Annual Report
for John Hancock Variable Series Trust I
December 31, 2003
[LOGO] John Hancock
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Not FDIC Insured Not Bank Guaranteed May Lose Value
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Not a Deposit Not Insured by Any Federal Government Agency
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Inception: May 1, 2003
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Mid Cap Value Fund
T. Rowe Price Associates, Inc. David J. Wallack
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.. Since its inception in May, 2003, the Fund returned 36.77% outperforming
its benchmark, the Russell Mid Cap Value Index.
.. The Fund outperformed its benchmark due to both favorable stock selection
with modestly favorable sector allocation decisions. Stock selection in the
materials sector was the biggest contributor, followed by the
telecommunication services sector. The underweight to financials was the
biggest sector allocation contributor.
.. The Fund's exposure to consumer discretionary was the largest contributor
to absolute performance, followed by financials. No sector detracted from
absolute returns, as all sectors had positive absolute returns.
.. The top and bottom contributors to absolute returns came from a variety of
sectors. The biggest contributors to performance were Reuters group,
Newmont Mining Corp., and Agilent Technologies. The main detractors
included Bisys Group Inc and Lincare Hldgs.
.. The portfolio is currently overweight the energy sector, while underweight
in the financials sector.
.. The Fund employs a bottom-up, value-oriented investment approach, focusing
on companies with attractive valuations, strong cash flow generation and
sound balance sheets. The Fund's sector allocations are broadly diversified
but are primarily driven by stock selection.
[CHART]
Line Chart
Historical Fund Return
$10,000
Investment made 5/1/03
(Fund Inception Date)
Mid Cap Value Russell Mid Cap(R) Value
Equity Fund Value Benchmark (1)
------------- ------------------------
5/1/2003 10,000.00 10,000.00
5/30/2003 11,069.40 10,880.00
6/30/2003 11,242.39 10,956.16
7/31/2003 11,563.36 11,296.90
8/29/2003 11,951.02 11,697.94
9/30/2003 11,723.37 11,606.69
10/31/2003 12,618.96 12,458.62
11/30/2003 12,909.25 12,819.92
12/31/2003 13,677.10 13,373.74
Value on 12/31/03:
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$13,677 Mid Cap Value Fund
$13,374 Russell Mid Cap(R) Value Benchmark (1)
MORNINGSTAR CATEGORY+:
.. Mid Cap Value
MORNINGSTAR RISK+:
.. (VL/VUL)NA
.. (VA) NA
MORNINGSTAR RATING+:
.. (VL/VUL) N/A
.. (VA) N/A
TOP TEN HOLDINGS (as of December 31, 2003)
% of
Assets
------
Diamond Offshore Drilling, Inc. 2.3%
Molex, Inc. 1.8%
Firstenergy Corp. 1.7%
BMC Software, Inc. 1.5%
Amerada Hess Corp. 1.5%
Safeco Corp. 1.4%
Giant Prideco 1.4%
Scholastic Corp. 1.4%
Cablevision System Corp. 1.4%
Loews Corp. 1.4%
AVERAGE ANNUAL TOTAL RETURNS*
Russell
Mid Cap Mid Cap(R) Value
Value Fund Index(1)
---------- ----------------
Since Inception (5/1/03) 36.77% 33.74%
SECTOR/INDUSTRY ALLOCATION (as of December 31, 2003)
% of
Assets
------
Financials 18.59%
Consumer 15.33%
Discretionary
Information 11.91%
Technology
Utilities 10.62%
Energy 9.59%
Materials 8.18%
Industrials 7.65%
Health Care 7.64%
Consumer Staples 5.99%
Telecommunication
Services 4.50%
(1) The Russell Midcap(R)Valve Index measures the performance of those Russell
Midcap companies with lower price-to-book nation and lower forecasted
growth values. The stocks are also members of the Russell 1000(R)Value
Index.
* 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 this fund is not yet rated.
