Annual Report
for John Hancock Variable Series Trust I
December 31, 2003
[LOGO] John Hancock
- --------------------------------------------------------------------------------
Not FDIC Insured Not Bank Guaranteed May Lose Value
- --------------------------------------------------------------------------------
Not a Deposit Not Insured by Any Federal Government Agency
- --------------------------------------------------------------------------------
Inception: August 31, 1999
- --------------------------------------------------------------------------------
FUNDAMENTAL GROWTH FUND
INDEPENDENCE INVESTMENT LLC M. Lapman/J. Forelli
- --------------------------------------------------------------------------------
.. In 2003, the Fund returned 31.77%, underperforming its benchmark, the
Russell MidCap Growth Index.
.. The Fund underperformed its benchmark primarily due to unfavorable stock
selection decisions broadly across sectors, while sector allocation
exposures modestly added value. Stock selection detracted the most
significantly within the information technology, health care and consumer
discretionary sectors.
.. The Fund's exposure to information technology was the largest contributor
to absolute performance, followed by its exposure to health care. Nearly
all sectors produced positive absolute returns during the year.
.. Stocks that detracted from performance included Newell Rubbermaid, King
Pharmaceutical and Concord EFS.
.. Independence Investment LLC assumed management of the Fund effective
December 15th. Independence implemented an investment strategy for the Fund
that is substantially the same as the investment strategy it now employs
for the Large Cap Growth Fund. Under that strategy, the Fund will invest
primarily in large cap growth stocks.
.. 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 8/31/99
(Fund Inception Date)
Fundamental Russell Mid Cap(TM)
Growth Fund Growth Index
----------- -------------------
8/31/1999 $10,000.00 $10,000.00
9/30/1999 10,000.46 9,915.00
10/31/1999 10,835.61 10,681.43
11/30/1999 12,529.18 11,788.03
12/31/1999 15,457.31 13,828.53
1/31/2000 15,971.69 13,825.77
2/29/2000 22,029.65 16,731.94
3/31/2000 18,800.95 16,748.68
4/30/2000 16,531.98 15,122.38
5/31/2000 14,460.68 14,019.96
6/30/2000 18,224.49 15,507.48
7/31/2000 17,401.55 14,525.85
8/31/2000 18,979.45 16,716.35
9/30/2000 18,950.32 15,898.92
10/31/2000 17,464.99 14,811.43
11/30/2000 13,822.29 11,592.91
12/31/2000 14,988.72 12,203.86
1/31/2001 15,137.52 12,900.70
2/28/2001 12,556.69 10,668.88
3/31/2001 10,435.26 9,142.16
4/30/2001 12,128.32 10,666.16
5/31/2001 12,013.25 10,616.03
6/30/2001 11,811.06 10,621.33
7/31/2001 10,738.12 9,905.46
8/31/2001 9,931.85 9,187.31
9/30/2001 8,117.67 7,668.65
10/31/2001 8,823.48 8,474.62
11/30/2001 9,770.93 9,387.34
12/31/2001 10,157.18 9,744.06
1/31/2002 9,836.37 9,427.38
2/28/2002 9,289.70 8,892.85
3/31/2002 9,876.64 9,571.37
4/30/2002 9,496.82 9,065.04
5/31/2002 9,201.30 8,794.91
6/30/2002 8,207.97 7,823.95
7/31/2002 7,477.24 7,063.46
8/31/2002 7,370.59 7,038.74
9/30/2002 6,735.15 6,479.16
10/31/2002 7,239.79 6,981.29
11/30/2002 7,585.64 7,527.93
12/31/2002 7,081.49 7,073.24
1/31/2003 6,987.19 7,003.92
2/28/2003 6,808.34 6,942.99
3/31/2003 6,916.32 7,072.13
4/30/2003 7,320.41 7,553.74
5/31/2003 7,919.05 8,280.41
6/30/2003 8,036.15 8,398.82
7/31/2003 8,319.73 8,698.66
8/31/2003 8,735.77 9,177.96
9/30/2003 8,540.77 8,999.90
10/31/2003 9,219.67 9,725.30
11/30/2003 9,397.98 9,985.93
12/31/2003 9,331.06 10,094.78
Value on 12/31/03:
- -----------------
$9,331 Fundamental Growth Fund
$10,095 Russell MidCap(TM) Growth Index
TOP TEN HOLDINGS (as of December 31, 2003)
% of
Assets
------
General Electric Co. 5.9%
Pfizer, Inc. 5.6%
Intel Corp. 4.7%
Microsoft Corp. 4.7%
Cisco Systems, Inc. 3.6%
Texas Instruments, Inc. 2.5%
Home Depot, Inc. 2.5%
Dell, Inc. 2.0%
3M Co. 2.0%
Amgen, Inc. 2.0%
AVERAGE ANNUAL TOTAL RETURNS*
Fundamental Russell MidCap(TM)
Growth Fund Growth Index
----------- ------------------
1 Year 31.77% 42.72%
3 Years -14.61 -6.13
Since Inception (8/31/99) -1.58 0.22
SECTOR/INDUSTRY ALLOCATION (as of December 31, 2003)
% of
Assets
------
Information Technology 34.13%
Health Care 20.71%
Industrials 12.76%
Consumer Discretionary 11.41%
Financials 9.03%
Consumer Staples 8.99%
Energy 1.80%
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.
