
On April 25, 2003, the shareholders of the Fund (acquiring fund) approved
the combination of the funds in the following table:
Acquiring Fund Target Fund
- -------------------- -------------
VST Large Cap Growth VA Technology
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:
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE E--COMBINATION--Continued
Trust Shares Target Fund Acquiring Fund Acquiring Fund
Acquiring Fund Issued by Target Fund Unrealized Net Assets Prior Aggregate Net Assets
vs. Target Fund Acquiring Fund Net Assets Depreciation to Combination After Combination
- --------------- -------------- ----------- ------------ ---------------- --------------------
VST Large Cap
Growth vs.
VA Technology 1,083 $12,462 $(8,081) $504,397 $516,859
NOTE F--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,
c/o John Hancock Variable Series Dana-Farber Cancer Institute;
Trust I President, The Advertising
John Hancock Place Club of Greater Boston
Boston, Massachusetts 02117
Diane C. Kessler (age 57) Trustee Executive Director,
c/o John Hancock Variable Series Massachusetts Council of
Trust I Churches
John Hancock Place
Boston, Massachusetts 02117
Robert Verdonck (age 58) Trustee President and Chief Executive
c/o John Hancock Variable Series Officer, East Boston Savings
Trust I Bank
John Hancock Place
Boston, Massachusetts 02117
Hassell H. McClellan (age 58) Trustee Associate Professor and
c/o John Hancock Variable Series Graduate Dean, The Graduate
Trust I School of the Wallace G.
John Hancock Place Carroll School of Management,
Boston, Massachusetts 02117 Boston College
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
NOTE F--BOARD OF TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED)--Continued
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)
Janet Wang (age 35) Assistant Compliance Officer Compliance Specialist, John
John Hancock Place 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
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
NOTE F--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
- -------------------------------- ---------------------------- ------------------------------------
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 Large 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 and brokers,
or by other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Large 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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