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 ....................................... $20,418
Net unrealized appreciation of investments .......................... 2,918
Short-term investments at value ..................................... 1,081
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Total investments ............................................. 24,417
Receivable for:
Investments sold ................................................. 86
Fund shares sold ................................................. 18
Dividends ........................................................ 29
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Total assets ........................................................ 24,550
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LIABILITIES
Payables for:
Investments purchased ............................................ 58
Other liabilities ................................................ 2
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Total liabilities ................................................... 60
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Net assets .......................................................... $24,490
=======
Shares of beneficial interest outstanding ........................... 1,854
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Net asset value per share ........................................... $ 13.21
=======
Composition of net assets:
Capital paid-in .................................................. $21,513
Accumulated net realized gain on investments, futures and
foreign currency transactions ................................. 56
Undistributed net investment income .............................. 3
Net unrealized appreciation of investments ....................... 2,918
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Net assets .......................................................... $24,490
=======
STATEMENT OF OPERATIONS
JOHN HANCOCK VARIABLE SERIES TRUST I
For the Period from May 1, 2003 (Commencement of
Operations) to December 31, 2003
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(000's Omitted)
INVESTMENT INCOME
Interest ...................................................... $ 8
Dividends ..................................................... 131
------
Total investment income ............................................. 139
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EXPENSES
Investment advisory fee ....................................... 87
Auditors fees ................................................. 1
Custodian fees ................................................ 28
Printing & mailing fees ....................................... 1
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Total expenses ...................................................... 117
Less expenses reimbursed ...................................... (22)
Less custodian expense reduction offset by commission
recapture arrangement (Note C) ............................. (1)
------
Net expenses ........................................................ 94
------
Net investment income ............................................... 45
------
REALIZED AND UNREALIZED GAIN
Net realized gain on investments ................................. 816
Change in unrealized appreciation on investments ................. 2,918
------
Net realized and unrealized gain .................................... 3,734
------
Net increase in net assets resulting from
operations ....................................................... $3,779
======
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)
Period from
May 1, 2003(*)
to December 31,
2003
--------------
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income ..................................... $ 45
Net realized gain ......................................... 816
Change in net unrealized appreciation ..................... 2,918
-------
Net increase in net assets resulting from operations ... 3,779
Distributions to shareholders from:
Net investment income ..................................... (42)
Realized gains ............................................ (760)
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Decrease in net assets resulting from distributions .... (802)
From fund share transactions:
Proceeds from shares sold ................................. 23,951
Distributions reinvested .................................. 802
Payment for shares redeemed ............................... (3,240)
-------
Increase in net assets from fund share transactions .... 21,513
-------
NET INCREASE IN NET ASSETS ................................... 24,490
NET ASSETS
Beginning of Period .......................................
-------
End of Period ............................................. $24,490
=======
Analysis of fund share transactions:
Sold ...................................................... 2,073
Reinvested ................................................ 62
Redeemed .................................................. (281)
-------
Net increase in fund shares outstanding ...................... 1,854
=======
See notes to financial statements.
*Commencement of Operations.
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:
Mid Cap Value
--------------
Period from
May 1, to
December 31,
2003(e)
--------------
Net Assets Value at Beginning of Period .................. $ 10.00
Income from Investment Operations:
Net Investment Income ................................. 0.04
Net Realized and Unrealized Gain on Investments(a)..... 3.64
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Total From Investment Operations ...................... 3.68
Less Distributions:
Distribution from Net Investment Income ............... (0.04)
Distribution from Net Realized Gains on Investments ... (0.43)
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Total Distributions ................................... (0.47)
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Net Assets Value at End of Period ........................ $ 13.21
=======
Total Investment Return(b) ............................... 36.77%(c)
Ratios/Supplemental Data:
Ratio of Operating Expenses to Average Net Assets ..... 1.20%(d)(f)(g)
Ratio of Net Investment Income to Average Net Assets... 0.58%(d)
Portfolio Turnover Rate ............................... 56.93%(c)
Net Assets End of Period (000s Omitted) .................. $24,490
(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) Commencement of operations.
(f) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the expense ratio would have been 1.47% for the years ended
December 31, 2003.