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 480 VL/VUL subaccounts and 787 VA subaccounts in the
Morningstar Mid Cap Growth category. This represents the Morningstar 3 year
rating.
STATEMENT OF ASSETS AND LIABILITIES
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
(000's Omitted)
ASSETS
Long term investments at cost ...................................... $ 24,732
Net unrealized appreciation of investments ......................... 1,215
Short-term investments at value .................................... 159
--------
Total investments ............................................ 26,106
Cash ............................................................... 84
Receivable for:
Fund shares sold ................................................ 7
Dividends ....................................................... 19
--------
Total assets ....................................................... 26,216
--------
LIABILITIES
Payables for:
Investments purchased ........................................... 153
Other liabilities ............................................... 6
--------
Total liabilities .................................................. 159
--------
Net assets ......................................................... $ 26,057
========
Shares of beneficial interest outstanding .......................... 3,653
--------
Net asset value per share .......................................... $ 7.13
========
Composition of net assets:
Capital paid-in ................................................. $ 58,344
Accumulated net realized loss on investments,
futures and foreign currency transactions .................... (33,502)
Net unrealized appreciation of investments ...................... 1,215
--------
Net assets ......................................................... $ 26,057
========
STATEMENT OF OPERATIONS
JOHN HANCOCK VARIABLE SERIES TRUST I
For the Year Ended December 31, 2003
- --------------------------------------------------------------------------------
(000's Omitted)
INVESTMENT INCOME
Interest ....................................................... $ 7
Dividends ...................................................... 129
Securities lending ............................................. 1
------
Total investment income .............................................. 137
------
EXPENSES
Investment advisory fee ........................................ 202
Auditors fees .................................................. 3
Custodian fees ................................................. 10
Legal fees ..................................................... 6
Printing & mailing fees ........................................ 1
Trustees' fees ................................................. 1
------
Total expenses ....................................................... 223
------
Net investment loss .................................................. (86)
------
REALIZED AND UNREALIZED GAIN
Net realized gain on investments .................................. 1,982
Change in unrealized appreciation on investments .................. 4,240
------
Net realized and unrealized gain ..................................... 6,222
------
Net increase in net assets resulting from
operations ........................................................ $6,136
======
See notes to financial statements.
STATEMENT OF CHANGES IN NET ASSETS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
(000's Omitted)
Year Ended Year Ended
December 31, December 31,
2003 2002
------------ ------------
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment loss .................................................. $ (86) $ (145)
Net realized gain (loss) ............................................. 1,982 (9,185)
Change in net unrealized appreciation (depreciation) ................. 4,240 (1,424)
------- --------
Net increase (decrease) in net assets resulting from operations ... 6,136 (10,754)
Distributions to shareholders from:
Realized gains ....................................................... (2,176)
-------
Decrease in net assets resulting from distributions ............... (2,176)
From fund share transactions:
Proceeds from shares sold ............................................ 6,270 6,642
Distributions reinvested ............................................. 2,176
Payment for shares redeemed .......................................... (6,414) (13,720)
------- --------
Increase (decrease) in net assets from fund share transactions .... 2,032 (7,078)
------- --------
NET INCREASE (DECREASE) IN NET ASSETS ................................... 5,992 (17,832)
NET ASSETS
Beginning of Period .................................................. 20,065 37,897
------- --------
End of Period ........................................................ $26,057 $ 20,065
======= ========
Analysis of fund share transactions:
Sold ................................................................. 907 999
Reinvested ........................................................... 309
Redeemed ............................................................. (956) (2,073)
------- --------
Net increase (decrease) in fund shares outstanding ...................... 260 (1,074)
======= ========
See notes to financial statements.