(g) 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
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MID CAP VALUE FUND
Market
Name of Issuer Shares Value
-------------- ------ -------
COMMON STOCK (000's)
Aerospace & Defense - 1.9%
Raytheon Co. * .......................................... 8,600 $ 259
Rockwell Collins, Inc.* ................................. 7,000 210
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469
Air Freight & Couriers - 1.1%
CNF Transportation, Inc. * .............................. 7,700 261
Banks - 6.1%
Charter One Financial, Inc............................... 4,600 159
Citizens Banking Corp.* ................................. 5,100 167
Commerce Bancshares, Inc ................................ 4,725 232
Huntington Bancshares, Inc.* ............................ 11,000 247
National Commerce Financial Corp. ....................... 4,800 131
Northern Trust Corp. .................................... 5,600 260
Synovus Financial Corp.* ................................ 8,000 231
TCF Financial Corp. ..................................... 1,300 67
------
1,494
Biotechnology - 2.2%
Biogen IDEC, Inc.* ...................................... 2,500 92
MedImmune, Inc.* ........................................ 10,200 259
Protein Design Labs, Inc.* .............................. 4,900 88
Vertex Pharmaceuticals, Inc.* ........................... 9,500 97
------
536
Chemicals - 1.7%
Great Lakes Chemical Corp................................ 10,700 291
IMC Global, Inc. ........................................ 13,600 135
------
426
Commercial Services & Supplies - 4.2%
Ceridian Corp. * ........................................ 9,600 201
Equifax, Inc. * ......................................... 4,800 118
Hewitt Associates, Inc. * ............................... 3,800 114
Manpower, Inc. * ........................................ 3,300 155
The Bisys Group, Inc. * ................................. 17,000 253
Viad Corp. .............................................. 7,400 185
------
1,026
Communications Equipment - 0.6%
Tellabs, Inc. * ......................................... 18,200 153
Construction & Engineering - 1.0%
ServiceMaster Co. ....................................... 20,700 241
Construction Materials - 1.0%
Nucor Corp. ............................................. 4,500 252
Diversified Financials - 1.7%
Janus Capgroup, Inc. .................................... 12,100 199
LaBranche & Co., Inc. * ................................. 18,300 213
------
412
Diversified Telecommunication Services - 3.0%
AT&T Corp. * ............................................ 9,600 195
Commonwealth Telephone Enterprises, Inc. ................ 2,100 79
Crown Castle International Corp. * ...................... 11,400 126
Qwest Communications International, Inc. ................ 53,000 $ 229
Sprint PCS * ............................................ 19,900 112
------
741
Electric Utilities - 7.2%
CMS Energy Corp. * ...................................... 14,200 121
Edison International * .................................. 3,100 68
El Paso Electric Co. * .................................. 14,800 198
Firstenergy Corp. * ..................................... 11,000 387
Pinnacle West Capital Corp. * ........................... 6,500 260
Teco Energy, Inc. * ..................................... 10,200 147
TXU Corp. ............................................... 11,400 270
Unisource Energy Corp. .................................. 7,605 188
Xcel Energy, Inc. ....................................... 7,300 124
------
1,763
Electrical Equipment - 2.2%
Harris Corp. ............................................ 1,800 69
Littelfuse, Inc. * ...................................... 2,300 66
Molex, Inc. - CL A ...................................... 14,100 414
------
549
Electronic Equipment & Instruments - 1.8%
Agilent Technologies, Inc. * ............................ 5,800 170
AVX Corp. ............................................... 16,500 274
------
444
Energy Equipment & Services - 1.7%
Baker Hughes, Inc. * .................................... 9,000 289
Hanover Compressor Co. .................................. 11,000 123
------
412
Food & Drug Retailing - 0.6%
Winn-Dixie Stores, Inc. * ............................... 15,300 152
Food Products - 4.8%
Archer Daniels Midland Co. * ............................ 17,400 265
Campbell Soup Co. * ..................................... 8,000 214
ConAgra, Inc. ........................................... 7,800 206
H.J. Heinz Co. .......................................... 6,700 244
Potash Corp. of Saskatchewan, Inc ....................... 2,700 234
------
1,163
Health Care Equipment & Supplies - 1.7%
Amerisource Bergen Corp. * .............................. 3,100 174
Guidant Corp ............................................ 2,600 156
Neighborcare, Inc. * .................................... 4,200 83
------
413
Health Care Providers & Services - 2.5%
Aetna US Healthcare, Inc. * ............................. 2,000 135
Laboratory Corporation of America Holdings * ............ 2,900 107
Lincare Holdings, Inc. * ................................ 6,300 189
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
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MID CAP VALUE FUND
Market
Name of Issuer Shares Value
-------------- ------- -------
(000's)
COMMON STOCK - Continued
Health Care Providers & Services - Continued
Tenet Healthcare Corp. * ............................... 10,800 $ 174
-------
605