FINANCIAL HIGHLIGHTS
JOHN HANCOCK VARIABLE SERIES TRUST I
- --------------------------------------------------------------------------------
Selected data for each fund share of beneficial interest outstanding throughout
the year end indicated:
Fundamental Growth Fund
-----------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------------
Period from
August 31(g),
to December 31,
2003(i) 2002 2001 2000(e) 1999
------- ------- ------- ------- ---------------
Net Assets Value at Beginning of Period ................ $ 5.91 $ 8.48 $ 12.52 $ 14.42 $10.00
Income from Investment Operations:
Net Investment Loss ................................. (0.01) (0.06) (0.03) (0.02) (0.02)
Net Realized and Unrealized Gain (Loss) on
Investments(a) ................................... 1.88 (2.51) (4.01) (0.44) 5.34
------- ------- ------- ------- ------
Total From Investment Operations .................... 1.87 (2.57) (4.04) (0.46) 5.32
Less Distributions:
Distribution from Net Realized Gains on
Investments ...................................... (0.65) (0.76) (0.90)
Distribution from Excess of Net Investment
Income/Gains ..................................... (0.65)
Distribution from Capital Paid-in ................... (0.03)
------- ------- ------
Total Distributions ................................. (0.65) (1.44) (0.90)
------- ------- ------- ------- ------
Net Assets Value at End of Period ...................... $ 7.13 $ 5.91 $ 8.48 $ 12.52 $14.42
======= ======= ======= ======= ======
Total Investment Return(b) ............................. 31.77% (30.28)% (32.23)% (3.03)% 54.57%(c)
Ratios/Supplemental Data:
Ratio of Operating Expenses to Average Net Assets ... 1.00% 1.00%(f) 1.00%(f) 0.96%(f) 0.95%(d)(f)
Ratio of Net Investment Loss to Average Net
Assets ........................................... (0.38)% (0.52)% (0.46)% (0.38)% (0.55)%(d)
Portfolio Turnover Rate ............................. 201.18% 93.77% 118.01%(h) 250.46% 61.66%(c)
Net Assets End of Period (000s Omitted) ................ $26,057 $20,065 $37,897 $46,114 $9,175
(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) Not annualized.
(d) Annualized.
(e) The fund entered into a new Sub-Advisory Agreement with Putnam Investment
Management, Inc. during the period shown.
(f) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made the expense ratio would have been 1.16%, 1.19%, 1.00%, and 1.09%
for the years ended December 31, 2002, 2001, 2000, and 1999, respectively.
(g) Commencement of investment operations.
(h) Excludes merger activity.
(i) The Fund entered into a new Sub-Advisory Agreement with Independence
Investment LLC during the period shown.
SCHEDULE OF INVESTMENTS
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
FUNDAMENTAL GROWTH FUND
Market
Name of Issuer Shares Value
-------------- ------ -------
(000's)
COMMON STOCK
Aerospace & Defense - 1.0%
Boeing Co. *.............................................. 6,100 $ 257
Air Freight & Couriers - 0.3%
United Parcel Service, Inc. - Cl. B....................... 1,100 82
Beverages - 2.5%
Anheuser-Busch Cos., Inc.................................. 3,900 206
PepsiCo, Inc. *........................................... 9,400 438
-------
644
Biotechnology - 2.0%
Amgen, Inc. *............................................. 8,300 513
Chemicals - 0.4%
Rohm & Haas Co............................................ 2,500 107
Commercial Services & Supplies - 0.4%
Ceridian Corp. *.......................................... 4,600 96
Communications Equipment - 4.0%
Cisco Systems, Inc. *..................................... 38,200 928
Comverse Technology, Inc. *............................... 6,000 105
-------
1,033
Computers & Peripherals - 9.9%
Dell, Inc. *.............................................. 15,400 523
EMC Corp. *............................................... 31,400 406
Intel Corp................................................ 38,200 1,230
International Business Machines Corp. .................... 3,100 287
Network Appliance, Inc. *................................. 6,000 123
-------
2,569
Diversified Financials - 4.6%
Capital One Financial Corp................................ 2,300 141
Citigroup, Inc. *......................................... 6,100 296
Goldman Sachs Group, Inc.................................. 3,100 306
Merrill Lynch & Co., Inc. *............................... 5,400 317
Wells Fargo & Co. *....................................... 2,300 135
-------
1,195
Diversified Telecommunication Services - 0.7%
Nextel Communications, Inc. - Cl. A *..................... 6,900 194
Electrical Equipment - 1.6%
United Technologies Corp. *............................... 4,500 427
Electronic Equipment & Instruments - 0.6%
Sanmina Corp. *........................................... 12,200 154
Energy Equipment & Services - 0.5%
Halliburton Co. *......................................... 5,400 140
Food & Drug Retailing - 0.5%
Whole Foods Market, Inc. *................................ 1,800 121
Health Care Equipment & Supplies - 3.3%
Boston Scientific Corp. *................................. 7,000 257
Guidant Corp.............................................. 3,600 217
St. Jude Medical, Inc. *.................................. 2,500 154
Health Care Equipment & Supplies - Continued
Zimmer Holdings, Inc. *................................... 3,400 $ 239
-------
867
Health Care Providers & Services - 3.1%
Anthem, Inc. *............................................ 4,200 315
PacifiCare Health Systems, Inc. *......................... 3,400 230