Household Durables - 2.2%
Herman Miller, Inc. * .................................. 9,500 231
Newell Rubbermaid, Inc.................................. 13,200 300
-------
531
Insurance - 8.9%
Cincinnati Financial Corp. * ........................... 3,100 130
Conseco, Inc............................................ 9,900 216
Hartford Financial Services Group, Inc. * .............. 2,500 148
Loews Corp. * .......................................... 6,600 326
Ohio Casualty Corp. * .................................. 11,800 205
Protective Life Corp.................................... 5,300 179
Safeco Corp. * ......................................... 8,600 335
St. Paul Cos., Inc...................................... 7,000 277
Travelers Property Casualty Corp. - Cl. A .............. 12,200 205
UnumProvident Corp. * .................................. 10,000 158
-------
2,179
IT Consulting & Services - 0.7%
BearingPoint, Inc. * ................................... 18,100 183
Leisure Equipment & Products - 1.5%
Brunswick Corp. * ...................................... 5,400 172
Eastman Kodak Co. * .................................... 4,100 105
Hasbro, Inc. * ......................................... 4,800 102
-------
379
Machinery - 1.6%
Grant Prideco, Inc. * .................................. 25,200 328
Joy Global, Inc......................................... 2,500 65
-------
393
Media - 9.7%
Cablevision Systems Corp. - Cl. A * .................... 14,000 327
Cox Radio, Inc. - Cl. A * .............................. 5,200 131
Dow Jones & Co., Inc. * ................................ 5,900 294
Lamar Advertising Co. * ................................ 7,000 261
Meredith Corp. * ....................................... 3,400 166
New York Times Co. - Cl. A * ........................... 4,000 191
Pearson plc - ADR ...................................... 16,800 188
Reuters Group plc - ADR ................................ 10,900 277
Scholastic Corp. * ..................................... 9,600 327
Washington Post Co. - Cl. B ............................ 266 211
-------
2,373
Metals & Mining - 1.6%
Meridian Gold, Inc. * .................................. 16,600 243
Noranda, Inc............................................ 9,300 147
-------
390
Multi-Utilities - 2.3%
Duke Energy Co.......................................... 15,500 317
NiSource, Inc. * ....................................... 11,200 $ 246
-------
563
Multiline Retail - 1.8%
Costco Wholesale Corp................................... 6,200 231
Dillard's, Inc. - Cl. A * .............................. 12,600 207
-------
438
Oil & Gas - 6.7%
Amerada Hess Corp. * ................................... 6,400 340
BG plc - ADR ........................................... 5,300 138
Diamond Offshore Drilling, Inc. * ...................... 25,700 527
Kerr-McGee Corp. * ..................................... 5,200 242
Marathon Oil Corp. * ................................... 7,400 245
NRG Energy, Inc. * ..................................... 6,700 147
-------
1,639
Paper & Forest Products - 2.5%
Bowater, Inc............................................ 2,500 116
MeadWestvaco Corp. * ................................... 6,600 196
Potlatch Corp........................................... 8,400 292
-------
604
Pharmaceuticals - 1.3%
Andrx Corp. * .......................................... 3,700 89
King Pharmaceuticals, Inc. * ........................... 14,300 218
-------
307
Real Estate Investment Trust - 1.0%
Apartment Investment & Management Co.................... 5,400 186
Reckson Associates Realty Corp.......................... 2,400 59
-------
245
Road & Rail - 0.2%
Ryder System, Inc....................................... 1,700 58
Software - 3.1%
BMC Software, Inc. * ................................... 18,500 345
Cadence Design Systems, Inc. * ......................... 11,200 201
Network Associates, Inc. * ............................. 14,800 223
-------
769
Specialty Retail - 0.7%
Gap, Inc................................................ 4,900 114
KMart Holding Corp...................................... 2,700 64
-------
178
Textiles & Apparel - 0.5%
Unifi, Inc. * .......................................... 20,500 132
Trading Companies & Distributors - 0.5%
CDW Corp................................................ 1,900 110
Wireless Telecommunications Services - 1.3%
Telephone and Data Systems, Inc......................... 4,900 306
-------
TOTAL COMMON STOCK- ................................. 95.1% 23,289
SCHEDULE OF INVESTMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
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MID CAP VALUE FUND
Par Market
Name of Issuer Value Value
-------------- ------- -------
(000's) (000's)
PUBLICLY-TRADED BONDS
Electric Utilities - 0.0%
Xcel Energy, Inc. - Sr. Notes 144A (a)
7.5% due 11/21/07 ...................................... $ 7 $ 11
Wireless Telecommunications Services - 0.2%
United States Cellular Corp. - Notes
0.0% due 06/15/15 ...................................... 75 36
-------
TOTAL PUBLICLY-TRADED BONDS- ........................ 0.2% 47
SHORT-TERM INVESTMENTS - 4.4%
Investment in joint trading account (Note B)
1.061% due 01/02/04 .................................... 1,081 1,081
------ -------
TOTAL INVESTMENTS- .................................. 99.7% 24,417
Cash and Receivables, less payables- ................ 0.3% 73
------ -------
NET ASSETS- ......................................... 100.0% $24,490
====== =======
* Non-income producing security.