UnitedHealth Group, Inc. *................................ 1,500 87
Wellpoint Health Networks, Inc. *......................... 1,800 175
-------
807
Hotels Restaurants & Leisure - 0.5%
International Game Technology *........................... 3,800 136
Household Products - 1.5%
Procter & Gamble Co. *.................................... 4,000 400
Industrial Conglomerates - 9.0%
3M Co. ................................................... 6,100 519
General Electric Co. * ................................... 49,000 1,518
Tyco International, Ltd. * ............................... 11,600 307
-------
2,344
Insurance - 2.7%
American International Group, Inc. * ..................... 3,600 239
Everest Re Group, Ltd. ................................... 1,400 118
Hartford Financial Services Group, Inc. * . .............. 2,000 118
Metlife, Inc. *........................................... 3,100 104
Progressive Corp.......................................... 1,600 134
-------
713
IT Consulting & Services - 2.3%
Accenture, Ltd. - Cl. A *................................. 12,600 332
Computer Sciences Corp. *................................. 3,100 137
Electronic Data Systems Corp. *........................... 5,400 132
-------
601
Machinery - 0.8%
Danaher Corp. *........................................... 2,200 202
Media - 4.7%
Clear Channel Communications, Inc......................... 2,200 103
Comcast Corp. - Cl. A..................................... 11,200 368
Interactive Corp.......................................... 4,700 159
Omnicom Group, Inc. ...................................... 1,500 131
The Walt Disney Co. *..................................... 10,400 243
Time Warner, Inc. *....................................... 12,400 223
-------
1,227
Multiline Retail - 2.4%
BJ's Wholesale Club, Inc. *............................... 7,700 177
Wal-Mart Stores, Inc. *................................... 8,700 461
-------
638
Oil & Gas - 1.3%
Murphy Oil Corp........................................... 2,600 170
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
FUNDAMENTAL GROWTH FUND
Market
Name of Issuer Shares Value
-------------- ------ -------
(000's)
COMMON STOCK - Continued
Oil & Gas - Continued
Newfield Exploration Co. *................................ 3,500 $ 156
-------
326
Personal Products - 0.9%
Avon Products, Inc........................................ 3,600 243
Pharmaceuticals - 12.2%
Abbott Laboratories *..................................... 10,900 508
Johnson & Johnson......................................... 9,100 470
Merck & Co., Inc. *....................................... 7,100 328
Pfizer, Inc. *............................................ 41,100 1,452
Watson Pharmaceuticals, Inc. *............................ 4,000 184
Wyeth *................................................... 5,800 246
-------
3,188
Semiconductor Equipment & Products - 6.9%
Analog Devices, Inc. *.................................... 3,400 155
Applied Materials, Inc. *................................. 12,400 279
Maxim Integrated Products, Inc. *......................... 3,400 169
Novellus Systems, Inc. *.................................. 6,300 265
QLogic Corp. *............................................ 5,200 269
Texas Instruments, Inc. *................................. 22,100 649
-------
1,786
Software - 8.3%
Electronic Arts, Inc. *................................... 7,100 339
Mercury Interactive Corp. *............................... 3,100 151
Microsoft Corp. *......................................... 44,200 1,217
Symantec Corp. *.......................................... 3,400 118
Veritas Software Corp. *.................................. 9,000 335
-------
2,160
Specialty Retail - 5.2%
Best Buy Co., Inc. *...................................... 2,700 141
Home Depot, Inc. *........................................ 18,100 643
Kohl's Corp. *............................................ 3,100 139
Lowe's Cos., Inc. *....................................... 3,700 205
Staples, Inc. *........................................... 4,700 128
Tiffany & Co. *........................................... 2,200 100
-------
1,356
Textiles & Apparel - 0.9%
Coach, Inc. *............................................. 3,700 139
Nike, Inc. - Cl. B........................................ 1,500 103
-------
242
Tobacco - 1.1%
Altria Group, Inc......................................... 5,300 288
Trading Companies & Distributors - 1.8%
CDW Corp.................................................. 7,900 456
U.S. Government Agencies - 1.7%
Federal National Mortgage Assoc. *........................ 5,800 435
-------
TOTAL COMMON STOCK- 99.6% 25,947
Par Market
Name of Issuer Value Value
-------------- ------- -------
(000's) (000's)
SHORT-TERM INVESTMENTS - 0.6%
Investment in joint trading account (Note B)
1.061% due 01/02/04................................. $ 159 $ 159
------ -------
TOTAL INVESTMENTS- ........................... 100.2% 26,106
Payables, less cash and receivables- ............ (0.2)% (49)
------ -------
NET ASSETS- ............................... 100.0% $26,057
====== =======
* 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 Fundamental 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
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
- -------------- ------------
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
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 that
Fund. Expenses not directly attributed to the Fund are allocated on the basis of
relative net assets of the Trust.