(a) Pursuant to Rule 144A under the Securities Act of 1993, these securities
may be resold in transactions exempt from registration, normally to
qualified institutional buyers. At December 31, 2002, securities aggregated
$11 or 0.0% of net assets of the Portfolio.
ADR-American Depository Receipts.
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 Mid Cap Value Fund (the "Fund"), which commenced operations on
May 1, 2003, 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 ("JHV-LAUV"), 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.
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 no capital loss carryforwards on a
tax basis to be applied against any future taxable gains.
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 $1. Realized gains
and losses from security transactions are determined on the basis of identified
cost.
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE B--ACCOUNTING POLICIES--Continued
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
$50 Million and Excess Over
First $50 Million $100 Million $100 Million
- ----------------- --------------- ------------
1.10% 1.00% 0.95%
In the event that normal operating expenses of the Fund, exclusive of
investment advisory fees, taxes, interest, brokerage commissions and
extraordinary expenses, shall exceed 0.10% of the Fund's daily net asset value,
John Hancock and JHVLICO will reimburse the Fund for such excess. Accordingly,
for the period ended December 31, 2003, the reimbursements paid from John
Hancock and JHVLICO were $22 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 $1.
John Hancock has entered into a Sub-Advisory Agreement with T. Rowe Price
Associates, Inc., with respect to the Fund. T. Rowe Price Associates, Inc. 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
NOTES TO FINANCIAL STATEMENTS--Continued
JOHN HANCOCK VARIABLE SERIES TRUST I
December 31, 2003
- --------------------------------------------------------------------------------
(000's Omitted)
NOTE D--INVESTMENT TRANSACTIONS--Continued
the U.S. government, for the Fund for the year ended December 31, 2003 were as
follows:
Purchases Sales and Maturities
- --------- --------------------
$24,214 $4,613
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
- ---------- ------------ ------------ --------------
$21,501 $2,949 $(33) $2,916
Distribution of Income and Gains: Distributions of net investment income,
if any, are made at least annually. Net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed, and, therefore, will be distributed to
shareholders at least annually. Earnings and profits distributed to shareholders
on redemption of fund shares may be utilized by the Fund, to the extent
permissible, as part of the Fund's dividends-paid deduction on its federal
income tax returns.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations. As a result, net investment income (loss) and net realized gain
(loss) on investment transactions for a reporting period may differ
significantly from distributions during such period. These differences primarily
relate to certain securities sold at a loss. Additionally, as a result, net
investment income (loss) and net realized gain (loss) 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
- ------------- ------------- ------------- --------------
$91 $-- $-- $2,916
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 $803 $-- $--
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, Dana-
c/o John Hancock Variable Series Farber Cancer Institute; President,
Trust I The Advertising Club of Greater
John Hancock Place Boston
Boston, Massachusetts 02117
Diane C. Kessler (age 57) Trustee Executive Director, Massachusetts
c/o John Hancock Variable Series Council of Churches
Trust I
John Hancock Place
Boston, Massachusetts 02117
Robert Verdonck (age 58) Trustee President and Chief Executive
c/o John Hancock Variable Series Officer, East Boston Savings Bank
Trust I
John Hancock Place
Boston, Massachusetts 02117
Hassell H. McClellan (age 58) Trustee Associate Professor and Graduate
c/o John Hancock Variable Series Dean, The Graduate School of the
Trust I Wallace G. Carroll School of
John Hancock Place Management, Boston College
Boston, Massachusetts 02117
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, 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 E--BOARD OF TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED)--Continued
Trustee Affiliated with the Trust and Officers of the Trust--Continued
Positions Held Principal Occupation(s)
Name, Address and Age With Trust During Past Five Years
- -------------------------------- ---------------------------- --------------------------------------
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 Mid Cap Value 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, changes in net
assets and the financial highlights for the period from May 1, 2003
(commencement of operations) to December 31, 2003. 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
Mid Cap Value Fund of John Hancock Variable Series Trust I at December 31, 2003,
the results of its operations, the changes in its net assets and the financial
highlights for the period from May 1, 2003 (commencement of operations) to
December 31, 2003, 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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