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
- --------------------------- ---------------- ----------------
$178 1.68% $--
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: $171, $3,440, $20,156 and $9,696 which expire in 2007, 2008, 2009 and
2010, respectively.
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE B--ACCOUNTING POLICIES--Continued
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. 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:
Excess Over
First $250 Million $250 Million
- ------------------ ------------
0.90% 0.85%
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.
As of December 15, 2003, 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.
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
(000's Omitted)
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
- --------- --------------------
$44,550 $44,421
The identified cost of investments owned by the Fund (including earned
discount on corporate short-term notes, and commercial paper) and their
respective gross unrealized appreciation and depreciation for Federal income tax
purposes at December 31, 2003 were as follows:
Identified Unrealized Unrealized Net Unrealized
Cost Appreciation Depreciation Appreciation
- ---------- ------------ ------------ --------------
$24,929 $1,193 $(17) $1,176
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. 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
- ------------- ------------- ------------- --------------
$-- $-- $33,461 $1,176
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 $569 $-- $1,607
2002 -- -- --
Included in the Fund's 2003 distributions from ordinary income is $569 in
excess of investment company taxable income, which in accordance with applicable
US tax law, is taxable to shareholders as ordinary income distributions.
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)
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
Trust I Institute; President, The
John Hancock Place Advertising Club of Greater
Boston, Massachusetts 02117 Boston
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
c/o John Hancock Variable Series Executive Officer, East
Trust I Boston Savings 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
Trust I Graduate School of the
John Hancock Place Wallace G. Carroll
Boston, Massachusetts 02117 School of Management,
Boston College
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
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,
John Hancock Place Product Management, John
Boston, Massachusetts 02117 Hancock Life Insurance
Company; Vice Chairman,
President & Director, John
Hancock Variable Life
Insurance Company
Kathleen F. Driscoll* (age 47) Vice Chairman, President Senior Vice President,
John Hancock Place and Trustee Signator Brokerage, John
Boston, Massachusetts 02117 Hancock Life Insurance
Company; Vice President
Corporate Communications,
John Hancock Life Insurance
Company
Jude A. Curtis (age 45) Compliance Officer Vice President and Chief
John Hancock Place Investment Compliance
Boston, Massachusetts 02117 Officer, John Hancock Life
Insurance Company; formerly
Second Vice President and
Counsel, Office of Business
Conduct; John Hancock Life
Insurance Company; formerly
a Partner at Hale and Dorr
LLP (law firm)
Janet Wang (age 35) Assistant Compliance Officer Compliance Specialist, John
John Hancock Place Hancock Life Insurance
Boston, Massachusetts 02117 Company
Raymond F. Skiba (age 58) Treasurer Director of Fund Operations,
John Hancock Place John Hancock Life Insurance
Boston, Massachusetts 02117 Company
Gladys C. Millan (age 57) Assistant Treasurer Manager of Fund Operations,
John Hancock Place John Hancock Life Insurance
Boston, Massachusetts 02117 Company
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
Trustees 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
Boston, Massachusetts 02117 Life Insurance Company
Arnold R. Bergman (age 53) Assistant Secretary Senior Counsel, Law
John Hancock Place Department, John
Boston, Massachusetts 02117 Hancock Life Insurance
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 Fundamental 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
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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
Fundamental 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 periods indicated, 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.
John Hancock [GRAPHIC]
[LOGO]
WORLDWIDE SPONSOR
[LOGO] IMSA
INSURANCE
MARKETPLACE
STANDARD
ASSOCIATION